Is the arbitration clause in our Iowa contract enforceable?
As a matter of Iowa statute, a provision in a written contract to submit a future controversy to arbitration is valid, enforceable and irrevocable unless grounds exist at law or in equity for revocation of the contract, but Iowa Code § 679A.1(2) says that subsection "shall not apply to" a contract of adhesion, a contract between employers and employees, or, unless otherwise provided in a separate writing executed by all parties, any claim sounding in tort whether or not involving a breach of contract. A written agreement to arbitrate an existing controversy is valid, enforceable and irrevocable on the same revocation proviso (§ 679A.1(1)). Federal law can displace all of that: in Heaberlin Farms, Inc. v. IGF Insurance Co. the Iowa Supreme Court found it unnecessary to decide whether the policy was an adhesion contract within § 679A.1 "because of our view that the FAA preempts the Iowa act", and held that the FAA "does not exclude adhesion contracts", that "[t]he Iowa statute, by excluding adhesion contracts, is in conflict with the FAA", and that if the federal act is applicable it preempts the Iowa statute by operation of the Supremacy Clause. The court did not leave applicability hanging: it held that "[t]he sale of federal crop insurance clearly has a sufficient economic nexus with interstate commerce ... to invoke the arbitration provisions of 9 U.S.C. § 2", and reversed because "As the federal act applies, and is in conflict with the provisions of our state arbitration statute exempting adhesion contracts, it was error for the district court to refuse to enforce the arbitration clause."
The trap
The three carve-outs in § 679A.1(2) are the Iowa surprise: on the statute's own words, a pre-dispute arbitration clause in an adhesion contract, in a contract between employer and employee, or covering tort claims is outside the subsection that makes future-controversy clauses enforceable. The tort carve-out has an escape the drafter can take: a separate writing executed by all parties to the contract. And the state-law answer is only half the question: Heaberlin Farms turned on preemption, and the FAA reaches a written provision in a contract evidencing a transaction involving commerce, and Heaberlin says in terms that this is the hinge: the federal act preempts the Iowa act, "It is clear that it does if the policy is a ‘contract evidencing a transaction involving commerce.’" The Court named it as such, recording the insured's argument that the federal act did not apply because the contract was not a transaction involving commerce and then saying "That is the key issue in this case." So whether a particular Iowa contract is such a transaction decides which rule applies. Heaberlin answered it for the sale of federal crop insurance and reversed a refusal to compel arbitration; it does not answer it for any other contract, and neither does this rule.
10 authorities
- statuteIowa Code § 679A.1enactment date not established
The words that state the rule
A written agreement to submit to arbitration an existing controversy is valid, enforceable, and irrevocable unless grounds exist at law or in equity for the revocation of the written agreement.
- statuteIowa Code § 679A.1enactment date not established
The words that state the rule
A provision in a written contract to submit to arbitration a future controversy arising between the parties is valid, enforceable, and irrevocable unless grounds exist at law or in equity for the revocation of the contract. This subsection shall not apply to any of the following: a. A contract of adhesion. b. A contract between employers and employees. c. Unless otherwise provided in a separate writing executed by all parties to the contract, any claim sounding in tort whether or not involving a breach of contract.
The words that state the rule
We find it unnecessary to address IGF’s third claim (that this policy is not an adhesion contract within the meaning of Iowa Code section 679A.1) because of our view that the FAA preempts the Iowa act.
The words that state the rule
Thus, if the federal act is applicable, it preempts the Iowa statute by operation of the Supremacy Clause.
The words that state the rule
Under the FAA, 9 U.S.C. § 2 , [a] written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
The words that state the rule
The issue remains whether the federal act preempts the Iowa act. It is clear that it does if the policy is a “contract evidencing a transaction involving commerce.”
The words that state the rule
The FAA does not exclude adhesion contracts. The Iowa statute, by excluding adhesion contracts, is in conflict with the FAA.
The words that state the rule
The sale of federal crop insurance clearly has a sufficient economic nexus with interstate commerce, as we have described above, to invoke the arbitration provisions of 9 U.S.C. § 2 , despite the limitations recognized by the Supreme Court on Commerce Clause authority as discussed in Lopez and Morrison
The words that state the rule
As the federal act applies, and is in conflict with the provisions of our state arbitration statute exempting adhesion contracts, it was error for the district court to refuse to enforce the arbitration clause. We reverse and remand for further proceedings.
The words that state the rule
Heaberlin argues that the federal act is not applicable here because this contract is not a “transaction involving commerce.” That is the key issue in this case.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.