Seller that was not licensed to do business in state cannot enforce arbitration agreement in state court

Law Reporter, May 2003

Brown v. Pool Depot, Inc., ___ So. 2d ___, No. 1011032, 2002 WL 31845904 (Ala. Dec. 20, 2002).

The Alabama Supreme Court held that an arbitration clause in a contract was unenforceable because the company was not certified to do business in the state when the contract was signed.

Here, a representative of Pool Depot, a Georgia corporation, approached Brown, an Alabama resident, to solicit Brown's purchase of an aboveground pool. Brown signed a sale and installation contract that contained an arbitration provision. Brown later sued Pool Depot for fraudulent inducement, among other claims.

Defendant moved to compel plaintiff to arbitrate his claims. Plaintiff responded that defendant did not have a certificate of authority to do business in Alabama; therefore, die contract was void. Defendant argued that, as a business engaged in interstate commerce, it was protected by the Commerce Clause of die United States Constitution from the operation of Alabama law to void the contract. The trial court granted the motion to compel arbitration.

Reversing, the state high court noted that foreign corporations that do not qualify to do business in the state cannot use the state's courts to enforce contracts. Transactions in Alabama by a nonqualified foreign corporation involving no more than sale, transportation, and delivery of materials into the state are acts of interstate commerce to which the laws of Alabama are not applicable.

Here, however, defendant's actions involved much more than that. Defendant sent a representative to Alabama to solicit customers such as plaintiff, the court noted. It then contracted to sell, deliver, assemble, and install an above-ground pool at plaintiff's Alabama residence. Defendant agreed to supply die materials and to furnish the labor for the assembly and installation of die pool in Alabama, and the installation crew would work in Alabama "one or more days," according to die contract. In fact, defendant's entire performance under the contract was to occur in Alabama, die court observed. Defendant clearly engaged in intrastate activity in Alabama when it was not qualified to do so, and so state courts are not required to honor the pool contract and its arbitration provision, the court concluded.

Accordingly, the court remanded the case for the trial court to vacate its order for arbitration.

Plaintiff's Counsel

Stan Brobston, Bessemer, Ala.