Ex parte Alabama Oxygen Co., Inc.

Decision Date13 May 1983
Docket NumberBORG-WARNER
Citation433 So.2d 1158
PartiesEx parte ALABAMA OXYGEN COMPANY, INC., and the Industrial Development Board of the City of Bessemer. (In re ALABAMA OXYGEN COMPANY, INC., and the Industrial Development Board of the City of Bessemer, Alabama v. YORK INTERNATIONAL, YORK DIVISION,CORPORATION, et al.) 82-106.
CourtAlabama Supreme Court

Robert D. Hunter of Lange, Simpson, Robinson & Somerville, Birmingham, for appellants.

E.L. Brobston of Brobston & Brobston, Bessemer, and A.H. Gaede, Jr. and M.W. Goodwyn, Jr. for Bradley, Arant, Rose & White, Birmingham, for appellees.



This court must determine whether the writ of mandamus should issue and the trial court be directed to vacate its stay entered in the civil action below.

Petitioners are the Industrial Development Board of the City of Bessemer, Alabama, herein the "Development Board," and Alabama Oxygen Company, Inc., herein "Alabama Oxygen." Respondent is York International, herein "York."


The Development Board agreed with Lotepro Corporation, a non-party (herein "Lotepro") for the construction of an air separation facility in Bessemer, Alabama. It was to be built on property owned by the Board. The completed facility was to be leased to Alabama Oxygen. Lotepro served as general contractor for the construction project and also served as purchasing agent for the Board.

One component incorporated by Lotepro into the air separation facility was a refrigeration package obtained from York. The subcontract for this component was negotiated and executed by Lotepro and York. It involved an oral agreement followed by a written confirmation. There is conflicting evidence whether arbitration was discussed, but the written confirmation of Lotepro's oral purchase order contained a clause calling for arbitration. It read as follows:

"Any dispute, controversy or claim arising out of or related to this contract shall be settled by arbitration held in New York City in accordance with the rules then and there pertaining to the American Arbitration Association, and judgment upon any award rendered in such proceeding may be entered in any court having jurisdiction as provided by law."

The contract further provided that it should be "construed and governed by and according to the laws of the State of New York." Both the Board and Alabama Oxygen contend they were unaware of the terms of the subcontract.

The refrigeration package was brought from York, Pennsylvania (through Maryland, Virginia, Tennessee and Georgia) to Bessemer, Alabama, where it was assembled, tested, and placed into operation by representatives of Lotepro and York. It was then tendered to petitioners for acceptance.

On several occasions failure of the equipment caused shutdowns to the entire separation facility. The refrigeration package was ultimately removed and replaced.

On 9 November 1981, York filed a motion to stay pending arbitration. The parties submitted briefs on the issues presented by York's motion. On 21 June 1982, the trial court entered an order granting York's motion and staying proceedings pending arbitration. The trial court's findings were that:

(1) The Federal Arbitration Act (herein the "F.A.A." or the "Act") applies to any contract which arises from a transaction involving interstate commerce. The transaction in question arose from such a transaction.

(2) Lotepro was the agent of the Development Board. Under Alabama law of agency, the Board is bound by the contract executed between Lotepro and York.

(3) Alabama Oxygen has brought suit as a third party beneficiary of the contract executed between Lotepro and York. Under Alabama contract law, Alabama Oxygen is bound by the arbitration agreement in that contract.

(4) Even if state law rather than federal law governs the issues raised by York's motion, then the law of the State of New York--not Alabama--applies. Under the law of New York, agreements to arbitrate such as the one entered into by the Lotepro and York are clearly enforceable.

The Development Board and Alabama Oxygen filed a motion for reconsideration, which was overruled. This petition for the writ of mandamus followed.


Petitioners seek the writ ordering the trial court to vacate its stay and allow prosecution of their civil action against York. The dispositive issue presented for decision by this court is whether the trial court erred in choosing to apply federal rather than state law and, in the alternative, New York rather than Alabama law.

Alabama Oxygen and the Development Board contend Alabama law controls the issues presented by this case. We agree.


The United States Supreme Court has not directly confronted the issue whether the F.A.A. is to be applied in state courts. Many states have so held. 1 See Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). That court has, however, stated in dicta that "state courts, as well as federal courts are obligated to grant stays under § 3 of the Arbitration Act." Id., at ----, 103 S.Ct. at 942.

A review of the Act and its legislative history leads us to the conclusion that we would be remiss in interpreting it as applicable in Alabama. We believe the Supreme Court, upon full consideration of the issues, would not so hold. Further, we are of the opinion the Act, if construed as applicable to the states, presents serious constitutional questions.


Our first inquiry is whether Congress, pursuant to its power to regulate commerce, U.S. Const., Art. 1, § 8, has prohibited state regulation of the aspect of commerce involved here. Where, as here, the field which Congress is said to have preempted has been traditionally occupied by the States, see, e.g., U.S. Const., Art. 1, § 10; Patapsco Guano Co. v. North Carolina, 171 U.S. 345, 358, 18 S.Ct. 862, 867, 43 L.Ed. 191 (1898), the assumption is that the historic police powers of the States are "not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947). This assumption provides assurance that "the federal-state balance," United States v. Bass, 404 U.S. 336, 349, 92 S.Ct. 515, 523, 30 L.Ed.2d 488 (1971), will not be disturbed unintentionally by Congress or unnecessarily by the courts. Only when Congress has "unmistakably ... ordained," Florida Lime & Avocado Growers, Inc., v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963), that its enactments alone are to regulate a part of commerce, must state laws regulating that aspect of commerce fall. Congress's command may be either expressly stated in the statute's language, or implicitly communicated in its structure and purpose. City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 633, 93 S.Ct. 1854, 1859, 36 L.Ed.2d 547 (1973).

Congress passed the F.A.A. in 1925 pursuant to its power to regulate procedure in the federal courts and control interstate commerce. H.R.Rep. No. 96, 68th Cong. 1st Sess. 1 (1924). Its purpose was to enforce arbitration agreements in federal courts.

Notably, the Act was debated prior to the Supreme Court's decision in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). At that time the federal courts had interpreted Swift v. Tyson, 41 U.S. 1, 16 Pet. 1, 10 L.Ed. 865 (1842), to mean they could adopt a federal common law in diversity cases that differed from the state common law of the forum. The wording of the Act and its legislative history indicate a desire by Congress to create a law only applicable in federal courts in diversity cases.

The body of the F.A.A. makes evident the intent of the framers that the Act not preempt state law regarding arbitration. Section 3 of the Act provides for the stay of proceedings pending arbitration brought in "any of the courts of the United States", 9 U.S.C. § 3, upon any issue referable to arbitration under an agreement in writing for such arbitration. Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute. 9 U.S.C. § 4.

Had the framers of the Act intended that it be applicable in state courts surely they would have given those courts the power to compel arbitration. In a case where "the party opposing arbitration is the one from whom payment or performance is sought, a stay of litigation alone is not enough. It leaves the recalcitrant party free to sit and do nothing--neither to litigate nor to arbitrate." Moses H. Cone Hospital v. Mercury Constr. Corp., supra. We envision a situation where, while the contract is one which arises from an interstate transaction, there is no diversity jurisdiction. Where, as in Alabama, the arbitration of future disputes is against public policy, so that no state statute provides a court with the power to compel arbitration, and the parties cannot obtain a § 4 order from a federal court because of lack of diversity jurisdiction, the party who wishes to compel arbitration would have no way to do so.

Furthermore, there is no clause within the Act specifically preempting state law. While it is not necessary that Congress specify when an act preempts state law, it has been done, as in 17 U.S.C. § 301, entitled "Preemption with Respect to Other Laws." In any event, the Congress did not specify preemption in the Federal Arbitration Act.

Neither does the legislative history of the Act indicate intent to do so. Testimony at the Joint Hearings on the bill indicates Congress intended to create a law applicable only in federal courts:

"Nor can it be said that the Congress of the United States, directing its own courts ..., would infringe upon the provinces or prerogatives of the States. The question of the enforcement relates to the law or remedies and not to substantive law. The rule must be changed for the jurisdiction in which the agreement is sought to be...

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