In a fight over whether a single lending transaction involved interstate commerce, the Supreme Court of Nebraska found the Federal Arbitration Act (FAA) applied and preempted its state arbitration act. Wilczewski v. Charter West Nat’l Bank, __ N.W.2d__ (Neb. Dec. 9, 2016).
The case involved buyers who purchased a home from a bank (who owned it after a foreclosure) and then sued the bank alleging misrepresentation and fraud. The bank moved to compel arbitration. In response, the buyers argued (among other things) that the purchase agreement did not comply with the notice provision in Nebraska’s arbitration act. The bank conceded that fact, but argued that the FAA applied, so it was immaterial.
The buyers pointed out that the real estate was in Nebraska, the buyers were residents of Nebraska, and the alleged statements were made in Nebraska. Therefore, they argued, the purchase did not “affect interstate commerce.” Nebraska’s courts disagreed. Its highest court issued a well-reasoned analysis (with citations in footnotes! Go Bryan Garner!) concluding that “there does not have to be a multi-state transaction for the FAA to be applicable.” Instead, it pointed out the broad and nationwide impact of residential real estate lending was the critical factor in implicating the FAA. Although the bank had briefed the multi-state nature of the homeowner’s insurance, title insurance, cashier’s check, etc., the court called those “tangential details” and did not rely on them in reaching its conclusion.
The court also distinguished opinions from other courts that refused to compel arbitration of disputes from individual residential real estate transactions. It commented “none of the cases declining to compel arbitration involved a comprehensive practice or activity of lending money on residential real estate, enforcing liens, acquiring title, and reselling…. We need not decide and do not suggest whether the FAA applies to a simple contract for the sale of residential real estate.”
Having done the heavy lifting of finding the FAA applied, the court easily concluded that the buyers’ claims fell within the scope of the arbitration clause and therefore affirmed the lower court’s decision to compel arbitration.