Citizens Bank v. Alafabco, Inc.

Beginning in 1986, Alafabco, Inc. (plaintiff) secured several construction loans from Citizens Bank (bank) (defendant) under an implied contract agreement. In 1998, Alafabco was awarded an Alabama construction project. Although the bank originally encouraged Alafabco to bid on the project, it declined to provide funding for construction. As a result, Alafabco defaulted on its existing loans from the bank. In an attempt to restructure the delinquent loans, the parties entered renewal notes, including a debt-restructuring agreement with an arbitration provision. After execution of the agreement, Alafabco filed for bankruptcy and entered a new debt-restructuring agreement to renegotiate its debt with the bank. The new agreement included a loan secured by a mortgage on Alafabco’s real estate and other assets such as inventory and equipment. The agreement also included the same arbitration provision as previously agreed upon. In 1999, Alafabco filed suit against the bank for various contract-based claims, including breach of contract, fraud, and tortious interference with contract. Alafabco alleged that it accumulated debt by detrimentally relying on the bank’s promise to provide capital for the Alabama construction project that the bank ultimately did not fulfil. The bank filed a motion to compel arbitration that was granted by the circuit court. The Supreme Court of Alabama reversed, holding that the parties’ agreements did not sufficiently involve interstate commerce to be governed by the Federal Arbitration Act (FAA). Alafabco appealed, arguing that the FAA’s commerce provision was broad and encompassed the parties’ agreements.