Rel: 06/27/2003 Wolff Motor Company et al. v. White
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SUPREME COURT OF ALABAMA
OCTOBER TERM, 2002-2003
_________________________
_________________________
Wolff Motor Company et al.
v.
Stephen M. White and Linda K. White
Appeal from Escambia Circuit Court
(CV-02-55)
SEE, Justice.
Wolff Motor Company, Pete Wolff III, and Joe Powell (hereinafter referred to collectively as "Wolff") appeal from the trial court's denial of their motion to compel arbitration of the claims filed against them by Stephen M. White and Linda K. White. The trial court denied Wolff's motion to compel arbitration on the ground that the Whites' purchase from Wolff of a vehicle used to transport automobiles did not substantially affect interstate commerce. We reverse and remand.
Wolff Motor Company buys vehicles in Florida, Alabama, Louisiana, Georgia, and Mississippi and resells them to buyers in Alabama and other surrounding states. Wolff has its principal place of business in Evergreen, Alabama. Wolff purchased a 1994 GMC 3500 Rollback tow truck ("the car-hauler") from Musick Enterprises d/b/a Suncoast Wholesale in Pensacola, Florida. Wolff used the car-hauler to haul cars in Florida, Mississippi, Georgia, and Alabama.
On October 27, 2000, Stephen White negotiated the purchase of the car-hauler from Wolff. Stephen White told Wolff that he operated a wrecker business in Flomaton, Alabama, and in Century, Florida, and that he intended to use the car-hauler to haul cars for his business.
Stephen White directed Wolff to complete the paperwork for the purchase of the car-hauler showing Stephen White and/or Linda White as the buyer. Wolff obtained the Whites' credit information from Equifax Credit Information Services in Atlanta, Georgia. Wolff attempted to obtain financing for the Whites through Firstar Bank, N.A., in Oshkosh, Wisconsin. Firstar declined to provide financing, but Wolff ultimately was able to secure a loan through the Escambia County Bank in Alabama by which the Whites could purchase the car-hauler. Wolff Motor Company and Stephen White executed an arbitration agreement in connection with the sale and purchase of the car-hauler.
On February 26, 2002, the Whites sued Wolff, alleging negligent, reckless, wanton,
and/or intentional misrepresentation or suppression of material facts concerning the
condition of the car-hauler at the time of the sale. The gravamen of the Whites'
complaint is that the 1994 GMC 3500 Rollback tow truck they purchased from Wolff
was manufactured and marketed as a commercial car-hauler but has proven unsuitable
for that use; the Whites allege that they have been damaged because they have had to
have the truck repaired, causing their business to lose money while the car-hauler was
out of service during those repairs. (1)
Wolff moved to compel arbitration of the Whites'
claims against it. The trial court denied Wolff's motion, finding that its sale of the car-hauler to the Whites did not substantially affect interstate commerce. Wolff appeals. "This Court reviews de novo a trial court's denial of a motion to compel arbitration."
Homes of Legend, Inc. v. McCollough, 776 So. 2d 741, 745 (Ala. 2000). "A 'party
seeking to compel arbitration has the burden of proving the existence of a contract
calling for arbitration and proving that that contract involves a transaction affecting
interstate commerce.'" Tefco Fin. Co. v. Green, 793 So. 2d 755, 758 (Ala.
2001)(quoting Ex parte Caver, 742 So. 2d 168, 172 n.4 (Ala. 1999)). The party moving
for arbitration must "'produce some evidence which tends to establish its claim.'" Jim
Burke Auto., Inc. v. Beavers, 674 So. 2d 1260, 1265 (Ala. 1995)(opinion on application
for rehearing)(quoting In re American Freight Sys., Inc., 164 B.R. 341, 345 (D. Kan.
1994)). The parties agree that Stephen White signed an arbitration agreement when he
purchased the car-hauler from Wolff Motor Company. Wolff argues that this
transaction is governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the "FAA"),
because, it argues, the car-hauler, by definition, is an instrumentality of interstate
commerce and the sale of the car-hauler therefore affects interstate commerce. The
Whites argue, however, that Wolff has not demonstrated that the sale of the car-hauler
to the Whites affected interstate commerce. (2) The Whites also argue that even if the
transaction affects interstate commerce, Mrs. White cannot be compelled to arbitrate her
dispute with Wolff because she did not sign the arbitration agreement and she was not a
party to the actual sale. Finally, the Whites argue that Joe Powell, an employee of
Wolff Motor Company, may not compel the Whites to arbitrate their dispute with him
concerning the car-hauler because he is not a party to the arbitration agreement. Section 2 of FAA provides, in pertinent part: "A written provision in ... a contract evidencing a transaction involving commerce to
settle by arbitration a controversy thereafter arising out of such contract or transaction ...
shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract." Section 2 "has the effect of preempting conflicting Alabama law, in particular Ala. Code
1975, § 8-1-41(3), and thereby making enforceable a predispute arbitration agreement in
a contract evidencing a transaction that involves interstate commerce." Homes of
Legend, 776 So. 2d at 745 (footnote omitted). See also Allied Bruce Terminix Cos. v.
Dobson, 513 U.S. 265, 279 (1995)(holding that the FAA controls in all cases in which
the "'transaction' in fact involve[s] interstate commerce."). The FAA "provides for 'the
enforcement of arbitration agreements within the full reach of the Commerce Clause.'"
Citizens Bank v. Alafabco, Inc., 539 U.S. ___, ___, 123 S.Ct. 2037, 2039
(2003)(quoting Perry v. Thomas, 482 U.S. 483, 490 (1987)). It is well established that
Congress can regulate three broad categories of activity pursuant to its commerce
power: (1) the use of the channels of interstate commerce; (2) the instrumentalities of
interstate commerce or persons or things in interstate commerce; and (3) those general
activities having a substantial effect on interstate commerce. Selma Med. Ctr., Inc. v.
Fontenot, 824 So. 2d 668, 674 (Ala. 2001)(plurality opinion). (3) Wolff argues that the trial court erred when it relied on this Court's decision in Sisters of
the Visitation v. Cochran Plastering Co., 775 So. 2d 759 (Ala. 2000), to determine that
the sale of the car-hauler to the Whites by Wolff Motor Company did not involve
interstate commerce. Wolf argues that "the very nature of the vehicle which was
purchased in this case invokes the application of the FAA to this transaction." We
agree. In Citizens Bank, the Supreme Court of the United States held that Sisters of the
Visitation expressed an "improperly cramped view of Congress' Commerce Clause
Power," that "appears to rest on a misreading of our decision in United States v. Lopez,
514 U.S. 549 (1995). Lopez did not restrict the reach of the FAA or implicitly overrule
Allied-Bruce Terminix Cos.[ v. Dobson, 513 U.S. 265 (1995)]." 539 U.S. at ___, 123
S.Ct. at 2041. In Citizens Bank, the Supreme Court of the United States rejected the test
this Court adopted in Sisters of the Visitation -- that the individual transaction at issue
must itself have a "substantial effect" on interstate commerce in order to trigger the
application of the FAA. The Supreme Court reaffirmed the rule that "Congress'
Commerce Clause power 'may be exercised in individual cases without showing any
specific effect upon interstate commerce' if in the aggregate the economic activity in
question would represent 'a general practice ... subject to federal control.'" 539 U.S. at
___, 123 S.Ct. at 2040 (quoting Mandeville Island Farms, Inc. v. American Crystal
Sugar Co., 334 U.S. 219, 236 (1948)). In Citizens Bank, Alafabco, a construction company, sued Citizens Bank alleging,
among other causes of action, fraud and breach of fiduciary duty. Alafabco argued in its
complaint that it "detrimentally '"incur[red] massive debt"' because [Citizens Bank] had
unlawfully reneged on its agreement to provide capital sufficient to complete" one of
Alafabco's construction projects. 539 U.S. at ___, 123 S.Ct. at 2039. Alafabco's loan
agreement with Citizens Bank contained an arbitration clause. Citizens Bank moved to
compel arbitration, but Alafabco argued that its transaction with Citizens Bank lacked a
sufficient nexus with interstate commerce to establish the applicability of the FAA to
the dispute. The United States Supreme Court held that the transaction at issue
sufficiently "involved commerce" to trigger application of the FAA "for at least three
reasons": (1) Alafabco engaged in business throughout the southeastern United States;
(2) the transaction involved a business that purchased substantial quantities of goods
that have moved in interstate commerce; and (3) the "general practice" of the transaction
at issue was of the sort subject to Congress's Commerce Clause power. 539 U.S. at ___,
123 S.Ct. at 2040-41. For each of the three reasons stated in Alafabco, and for a fourth reason, the transaction
in this case sufficiently "involves commerce" to fall within the scope of the FAA. (4)
First, this case involves interstate commerce because both of the commercial enterprises
in this case regularly deal in interstate commerce. Although the car-hauler at issue in
this case was sold in Alabama by an Alabama resident to an Alabama resident, both
Wolff Motor Company and the Whites regularly do business throughout the Southeast.
Wolff Motor Company buys vehicles in Florida, Alabama, Louisiana, Georgia, and
Mississippi, and the Whites conduct business in Alabama and Florida. In Citizens
Bank, the Supreme Court of the United States found that the transaction at issue there
fell within the scope of the FAA because "Alafabco engaged in business throughout the
southeastern United States." 539 U.S. at ___, 123 S.Ct. at 2040. Second, this transaction involves interstate commerce because Wolff Motor Company
purchased substantial quantities of goods that have moved in interstate commerce. In
this case, Wolff Motor Company engaged in interstate transactions in order to help the
Whites finance their purchase of the car-hauler. (5) Wolff regularly purchases vehicles in
interstate commerce. "[T]he Commerce Clause gives Congress the power to regulate
local business establishments purchasing substantial quantities of goods that have
moved in interstate commerce." Citizens Bank, 539 U.S. at ___, 123 S.Ct. at 2040
(citing Katzenbach v. McClung, 379 U.S. 294, 304-05 (1965)). The FAA certainly
reaches transactions involving vehicles that have moved in interstate commerce and
transactions that involve the purchase of goods that have moved in interstate commerce. Third, this case involves commerce because the "general practice" of the transaction at
issue was of the sort subject to Congress's Commerce Clause power. The Whites
purchased the car-hauler from Wolff Motor Company for use in their wrecker business,
which operates in both Alabama and Florida. (6) Pete Wolff III stated in his affidavit that
he purchases vehicles for Wolff Motor Company in Florida, Alabama, Louisiana,
Georgia, and Mississippi. He also stated that he has sold vehicles to people who live in
states other than Alabama. The automobile business in the aggregate involves interstate
commerce. See United States v. Evans, 272 F.3d 1069, 1080 (8th Cir. 2001)("the
transaction -- the purchase of an automobile from a commercial used car dealer -- is
sufficient, by itself, to have an effect on interstate commerce"). (7) Moreover, the Whites
operate a wrecker company, and in the aggregate the business of towing involves
interstate commerce. See Gray v. Swanney-McDonald, Inc., 436 F.2d 652, 653 (9th
Cir. 1971)(holding that the towing industry's cumulative effect on interstate commerce
is substantial). (8) Fourth and finally, as Wolff argues, a car-hauler is an instrumentality of commerce.
"The automobile, if anything, is the paradigm of modern interstate commercial activity
in the United States. ... '[C]ars are themselves instrumentalities of commerce.'" United
States v. McCoy, 323 F.3d 1114, 1129 (9th Cir. 2003)(quoting United States v. Oliver,
60 F.3d 547, 550 (9th Cir. 1995)). See also United States v. Ballinger, 312 F.3d 1264,
1269 (11th Cir. 2002)("The instrumentalities of interstate commerce are those 'persons
or things' that move in interstate commerce, including all cars and trucks, ships, aircraft
and anything else that travels across state lines, as do interstate shipments."); United
States v. Turner, 301 F.3d 541, 543 (7th Cir. 2002)("Instrumentalities, persons or things
in interstate commerce, include railroads, aircraft, and trucks."); United States v.
McHenry, 97 F.3d 125, 126 (6th Cir. 1996)("'cars are themselves instrumentalities of
commerce'"); United States v. Bishop, 66 F.3d 569, 588-90 (3d Cir. 1995)("[M]otor
vehicles are 'the quintessential instrumentalities of modern interstate commerce.' ...
Commuters, salespeople and haulers rely upon motor vehicles daily to maintain the flow
of commerce ...."). Because Congress's Commerce Clause power reaches directly to the
instrumentalities of commerce, a transaction involving the sale of an instrumentality of
commerce -- in this case a car-hauler -- satisfies the FAA's "involving commerce" test. For all these reasons, we agree with Wolff that the trial court erred when it denied the
motion to compel arbitration. The Whites have argued that even if Wolff is entitled to arbitrate this dispute, Linda
White, as a nonsignatory to the arbitration agreement, cannot be forced to arbitrate her
claims against Wolff. See Cook's Pest Control, Inc. v. Boykin, 807 So. 2d 524, 526-27
(Ala. 2001); Ex parte Dickenson, 711 So. 2d 984 (Ala. 1998); Tom Williams Motors,
Inc. v. Thompson, 726 So. 2d 607 (Ala. 1998). Wolff responds that Linda White cannot
seek the benefits of the contract and at the same time avoid the agreement's arbitration
provision. See Delta Constr. Corp. v. Gooden, 714 So. 2d 975, 981 (Ala. 1998). We
agree with Wolff. In Infiniti of Mobile, Inc. v. Office, 727 So. 2d 42, 47-48 (Ala. 1999), this Court
explained that a nonsignatory to an automobile purchase agreement cannot assert fraud
and breach-of-warranty claims based on the agreement and at the same time choose to
avoid the arbitration provision in the agreement. (9) Linda White's claims depend entirely
on her status as a third-party beneficiary to her husband's contract with Wolff Motor
Company; therefore, Wolff is entitled to compel her to arbitrate all of her claims that
arise from the sale of the car-hauler. Finally, the Whites argue that Joe Powell, an employee of Wolff Motor Company, may
not compel them to arbitrate their claims against him because he did not sign the
arbitration agreement. (10) See Jack Ingram Motors, Inc. v. Ward, 768 So. 2d 362 (Ala.
1999)(holding that an arbitration provision that limited its scope to the buyer/lessor and
dealer was not broad enough to cover nonsignatory Primus Automotive Financial
Services, Inc.). Wolff argues that Joe Powell is an employee of Wolf Motor Company;
he is not an unrelated codefendant seeking to become a third-party beneficiary to the
arbitration agreement. This Court has stated: "'A party should not be able to avoid an
arbitration agreement merely by suing an employee of a principal.'" Stevens v. Phillips,
[Ms. 1010976, Dec. 6, 2002] ___ So. 2d ___, ___ (Ala. 2002)(quoting Monsanto Co. v.
Benton Farm, 813 So. 2d 867, 873-74 (Ala. 2001), quoting in turn Ex parte Gray, 686
So. 2d 250, 251 (Ala. 1996)). Therefore, because the Whites must arbitrate their claims
against Wolff Motor Company and Pete Wolff III, they also must arbitrate their claims
against Powell. We reverse the trial court's order denying Wolff's motion to compel arbitration and
remand for the trial court to enter an order staying the proceedings and compelling the
Whites to arbitrate their dispute with Wolff Motor Company, Pete Wolff III, and
Powell. REVERSED AND REMANDED WITH INSTRUCTIONS. Houston, Brown, Harwood, Woodall, and Stuart, JJ., concur. Lyons, J., concurs in the result. Moore, C.J., and Johnstone, J., dissent. 1. The Whites stated in their complaint:
"During the negotiations concerning the potential purchase of the foregoing vehicle, [Wolff was], at all times, possessed of full knowledge concerning the state of mechanical disrepair within which the vehicle existed, which caused the same to be unfit for the purposes for which it was manufactured and marketed.
"....
"As a result of the purchase and ownership of the vehicle, the [Whites] have been damaged through the expenditure of significant repair bills and loss of income while the vehicle was forced to be taken out of service for major repairs."
2. The Whites rely on the test this Court adopted in Sisters of the Visitation v. Cochran Plastering Co., 775 So. 2d 759 (Ala. 2000). They argue that they are not required to arbitrate their dispute with Wolff because, they say, the transaction does not substantially affect interstate commerce. The Whites argue that Wolff Motor Company is an Alabama corporation, that all of the defendants are Alabama residents, that Wolff Motor Company does business in Alabama, that the Whites are residents of Alabama, that the Whites maintain a business office only in Alabama, that the car-hauler is titled in Alabama, that the contracts relating to the sale of the car-hauler were signed in Alabama, that the car-hauler was financed in Alabama, that no special tools were purchased for this transaction from out-of-state, that all the workers involved in the transaction are employed in Alabama, that none of the parties has affiliations with out-of-state entities that participated in this transaction, and that after he purchased the car-hauler Stephen White drove it to Flomaton, Alabama, without crossing any state lines.
3. The United States Court of Appeals for the Sixth Circuit explained in United States v. McHenry, 97 F.3d 125, 126-27 (6th Cir. 1996):
"In describing Congress's power over instrumentalities, 'or persons or things in interstate
commerce,' the Lopez Court [United States v. Lopez, 514 U.S. 549 (1995)] noted that
regulation and protection are permissible 'even though the threat may come only from intrastate
activities.' 514 U.S. at [559], 115 S. Ct. at 1629. ... Although it might seem anomalous for the
Court to have allowed regulation of activities involving instrumentalities that, even in the
aggregate, do not substantially affect interstate commerce, such a result is perfectly in keeping
with the purposes underlying the Commerce Clause. Instrumentalities of interstate commerce
-- e.g., cars, trains, airplanes, see [United States v.] Bishop, 66 F.3d [569,] 588 [(3d Cir. 1995)]
-- retain the inherent potential to affect commerce, unlike other objects of regulation. Thus,
even if a particular activity involving an instrumentality might not, through repetition
elsewhere, substantially affect interstate commerce during the moment of regulation, the
activity still falls within Category Two because the object of regulation contains the unique
capacity to affect commerce at some future point in time."
4. Each of these reasons, standing alone, is sufficient to demonstrate that the transaction
involves interstate commerce and falls within the ambit of the FAA.
5. Indeed, the car-hauler has itself moved in interstate commerce. Pete Wolff III, the owner of
Wolff Motor Company, stated in his affidavit that he purchased the car-hauler from a company
in Florida. He also stated that he obtained the Whites' credit information from Equifax Credit
Information Services in Atlanta, Georgia, and that he initially tried to obtain financing for the
Whites with Firstar Bank, N.A., in Oshkosh, Wisconsin.
7. Relying on the holding in Mostella v. N & N Motors, Inc., 840 So. 2d 877 (Ala. 2002), that the sale of a used car was not per se a transaction that substantially affects interstate commerce, the Whites argue that this transaction does not involve interstate commerce. Mostella held that the facts presented by N & N Motors fell "short of proving that the transaction in this case was one that substantially affected interstate commerce." 840 So. 2d at 881. Mostella applied the Sisters of the Visitation test for determining whether the transaction involved interstate commerce, 840 So. 2d at 880, and thus is no longer good law.
Wolff also concedes that in Tefco, 793 So. 2d at 759-60, and Keel Motors, Inc. v. Tolbert, 821 So. 2d 963, 964-65 (Ala. 2001), this Court held that the sale of a used car for personal, local use did not substantially affect interstate commerce. Both Tefco, 793 So. 2d at 759, and Keel, 821 So. 2d at 964 (citing Tefco), conflict with Citizens Bank, 539 U.S. at ___, 123 S.Ct. at 2040-41, and, therefore, are no longer good law.
8. In Gray v. Swanney-McDonald, Inc., 436 F.2d at 653, the United States Court of Appeals for the Ninth Circuit held:
"The provision of towing and road services for the national highway system is essential to the
free flow of traffic on that system. The fact that such services are a small part of appellee's
business renders them no less important to interstate commerce. Even if appellee's contribution
to interstate commerce was, by itself, quite small, we cannot ignore the cumulative effect that
the many small companies in appellee's position have upon commerce between the states. By
regularly servicing vehicles on the Interstate and U.S. Highways, appellee has become part of
an industry the cumulative effect of which upon interstate commerce is substantial. ... The fact
that any given, or every given, company's contacts with interstate commerce are extremely
small is irrelevant."
9. Linda White asserts claims of suppression and misrepresentation.
10. The Whites make no similar argument in regard to Pete Wolff III because he is a signatory
to the arbitration agreement.