Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (2003) (per curiam)

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on petition for writ of certiorari to the supreme court of alabama

No. 02-1295. Decided June 2, 2003

Respondents Alafabco, Inc., and its officers filed suit in Alabama Circuit

Court, alleging that Alafabco had incurred massive debt because petitioner bank had unlawfully reneged on an agreement to provide capital sufficient to complete a specific building project. The bank moved to compel arbitration as provided in the parties' debt-restructuring agreements. The court ordered respondents to submit to arbitration, but the State Supreme Court reversed, finding that, because the agreements had no substantial effect on interstate commerce, there was an insufficient nexus with such commerce to establish Federal Arbitration Act (FAA) coverage of the parties' dispute.

Held: There is sufficient nexus with interstate commerce to make the arbitration provision enforceable under the FAA. By applying to a contract "evidencing a transaction involving commerce," 9 U. S. C. 2, the FAA provides for "the enforcement of arbitration agreements within the full reach of the Commerce Clause," Perry v. Thomas, 482 U. S. 483, 490. It is thus perfectly clear that the FAA encompasses a wider range of transactions than those actually "in commerce." Although the debt-restructuring agreements were executed in Alabama by Alabama residents, they nonetheless satisfy the FAA's "involving commerce" test. First, Alafabco engaged in business throughout the southeastern United States, using substantial loans from the bank that were renegotiated and redocumented in the debt-restructuring agreements. Second, the restructured debt was secured by all of Alafabco's business assets, including its inventory of goods assembled from out-of-state parts and raw materials. Third, commercial lending has a broad impact on the national economy. The Alabama Supreme Court's cramped view of Congress' Commerce Clause power appears to rest on a misreading of United States v. Lopez, 514 U. S. 549, which does not suggest that limits on the power to regulate commerce are breached by applying the FAA to disputes arising out of commercial loan transactions such as these.

Certiorari granted; reversed and remanded.

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