North Carolina Said "No" to Out-of-State Arbitration. The FAA Said Otherwise.

In Snipes Concrete & Hauling, LLC v. BC Construction Group, Inc., No. COA25-234 (N.C. Ct. App. Aug. 19, 2026), the North Carolina Court of Appeals held that the Federal Arbitration Act (FAA) nevertheless required enforcement of a subcontract provision selecting Michigan as the place of arbitration. The decision is significant not only because the FAA preempted a strongly worded North Carolina statute aimed at the precise type of provision before the court, but also because the court found that the contract involved interstate commerce even though the construction work itself occurred entirely in North Carolina.

A North Carolina Project, a Michigan Arbitration Clause

The dispute arose from a subcontract for concrete work at the Kestrel Heights Charter School project in Durham. Snipes Concrete and Hauling, LLC (Snipes), a North Carolina company, entered into the subcontract with BC Construction Group, Inc. (BCCG), a Michigan corporation. The subcontract required disputes to be resolved through binding arbitration in Brighton, Michigan.

After a payment dispute arose, Snipes filed suit in Durham County Superior Court asserting claims for breach of contract, unjust enrichment or quantum meruit, recovery on a lien discharge bond, and relief under the North Carolina Prompt Pay Act. BCCG moved to dismiss or, alternatively, to stay the litigation and compel arbitration in Michigan.

The parties stipulated that the arbitration agreement was enforceable and that the dispute fell within its scope. The disputed issue was the location of the arbitration. The trial court compelled arbitration but, relying on § 22B-2, declined to require that the arbitration occur in Michigan.

The Surprise: The FAA Preempted a Statute That Expressly Addresses Arbitration

Section 22B-2 applies to contracts, subcontracts, and purchase orders for the improvement of North Carolina real property or the provision of materials for such improvements. It declares void and against public policy a provision that subjects the agreement to another state's law or places the exclusive forum for litigation, arbitration, or another dispute resolution process in another state.

On its face, the statute speaks directly to the clause at issue in Snipes. Even so, the Court of Appeals held that the FAA preempted application of § 22B-2 to the arbitration forum provision. The court reasoned that § 22B-2 targets a particular category of contract terms rather than operating as a generally applicable contract defense preserved by the FAA's savings clause. The contractual requirement to arbitrate in Michigan therefore remained enforceable.

The decision does not invalidate § 22B-2. Its practical effect, however, is to limit the statute's ability to prevent out-of-state arbitration when the contract is governed by the FAA. In that setting, the presence of an arbitration clause can displace a state-law restriction that might otherwise control the selected forum.

The Reach of Interstate Commerce

The court's interstate-commerce analysis gives the decision broader importance to the construction industry. The physical work occurred entirely in North Carolina. The project, labor, materials, permits, and inspections were all located in the state. Snipes also presented evidence that it did not contemplate multistate contract performance.

The Court of Appeals nevertheless concluded that the subcontract involved interstate commerce. It relied on BCCG's status as a Michigan corporation, the requirement that Snipes submit payment applications and invoices to Michigan, and BCCG's performance of administrative and financial functions in Michigan. Those connections were sufficient to bring the arbitration agreement within the FAA.

For parties doing business with companies outside North Carolina, that analysis is important. A project may appear local in every physical respect and still fall within federal arbitration law because of where a contracting party is located or where payment and administrative functions occur. Further, it may not be clear at the outset whether administrative functions will be performed in a different state, so it is important for parties on the front end to understand precisely how the relationship will work in order to evaluate the potential that the FAA will come into play.

Why This Matters for Construction Contracts

Snipes changes the practical assessment of dispute resolution provisions in contracts for North Carolina projects. Parties should not assume that § 22B-2 will prevent enforcement of an out-of-state arbitration forum simply because the project and all field work are located in North Carolina.

The result is relevant across the contracting chain. Owners, developers, general contractors, subcontractors, suppliers, and design professionals may benefit from, or bear added cost because of, the selected forum depending on the circumstances of a future dispute. The decision therefore is not a reason to favor one side of the industry over another. It is a reason for every party to treat the arbitration forum as a material contract term.

Practical Takeaways

• Read the arbitration clause and the forum provision together. The agreement may determine not only whether a dispute will be arbitrated, but also where the arbitration must occur.
• Do not assume North Carolina law will preserve a North Carolina forum. If the FAA applies, § 22B-2 may not invalidate an out-of-state arbitration requirement.
• Consider the full range of interstate connections. The location of contracting parties, payment processing, invoice submission, and administrative functions may establish the necessary interstate-commerce nexus even when all physical work is performed in North Carolina.
• Negotiate the forum before signing. The selected location can affect travel, witness logistics, counsel arrangements, scheduling, and the overall cost of resolving a dispute.
• Evaluate appellate options promptly. The Court of Appeals treated the order overriding the contractual forum-selection provision as affecting a substantial right and therefore immediately appealable.

Conclusion

The central lesson of Snipes is straightforward but consequential: even a North Carolina statute that expressly prohibits out-of-state arbitration for North Carolina construction projects may yield to the FAA. Moreover, the FAA may apply based on business and payment connections outside the state, even when every aspect of the physical construction work occurs within North Carolina.

Construction industry participants that contract across state lines should therefore review arbitration and forum-selection provisions with the same care given to payment, indemnity, insurance, and other core risk-allocation terms.

Our team regularly advises clients on construction contracts, dispute resolution provisions, arbitration agreements, and project-related litigation. If you have questions about these topics or about the impact of the Snipes decision on your projects, please contact Donald R. Pocock, Bryan G. Scott, or another member of Baker Donelson's Construction Team.