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Arbitration: Lacking a Link to Interstate Commerce, an Order to Compel Is Reversed (Web)

The Alabama Supreme Court in Keene v. Hayden, No. 1051673, 2007 WL 707540 (March 9, 2007)(also available at reversed and remanded a trial court decision to grant a motion compelling arbitration, and holding that an arbitration clause is unenforceable under the Federal Arbitration Act when there is no nexus with interstate commerce.

Based on the parties’ real estate contract, the Keenes agreed to purchase land from the Haydens with a requirement that the Haydens would make certain improvements to the land before the sale.

After a dispute arose between both parties concerning the property’s dimensions, the Keenes filed suit against the Haydens before the Elmore (County) Circuit Court. In response to the Keenes’ complaint, the Haydens filed a motion to dismiss the action or compel arbitration to resolve the dispute.

The Haydens relied upon the real estate contract’s arbitration clause, which provided that any controversy, complaint or dispute would be settled exclusively through binding arbitration. The trial court granted the Haydens’ motion to dismiss the case and compel arbitration for resolution. In ruling on the Keenes’ appeal, the Supreme Court cited Adcock v. Adams Homes LLC, 906 So. 2d 924, 929 (Ala. 2005), which concludes that the burden of proof falls on the party seeking to compel arbitration, in proving that the contract calls for arbitration and that it involves an interstate commercial transaction. Wolff Motor Co. v. White, 869 So. 2d 1129, 1131 (Ala. 2003) (quoting Tefco Fin. Co. v. Green, 793 So. 2d 755, 758 (Ala. 2001)).

Adcock also cites Federal Arbitration Act Section 2, which makes enforceable a “written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy . . . arising out of such contract or transaction.” 9 U.S.C. § 2.

In reversing, the Court agreed with the Keenes’ argument that the Haydens had not provided evidence to establish a nexus with interstate commerce for enforcing the arbitration provision provided within the real estate contract.

Although the Haydens provided the contract as evidence and argued their objection to the Keenes’ response stating that interstate commerce was involved in the property sale, the argument wasn’t sufficient evidence to establish the nexus with interstate commerce.

The Court, in a 5-0 opinion written by Associate Justice Thomas A. Woodall, reversed the trial court decision to dismiss the case and compel arbitration and remanded the cause for further proceedings.

–Julie John, CPR Intern