The Citizens Bank v. Alafabco, Inc., et al.
The Citizens Bank v. Alafabco, Inc., et al.
Questions presented: Whether the parties' debt-restructuring agreement is "a contract evidencing a transaction involving commerce" within the meaning of the Federal Arbitration Act (FAA)?
Brief: The Citizens Bank, an Alabama lending institution, sought to compel arbitration of a dispute with Alafabco, Inc., a fabrication and construction company that did business in Alabama, stemming from a series of commercial loan transactions that dated back to 1986.
The parties attempted to resolve the dispute on a couple of occasions, including through a debt-restructuring arrangement that included an arbitration agreement under the Federal Arbitration Act (FAA). In September 1999, Alafabco sought bankruptcy protection in federal court. The parties attempted to negotiate a settlement again, but after about a year, Alafabco filed suit in state court in Alabama, claiming, among other things, breach of contract, fraud, breach of fiduciary duties, intentional infliction of emotional distress, and interference with a contractual or business relationship. Invoking the arbitration agreements, the bank moved to compel arbitration, and the court granted the motion.
The Alabama Supreme Court of Alabama reversed.
On June 2, 2003, the U.S. Supreme Court accepted review in the case, and without hearing oral arguments, reversed in a unanimous per curiam opinion.
Declaring that the case is well within the Court's pronouncements on the extent of Congress' Commerce Clause power, the Court held that the debt-restructuring agreement had a sufficient nexus with interstate commerce to make an arbitration provision in that agreement enforceable under the FAA.
"Although the debt-restructuring agreements were executed in Alabama by Alabama residents, they nonetheless satisfy the FAA's 'involving commerce' test," the opinion stated.