|
An agreement to arbitrate disputes regarding an intrastate automobile purchase is governed by the FAA if the automobile dealer engages in interstate commerce during its course of business, according to the Alabama Supreme Court.
In Edwards v. Costner, No. 1060099, 2007 WL 2343706 (Ala. Aug. 17, 2007), Kimbril purchased a car from Edwards. Concurrently, Kimbril and Edwards entered into an agreement to arbitrate any dispute “arising out of, relating to, resulting from, or concerning” the purchase.
A few days later, the brakes on the car failed while Costner was driving and Kimbril was Costner’s passenger. Costner and Kimbril sued Edwards, claiming breach of contract, fraudulent misrepresentation, and failure to warn of the brakes’ dangerous condition. Edwards moved to compel arbitration of Costner and Kimbril’s claims, but the trial court denied the motion. Edwards appealed, maintaining that, because the underlying transaction involved interstate commerce, the Federal Arbitration Act (FAA) applied to the contract and required the court to compel arbitration.
The Court stated that it was “unquestionable” that the sale of the car involved “general activities having a substantial effect on interstate commerce.” The Court rejected Kimbril’s argument that Edwards must have proof that the individual transaction substantially affected interstate commerce to invoke the FAA. The Court was convinced by Edwards’s affidavit that his business substantially affects interstate commerce through the sale of cars crossing state lines, financing activities between states, and communication with business entities in other states. This, according to the Court, provided the “nexus” between Edwards and interstate commerce that invoked the FAA.
Since the Court found a valid agreement to arbitrate existed between Kimbril and Edwards, and that the FAA applied to the agreement, the Court compelled arbitration of Kimbril’s claims.
However, the Court declined to compel arbitration of Costner’s claims against Edwards. Unlike Kimbril, Costner had not entered any agreement with Edwards, and, according to the Court, could not be compelled to arbitrate absent such an agreement. While the Court acknowledged that non-signatories could be compelled to arbitration as third-party beneficiaries of an agreement, the Court found no evidence that Costner was an intended beneficiary at the time of contracting. Furthermore, the Court refused to let Edwards compel arbitration of Costner’s claims under the “intertwined” claim exception, noting that non-signatories’ claims against signatories could only be compelled to arbitration under that exception if the non-signatory was the party seeking arbitration.
Subscribe to a free weekly update on ADR case law and
legislation
|