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Arbitration – FAA – Interstate Commerce – Contract Recitation

Arbitration – FAA – Interstate Commerce – Contract Recitation

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Even though the parties’ contract said any dispute would be resolved by binding arbitration “governed by” the Federal Arbitration Act, since there was no showing that the contract involved interstate commerce, the notice requirements of the South Carolina Arbitration Act still applied.
We reverse the Court of Appeals’ decision, which had overturned the circuit court’s denial of defendant’s motion to compel arbitration.
In the parties’ dispute arising from their employee-uniform rental contract, the circuit court denied defendant’s motion to compel arbitration, ruling that (1) the contract did not implicate interstate commerce and (2) the arbitration provision was not enforceable because it did not meet the SCAA’s notice requirements. Our Court of Appeals reversed, finding the contract did implicate interstate commerce.
Defendant asks us to bless the principle that parties may agree—preemptively—that a court may apply the FAA’s federal preemption power to their contract without first peeking behind the curtain to ensure interstate commerce is involved. This we cannot do.
The FAA is a sequential whole whose enforcement and preemption power may only be called upon when the dispute arises against the backdrop of a written provision in a “maritime transaction or a contract evidencing a transaction involving commerce.” 9 U.S.C. § 2. “[T]o invoke its statutory powers under §§ 3 and 4 to stay litigation and compel arbitration according to a contract’s terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§ 1 and 2.” New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019).
A party seeking to compel arbitration under the FAA must demonstrate that the contract implicates interstate commerce. Just as the parties may not prove the requisite connection to interstate commerce by agreeing their transaction or relationship contemplates interstate commerce, they may not make the connection by declaring or contemplating the FAA will govern. Instead, the party pushing arbitration must prove the contract involves “commerce in fact.”
To the extent Munoz v. Green Tree Fin. Corp., 343 S.C. 531, 542 S.E.2d 360 (2001), and Damico v. Lennar Carolinas, LLC, 430 S.C. 188, 844 S.E.2d 66 (Ct. App. 2020), aff’d in part, rev’d in part, 437 S.C. 596, 879 S.E.2d 746 (2022), have been read as allowing parties to agree the FAA preempts South Carolina law without an accompanying demonstration the contract involves interstate commerce, we clarify now they do not.
The Court of Appeals reached its conclusion after noting the following points: defendant shipped the uniforms from Kentucky to South Carolina, and plaintiff’s payments were made to and deposited by defendant in Massachusetts, the site of defendant’s headquarters and board of directors.
The problem with the Court of Appeals’ conclusion is that the points it relied upon to find the contract involved interstate commerce debuted too late; they first appeared in defendant’s motion to alter or amend and were never mentioned by the circuit court. The Court of Appeals could not use them to rescue defendant’s interstate commerce argument. At any rate, the points came from assertions made by defense counsel. They are not mentioned in the pleadings, not apparent from the language of the contract, nor supported by affidavits or other evidence. It was error to rely on them in deciding whether the contract involves interstate commerce.
Because the contract did not involve interstate commerce in fact, the order of the circuit court denying defendant’s motion to compel arbitration is affirmed, and the Court of Appeals’ opinion is reversed.
Hicks Unlimited, Inc. v. UniFirst Corp. (Lawyers Weekly No. 010-031-23, 7 pp.) (Garrison Hill, J.) Appealed from Anderson County Circuit Court (Scott Sprouse, J.) On writ of certiorari to the Court of Appeals. James Eakes and David James Brousseau for petitioner; Ian Douglas McVey and Jude Cooper for respondent. South Carolina Supreme Court

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