Binding predispute arbitration clauses in Alabama: a checkered past but a solid future.

• Author: Dunham, Kenneth F.

Any article about binding arbitration in Alabama is likely to bring both positive and negative remarks from readers. Generally speaking, the corporate community in Alabama is pro-arbitration, and the plaintiff's bar is anti-arbitration. However, that generalization does not present a complete picture because the vast majority of Alabama lawyers probably fall somewhere along a continuum between those two extremes. Based upon comments received by this author through the years, some Alabama lawyers think arbitration is a wonderful new idea, while others think arbitration was invented by the business community for the express purpose of eliminating jury trials. Neither view is correct.

Arbitration is an ancient conflict resolution process which has always involved private judging by a neutral third party or a panel of three neutral third parties. (1) It was not invented to supplant the jury trial because it predates the jury trial. (2) Arbitration is not a new way of resolving disputes because the arbitration process has been around thousands of years. (3) This article explains the current status of arbitration in Alabama.

A BRIEF HISTORY OF ARBITRATION

The first historical reference to a process resembling arbitration is contained in chapter eighteen of the biblical book of Exodus. (4) Moses followed his father-in-law's advice and appointed private judges to hear and resolve minor disputes some thirty-two centuries ago. (5) This reference to an early form of arbitration predates ancient Roman references to jury trials by at least a thousand years. (6) The Romans used arbitration as an adjunct process to their court system, and as a result of Roman conquest, the process spread across Europe before the Middle Ages. (7) European guilds and rabbinical courts used the arbitration process successfully to resolve disputes for hundreds of years before it was exported to the United States by the British during colonial times. (8) George Washington was an arbitrator of land disputes in Virginia. (9) Abraham Lincoln served as an arbitrator in Illinois. (10) Like many other legal mechanisms imported from England, arbitration in America was governed by common law principles. (11) Under English common law, arbitration was considered revocable until the arbitration hearing actually took place. (12)

ARBITRATION IN ALABAMA

In Alabama, statutory law initially encouraged parties to engage voluntarily in arbitration, (13) but case law held that predispute agreements to remove jurisdiction from a court and rest it with an arbitrator were not legally binding. (14) Alabama law has never favored arbitration as a forced alternative to the courts. (15) Alabama's legislature embodied the anti-predispute arbitration case law into a 1923 statute which became Alabama Code section 8-1-41(3). (16)

In 1889, the English Arbitration Act reversed the nonbinding nature of arbitration in England, but the United States Congress did not immediately follow its British counterpart's lead. (17) The business community in the United States began to push for binding arbitration in this country on a state-by-state basis in the waning years of the Nineteenth Century. (18) A number of states passed modern binding arbitration acts, and the American business community and the American Bar Association succeeded in getting a national arbitration act passed in 1925. (19)

Alabama never joined the majority of states that enacted modern binding arbitration laws and resisted any and all efforts to enact such laws before and after the enactment of the Federal Arbitration Act (FAA) in 1925. (20) If arbitration is required by a contract containing a binding pre-dispute arbitration agreement, Alabama's public policy, as expressed in Alabama Code section 8-1-41(3), is anti-arbitration. (21)

THE FEDERAL ARBITRATION ACT AND PREEMPTION OF STATE LAW

The FAA was initially presented to the United States Congress as an Article III procedural act applicable only in federal courts. (22) Although there were references to the FAA being substantive law in federal courts, the FAA was generally treated as a procedural act until a 1984 United States Supreme Court decision held the FAA to be substantive law applicable in state and federal courts. (23) Southland Corp. v. Keating coupled the FAA with the Commerce Clause and determined that the intent of Congress in enacting the FAA was to pass a substantive law act. (24) The Southland majority opinion was criticized by Justices O'Connor, Stevens, and Rehnquist because it extended the reach of what had been considered a procedural act into the state courts as substantive law. (25) Southland immediately placed state anti-arbitration laws, including Alabama's anti-arbitration statute, in danger of preemption by the FAA. However, Southland involved interstate commerce and was regarded as applicable only to situations where interstate commerce was involved. (26) This line of reasoning regarding interstate commerce was probably the result of the distinction made between engaging in an activity "in commerce" and engaging in one that did not involve commerce as had been set forth in Bernhardt v. Polygraphic Co. of America. (27) However, two other Supreme Court cases, Prima Paint Corp. v. Flood & Conklin Manufacturing Co., (28) and Moses H. Cone Memorial Hospital v. Mercury Construction Corp., (29) had set the stage for Southland.

Prima Paint Corp. gave an arbitration agreement contained in a contract a stand-alone type status, requiring an analysis of the arbitration agreement's validity separate and apart from the contract containing it. (30) A challenge to the contract as a whole is thus sent to arbitration for resolution by the arbitrator(s). (31) This principle was recently reaffirmed in the case of Buckeye Check Cashing, Inc. v. Cardegna. (32) Moses H. Cone Memorial Hospital established a favorable federal policy toward arbitration and required that arbitrable issues be resolved in favor of arbitration. (33) Much of the language in Southland and its progeny regarding the federal policy favoring arbitration came from Moses H. Cone Memorial Hospital. (34)

PREEMPTION OF ALABAMA'S ANTI-ARBITRATION LAW

Allied-Bruce Terminix Cos. v. Dobson was the first United States Supreme Court case to address Alabama Code section 8-1-41(3) and its mandate against specific enforcement of contractual predispute arbitration agreements. (35) Dobson purchased a home that was covered by a termite plan from Terminix. (36) The termite plan was transferred to Dobson at the time of purchase. (37) Dobson made numerous repair calls to Terminix...