Burke County Public Schools Bd. of Ed. v. Shaver Partnership, No. 94

Docket NºNo. 94
Citation279 S.E.2d 816, 303 N.C. 408
Case DateJuly 08, 1981
CourtUnited States State Supreme Court of North Carolina

Page 816

279 S.E.2d 816
303 N.C. 408
BURKE COUNTY PUBLIC SCHOOLS BOARD OF EDUCATION
v.
The SHAVER PARTNERSHIP.
No. 94.
Supreme Court of North Carolina.
July 8, 1981.

Simpson, Aycock & Beyer, P. A., by Samuel E. Aycock, Morganton, for plaintiff-appellee.

Moore & Van Allen by Jeffrey J. Davis, Charlotte, for defendant-appellant.

EXUM, Justice.

This appeal presents two questions. First, whether the contract between plaintiff and defendant is "a contract evidencing a transaction involving commerce" within the meaning of § 2 of the Federal Arbitration Act. 3 We conclude that it is. Second, whether the Federal Arbitration Act must be applied in state courts. We hold, for reasons given, that it must.

Defendant is a multi-state architectural firm which, in 1969, contracted with plaintiff to design two school buildings. After one of the buildings was built and occupied plaintiff discovered that the roof leaked and would require extensive repairs. Plaintiff, alleging that the leaks were caused in part by design defects, on 14 February 1979 instituted this lawsuit for $150,000 damages for breach of contract. Defendant on 2 March 4 filed a demand for arbitration of the dispute with the American Arbitration Association in accordance with Article Eleven of the contract which provides, "all claims, disputes and other matters in question arising out of ... this Agreement or the breach thereof shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law." On 12 April [303 N.C. 410] defendant moved for stay of the lawsuit pending arbitration. Plaintiff on 3 May moved for and was granted by Judge Riddle a temporary restraining order staying further arbitration proceedings. On 18 May Judge Griffin denied defendant's motion to stay the lawsuit and allowed plaintiff's motion to stay further arbitration proceedings. Judge Griffin held that plaintiff had "the right ... to disregard the agreement to arbitrate future disputes and institute litigation" since he found the law applicable to this dispute to be former G.S. § 1-544 and cases decided thereunder. 5 He rejected defendant's contention that the dispute is subject

Page 818

to compulsory arbitration under § 2 of the Federal Arbitration Act which provides:

"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."

[303 N.C. 411] On 29 May defendant moved that the court amend its findings of fact, stay the lawsuit, and dissolve the injunction prohibiting arbitration. This motion was denied by Judge Griffin on 26 June.

The Court of Appeals affirmed. It found the dispositive issue to be "whether the contract between the parties is a transaction involving interstate commerce" within the meaning of the Federal Arbitration Act. 6 If so, it concluded, the federal act "supercedes conflicting state law, notwithstanding a choice of law provision in the contract." The Court of Appeals concluded, however, that the contract in question did not evidence a transaction involving commerce.

It reached this conclusion notwithstanding contractual provisions indicating that the parties contemplated substantial interstate activity and its recognition that the following facts set forth in the affidavit of John Shaver, a general partner of defendant, are undisputed:

"2. At the time the building which is the subject of this action was designed and built, The Shaver Partnership had offices in Salina, Kansas, Michigan City, Indiana, and Hickory, North Carolina.

3. Virtually all of the design work done for the building which is the subject of this lawsuit was done in Michigan City, Indiana.

4. Even during the construction phase, most of the field work was done by personnel working out of the Michigan City, Indiana, office.

5. Approximately 85% to 90% of all the work done by The Shaver Partnership in fulfillment of its contract with respect to the building that is the subject of this lawsuit was done in Michigan City, Indiana.

6. All of the bookkeeping and accounting records maintained by The Shaver Partnership with respect to the design and construction of the building that is the subject of this lawsuit were maintained in Salina, Kansas.

[303 N.C. 412] 7. Payments made by Plaintiff in this action to The Shaver Partnership for work done in the design of the building that is the subject of this lawsuit were made to The Shaver Partnership's office in Michigan City, Indiana.

8. In the course of the design of the building that is the subject of this lawsuit, personnel from The Shaver Partnership had numerous dealings with representatives of building material suppliers from all around the country concerning the specification of building materials for the construction of the buildings.

9. In fact, The Shaver Partnership did indeed specify the use of materials manufactured by suppliers in many different states, for the construction of the building that is the subject of this lawsuit.

10. In addition, in the course of performing the contract for the design of the building that is the subject of this lawsuit, The Shaver Partnership consulted with an Indiana food service consultant for the design of food service facilities for the building.

11. Also, the structural engineering design work, required for the design of the building that is the subject of this lawsuit, was performed for The Shaver Partnership by Carl Walker Associates, whose offices are in Kalamazoo, Michigan."

Relying, however, on Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the Court of Appeals held that in order for a contract to evidence a transaction involving commerce within the meaning of the Federal Arbitration Act it must involve or relate

Page 819

to the "actual physical interstate shipment of goods." It then concluded that the Act was inapplicable since "the essence of the contract was for the defendant to provide architectural services to plaintiff for the construction of two high schools. The architectural services were the very heart of the contract, that is the consummation of it. The ... factors (contained in the affidavit set forth above) incidental to the contract, many of which might go to establish diversity of citizenship between the parties, do not establish that the essence of the contract ... involve commerce, e. g., the interstate shipment of goods." (Emphasis supplied.)

[303 N.C. 413] Plaintiff urges this Court to adopt the Court of Appeals' reading of Prima Paint and affirm. Defendant contends that the Court of Appeals "simply used the wrong test in determining whether interstate commerce was involved in this matter."

We agree with defendant. In concluding that a contract must involve or relate to the interstate shipment of goods in order for it to evidence "a transaction involving commerce" the Court of Appeals has fashioned a narrow view of the federal act's applicability which, while purportedly based on Prima Paint, is, instead, incongruous both with it and with numerous federal and state decisions. We must, therefore, reverse.

I

Prima Paint involved a "consulting agreement" which was related to a contract whereby a multistate paint business was sold and its manufacturing operation transferred from New Jersey to Maryland. The United States Supreme Court, in concluding that the consulting contract evidenced a transaction involving commerce, found that "(t)he consulting agreement was inextricably tied to this interstate transfer and to the continuing operations of an interstate manufacturing and wholesaling business. There could not be a clearer case of a contract evidencing a transaction in interstate commerce." Id. at 401, 87 S.Ct. at 1804. Mr. Justice Black, in dissent, contended that Congress intended the Federal Arbitration Act to apply only to "contracts between merchants for the interstate shipment of goods." Mr. Justice Fortas, writing for a six-member majority, responded to the dissent in footnote 7:

"It is suggested in dissent that, despite the absence of any language in the statute so indicating, we should construe it to apply only to 'contracts between merchants for the interstate shipment of goods.' Not only have we neither the desire nor the warrant so to amend the statute, but we find persuasive and authoritative evidence of a contrary legislative intent. See, e. g., the House Report on this legislation which proclaims that '(t)he control over interstate commerce (one of the bases for the legislation) reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce.' H.R.Rep.No. 96, 68th Cong. 1st Sess., 1 (1924). We note, too, that were the dissent's curious narrowing of the statute correct, there would have [303 N.C. 414] been no necessity for Congress to have amended the statute to exclude certain kinds of employment contracts. See § 1. In any event, the anomaly urged upon us in dissent is manifested by the present case. It would be remarkable to say that a contract for the purchase of a single can of paint may evidence a transaction in interstate commerce, but that an agreement relating to the facilitation of the purchase of an entire interstate paint business and its re-establishment and operation in another State is not." Id. at 401-02, 87 S.Ct. at 1804-05. (Emphasis supplied.)

The Court of Appeals concluded that the statement, "control over interstate commerce ... reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce," equates the term "interstate commerce"...

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38 practice notes
  • Moses Cone Memorial Hospital v. Mercury Construction Corporation, No. 81-1203
    • United States
    • United States Supreme Court
    • February 23, 1983
    ...held, although not until after the District Court ordered this stay. Burke County Public Schools Board of Education v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 (1981).) This is necessary to carry out Congress's intent to mandate enforcement of all covered arbitration agreements; Con......
  • Village of Cairo v. Bodine Contracting Co., No. WD
    • United States
    • Court of Appeal of Missouri (US)
    • January 29, 1985
    ...for federal law jurisdiction in arbitration matters is given in Burke County Public Schools & Board of Education v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 Village of Cairo does not contend that it executed either contract without notice that they contained arbitration agreements. ......
  • Jim Burke Automotive, Inc. v. Beavers
    • United States
    • Supreme Court of Alabama
    • September 29, 1995
    ...to have 'contemplated' an interstate commerce connection. See, e.g., Burke County Public Schools Bd. of Ed. v. Shaver Partnership, 303 N.C. 408, 417-420, 279 S.E.2d 816, 822-823 (1981); R.J. Palmer Constr. Co. v. Wichita Band Instrument Co., 7 Kan.App.2d 363, 367, 642 P.2d 127, 130 (1982); ......
  • Ex parte Alabama Oxygen Co., Inc., BORG-WARNER
    • United States
    • Supreme Court of Alabama
    • May 13, 1983
    ...Housing Corp. v. Federal Insurance Co., 269 S.C. 631, 239 S.E.2d 647 (1977); Burke County Pub. Schools Bd. of Ed. v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 (1981); Mamlin v. Susan Thomas, Inc., 490 S.W.2d 634 (Tex.Civ.App.1973); Pinkis v. Network Cinema Corp. 9 Wash.App. 337, 512 ......
  • Request a trial to view additional results
38 cases
  • Moses Cone Memorial Hospital v. Mercury Construction Corporation, No. 81-1203
    • United States
    • United States Supreme Court
    • February 23, 1983
    ...held, although not until after the District Court ordered this stay. Burke County Public Schools Board of Education v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 (1981).) This is necessary to carry out Congress's intent to mandate enforcement of all covered arbitration agreements; Con......
  • Village of Cairo v. Bodine Contracting Co., No. WD
    • United States
    • Court of Appeal of Missouri (US)
    • January 29, 1985
    ...for federal law jurisdiction in arbitration matters is given in Burke County Public Schools & Board of Education v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 Village of Cairo does not contend that it executed either contract without notice that they contained arbitration agreements. ......
  • Jim Burke Automotive, Inc. v. Beavers
    • United States
    • Supreme Court of Alabama
    • September 29, 1995
    ...to have 'contemplated' an interstate commerce connection. See, e.g., Burke County Public Schools Bd. of Ed. v. Shaver Partnership, 303 N.C. 408, 417-420, 279 S.E.2d 816, 822-823 (1981); R.J. Palmer Constr. Co. v. Wichita Band Instrument Co., 7 Kan.App.2d 363, 367, 642 P.2d 127, 130 (1982); ......
  • Ex parte Alabama Oxygen Co., Inc., BORG-WARNER
    • United States
    • Supreme Court of Alabama
    • May 13, 1983
    ...Housing Corp. v. Federal Insurance Co., 269 S.C. 631, 239 S.E.2d 647 (1977); Burke County Pub. Schools Bd. of Ed. v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 (1981); Mamlin v. Susan Thomas, Inc., 490 S.W.2d 634 (Tex.Civ.App.1973); Pinkis v. Network Cinema Corp. 9 Wash.App. 337, 512 ......
  • Request a trial to view additional results

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