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An arbitration agreement that does not contain a capitalized notice of arbitration as required by state law is still enforceable because state laws that seek to place arbitration agreements apart from other contracts are preempted by the Federal Arbitration Act (FAA), a Nebraska federal court held.
In Affiliated Foods Midwest Coop., Inc. v. Integrated Distribution Solutions, LLC, No. 8:06CV532, 2006 WL 3060028 (D. Neb. Oct. 23, 2006), Affiliated Foods, a wholesale grocery cooperative, sued Integrated Distribution Solutions (IDS), a software company, alleging several causes of action in connection with the sale and support of IDS’ food distribution software.
IDS filed a motion to compel arbitration based on an arbitration clause in the parties’ agreement. Affiliated Foods countered that the arbitration clause was void based on a Nebraska statute that requires all contracts with an arbitration clause to include the following language in capitalized, underlined type: “THIS CONTRACT CONTAINS AN ARBIRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.”
The Court rejected Affiliated Foods’ argument, holding that the FAA preempted any application of Nebraska’s notice requirement. As the Court explained, the FAA applies to any arbitration agreement involving interstate commerce and preempts any state law that places arbitration agreements in “a class apart” from other contracts. See Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996).
Since Affiliated Foods used the software to conduct business in both Nebraska and Kansas, the Court found that the parties’ agreement involved interstate commerce and fell under the purview of the FAA. Accordingly, the FAA preempted the Nebraska notice requirement.
Though only a minimal showing is necessary to demonstrate that an agreement affects interstate commerce, parties can remove any doubt about the FAA’s applicability by stipulating that the FAA applies to their arbitration agreement. See Pest Management, Inc. v. Langer, No. CA05-1387, 2006 WL 2741921 (Ark. Ct. App. Sept. 27, 2006). Another way to ensure the applicability of the FAA is to incorporate arbitration rules that provide for FAA application, such as the National Arbitration Forum’s Code of Procedure Rule 48B.
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