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A dealership agreement that invokes state law will be subject to the rights granted by state law that may vary from those found in the dealership agreement’s arbitration terms. In applying Arizona law, a district court determined the arbitration agreement may be abrogated by the Arizona Equipment Dealers Act (Dealers Act).
In Balar Equipment Corp. v. VT Leeboy, Inc., No. 07-CV-403-PHX-EHC, 2007 WL 2461847 (D. Ariz. Aug. 27, 2007), Balar, an Arizona corporation, and Leeboy, a North Carolina corporation, entered into an agreement through which Balar became the exclusive Arizona dealer for Leeboy’s manufactured equipment.
The agreement included a provision for automatic one-year renewals if timely notice of termination was not given, an arbitration clause, and an out-of-state law provision. Balar filed a complaint against Leeboy for not providing timely notification of termination under the Dealers Act.
Balar asserted that under the out-of-state provision the agreement was subject to the Dealers Act. Leeboy asserted that it timely notified Balar of termination and filed a motion to dismiss for failure to state a claim upon which relief can be granted. The dispute centered upon whether the agreement contained a valid arbitration clause.
Leeboy argued that the out-of-state law provision should be construed as a general choice of law provision, and therefore would only incorporate substantive provisions of the Dealers Act, not procedural provisions. Leeboy further argued that under the Federal Arbitration Act, district courts will direct parties to proceed to arbitration where the issues are subject to a valid arbitration agreement.
The Court disagreed with Leeboy and noted that the out-of-state provision explicitly amends the agreement to apply state law, such as the Dealers Act, by using the word “amend” in the text. As a result, the plain meaning of the agreement removes any inconsistency between provisions and the Dealers Act controls.
In applying the Dealers Act, the arbitration agreement was not completely negated, it simply does not apply when the Dealers Act is violated. Since parties are presumed to have contracted with knowledge of existing statutes, the Court could not conclusively determine that arbitration clause contained in the agreement is valid.
For the purposes of that motion to dismiss, Balar adequately stated a claim, and the Court will permit Balar to offer evidence in support of the claim. Leeboy’s motion to dismiss was denied.
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