Could Louisiana's economic development department limit film-contract fraud recapture to the wrongdoer and require arbitration?

Plain-English summary

Louisiana's Department of Economic Development used contracts with several parties for film production and certification tied to a motion-picture investor tax credit. It asked whether the contracts could say that, if one party committed fraud or made a material misstatement, the department would pursue that party instead of recapturing the credit from uninvolved parties. It also asked whether disputes could go to arbitration. In Opinion 03-0046, the Attorney General answered yes to both proposals.

The AG reasoned that pursuing the party responsible for fraud did not make the department pay another person's debt in violation of the constitutional public-funds rule. He saw no law barring the proposed arbitration clause, while noting that public contracts could not require arbitration in a forum outside Louisiana under La. R.S. 9:2778. His answer relied on his understanding that the contracts would contain no such requirement.

Currency note

This opinion was issued in 2003. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant at issuance

Economic development officials

The opinion allowed the department to write the described fraud allocation into its multiparty film contracts. It distinguished that clause from paying a debt the department did not owe. Its arbitration answer was conditioned on the absence of an out-of-state forum requirement.

Film-contract parties

Under the proposed clause, the department would pursue the contracting party that actually committed fraud or made a material misstatement, rather than every party to the contract. The opinion did not decide any particular party's liability or tax-credit entitlement.

Common questions

Q: Could the department agree not to recapture a film credit from parties uninvolved in fraud? A: The AG said it could contract to take action against the party that committed the fraud or misstatement instead of all parties to the multiparty agreement.

Q: Could a public film contract require arbitration?
A: The AG said yes for the proposed contracts. He expressly understood that they would not require arbitration outside Louisiana, which he said a cited statute barred in public contracts.

Background and statutory framework

The letter described the Louisiana Film and Video Commission within the Department of Economic Development and the motion-picture investor credit in La. R.S. 47:6007. It referred to Article 7, Section 14 of the Louisiana Constitution in assessing the fraud clause, then to La. R.S. 9:2778 on arbitration forum location. The analysis concerns the contract terms described in the department's request.

Citations and references

Authorities in the opinion: Article 7, Section 14 of the Louisiana Constitution; La. R.S. 47:6007; La. R.S. 9:2778.

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/03-0046

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

~:~te o[
DEPARTMENT OF JUSTICE
One American Place
301 Ma~n Street, Suite 600
CIVIL DIVISION
P.O. Box 94005
BATON ROUGE
TEL.: (225) 342-7013
FAX: (225) 342-2090
RICHARD P. IEYOUB
70804-9005
ATTORNEY GENERAL

JAN 3 0 2003
Opinion Number 03-0046
90-A-1 Public Funds & Contracts
Article 7, Section 14 of Louisiana Constitution La. R.S. 36:101, et seq.
Mr. Mark Smith, Director
La. R.S. 47:6007
La. R.S. 9:2778
Louisiana Film and Video Commission
Department of Economic Development
DED may provide for arbitration and that it will only
P.O. Box 94185
take action against the party who committed fraud
rather than all parties in multi-party contracts
Baton Rouge, LA 70804-9185
involving film production in Louisiana.

Dear Mr. Smith:

The Louisiana Film and Video Commission is a public commission within the Louisiana Department of Economic Development (DED). One of the functions of DED is to provide for the attraction, retention and expansion of industrial and business investments in Louisiana. More specifically, DED provides for the development of the film and video industry in Louisiana1. As such, DED enters into multi-party contracts for the production of films in Louisiana. In conjunction with this function, Louisiana has a motion picture investor tax credit that is available to entities that are engaged in state certified productions.2 A production is state certified through rules promulgated by the lieutenant governor and DED. Thus, the various entities that contract with DED rely on it for certification and ultimately entitlement to the tax credit.

These contracts generally provide for the rights and responsibilities of each of the parties and often contain provisions that address party responsibility in the case of fraud or material misstatement. DED questions if it may agree that in cases of fraud or material misstatement it will take action directly against the party who committed the fraud or misstatement rather than recapture the tax credit from those parties who were not involved in the fraud or misstatement. DED also questions if it may require that the parties submit any and all contract disputes to arbitration.

In short, our response is yes. We believe that DED may contract for both of these issues. Article 7, Section 14 of the Louisiana Constitution prohibits DED from using public funds to pay a debt for which it is not obligated, however, the fraud provision contemplated by DED does not provide for such. It simply provides that DED will go after the party who actually committed the fraud rather than all of the parties to the contract.

t La. R.S. 36:101,et seq.
2 La. R.S. 47:6007

Page 2

Ol:~nion Number 03-0046
’ ~’Mr: Mark Smith, Director
Louisiana Film and Video Commission
Department of Economic Development
Page -2-

We are unaware of any law that would prohibit DED from requiring that the parties submit all contract disputes to arbitration. We do note that La. R. S. 9:2778 prohibits the requirement of arbitration in a forum outside of Louisiana in public contracts. We do not believe this statute is applicable because it is our understanding that there will be no such requirement.

We trust that this adequately responds to your request. If you have any questions or comments, please contact our office.

Yours very truly,

RICHARD P. IEYOUB
Attorney General

BY:
TINA VICARI GRANT
Assistant Attorney General

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