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Allied-Bruce Terminix Cos. v. Dobson - 513 U.S. 265

Rule:

The U.S. Supreme Court accepts the "commerce in fact" interpretation of § 2 of the Federal Arbitration Act, 9, U.S.C.S. § 2, reading the Act's language as insisting that the "transaction" in fact "involve" interstate commerce, even if the parties did not contemplate an interstate commerce connection.

Facts:

In August 1987, Steven Gwin, a respondent who owned a house in Birmingham, Alabama, bought a lifetime "Termite Protection Plan" (Plan) from the local office of petitioner Allied-Bruce Terminix Companies, a franchise of Terminix International Company. In the Plan, Allied-Bruce promised "to protect" Gwin's house "against the attack of subterranean termites," to reinspect periodically, to provide any "further treatment found necessary," and to repair, up to $ 100,000, damage caused by new termite infestations. Terminix International "guaranteed the fulfillment of the terms" of the Plan. Almost three years later, the Gwin family, wishing to sell their house to the Dobson family, respondents, had petition Allied-Bruce reinspect the house. They obtained a clean bill of health. But no sooner had the Gwins sold the house and transferred the Lifetime Plan, the Dobsons found the house swarming with termites. Unsatisfied with petitioner termite companies' attempts to  treat and repair the house, the Dobsons sued the Gwins, and (along with the Gwins, who cross-claimed) also sued petitioners Allied-Bruce and Terminix in Alabama state court. Petitioners, pointing to the Plan's arbitration clause and § 2 of the Federal Arbitration Act, immediately asked the state court for a stay, which the trial court denied the stay, ruling that the clause was unenforceable, as the parties did not contemplate activities involving interstate commerce under the Act. The Supreme Court of Alabama upheld the denial of the stay on the basis of a state statute, Ala. Code § 8-1-41(3) (1993), making written, predispute arbitration agreements invalid and "unenforceable." The termite companies petitioned for further review.

Issue:

Was the arbitration clause in the service contract between the parties valid and binding?

Answer:

Yes.

Conclusion:

The United States Supreme Court held that the Act applied to all disputes involving commerce. The court gave the Act a broad reading and enforced the arbitration clause between the parties. The court reversed and remanded for the parties to arbitrate their disagreements.

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