Allied-Bruce Terminix Cos. v. Dobson
513 U.S. 265 (1995)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Section 2 of the Federal Arbitration Act (FAA), which makes arbitration agreements in contracts 'evidencing a transaction involving commerce' enforceable, extends to the full reach of Congress's Commerce Clause power. The applicability of the FAA depends on whether the transaction in fact involved interstate commerce, not on whether the parties contemplated an interstate connection at the time of the contract.
Facts:
- In 1987, Steven Gwin purchased a lifetime 'Termite Protection Plan' for his Alabama home from Allied-Bruce Terminix Companies, a franchise of the multi-state company Terminix International.
- The contract for the Plan contained a clause stating that any controversy arising from the agreement would be settled exclusively by arbitration.
- In 1991, the Gwins decided to sell their house to the Dobsons and had Allied-Bruce conduct a pre-sale inspection, which found no termites.
- The Gwins sold the house to the Dobsons and transferred the Termite Protection Plan to them.
- Shortly after the Dobsons moved in, they discovered the house was swarming with termites.
- The Dobsons found Allied-Bruce's subsequent treatment and repair efforts to be inadequate.
- Allied-Bruce is a multi-state firm, and the materials used for the termite treatment and repairs were shipped to Alabama from out-of-state.
Procedural Posture:
- The Dobsons sued the Gwins, Allied-Bruce, and Terminix in an Alabama state trial court.
- The Gwins filed a cross-claim against Allied-Bruce and Terminix.
- Allied-Bruce and Terminix, the defendants, moved to stay the proceedings and compel arbitration pursuant to the contract and the Federal Arbitration Act.
- The Alabama trial court denied the defendants' motion.
- Allied-Bruce and Terminix, as appellants, appealed the denial to the Supreme Court of Alabama.
- The Supreme Court of Alabama, affirming the trial court, held that the FAA did not apply because the parties did not contemplate substantial interstate activity when they made the contract.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on the interpretation of the FAA's scope.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Section 2 of the Federal Arbitration Act, which makes enforceable a written arbitration provision in a contract 'evidencing a transaction involving commerce,' apply to the full extent of Congress's Commerce Clause power and preempt conflicting state law?
Opinions:
Majority - Justice Breyer
Yes. Section 2 of the Federal Arbitration Act applies to the full extent of Congress's Commerce Clause power. The phrase 'involving commerce' is the functional equivalent of the broader term 'affecting commerce,' signaling Congress's intent to exercise its commerce power to the fullest. This broad interpretation is consistent with the FAA's primary purpose of overcoming judicial hostility to arbitration. The Court also held that the phrase 'evidencing a transaction' establishes a 'commerce-in-fact' test, meaning the FAA applies if the transaction turns out to involve interstate commerce, regardless of whether the parties contemplated such a connection when they formed the contract. Because the transaction here involved a multi-state company and out-of-state supplies, it falls within the FAA's reach, and the Act preempts Alabama's state law that invalidates pre-dispute arbitration agreements.
Concurring - Justice O'Connor
Yes. While I agree with the Court's interpretation of the statutory language for the sake of maintaining a uniform standard, I continue to believe that the Federal Arbitration Act was never intended to apply in state courts. The Court's decision in Southland Corp. v. Keating, which extended the FAA to state courts, was wrongly decided and represents a departure from congressional intent. However, given that more than ten years have passed and parties have relied on Southland, considerations of stare decisis compel me to acquiesce in the judgment, though I believe it remains for Congress to correct this interpretation to preserve state autonomy.
Dissenting - Justice Thomas
No. The Federal Arbitration Act does not apply in state courts and therefore does not preempt state law in this case. The FAA was originally understood as a procedural statute applicable only in federal courts, not as a substantive law intended to displace state law. The Court's decision in Southland Corp. v. Keating was a misinterpretation of the Act and should be overruled, as it represents a permanent and unauthorized eviction of state court power. Proper principles of federalism and the FAA's statutory structure, which presupposes an independent basis for federal jurisdiction, confirm that the Act should not govern proceedings in state courts.
Analysis:
This decision significantly expanded the preemptive scope of the Federal Arbitration Act, solidifying its supremacy over state laws hostile to arbitration. By adopting the broad 'affecting commerce' interpretation and the 'commerce-in-fact' test, the Court made it nearly impossible for parties to avoid arbitration by arguing a transaction was purely 'local.' This ruling ensures that arbitration clauses in most modern commercial and consumer contracts are enforceable in both state and federal court, as few transactions today lack any connection to interstate commerce. The decision has had a profound impact on contract law and civil litigation, cementing arbitration as a primary method of dispute resolution across the country.
Unlock the full brief for Allied-Bruce Terminix Cos. v. Dobson