# Petition for Writ of Certiorari — Frizzell Construction Co. v. Gatlinburg, L. L. C. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1025%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2000 - **Citation:** 530 U.S. 1238 ## Text Bupfetne Court, v.- FIL ED 991 853 FEB 1 4 2000 No. 99- — _DEsICE Oe JHE CLERK IN THE Supreme Court of the Gnited States FRIZZELL CONSTRUCTION COMPANY, INC., Petitioner, Vv. GATLINBURG, L.L.C., Respondent. Petition for a Writ of Certiorari to the Supreme Court of Tennessee PETITION FOR A WRIT OF CERTIORARI C. PAUL HARRISON DAVID G. LEITCH* DIANA M. THIBODAUX GREGORY G. GARRE LONG, RAGSDALE LORANE F. HEBERT & WATERS, P.C. HOGAN & HARTSON L.L.P. 1111 Northshore Dr., N.W. 555 Thirteenth Street, N.W. Suite S-700 Washington, D.C. 20004 Knoxville, TN 37919 (202) 637-5822 (423) 584-4040 DONALD A. HARPER THE HARPER LAW FIRM 135 S. Main Street Greenville, SC 29602 (864) 235-5535 * Counsel of Record Counsel for Petitioner QUESTION PRESENTED Whether this Court should resolve the conflict between the Tennessee Supreme Court—which held in this case that a general choice-of-law provision in a contract subject to the Federal Arbitration Act has the effect of incorporating state law displacing that Act’s directive that arbitration provisions are enforceable—and this Court, the federal circuit in which Tennessee is located, and other federal courts of appeal and state high courts, which have held that such a choice-of-law provision does not have that effect. il RULE 29.6 STATEMENT The caption contains the names of all the parties that appeared in the Tennessee Supreme Court. Frizzell Construction Company, Inc. (“Frizzell”) is a Tennessee corporation. There is no parent corporation or publicly held company owning 10% or more of Frizzell’s stock. ill TABLE OF CONTENTS Page QUESTION PRESENTED.........sssssssssseseseseeeeeeees EME Be DUS STA TIOMIEINT o.ccsesicscssssssscsssncsesessanes i TABLE OF AUTHORITIES .......ssssessssesssssessssssee v OE AL l SAE 2 - CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED.\.......+:::::ssseee0000 2 i aasviinsassuiovsnenie 2 STATEMENT OF THE CASE .....sssssssssssseessssseees 4 REASONS FOR GRANTING THE WRIT ......... g I. THE TENNESSEE HIGH COURT DECISION DIRECTLY CONFLICTS WITH THIS COURT’S PRECEDENTS AND IS “UNTENABLE” UNDER MASTROBUONDO. .......:::0000seeeeeeeeseeteeseeetees 8 Il. THE TENNESSEE HIGH COURT DECISION DIRECTLY CONFLICTS WITH A DECISION OF THE FED- ERAL CIRCUIT IN WHICH TEN- NESSEE IS LOCATED, AS WELL AS DECISIONS OF OTHER FEDERAL CIRCUITS AND STATE HIGH COURTS. .....ccccssccsssccccssccscssnrsconcccoscccesnnsees 14 IV TABLE OF CONTENTS—Continued Page III. THE QUESTION PRESENTED IS IM- PORTANT AND RECURRING. .............. 23 NT cei ehslewissciiacossadepiacblacestadsdideuiiecao 26 APPENDICES Appendix A: Opinion of the Supreme Court of Ten- nessee (November 15, 1999)... la Appendix B: Opinion of the Court of Appeals of Tennessee (November 2, 1998)................. 13a Appendix C: Order of the Chancery Court for Sevier County, Tennessee (May 8, 1998) (at- Appendix D: Order of the Chancery Court for Sevier County, Tennessee (March 23, 1998) ....... 27a Vv TABLE OF AUTHORITIES Page CASES: Allied-Bruce Terminix Cos. v. Dobson, SES ULE. BEG CT saccensivinssnscesencsntssitittseinenten 4,14,17 Arnold v. Arnold Corp., 920 F.2d 1269 (6th Che FD csc csissicinssinnsitsierhinccianintiacianmanenaieiai 9 Barrentine v. Arkansas-Best Freight Sys., Frew, 450 US. T2B CUSED). aceresssosncvevavcsssoscsnrneres 23 Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116 (2d Cir. 1990) ............seeeees 25 Campaniello Imports, Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655 (2d Cir. 1997) .........-:000++ 8 City of Blaine v. John Coleman Hayes & As- socs. Inc., 818 S.W.2d 33 (Tenn. Ct. App. BIDE) sescsrvenssinesocectininncnsnpniiatinntcssincnitelinniitnieastniitinies 6 Dean Witter Reynolds, Inc. v. Trimble, 631 N.Y.S.2d 215 (N.Y. Sup. Ct. 1995)........ccc00e0se- 21 Doctor’s Assocs., Inc. v. Casarotto, 517 TBR, GE CI aciscresesttncccideremntoenaminenrsians 12,13,14 Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926 (6th Cir. 1998) ..............cccccccssecceees passim Homes of Legend, Inc. v. McCollough, 2000 WL 92255 (Ala. Jan. 28, 2000)............ccecieeeee i9 Hunter, Keith Indus. v. Piper Capital Man- agement Inc., 575 N.W.2d 850 (Minn. Ct. App. 1998) ........-c-ccccorsccscersscsseserecesessecssoesenees i Jones v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 604 So.2d 332 (Ala. 1991)............ 9 Kamaya Co. v. American Property Consult- ants, Ltd., 959 P.2d 1140 (Wash. Ct. App. 1998), rev. denied, 978 P.2d 1099 (Wash. RODD) cscsissinnncsiereninntivcersmsioninstianseaniavadaiensiaicensn 20 vi TABLE OF AUTHORITIES—Continued Page Klaxon Co. v. Stentor Elec. Mfg. Co., 313 Se NU EOE Ricicinanies irc uence 17 L&L Kempwood Assocs., L.P. v. Omega Builders, Inc. (In re L & L Kempwood As- “er L.P.), 1999 WL 1084240 (Tex. Dec. hj ROOD iicinnenestanibiaieiaadta eect ae 19 Lee v. Heftel, 911 P.2d 721 (Haw. 1996) ........... 9 Levine v. Advest, Inc., 714 A.2d 649 (Conn. LOIN D sncwsitgennesseicenindsekaetiaise atest eee ae 20 Lingle v. Norge Div. of Magic Chef, Inc., 486 CAB. FEA Pe icisitncihicnsensbtnasisseeel oo ae ee 25 Mastrobuono v. Shearson Lehman Hutton, see, SETTLE, SE CT a hiciisolisctcsseidvssesecriacus passim Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983).......ccccceceseee. 3,11 National Union Fire Ins. Co. of Pittsburgh v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. FPP \arnsavcssachcineninintebcnmiedt ca saumier teh oe 18 Osteen v. T.E. Cuttino Constr. Co., 434 Ae ae Ces WED ccshincurcembdomee 20 PaineWebber, Inc. v. Elahi, 87 F.3d 589 (1st COUP. . FI iccithaconciminncltnabiassiae cma Gea eeae ae 18 Perry v. Thomas, 482 U.S. 483 (1987).........0.... 12,14 Porter Hayden Co. v. Century Indem. Co., 136 F.3d 380 (4th Cir. 1998) ooo. 18 Prima Paint Corp. v. Flood & Conklin Mfg. Co., FOS ID. FOS CGF visvsintsitnscste tla passim R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d Doe COUN Gs PM cicxiecicenotsantlaniatee ce: 9 Scherk v. Alberto-Culver Co., 417 U.S. 506 LL SR EME RES re a LN 23 vii TABLE OF AUTHORITIES—Continued Page Shearson/American Express Inc. v. McMa- hon, 482 U.S. 220 (1987)......sscccsccceeereeeereeeeees 23 Southland Corp. v. Keating, 465 US. | (19BA) ..ncecrcscerosccossreercnsecsesenssnconsessessnascoveososeesees 14 State Farm Mut. Ins. Co. v. George Hyman Constr. Co., 715 N.E.2d 749 (Ill. App. Ct. SDS sc cscsccerevssvesecssevssnsceanesenensanervenstsnutnonongsnse 21 Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979).......csscccsccscccersencsesesccescssrscsseees 23 UHC Management Co. v. Computer Sciences Corp., 148 F.3d 992 (8th Cir. 1998) .........-++. 18 Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989)........ cece 10,13,16,22 Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir. 1998)..........:cescesscsseesrersesetesereees 18 CONSTITUTION: U.S. Const. art. VI. § 2................csceseerererseoreseeees 2,26 STATUTES: Federal Arbitration Act, 9 U.S.C. § | et seq.... passim DULG. © Bo ccccacssorsnccsccccaseccenssnsesscnssoosevernenconens 2 28 U.S.C. § 1257(€) ......ececceccerceseeceeessesseeeensenes 2 RULES: S. Ct. Rule 10(D) .........-cccscsescscossccssccsnvccssccssonsees 14 S. Ct. Rule 10(c) ............c...ssccssccsesrerceseroosssseseees 13 Vili TABLE-OF AUTHORITIES—Continued Page OTHER: —Fhomas A. Diamond, Choice of Law Clauses and Their Preemptive Effect Upon the Fed- eral Arbitration Act: Reconciling The Su- preme Court Within Itself, 39 Ariz. L. Rev. tt. j ee ditiieadadaieainichadeiishbaedeleeisieis 20,21 G. Richard Shell, Federal Versus State Law in the Interpretation of Contracts C ontaining Arbitration Clauses: Reflections on Mas- trobuono, 65 U. Cin. L. Rev. 43 1. | See 22 Gabrie! M. Wilner, Domke on Commercial Arbitration App. I (Rev. ed. 1999) .................. 25 ; IN THE Supreme Court of the Gnited States No. 99-__ FRIZZELL CONSTRUCTION COMPANY, INC., Petitioner, Vv. GATLINBURG, L.L.C., Respondent. Petition for a Writ of Certiorari to the Supreme Court of Tennessee PETITION FOR A WRIT OF CERTIORARI Petitioner Frizzell Construction Company, Inc. (“Friz- zell”) respectfully petitions for a writ of certiorari to review the judgment of the Supreme Court of Tennessee in this case. OPINIONS BELOW The opinion of the Supreme Court of Tennessee is not yet reported and is reproduced in the appendix hereto (“App.”) at la. The opinion of the Court of Appeals of Tennessee is unreported and reproduced at id. 12a. The rulings of the Chancery Court for Sevier County, Ten- nessee are unreported and reproduced at id. 22a, 28a. 2 JURISDICTION The judgment of the Supreme Court of Tennessee was entered on November 15, 1999. App. la. The jurisdic- tion of this Court is invoked under 28 U.S.C. § 1257(a). CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED Article VI, § 2 of the United States Constitution pro- vides: This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; * * * shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. Section 2 of the Federal Arbitration Act (“FAA” or Act’), 9 U.S.C. § 2, provides in pertinent part: A written provision in any * * * contract evidencing a transaction involving commerce to settle by arbi- tration a controversy thereafter arising out of such contract or transaction * * * shall be valid, irrevoca- ble, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. INTRODUCTION This case presents an important question concerning the interplay between federal and state law in an area—the enforcement of contracts subject to the FAA—in which this Court has frequently been called upon to provide guidance due to the vital national asia, Wn Seo x PAE tae 108 en fe 3 interests at stake and countless number of transactions and parties affected. The FAA establishes a national policy promoting ar- bitration of all claims or disputes arising under contracts involving interstate commerce, and a federal guarantee that agreements to arbitrate claims arising out of such contracts “shall be valid, irrevocable, and enforceable.” 9 U.S.C. § 2. The effect of the Act is “to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within [its] coverage.” Moses H. Cone Mem’! Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). As this Court held in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 US. 395, 400 (1967) (quotation omitted), one of the “na- tional substantive Jaw” rules embodied in the FAA is that “a claim of fraud of inducement of [a] contract * * * is for the arbitrators and not for the courts,” and that this rule “governs even in the face of a contrary state rule.” Accordingly, “if contracting parties agree to include claims for [fraudulent inducement] within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitra- tion.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 58 (1995) (emphasis in original). In Mastrobuono, this Court further held that inclusion of a generic choice-of-law provision in a contract governed by the FAA does not, without more, evince an intent on the part of the parties to incorporate state law that conflicts with federal arbitration law. Id. at 63-64. 4 This case arises out of a clash between federal and state law over the arbitrability of claims of fraudulent inducement of a contract. The parties here entered into a standard form contract providing for the arbitration of ““[a]ll claims, disputes and or other matters” arising out the contract. App. 2a. The Tennessee Supreme Court, however, held that the contract’s general choice-of-law provision incorporated state law precluding arbitration of fraudulent inducement claims, even though it ac- knowledged that such claims are “certainly arbitrable under the FAA.” App. 8an.11. That decision directly conflicts with this Court’s decision in Mastrobuono, recent precedent of the federal circuit in which Tennes- see 1s located, and the decisions of other federal courts of appeal and state high courts. When it enacted the FAA, Congress did not intend “state and federal courts to reach different outcomes about the validity of arbitration in similar cases.” Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272 (1995). That is precisely what has happened here. The conflict created by the decision in this case on the important question presented is direct and extensive, and defeats the very uniformity of results that the FAA was enacted to secure. This Court should grant certiorari and resolve that conflict here. STATEMENT OF THE CASE Petitioner Frizzell is in the construction business. In April 1995, Frizzell agreed to oversee the construction of a hotel for respondent Gatlinburg L.L.C. (“Gatlin- burg’) in Gatlinburg, Tennessee. The parties used a standard Associated General Contractors Construction PLease eae OG ese ~ an 5 Manager contract entitled “Standard Form of Agreement Between Owner and Construction Manager.” The contract contained a choice-of-law clause (Art. 14.2) providing: “This Agreement shall be governed by the law of the place where the Project is located”—.e Tennessee. App. 2a & n.1. It also contained an arbitra- tion clause (Art. 16.1) providing: “All claims, disputes and or other matters in questions arising out of, or relating to, this Agreement or the breach thereof * * * shall be decided by arbitration.” /d. 2a, 15a. Shortly after the project was completed, a dispute arose between the parties over payments allegedly due under the contract. In August 1997, Frizzell filed an action in the Chancery Court of Sevier County, Tennes- see, to perfect a contractor’s lien on the property. Frizzell then submitted a demand with the American Arbitration Association to arbitrate all disputes arising under the contract, and moved the Chancery Court to stay the proceedings pending arbitration. Gatlinburg opposed Frizzell’s arbitration demand and filed a coun- terclaim alleging that Frizzell had fraudulently induced it to enter into the contract. Jd. 2a. In February 1998, the Chancery Court granted Frizzell’s request for a stay and submitted its claim for payments under the contract to arbitration, but enjoined arbitration of Gatlinburg’s fraudulent inducement claim. Jd. 2a-3a, 30a. Frizzell moved for reconsideration, explaining that because the contract involved interstate commerce, it was covered by the FAA, and under the FAA (not to mention the terms of the agreement itself) a// claims arising under or related to the contract—including fraudulent inducement claims—were arbitrable. The 6 Chancery Court disagreed, holding that the contract did not involve interstate commerce “so as to bring the contract under the FAA,” and, in any event, did not require arbitration of Gatlinburg’s fraudulent induce- ment claim. /d. 3a. With respect to the latter issue, the court held that Tennessee law does not permit arbitration of fraudulent inducement claims, see City of Blaine v. John Coleman Hayes & Assocs., Inc. 818 S.W.2d 33 (Tenn. Ct. App. 1991),' and that Tennessee law—not the FAA—controlled here. App. 3a, 24a-2Sa. The Court of Appeals of Tennessee affirmed. It agreed with the Chancery Court that under state law and, in particular, the Blaine case, “the issue of fraud in the inducement [w]as a question to be determined by the court,” not an arbitrator. /d. 20a. The Court of Appeals did not reach the question whether the contract was covered by the FAA, because—according to the rea- soning of Blaine—“unless and until it is established that there is a contract in existence, a consideration of whether the contract is controlled by or subject to the [FAA] is premature.” Jd. 19a. | In Blaine, the Tennessee Court of Appeals held that the Ten- nessee Arbitration Act “entitle[s]” parties “to a judicial determina- tion on the issue” of fraud in the inducement of a contract. 818 S.W.2d at 38. In so holding, the Tennessee court “disagree[d] with the conclusion reached” by this Court in Prima Paint Corp. v. Flood & Conklin Manufacturing. Co., supra—i.e., that unless the contract provides otherwise, “a claim of fraud of inducement of [a] contract * * * is for the arbitrators and not for the courts,” 388 U.S. at 400—and expressly “conform[ed]” its decision “to the dissent in Prima [Paint].” 818 S.W.2d at 37-38. abate 7 Frizzell filed an application for discretionary review to the Supreme Court of Tennessee, presenting both the issue whether the contract involved interstate com- merce—so as to implicate the FAA—and, if so, whether the Chancery Court improperly barred arbitration of the fraudulent inducement claim. The Tennessee Supreme Court held that “this case plainly involves interstate commerce”—thus triggering the FAA—but that “in accordance with the [FAA], the chancery court properly retained jurisdiction over the claim of fraudulent in- ducement to enter a contract.” Jd. la. The Tennessee Supreme Court recognized that the contract expressly provides for the arbitration of “‘[alll claims, disputes and or other matters in questions arising out of, or relating to, this Agreement.” Jd. 2a (quoting Article 16.1). But it held that—solely as a result of the separate choice-of-law provision—the arbitration clause “is limited and subject to the additional qualification that Tennessee law provides the basis for deciding questions concerning [what claims are subject to arbitration].” Jd. 10a. Thus, because Tennessee law does not allow the arbitration of fraudulent inducement claims, the Tennes- see Supreme Court held that the Chancery Court prop- erly refused arbitration of _ that claim here—notwithstanding that such claims are “certainly arbitrable under the FAA.” /d. 8an.11. The Tennessee Supreme Court believed this holding was “consistent with the policies underlying the FAA.” Id. 11a. But the court refused to address Frizzell’s contention that this result contravenes the terms of the parties’ express agreement to arbitrate “all claims” arising out of their standard form contract, and directly 8 conflicts with the result reached in numerous decisions construing the virtually identical provisions of other contracts governed by the FAA, including Mastrobuono v. Shearson Lehman Hutton, Inc., supra, and Ferro Corp. v. Garrison Industries, Inc., 142 F.3d 926 (6th Cir. 1998). See Appellant’s Br. in Tenn. S. Ct., at 19-34. REASONS FOR GRANTING THE WRIT I. THE TENNESSEE HIGH COURT DECISION DIRECTLY CONFLICTS WITH THIS COURT’S PRECEDENTS AND IS “UNTEN- ABLE” UNDER MASTROBUONO. 1. The question presented in this case is framed by this Court’s decision in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., supra. There, the Court considered whether a claim for fraudulent inducement of a contract governed by the FAA is subject to arbitration when the contract—ike the one at issue here—broadly provides for the arbitration of all claims “arising out of or relating to” that contract. 388 U.S. at 398. In an- swering that question, this Court squarely held that—in the absence of evidence that the contracting parties intended otherwise—such a claim is for the arbitrator. Id. at 402-404. Thus, Prima Paint establishes as a matter of substantive federal law that “a broad arbitra- tion clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud,” “even in the face of a contrary state rule.” Jd. at 400, 402 (emphasis added).? 2 The clear import of Prima Paint has not been lost on the lower courts. See, e.g., Campaniello Imports, Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 666 (2d Cir. 1997) (under FAA a court 9 The arbitration clause in Prima Paint was “easily broad enough” to require arbitration of the fraudulent inducement claim in that case, and the same goes for the virtually identical contractual language in the arbitration clause in this case. Jd. at 406 (emphasis added). Com- pare id. (contract requires arbitration of “[a}ny contro- versy or claim arising out of or relating to this Agree- ment, or the breach thereof”) with App. 2a (contract requires arbitration of “[aJll claims, disputes and or other matters in questions arising out of, or relating to, this Agreement or the breach thereof”). 2. The Tennessee Supreme Court attempted to side- step Prima Paint by pointing to the choice-of-law provision in the contract—and that provision alone—as evidence that the parties did not intend to arbitrate contract formation issues. /d. at. 8an.11. But in doing so, the court directly contravened this Court’s decision in Mastrobuono v. Shearson Lehman Hutton, Inc., supra. There, this Court held—as a matter of federal arbitration law—that the inclusion of a generic choice- of-law provision establishing that the contract is gov- erned by the law of a particular state is not “evidence” that the parties intended to incorporate state law that may not adjudicate claims of fraud in the inducement of a contract generally); R.M. Perez & Assocs., Inc. v. Welch, 960 F.2d 534, 538 (Sth Cir. 1992) (“If the fraud relates to the entire agreement, then the [FAA] requires that the fraud claim be decided by an arbitra- tor.”); Arnold v. Arnold Corp., 920 F.2d 1269, 1278 (6th Cir. 1990) (same); Lee v. Heftel, 911 P.2d 721, 724 (Haw. 1996) (under FAA, “broad arbitration clause wili be held to encompass arbitra- tion of the claim that contract itself was induced by fraud”), Jones v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 604 So.2d 332, 336-337 (Ala. 1991) (same). 10 conflicts with federal arbitration law. See 514 U.S. at 63-64. In Mastrobuono, the Court considered whether a choice-of-law provision in a standard form contract providing that it “shall be governed by the laws of the State of New York” incorporated New York law pre- cluding arbitration of punitive damages claims. /d. at 53. In determining that the answer was “no,” the Court flatly rejected respondents’ argument that the “choice- of-law provision in [the] contract evidence[d] the par- ties’ express agreement that punitive damages should not be awarded in the arbitration of any dispute arising under [the] contract.” Jd. at 56. The Court reasoned that the choice-of-law provision could “reasonably be read as merely a substitute for the conflict-of-laws analysis that otherwise would determine what law to apply to disputes arising out of the contrac- tual relationship.” Jd. at 59. Because it could be read as _ such, “[i]t [was] not, in itself, an unequivocal exclusion of punitive damages claims.” Jd. at 60 (emphasis added). At most, “the choice-of-law clause introduce[d] an ambiguity into an arbitration agreement that would otherwise allow punitive damages awards,” in accor- dance with federal law. Jd. at 62. And “when a court interprets such provisions in an agreement covered by the FAA, ‘due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitra- tion.” Id. (quoting Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476 (1989) (emphasis added)). See also Moses H. Cone, 460 U.S. at 24-25 (“The Arbitration Act establishes that, ee Oe ee Ser eg Se Oe | 11 as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the con- struction of the contract language itself or an allegation or waiver, delay, or a like defense to arbitrability.”) (emphasis added). Accordingly, the Mastrobuono Court held: [T]he best way to harmonize the choice-of-law pro- vision with the arbitration provision is to read “the laws of the State of New York” to encompass sub- stantive principles that New York courts would ap- ply, but not to include special rules limiting the authority of arbitrators. Thus, the choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration; nei- ther sentence intrudes upon the other. In contrast, respondents’ reading sets up the two clauses in con- flict with one another: one foreclosing punitive damages, the other allowing them. This interpreta- tion is untenable. [514 U.S. at 63-64 (emphases added). | The Tennessee Supreme Court decision in this case flouts the rule of Mastrobuono—on which petitioner specifically relied before the state high court in arguing that respondent’s fraudulent inducement claim was subject to arbitration under the “national substantive law” recognized in Prima Paint, 388 U.S. at 400, and the parties’ agreement to arbitrate “all claims” arising under their contract. See supra at 5. The standard choice-of-law and arbitration clauses contained in the contract involved in this case are identical for all practi- cal purposes to the ones contained in the contract in 12 Mastrobuono.3 Thus, the state high court’s conclusion that the choice-of-law provision here incorporated state arbitration law that conflicts with federal arbitration law is just as “untenable” as the conclusion rejected by the Court in Mastrobuono. 514 U.S. at 64. The Tennessee Supreme Court, however, turned a deaf ear to petitioner’s arguments, reached a result contrary to Mastrobuono—allowing state arbitration law to displace federal arbitration law—and, thus, directly impeded the central aim of the FAA. State legislatures are not free to enact laws that require parties to accept rules or results that conflict with the FAA. See Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). And state courts may not “construe [an] agreement” subject to the FAA in a manner that “would enable the court to effect what * * * the state legislature cannot.” See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). Thus, as the Court put it in Mastrobuono, 514 U.S. at 58, “if contracting parties agree to include [particular claims] within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitration.” 3 Compare App. 2a & n.1, 15a (“This Agreement shall be governed by the law of [Tennessee],” and “[a]ll claims, disputes, and or other matters in question arising out of, or relating to, this Agreement or the breach thereof * * * shall be decided by arbitra- tion”) with 514 U.S. at 58 n.2 (“This agreement * * * shall be governed by the laws of the State of New York,” and “any contro- versy arising out of or relating to * * * this agreement or the breach thereof * * * shall be settled by arbitration”) (emphases added). 13 In short, the conflict between Mastrobuono and the Tennessee Supreme Court decision could scarcely be more clear, and it provides reason enough to grant certiorari. See S. Ct. Rule 10(c). 3. This Court’s decision in Volt Information Sci- ences, Inc. v. Board of Trustees of Leland Stanford Junior University, supra, is not to the contrary. In Volt, the Court upheld a state court decision interpreting a choice-of-law provision as incorporating state proce- dural rules of arbitration where those rules were “mani- festly designed to encourage resort to the arbitral proc- ess,” and “generally foster[ed] the federal policy favor- ing arbitration.” 489 U.S. at 476 & n.5 (emphasis added). By contrast, the state law involved in this case—precluding arbitration of fraudulent inducement claims—frustrates the federal policy favoring arbitration of such claims. More to the point, as this Court ob- served in Doctor’s Associates, Inc. v. Casarotto, 517 U.S. at 688, “[t]he state rule examined in Volt deter- mined only the efficient order of proceedings; it did not affect the enforceability of the arbitration agreement itself.” Here—as in Mastrobuono—the state arbitration law at issue directly impinges on the enforceability of the arbitration agreement in a manner that conflicts with the FAA. In any event, any perceived inconsistency between Mastrobuono and Volt only underscores the need for review here. See infra at 21-23. 4. Finally, the Tennessee Supreme Court decision is also in serious tension with decisions of this Court holding that the FAA preempts conflicting state law restricting the arbitrability of claims. In Doctor's . Associates, 517 U.S. at 686-688, for instance, the Court 14 held that a state law requiring notice of an arbitration clause to appear on the first page of a contract conflicted with the FAA and was therefore preempted by the FAA. Similarly, in Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. at 273-281, the Court concluded that the FAA preempted a state statute rendering arbitration agree- ments unenforceable. And in Southland Corp. v. Keat- ing, 465 U.S. 1, 10-16 (1984), and Perry v. Thomas, 482 U.S. at 489-491, the Court held that the FAA preempted two California statutes that purported to require judicial resolution of certain disputes. In supplanting the FAA with state law precluding arbitration of fraudulent inducement claims, the Tennessee high court ran afoul of these decisions, too. Il. THE TENNESSEE HIGH COURT DECISION DIRECTLY CONFLICTS A DECISION OF THE FEDERAL CIRCUIT IN WHICH TEN- NESSEE IS LOCATED, AS WELL AS THE DECISIONS OF OTHER FEDERAL CIR- CUITS AND STATE HIGH COURTS. 1. The conflict created by this case is by no means limited to this Court’s decisions. As we explain next, the Tennessee Supreme Court decision also conflicts with the decisions of the federal courts of appeal and those of other state high courts, providing additional grounds for certiorari. See S. Ct. Rule 10(b). Most significantly, Tennessee Supreme Court decision cannot be reconciled with the precedent of the Sixth Circuit—the federal circuit in which Tennessee is located. In Ferro Corp. v. Garrison Industries, Inc., supra, the Sixth Circuit considered the very same issue Se ee Se 15 presented here—whether the inclusion of a choice-of- law provision in a contract governed by the FAA incor- porated state law requiring judicial resolution of a fraudulent inducement claim. In reaching a result contrary to that of the Tennessee Supreme Court in this case, the Sixth Circuit first recognized that under Prima Paint “the issue of fraudulent inducement of a contract is to be decided by an arbitrator,” unless the parties contract otherwise. 142 F.2d at 933. The court of appeals then rejected the district court’s conclusion—the same one reached by the Tennessee Supreme Court here—that “by inserting [a standard] choice-of-law clause into their arbitration agreement, the parties expressly contracted to be bound by Ohio law, thus precluding application of the FAA.” Jd. Expressly invoking the rule of Mastrobuono, the Sixth Circuit explained: {T]he Court finds no indication that the parties in- tended to incorporate Ohio law to determine that the issue of fraudulent inducement should be adjudicated in a judicial forum. As in Mastrobuono, the arbitra- tion clause is conspicuously broad, as it applies to “fajll controversies and claims arising out of or re- lating to this Agreement * * *.” Given this broad language, the Court does not believe that the parties intended to incorporate Ohio law, or invoke the power of courts, to determine the scope of the arbi- tration agreement. Thus, we harmonize the provi- sions of the [agreement] in the same manner as the Court did in Mastrobuono: by ruling that the choice- of-law clause [was] not an ‘unequivocal inclusion’ of [state] law which arguably holds that the issue of 16 fraudulent inducement is one for a court, and not an arbitrator, to decide. [/d. at 937.] In so holding, the Sixth Circuit recognized that “[t]his decision not only finds resonance in the decisional law of other circuits, but also in policy and common sense.” Id. at 937-938 (citing cases). Moreover, the court expressly rejected the contention that this Court’s decision in Volt required a different result. As the Sixth Circuit explained, Volt “did not present a situation in which state and federal law were in conflict,” since the FAA does not address the issue dealt with by the state procedural rule of arbitration involved in_ that case—whether a court may stay arbitration pending resolution of related litigation involving third parties not subject to arbitration. /d. at 934. By contrast, in the situation presented in Ferro—as here—state and federal law clearly conflict: fraudulent inducement claims are plainly arbitrable under federal law, see Prima Paint, 388 U.S. at 402, but not under state law. Yet the Ten- nessee Supreme Court refused to even address Ferro, notwithstanding petitioner’s specific reliance on it. The direct and irreconcilable conflict between the Sixth Circuit and the Tennessee Supreme Court on the precise question presented by this case is especially troubling, given that Tennessee is located within the Sixth Circuit. On the same standard form contract, a fraudulent inducement claim in Tennessee will not be subject to arbitration if the contract is interpreted by a state court, but will be subject to arbitration if it is interpreted by a federal court. This result offends notions of fairness, encourages forum-shopping, and 17 undermines federal policy. For these reasons, this Court has already lamented this very predicament: [I}t is clear beyond question that if this suit had been brought as a diversity action in a federal district court, the arbitration clause would have been en- forceable. The [contrary] interpretation given * * * by the California Supreme Court would therefore en- courage and reward forum shopping. We are un- willing to attribute to Congress the intent * * * to create a right to enforce an arbitration contract and yet make that right dependent for its enforcement on the particular forum in which it is asserted. And since the overwhelming proportion of all civil litiga- tion in this country is in the state courts, we cannot believe that Congress intended to limit the [FAA] to disputes subject only to federal court jurisdiction. Such an interpretation would frustrate Congressional intent * * *. [Southland Corp. v. Keating, 465 U.S. at 15-16 (footnotes omitted) (emphasis in original). ] See also Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. at 272 (“Congress would not have wanted state and federal courts to reach different outcomes about the validity of arbitration in similar cases.”); Klaxon Co. v Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) (courts should strive for substantial uniformity and predictabil- ity of outcomes in federal and state court litigation). The Court should grant review to prevent such an intolerable outcome here. 2. As the Sixth Circuit highlighted in Ferro, see 142 F.2d at 937-938, the conflict of authority implicated by this case extends to the decisions of other federal courts of appeals decisions as well. In the wake of Mastro- 18 buono, numerous courts of appeal have followed that decision and held that a general choice-of-law provision does not evince an intent to incorporate state law that precludes arbitration of an issue or otherwise conflicts with the FAA. See, e.g., UHC Management Co. Vv. Computer Sciences Corp., 148 F.3d 992, 996-997 (8th Cir. 1998) (under Mastrobuono, choice-of-law provision did not evince an intent to have arbitration award re- viewed under state law standards); Wolsey, Lid. v. Foodmaker, Inc., 144 F.3d 1205, 1213 (9th Cir. 1998) (‘“Mastrobuono dictates that general choice-of-law clauses do not incorporate state rules that govern the allocation of authority between courts and arbitrators”); Porter Hayden Co. v. Century Indem. Co., 136 F.3d 380, 382-383 (4th Cir. 1998) (“The Supreme Court has * * * squarely rejected the argument that a federal court should read a contract’s general choice-of-law provision as invoking state law of arbitrability and displacing federal arbitration law.”); National Union Fire Ins. Co. of Pittsburgh v. Belco Petroleum Corp., 88 F.3d 129, 134 (2d Cir. 1996) (Mastrobuono “squarely reject[s]” argument that choice-of-law clause incorporated state law requiring court to decide preclusion issue); PaineWebber, Inc. v. Elahi, 87 F.3d 589, 594 (Ist Cir. 1996) (“Following the principles and analysis set forth in Mastrobuono, we * * * find that the choice-of-law clause in this case is not an expression of intent to adopt. New York caselaw requiring [application of state rule that contravened federal arbitration law]”). 3. The conflict also involves state court decisions. Unlike the Tennessee Supreme Court, other state high courts—heeding the rule of Mastrobuono—have held 19 that general choice-of-law provisions do not automati- cally incorporate state arbitration law that conflicts with the FAA. In L & L Kempwood Assocs., L.P. v. Omega Builders, Inc. (In re L & L Kempwood Assocs., L.P.), 1999 WL 1084240, at *2 & nn.16, 17 (Tex. Dec. 2, 1999), for example, the Texas Supreme Court held that a standard choice-of-law provision did not act to displace the FAA with conflicting state arbitration law requiring a court to determine the sufficiency of an arbitration demand. Expressly relying on Mastrobuono, Ferro, and other federal circuit decisions discussed above, the Texas high court reasoned that “[t]he choice-of-law provision did not specifically exclude the application of federal law, and absent such an exclusion we decline to read the choice-of-law clause as having such an effect.” /d. at *2 (footnotes omitted). Ignoring Mastrobuono and Ferro, the Tennessee Supreme Court here held that an indistin- guishable choice-of-law provision had the opposite effect. Similarly, in Homes of Legend, Inc. v. McCollough, 2000 WL 92255, at *5 n.9 (Ala. Jan. 28, 2000), the Alabama Supreme Court—following Mastrobuono —concluded that a choice-of-law clause “provide[d] for the application of Alabama substantive law in deter- mining the merits of the parties’ disputes,” whereas the arbitration provision set forth “the procedure to be used in resolving those disputes.” In so holding, the court recognized that—under the rule of Mastrobuono—the fact that the agreement contained both a provision selecting Alabama law (which renders arbitration agreements unenforceable) and an arbitration provision 20 did not render it “internally inconsistent or ambiguous.” The court also held, moreover, that interpreting the choice-of-law clause as incorporating state arbitration rules that displaced federal arbitration law would “con- flict[] with the FAA.” Jd.4 The conflict between the Tennessee Supreme Court decision in this case and Kamaya Co. v. American Property Consultants, Ltd., 959 P.2d 1140 (Wash. Ct. App. 1998), rev. denied, 978 P.2d 1099 (Wash. 1999), is even more acute. Kayama turned on precisely the same issue presented here and in Ferro. The plaintiffs did not dispute “that under the FAA, general arbitration clauses ordinarily cover claims of fraud-in-the-inducement of a contract,” but they argued that the contract’s standard choice-of-law provision had the effect of displacing the federal arbitration rule by providing that the contract was governed by Japanese law (which, according to the plaintiffs, does not require arbitration of such claims). 4 See also, e.g., Levine v. Advest, Inc., 714 A.2d 649, 659-661 (Conn. 1998) (choice-of-law provision did not incorporate state law requiring court to decide issue of timeliness); Osteen v. T.E. Cuttino Constr. Co., 434 S.E.2d 281, 283-284 (S.C. 1993) (choice-of-law provi- sion did not incorporate state arbitration law, but rather only state substantive law to be applied by arbitrators in resolving conflicts under agreement); Hunter, Keith Indus. v. Piper Capital Management Inc., 575 N.W.2d 850, 854 (Minn. Ct. App. 1998) (“As in Mastrobuono, we read the choice-of-law provision to govern the rights and duties of the parties, while the arbitration clause covers the arbitration.”). 21 959 P.2d at 1145-46. The state court disagreed, recog- nizing that this Court “rejected a very similar argument in Mastrobuono,” and that the Sixth Circuit in Ferro had done the same. See id. at 1146-47. Moreover, as the Washington court observed, the “strong federal policy favoring arbitration” also compelled this result. Jd. at 1148. Nevertheless, under the Tennessee high court decision here the fraudulent inducement claim in Ka- maya would have been subjected to adjudication rather than arbitration, thus frustrating the “strong federal policy favoring arbitration.” Jd. 4. Further heightening the need for review is the confusion that Mastrobuono has left in its wake con- cerning its application in state court. Because Mastro- buono reached this Court by way of federal courts sitting in diversity, some state courts have suggested that Mastrobuono is only binding upon federal courts inter- preting contracts under diversity jurisdiction, and that state courts are accordingly free to ignore the rule of Mastrobuono even when interpreting the same provi- sions in contracts. See, e.g., State Farm Mut. Ins. Co. v. George Hyman Constr. Co., 715 N.E.2d 749, 755 (Ill. App. Ct. 1999) (holding that a choice-of-law provision incorporated state arbitration law because court had authority to reach that conclusion under Mastrobuono); Dean Witter Reynolds, Inc. v. Trimble, 631 N.Y.S.2d 215, 217 n.4 (N.Y. Sup. Ct. 1995) (noting that “[e}ven if the instant case involved a standard-form contract with the identical New York choice-of-law clause {at issue in Mastrobuono},” the court “would not be bound to interpret it in the same way as the U.S. Supreme Court did * * * since the interpretation of contracts is a matter of state law.”); see also Thomas A. Diamond, Choice of 22 Law Clauses and Their Preemptive Effect Upon the Federal Arbitration Act: Reconciling The Supreme Court Within Itself, 39 Ariz. L. Rev. 36, 60 (1997) (observing that “[s]tate courts have tended to give Mastrobuono a narrow reading”). While this is a minority view, it arguably finds support in footnote 4 of the Mastrobuono decision, where the Court distinguished Vo/t on the ground that it involved a state court’s construction of a contract to which the Court was obliged to give deference, whereas Mastro- buono involved a federal court’s interpretation of a contract which the Court reviewed de novo. See 514 U.S. at 60 n.4. As we have explained, Volt is distin- guishable from Mastrobuono on other grounds— including the fact that incorporation of the state law rule in that case “foster[ed]” rather than frustrated federal arbitration law. Volt, 489 U.S. at 476 & n.5. In addi- tion, whatever deference is owed state court construc- tions of contracts, such deference plainly does not require adoption of “untenable” constructions of such contracts. Mastrobuono, 514 U.S. at 64. But in any event, the fact that some state courts—including the Tennessee Supreme Court in this case—have felt free to disregard Mastrobuono in con- struing contracts with virtually the same choice-of-law and arbitration provisions considered in Mastrobuono demonstrates the need for this Court’s guidance. See Diamond, supra, at 65 (“The longer Volt and Mastro- buono remain unreconciled, the greater will be the confusion and disparity of opinion among the state and federal courts.”); G. Richard Shell, Federal Versus State Law in the Interpretation of Contracts Containing 23 Arbitration Clauses: Reflections on Mastrobuono, 65 U. Cin. L. Rev. 43, 63 (1996) (“By refusing to question the underlying state-law bias of Volt, the Court in Mastro- buono missed a major opportunity to clarify the law, reduce uncertainty, and save arbitration users pointless litigation costs.”). This case is an ideal vehicle through which to provide such guidance. Ill, THE QUESTION PRESENTED IS IMPOR- TANT AND RECURRING. Although the multiple conflicts raised in this petition alone provide a compelling basis for review, certiorari is particularly appropriate given the importance and recurring nature of the question presented. See, e.g., Scherk v. Alberto-Culver Co., 417 U.S. 506, 510 (1974) (granting certiorari to consider important arbitration issue); Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 525 (1979) (granting certiorari to consider “impor- tant and recurring” issues). Enacted to “revers[e] centuries of judicial hostility to arbitration agreements,” the FAA reflects a strong “federal policy favoring arbitration” of disputes. Shear- son/American Express Inc. v. McMahon, 482 U.S. 220, 225-226 (1987) (quotation omitted) (alteration in origi- nal). The reasons supporting this policy “are as wise as they are obvious: litigation is costly and time consum- ing, and * * * judges are less adapted to the nuances of the disputes that typically arise” in various contexts than persons chosen to arbitrate such disputes because of their expertise in a particular area. Barrentine v. Arkan- sas-Best Freight Sys., Inc., 450 U.S. 728, 747 (1981) (Burger, C.J., and Rehnquist, J., dissenting). Submitting 24 disputes to such persons thus “provides a swift, fair, and inexpensive remedy.” Jd. at 748. By “rigorously en- forc[ing] agreements to arbitrate,” Shearson/American Express, 482 U.S. at 226, this Court has consistently endeavored to effectuate the federal policy favoring arbitration. That policy is directly threatened here. As the Sixth Circuit recognized in Ferro, “[t]he policy of the FAA is to enforce privately entered agreements to arbitrate, and to resolve any doubts concerning the scope of arbitrable issues in favor of arbitration consistent with the national policy favoring arbitration.” 142 F.3d at 938. Accepting the interpretation offered and rejected in Mastrobuono and Ferro—but embraced by the Tennes- see Supreme Court here— would vitiate the policy aims of the Act by enabling litigants to effectively abrogate the FAA’s applica- bility to [contracts with choice-of-law provisions that incorporate the law of States which preclude arbitra- tion of fraudulent inducement claims] by pleading fraudulent inducement. That is, a party would sim- ply assert that the contract was fraudulently induced, thereby removing the case from the jurisdiction of the arbitrators, and vesting it with a court. Though the court’s jurisdiction over the matter would termi- nate subsequent to it determining whether or not the contract was fraudulently induced, the litigation would vitiate the primary benefit of arbitration, i.e., the expeditious, inexpensive resolution of disputes. [Jd.] That is precisely what has happened here. But the matter is even graver than that. As the Sixth Circuit continued: “Most contracts include a choice-of-law a clause, and, thus, if each of these clauses were read to foreclose the application of the substantive law enacted by Congress in the FAA, the FAA would be applicable in very few cases. Such an interpretation is simply not viable, as it would effectively emaciate the Act itself.” Id. Nevertheless, that interpretation is now the law of Tennessee. Finally, as is evident from the numerous conflicts engendered by the state high court decision, the basic question presented by this case is recurring. Arbitration clauses are a common feature of commercial contracts, see, e.g., Lingle v. Norge Div. of Magic Chef, Inc., 486 U.S. 399, 411. n.11 (1988) (noting that arbitrators are designated by nearly all collective bargaining agree- ments as the adjudicators of contract disputes); Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116, 124 (2d Cir. 1990) (Kearse, J., dissenting) (noting “widespread use” of arbitration clauses in brokerage contracts), and such contracts invariably contain choice- of-law provisions. See Ferro, 142 F.3d at 938. The contract in this case, for instance, is a standard form contract used by a multitude of construction contrac- tors—in Tennessee and elsewhere in the Nation. Nu- merous States have enacted arbitration statutes that expressly exclude certain types of disputes from arbitra- tion, see 2 Gabriel M. Wilner, Domke on Commercial Arbitration App. I (Rev. ed. 1999), and still oth- ers—Tennessee and New York, for example—exclude certain claims from arbitration as a matter of judicial rule. Until resolved by this Court, the question pre- sented by this case will accordingly continue to arise with great frequency. 26 This Court should grant certiorari to ensure uniformity of results and that the FAA’s mandate requiring the enforcement of all arbitration agreements involving interstate commerce—including agreements to arbitrate fraudulent inducement claims—remains “the supreme Law of the Land.” U.S. Const. art. VI. § 2. CONCLUSION For the foregoing reasons, the petition for a writ of certiorari should be granted. Respectfully submitted, C. PAUL HARRISON DAVID G. LEITCH* DIANA M. THIBODAUX GREGORY G. GARRE LONG, RAGSDALE LORANE F. HEBERT & WATERS, P.C. HOGAN & HARTSON L.L.P. 1111 Northshore Dr., N.W. 555 Thirteenth Street, N.W. Suite S-700 Washington, D.C. 20004 Knoxville, TN 37919 (202) 637-5822 (423) 584-4040 DONALD A. HARPER THE HARPER LAW FIRM 135 S. Main Street Greenville, SC 29602 (864) 235-5535 * Counsel of Record Counsel for Petitioner APPENDICES la APPENDIX A [Filed Nov. 15, 1999] IN THE SUPREME COURT OF TENNESSEE, AT KNOXVILLE FRIZZELL CONSTRUCTION COMPANY, INC., Plaintiff/Appellant, v. GATLINBURG, L.L.C., Defendant/Appellee. No. E1998-00176-SC-R11-CV Nov. 15, 1999 OPINION WILLIAM M. BARKER, Justice. In this appeal, we address two primary issues: (1) whether the contract in this case providing for construc- tion of a hotel in Tennessee “involves” interstate com- merce so as to implicate the Federal Arbitration Act, and (2) whether the chancery court erred in withholding contract formation issues from arbitration. We hold that the contract in this case plainly involves interstate commerce and that the parties did not intend to arbitrate a claim of fraudulent inducement to enter a contract. Therefore, in accordance with the Federal Arbitration Act, the chancery court properly retained jurisdiction over the claim of fraudulent inducement to enter a contract. The judgment of the Court of Appeals is affirmed. 2a BACKGROUND On April 4, 1995, Gatlinburg, L.L.C. (“Gatlinburg’”’), entered into a contract with Frizzell Construction Com- pany, Inc. (“Frizzell”), for the construction of a hotel in Sevier County, Tennessee. Gatlinburg owned the project, and Frizzell served as the management company in charge of constructing the hotel. The contract con- tained a provision stating that the laws of Tennessee would govern the contract and a provision requiring arbitration of “[a]ll claims, disputes and or other matters in questions arising out of, or relating to, this Agreement or the breach thereof... .”! Shortly after the substantial completion of the hotel, a dispute arose between the parties relating to certain payments due to Frizzell under the contract. This dispute ultimately culminated in Frizzell filing a “Com- plaint to Enforce Mechanic’s Lien and for Breach of Contract” in the Sevier County Chancery Court on August 22, 1997. On October 27, 1997, Gatlinburg filed its Answer, and in an amended counterclaim, Gatlinburg alleged that the contract was fraudulently induced through Frizzell’s misrepresentation of its expertise and ability to complete the project for the stated amount. On November 3, 1997, Frizzell made a demand for arbitra- tion, and eight days later, Frizzell filed a motion to stay the court proceedings pending arbitration. The chancellor granted Frizzell’s motion to stay and submitted the issues concerning overdue payment to | The choice-of-law provision in section 14.2 of the contract states that “[t]his agreement shall be governed by the law of the place where the Project is located.” The parties agree that the clause contemplates application of Tennessee law. i ae tl 3a arbitration. However, the court withheld from arbitra- tion Gatlinburg’s allegation of fraudulent inducement because Tennessee law does not permit arbitration of this claim. In a motion to reconsider, Frizzell argued that because the contract involves interstate commerce, the Federal Arbitration Act (“FAA”) required submis- sion of all disputes, including that of fraudulent induce- ment, to the arbitrator. The chancellor disagreed and held that the contract did not “involve interstate com- merce so as to bring the contract under the FAA.” The chancellor also held, without stating any reasons, that even if the contract did involve interstate commerce, the FAA was nevertheless inapplicable. The Court of Appeals affirmed the decision of the trial court to withhold the issue of fraudulent inducement from arbitration. While the Court of Appeals did not decide whether the contract involves interstate com- merce, the court held that because the parties had chosen Tennessee law to govern the contract, the issue of fraudulent inducement could not be submitted to the arbitrator. The Court of Appeals also held that any decision as to whether the contract was subject to the FAA was “premature” until a determination was made under Tennessee law that the contract was valid.” We granted review to decide (1) whether this contract involves interstate commerce, and (2) whether the trial court erred in withholding the claim of fraudulent inducement from arbitration. We hold that this contract 2 The Court of Appeals reasoned that “[i]f [the contract] is rescinded, there is nothing to arbitrate. On the other hand, if the contract is found to be valid and binding, the disputes between the appellant and the appellee are subject to arbitration.” Frizzell Constr. Co. v. Gatlinburg, L.L.C., No. 03A01-9805-CH-00161, slip op. at 7 (Tenn. Ct. App. Nov. 2, 1998). 4a plainly involves interstate commerce and that the FAA does apply to enforce the agreement according to its terms. Because we find that the contract evidences the intent of the parties to judicially resolve a claim of fraudulent inducement, we also hold that the chancellor properly withheld this issue from arbitration. ANALYSIS The FAA ensures the enforcement of written agree- ments to arbitrate “in any maritime transaction or a contract evidencing a transaction involving com- merce ....” See 9 U.S.C. § 2 (1994). Therefore, we must first decide whether this contract is one “evidenc- ing a transaction involving commerce” before we can decide the proper application of the FAA. On their face, the words “evidencing” and “involving commerce” do not seem as broad as the phrase “affect- ing commerce,” which is the language typically used by Congress to invoke the full range of its commerce power. However, the United States Supreme Court has stated that “the word ‘involving’ is broad and is indeed the functional equivalent of ‘affecting.’” Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274 (1995). As such, the FAA “embodies Congress’[s] intent to provide for the enforcement of arbitration agreements within the full reach of the Commerce Clause.” Perry v. Thomas, 482 U.S. 483, 490 (1987). This interpretation is sup- 3 As the United States Supreme Court has stated, “Again, half a dozen enactments . . . are sufficient to illustrate that when [Con- gress] wants to bring aspects of commerce within the full sweep of its constitutional authority, it manifests its purpose by regulating not only ‘commerce’ but also matters which ‘affect’, ‘interrupt’, or ‘promote’ interstate commerce.” See Polish Nat'l Alliance v. NLRB, 322 U.S. 643, 647 (1944). 5a ported by the original report of the House of Represen- tatives, which further indicates that the phrase “involv- ing commerce” is not meant to restrict the reach or application of the FAA. The report states that “[tJhe control over interstate commerce reaches not only the actual physical interstate shipment of goods but also contracts relating to interstate commerce.” H.R. Rep. No. 96, at 1 (1924), quoted in Prima Paint Corp. Vv. Flood & Conklin Mfg. Co., 388 U.S. 395, 401 n.7 (emphasis added). As part of its constitutional authority to regulate inter- State commerce, Congress may regulate intrastate activities that have a substantial relation to interstate commerce. See United States v. Lopez, 514 U.S. 549, 557-59 (1995). After a careful review of the record, we find that such a relation is present in this case. At least six out-of-state contractors participated in the construc- tion of the hotel, at least nine employees were employed from outside Tennessee, and at least seven out-of-state vendors supplied more than $380,000 worth of materials for the project.4 An Ohio corporation insured the proj- ect,° and a Delaware corporation based in New Jersey issued a payment and performance bond along with a bond to discharge liens filed against the project as required by the contract.6 The construction financing * See Tennessee River Pulp & Paper Co. v. Eichleay Corp., 637 S.W.2d 853, 855 (Tenn. 1982) (finding interstate commerce present in part because the “materials used, the labor employed, and the subcontractors involved . . . came to the project from outside Tennessee”). 5 See United States v. Dye Constr. Co., 510 F.2d 78, 83 (10th Cir. 1975) (finding interstate commerce in part when insurance was acquired from out-of-state sources). 6 See, e.g., American Home Assurance Co. v. Vecco Concrete Const. Co., 629 F.2d 961, 963 (4th Cir. 1980) (finding interstate 6a was accomplished with the assistance of three out-of- state banks,’ and the purpose and scope of the agreement was to develop a commercial venture extending beyond Tennessee. When all of these factors are viewed together, it is clear that this contract is one that “involves commerce.”9 Because the contract in this case is one that involves interstate commerce, the FAA applies to ensure that the arbitration agreement between the parties is enforced according to its terms. Section two of the FAA states that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as commerce present in part because performance bonds were issued by out-of-state corporations); Lost Creek Util. v. Travis Indus. Painters, 827 S.W.2d 103, 105 (Tex.Ct.App. 1992) (finding interstate commerce in part because the performance bond was given by a surety company headquartered in another state). 7 See, e.g., Roberson v. The Money Tree of Alabama, Inc., 954 F.Supp. 1519, 1523 (M.D. Ala. 1997) (finding that a contract “involves commerce” in part because the financing was obtained from out-of-state banks). 8 See, e.g. Foster v. Turley, 808 F.2d 38, 40-41 (10th Cir. 1986); Fairchild & Co. v. Richmond, Fredericksburg & Potomac RR Co., 516 F.Supp. 1305, 1310-11 (D.D.C. 1981) (stating that the FAA applies when purpose and scope of agreement is to develop commercial venture extending beyond state line). In this case, the intent to develop a commercial venture extending beyond Tennessee is evidenced by efforts to market the hotel through a nationwide reservation system and by the fact that the completed hotel is a franchise of a national hotel chain. 9 Gatlinburg argues primarily that this contract does not in- volve interstate commerce because the contract itself does not contemplate interstate activity. The test under the FAA, however, is whether interstate commerce is present in fact, not whether the parties contemplated that interstate activity would occur. See Allied-Bruce Terminix Cos., 513 U.S. at 281. Since interstate commerce is plainly present in fact, the appellee’s argument is without merit. Ta exist at law or in equity for the revocation of any con- tract.” See 9 U.S.C. § 2. Although the provisions of the FAA are to be applied in both state and federal courts, Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 684- 85 (1996) (citing Southland Corp. v. Keating, 465 U.S. 1, 12 (1984)), the “FAA contains no express pre- emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration.” Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 477 (1989). The purpose of the FAA is “to ensure the enforceabil- ity, according to their terms, of private agreements to arbitrate.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995); Volt Info. Sciences, Inc., 489 U.S. at 476. However, parties cannot be forced to arbitrate claims that they did not agree to arbitrate. As the United States Supreme Court has stated, Arbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to struc- ture their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted. Volt Info. Sciences, Inc., 489 U.S. at 479 (citations omitted). The FAA’s “proarbitration policy does not operate without regard to the wishes of the contracting parties.” Mastrobuono, 514 U.S. at 57. Because “arbitration is a matter of contract[,] . . . a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT & T Techs., Inc. v. Communi- cations Workers of Am., 475 U.S. 643, 648 (1986). 8a When parties agree to arbitration, the FAA ensures enforcement of that agreement by withdrawing “the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” Southland Corp., 465 U.S. at 10. However, consistent with the FAA, parties may agree that only certain issues will be submitted to arbi- tration or that they will not arbitrate at all. Cf Mitsubi- shi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985). Therefore, the question essentially becomes “what the contract has to say about the arbitrability of petitioner’s claim ....” Mastrobuono, 514 U.S. at 58. If the parties in this case agreed to arbitrate the claim of fraudulent inducement, then despite such a prohibition under Tennessee law,!° the claim must be submitted to arbitra- tion. Conversely, if the parties did not agree to arbitrate the claim of fraudulent inducement, then they can not be compelled to arbitrate the claim despite its arbitrability under the FAA.!! 10 In City of Blaine v. John Coleman Hayes & Associates, Inc., 818 S.W.2d 33, 38 (Tenn. Ct. App. 1991), the Court of Appeals held that the issue of fraudulent inducement could not be submitted to arbitration under the Tennessee Uniform Arbitration Act, Tenn. Code Ann. §§ 29-5-301 to -320 (Supp. 1990). 11 Citing the Supreme Court’s decision in Prima Paint Corp., Frizzell argues that the FAA compels the conclusion that a claim of fraudulent inducement to enter a contract is to be resolved in arbitration. While a claim of fraud in the inducement of a contract is certainly arbitrable under the FAA, a more close reading of the opinion, however, shows that the issue arose because “there [was] no evidence that the contracting parties intended to withhold that issue from arbitration.” 388 U.S. at 397. If evidence of such an intent had been presented in Prima Paint Corp., then a different conclusion may have resulted. The FAA simply does not compel arbitration of any issue unless (1) an express agreement exists to Mar ow Nd A CR a a ERIM CAEN Aeateor eI SUNS a wl As, 9 Ara lat ONLI BBC ON RE hy in 9a Courts should generally apply “ordinary state-law principles” in deciding whether the parties agreed to submit certain issues to arbitration. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (citing Mastrobuono, 514 U.S. at 62-63). Under Ten- nessee law, the law governing this contract, the “cardi- nal rule [in interpreting contracts] . . . is to ascertain the intention of the parties and to give effect to that inten- tion, consistent with legal principles.” Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975). Courts may determine the intention of the parties “by a fair construction of the terms and provisions of the contract, by the subject matter to which it has reference, by the circumstances of the particular transaction giving rise to the question, and by the construction placed on the agreement by the parties in carrying out its terms.” Penske Truck Leasing Co. v. Huddleston, 795 $.W.2d 669, 671 (Tenn. 1990). No single clause in a contract is to be viewed in isola- tion; rather, the contract is to be “viewed from beginning to end and all its terms must pass in review, for one clause may modify, limit or illuminate another.” Cocke County Bd. of Highway Comm'rs v. Newport Utils. Bd., 690 S.W.2d 231, 237 (Tenn. 1985). In this case, the arbitration clause purports to govern “[a]ll claims, disputes and other matters in questions arising out of, or relating to, this Agreement ....” Viewed in isolation, the breadth of this clause appears to evidence an intent to submit all issues to arbitration, arbitrate a specific issue, or (2) doubt exists as to whether the parties intended to withhold a specific issue from arbitration. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). 10a including issues of contract formation. However, reading the contract as a whole, the arbitration clause-- along with every clause in the contract--is limited and subject to the additional qualification that Tennessee law provides the basis for deciding questions concerning its scope and interpretation. Although the appellant urges that the Tennessee choice-of-law clause is without effect upon the arbitra- tion clause, we can find no support for this proposition in the contract itself. The choice-of-law clause plainly states that it governs the entire agreement, and no provision in the contract appears to be exempt from the effects of the choice-of-law clause. By stating that the contract is to be governed by Tennessee law, the parties have indicated their intention to arbitrate all disputes “arising out of, or relating to” their agreement—but only to the extent allowed by Tennessee law.!2 Interpreting each clause in light of the other, we read the arbitration clause to more accurately state, “In accordance with Tennessee law, all claims, disputes, and other matters in questions arising out of, or relating to, this Agree- ment . . . shall be decided by arbitration. . . .” Therefore, because Tennessee law contemplates judicial resolution of contract formation issues, we conclude that the parties have indicated their intention not to submit such issues to arbitration. 12 The parties in this case were both relatively sophisticated business contractors, and presumably, they were well aware that Tennessee law does not allow arbitration of contract formation issues. As such, the parties could have drafted the arbitration clause with some ease to specifically include arbitration of contract formation issues. The failure to do so, coupled with the express adoption of Tennessee law to govern the contract, leads this Court to conclude that the parties did not intend for contract formation issues to be decided by the arbitrator. ete) $ + ' = lla The FAA requires the courts of this state to enforce arbitration agreements according to their terms. Be- cause the parties in this case have agreed to arbitrate their disputes to the extent allowed by Tennessee law, we therefore hold that the chancery court properly submitted all issues relating to the merits of the contract to arbitration. We also hold that the chancery court properly withheld the issue of fraudulent inducement from arbitration in accordance with the intention of the parties. As evidence that a choice-of-law clause can not mod- ify an arbitration clause, the appellant quotes our state- ment in Tennessee River Pulp & Paper Co. v. Eichleay Corp., 637 S.W.2d 853 (Tenn. 1982), that “parties should not be able to render [the FAA] inapplicable by providing for arbitration under the laws of a particular state.” See 637 S.W.2d at 857. In Tennessee River, however, we did not specifically address the effects of a choice-of-law clause upon other contract provisions. We only held that the FAA rendered arbitration agree- ments fully enforceable according to their own terms, thereby modifying our common law. We did not hold that parties are incapable of choosing the law by which arbitration is to be conducted. Such a rule would be contrary to the declaration that “the FAA’s proarbitra- tion policy does not operate without regard to the wishes of the contracting parties.” See Mastrobuono, 514 U.S. at 57. Therefore, consistent with the policies underlying the FAA, our holding in this case simply reflects that parties may choose the arbitration law by which they intend to be governed. The enforcement of this agreement ac- cording to the intent of the parties is in full accord with 12a the FAA, even if the result is that the parties agree to submit some issues for judicial resolution that the FAA would otherwise permit arbitration to resolve. This Court “may give effect to the contractual rights and expectations of the parties, without doing violence to the policies behind the FAA.” See Volt Info. Sciences, Inc., 489 US. at 479. CONCLUSION To summarize, we hold that the chancery court erred in finding that this contract is one not “evidencing a transaction involving commerce.” We also hold that when viewed as a whole, the contract reveals the inten- tion of the parties to arbitrate all disputes to the extent allowed by Tennessee law. Because the parties did not intend to arbitrate contract formation issues, the chan- cellor’s decision not to submit the claim of fraudulent inducement to arbitration was consistent with the FAA. Therefore, we affirm the judgment of the Court of Appeals and remand the sole issue of fraudulent in- ducement to the chancery court for further proceedings consistent with this opinion. Costs are assessed to the appellant, Frizzell Construc- tion Company, Inc. Panel: ANDERSON, C.J., DROWOTA, BIRCH, J.J., BYERS, S.J. l3a APPENDIX B [Filed Nov. 2, 1998] IN THE COURT OF APPEALS AT KNOXVILLE FRIZZELL CONSTRUCTION COMPANY, INC., Plaintiff-Appellant, Vv. GATLINBURG, L.L.C., Defendant-Appellee. C.A. NO. 03A01-9805-CH-00161 _ JUDGMENT This appeal came on to be heard upon the record from the Chancery Court of Sevier County, briefs and argu- ment of counsel. Upon consideration thereof, this Court is of opinion that there was no reversible error in the trial court. We affirm the judgment of the trial court in reserving the issue of fraud in the inducement as a question to be determined by the court. Costs of this appeal are as- sessed to the appellant and this cause is remanded to the trial court for such other and further action as may be necessary. Sait) Pa aban NNR tt SIN A RN Ut NK i gee AB PER CURIAM l4a [Filed Nov. 2, 1998] IN THE COURT OF APPEALS AT KNOXVILLE FRIZZELL CONSTRUCTION COMPANY, INC., Plaintiff-Appellant, V. GATLINBURG, L.L.C., Defendant-Appellee. C.A. NO. 03A01-9805-CH-00161 OPINION McMurray, J. The facts of this case, as material to this appeal, are relatively simple. The parties entered into a contract for the construction of a hotel in Gatlinburg, Tennessee. The contract was a standard Associated General Con- tractors Construction Manager contract styled “Standard Form of Agreement Between Owner and Construction Manager.” The agreement contains two provisions that are germane to the issues under consideration here. ARTICLE 14 Assignment and Governing Law 2} ae 14.2 This Agreement shall be governed by the law of the place where the project is located. 15a ARTICLE 16 Arbitration 16.1 All claims, disputes and other matters in ques- tions arising out of, or relating to, this Agreement or the breach thereof, except with respect to the Archi- tect/Engineer’s decision on matters relating to artistic effect, and except for claims which have been waived by the making or acceptance of final pay- ment shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforce- able under the prevailing arbitration law. We will first note that the “place where the project is located” is Gatlinburg, Tennessee, therefore paragraph 14.2, Article 14, if effective, makes Tennessee law the governing law concerning the contract. If this provision is ineffective, then, in any event, Tennessee law governs since the contract was entered into here and the project is located here. A dispute, relating to the contract, arose between the parties. The dispute gave rise to a complaint in the Chancery Court for Sevier County by Frizzell for the purpose of enforcing a mechanic’s lien and for breach of contract. Frizzell, the appellant here, specifically charged in its complaint, (styled “Complaint to Enforce Mechanic’s Lien and for Breach of Contract’’) that the defendant, Gatlinburg, L.L.C., appellee here, “breached the construction management contract by failing to pay the amount owed under the construction contract.” A judgment for damages over and above the amount claimed to be subject to the mechanic’s lien was also l6a sought. Gatlinburg, L.L.C., filed its answer, a counter- claim and a third party action. Thereafter, Frizzell submitted a demand for arbitration. In its answer Gat- linburg denied that it owed Frizzell as alleged in the complaint but on the other hand, in its counterclaim, sought damages from Frizzell. Frizzell filed a motion to stay the court proceedings pending arbitration based on the contract provision. Gatlinburg opposed the motion and amended the counterclaim to allege that Frizzell fraudulently induced Gatlinburg to enter into the con- tract. It is this claim that constitutes the basis of this appeal. The court heard the motion to stay. The court noted in its order that the “issue presented to the court is whether the arbitration proceeding should go forward or whether this court should take jurisdiction of all or some issues as between Frizzell and Gatlinburg.” The court chose to retain jurisdiction to consider the legal issue of fraud in the inducement of the contract entered into by the parties in the primary case and ordered the parties not to submit this issue to the arbitrators. The court further deter- mined that the arbitrators in the primary case should resolve the construction disputes between those parties and render a decision to the court. This appeal resulted from this judgment of the trial court. The appellant presents the following issues for our consideration: I. Whether the trial court erred in failing to find that the contract between Frizzell and Gatlinburg involved interstate commerce as defined under the Federal Arbi- tration Act? 17a II. Whether the trial court erred in holding that even if the contract between Frizzell and Gatlinburg involved interstate commerce that the Federal Arbitration Act did not apply. The issue of whether the arbitration provisions of a contract require that a claim for fraud in the inducement of the contract be submitted to arbitration has been addressed and resolved in this jurisdiction. See City of Blaine v. John Coleman Hayes & Assoc., 818 §.W.2d 33 (Tenn. App. 1991), infra. The court resolved the issue against requiring the issue to be arbitrated. We, there- fore, agree with the result reached by the trial court. The Uniform Arbitration Act was passed by our Leg- islature in 1983 and is now codified as T.C.A. § 29-5-301 — §29-5-320. The provisions of the act pertinent to the controversy before us are T.C.A. § 29-5-302 which provides in pertinent part as follows: 29-5-302. Agreements to submit to arbitration - Jurisdiction. - (a) A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract, . City of Blaine v. John Coleman Hayes & Assoc., 818 S.W.2d 33 (Tenn. App. 1991), is a veritable treatise on the subject of whether “fraud in the inducement” is subject to arbitration. In Blain, Judge Crawford com- pared and contrasted the various resolutions of the issue in other jurisdictions including the position advanced by the United States Supreme Court. 18a In Blain, Judge Crawford speaking for this court noted: In 1983, when the Tennessee legislature passed the Uniform Arbitration Act, they had full knowledge of the long established right of a person to seek rescis- sion of a contract procured by fraud. With this knowledge, we find it logical for the legislature to intend to except actions for rescission from a deci- sion by arbitrators and giving the language of the statute its usual and ordinary meaning, the legislature did just that. This legislative intent is exemplified by Justice Black in the Prima [Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395 (1967)] dissent. “Fraud, of course, is one of the most com- mon grounds for revoking a contract. If the contract was procured by fraud, then, unless the defrauded party elects to affirm it, there is absolutely no con- tract, nothing to be arbitrated.” 87 S.Ct. at 1810. It would be difficult to improve on this language. Blaine, at page 38. It is well-settled in Tennessee contract law that fraud in the inducement renders contracts voidable at the instance of the party upon whom fraud was perpetrated. It is clear that an individual induced by fraud to enter into a contract may elect between two remedies. He may treat the contract as voidable and sue for the equita- ble remedy of rescission or he may treat the contract as existing and sue for damages at law. Vance v. Schulder, 547 S.W.2d 927, 931 (Tenn. 1977); Derryberry v. Hill, 745 S.W.2d 287, 291 (Tenn. App. 1987); Graham v. First Am. Nat’l Bank, 594 S.W.2d 723, 726 (Tenn. App. 1979). Thus, when a party to a contract seeks rescission in a court of competent jurisdiction and alleges facts, 19a which if proved to the requisite degree, would justify rescission of a contract, the very existence of the con- tract is in limbo until the issue is resolved. To require arbitration pursuant to the terms of a contract concerning the validity or very existence of the contract is to pre- suppose the validity and existence of the contract at least for some purposes. We do not understand this to be the law in Tennessee. It has been held that fraud vitiates every contract ab initio. Samuel v. King, 158 Tenn. 546, 14 S.W.2d 963 (1929). Therefore, if there is no con- tract, there is no arbitration clause. As to the issues as framed by the appellant, unless and until it is established that there is a contract in existence, a consideration of whether the contract is controlled by or subject to the Federal Arbitration Act is premature. Whether the contract should be rescinded and voided is a question that can be answered only after a trial on the merits. If it is rescinded, there is nothing to arbitrate. On the other hand, if the contract is found to be valid and binding, the disputes between the appellant and the appellee are subject to arbitration. 20a We affirm the judgment of the trial court in reserving the issue of fraud in the inducement as a question to be determined by the court. Costs of this appeal are as- sessed to the appellant and this cause is remanded to the trial court for such other and further action as may be necessary. /s/ Don T. McMurray, J. CONCUR: /s/ Houston M. Goddard, Presiding Judge /s/ William H. Inman, Senior Judge 2la APPENDIX C [Dated May 8, 1998] IN THE CHANCERY COURT FOR SEVIER COUNTY, TENNESSEE FRIZZELL CONSTRUCTION COMPANY, INC. Plaintiff, V. SAMUEL K. COX, CONSTANCE COX WALKER, WILLIAM H. COX, GATLINBURG, L.L.C., TENNESSEE STATE BANK, A. RANDOLPH SYKES, Defendants. v. GATLINBURG, L.L.C., Defendant, Counter-Plaintiff, and Third-Party Plaintiff ¥. UWE ROTHE, d/b/a ROTHE ARCHITECTURE AND PLANNING and WALTER SEEK, Third-Party Defendants. ORDER This matter came on for hearing before the Honorable Chancellor Telford Forgety on the Motion to Reconsider 22a filed by Frizzell Construction Company, Inc. After reviewing the Motion, Response, Memoranda and attached exhibits thereto submitted by both parties and after hearing arguments of counsel, the Court hereby denies the Motion to Reconsider and incorporates herein by reference its Memorandum Opinion attached hereto. IT IS SO ORDERED. /s/ CHANCELLOR TELFORD FORGETY APPROVED FOR ENTRY: /s/ C. PAUL HARRISON Long, Ragsdale & Waters 1111 Northshore Drive Knoxville, Tennessee 37919 /s/ BERNARD E. BERNSTEIN CELESTE H. HERBERT Bernstein, Stair & McAdams 530 S. Gay Street Suite 600 Knoxville, Tennessee 37902 23a IN THE CHANCERY COURT FOR SEVIER COUNTY, TENNESSEE FRIZZELL CONSTRUCTION COMPANY, INC., Plaintiff, v. SAMUEL K. COX, ET AL. Defendants. No. 97-8-208 TRANSCRIPT OF EVIDENCE April 23, 1998 BEFORE: Hon. Telford E. Forgety, Presiding * * * THE COURT: You’re welcome. Gentlemen and ladies, I appreciate your help in this case. You’ve done a lot of good work, a lot of good research. You’ve briefed the issue well. You’ve helped me as much as I think it is possible to help me. I’m going to overrule the motion to reconsider. I am not satisfied, number one, that there’s interstate com- merce here in this particular contract; that is the contract between Frizzell and Gatlinburg, LLC. I’m not sure that all of these other things that came later, that came after the fact, make this contract involve interstate commerce so to bring the agreement under the FAA. 24a Even if that were not the case, I am not sure that even if there were interstate commerce that given the Volt decision of the United States Supreme Court that Ten- nessee law on the issue of fraud in the inducement might not yet be applicable in this day in time, as I observed earlier. I’ve looked at the Ejichleay case and studied it up. And I’ve studied the others as well as I can. It’s clear to me that the United States Supreme Court has backed down from the broadest interpretation that it had been giving to the Federal Arbitration Act in the Volt deci- sion. It applied a California statute, which Counsel here admits, and I think properly so, which is in conflict in some respects with the Federal Arbitration Act. That indicates to me that if the particular issue were before the Tennessee Supreme Court today, the best guess I can make is that given the City of Blaine v. John Coleman Hayes decision that if the particular issue were before the Tennessee Supreme Court today, would a fraud in the inducement claim under Tennessee law be _ required to be submitted to an arbitrator under the Federal Arbitration Act or would the Volt decision apply to allow the fraud in the inducement claim to be sub- mitted to the Court as required in the City of Blaine v. John Coleman Hayes. My conclusion is that the Su- preme Court of Tennessee, if it were before it, would look at it and say, “In light of Volt, it appears that that fraud in the inducement claim would be saved to the Court under Tennessee law.” I don’t know that that’s correct. As I said, I just wish that we had a case that hit us directly between the eyes on that. We don’t. We have 25a to put three or four things together. We've got to con- sider three or four things. The Eichleay decision comes pretty close, at least based on the circumstances as they existed in 1982. But the Eichleay case did not really address the issue of fraud in the inducement claim. The issue there was, as the Court said, are agreements to arbitrate irrevocable at will. So they were dealing in the Eichleay case, and | think that colored the decision some. They were dealing with the situation where the question was, do we arbi- trate at all, anything, as opposed to one particular issue that’s saved to the Court, that is fraud in the inducement, where all other issues are subject to arbitration. And | think that colored the decision. Because, clearly, at that time and clearly now, the national policy as stated in the Federal Arbitration Act is that once you sign an arbitra- tion contract you'll be required to arbitrate. Tennessee has that statute. So I’m not sure that if the Tennessee Supreme Court had it today, even assuming interstate commerce, I’m not sure that under the Volt decision they would say that the issue of fraud in the inducement is yet one that must be sent to the arbitrator under the FAA. So I'll overrule the motion to reconsider. Is there anything further? MR. BERNSTEIN: No, Your Honor. MR. HARRISON: That’s all, Your Honor. MR. BERNSTEIN: Your Honor, we’ll write this in and bring it back to you. 26a THE COURT: Yes. Write that in and I'll sign it this morning. I apologize to you gentlemen for not having that order entered. (End of proceedings.) 27a APPENDIX D [Entered March 23, 1998] WHALEY & SONS, INC., Plaintiff, V. FRIZZELL CONSTRUCTION COMPANY, INC., ET AL. Defendants. No. 97-10-303 ORDER This cause came on to be heard before the Honorable Telford Forgety, Chanceller, holding the Chancery Court for Sevier County, Tennessee on the 6th day of February, 1998. The Court in Frizzell Construction Company, Inc., v. Cox et al., No. 97-7-208 (hereafter the “Primary Case’’) had before it for consideration a Motion For Stay of Proceedings Pending Arbitration filed by Frizzell Con- struction Company, Inc. (hereafter “Frizzell”); a Motion for Stay of Arbitration Proceedings filed by Gatlinburg, LLC (hereafter “Gatlinburg”), a Motion for Scheduling Conference in the alternative, Motion For Consolidation filed by Gatlinburg; and a Motion To Shorten Time for Frizzell to respond to discovery filed by Gatlinburg. At a hearing held on December 12, 1997, the Court was advised that there were seven other pending cases (hereafter “Subcontractor Cases”) arising out of the construction of the Clarion Hotel in Gatlinburg, Tennes- see, involving Frizzell as the general contractor and 28a Gatlinburg as the owner. The Court directed counsel for Frizzell and Gatlinburg to file a Motion to Consolidate or to arrange for a scheduling conference pursuant to Rule 16 of the Tennessee Rules of Civil Procedure. Notice of this hearing on February 6, 1998 was duly sent to counsel for all parties in all of the pending cases. (Since all of these cases have separate case numbers, a copy of this Order will be filed in each case.) The record before the Court reflects that Frizzell filed its Complaint against Gatlinburg on August 1, 1997. Frizzell basically asserts a claim for monies due it under the construction contract. Gatlinburg filed its Answer and Counterclaim against Frizzell on October 14, 1997 and also filed at the same time a third-party complaint naming as third-party defendants Uwe Rothe (the archi- tect for the hotel) and Walter Seek (the structural engi- neer for the hotel). Subsequently on November 3, 1997, Frizzell filed an application for arbitration pursuant to the contract between Frizzell and Gatlinburg. On November 11, 1997, Frizzell filed in this Court a Motion For Stay of Proceedings Pending Arbitration and on January 2, 1998, Gatlinburg filed in this Court a Motion for Stay of Arbitration Proceedings. Thus, the issue presented to the Court is whether the arbitration proceedings should go forward or whether this Court should take jurisdiction of all or some of the issues as between Frizzell and Gatlinburg. The Court notes that none of the claims being asserted in the Subcontractor cases are subject to arbitration and this Court will have to deal with those claims. Frizzell has argued that the arbitration clause in its contract with Gatlinburg must be adhered to by this Court and that it only filed the Primary Case against 29a Gatlinburg in this Court in order to establish its lien claim in a timely manner. Gatlinburg has advised the Court and Frizzell has acknowledged that Gatlinburg has furnished a bond to protect Frizzell on its alleged lien claim. Gatlinburg has argued that its counterclaim against Frizzell asserts claims for fraud in the inducement, misrepresentation, indemnification from other lien claimants, construction deficiencies, delay damages and an accounting. Further, Gatlinburg has argued that its third-party complaint against Uwe Rothe and Walter Seek are not subject to the arbitration proceedings between Frizzell and Gatlinburg. Gatlinburg has also pleaded and advised the Court that it will, at the appro- priate time, name as third-party defendants Fireman’s Fund (the bonding company) and Southern Cast Stone (a supplier of exterior facing materials) to Frizzell. Gatlinburg has urged this Court to retain overall juris- diction of the Primary Case and the Subcontractor cases now pending before it and to determine the legal issues while referring the construction disputes in the Primary Case to arbitration. By doing so, the Court could avoid inconsistent findings that may result from the arbitrators making certain decisions on construction matters and the Court deciding some of those same issues between the other parties. Further, that the Court can better deter- mine the other legal issues that arise in these proceed- ings. Frizzell has urged this Court should not and cannot interfere with the arbitration inasmuch as the parties have provided for arbitration in their contract and have engaged in interstate commerce. 30a The Court has considered the argument of counsel, the pleadings and affidavits filed and the entire record. The Court recognizes that the arbitration that has been initiated cannot resolve the Subcontractor cases that are before the Court nor can the arbitration proceedings resolve bond claims or product claims that are yet to be asserted. Most importantly, the arbitrators (None of whom are lawyers or judges. See affidavit of Cleste H. Hebert) cannot resolve the fraud in the inducement claim asserted by Gatlinburg. Accordingly, the Court will need to reserve the determination of legal issues and refer to arbitration the purely construction claims, all as set forth below. IT IS THEREFORE ORDERED, ADJUDGED AND DECREED AS FOLLOWS: 1. The Court will retain jurisdiction to consider the legal issue of fraud in the inducement of the contract entered into by the parties in the Primary Case and the parties are hereby ordered not to submit those issues to be arbitrators. 2. The arbitrators in the Primary Case will deter- mine the construction disputes as between those parties and will render their decision to this Court and to the parties. 3. When the arbitrators have made a determination concerning construction disputes, the Court will then, if necessary, consider the Subcontractor cases. 4. The Court will give all applicable effect to the findings of the arbitrator and endeavor to fashion a judgment which will provide relief as may be appropri- ate between Gatlinburg LLC, Frizzell Construction 3la Company, Inc. and its subcontractors in all of these pending cases after the arbitration has been concluded so that the judgment of the arbitrators and the judgment of the Court shall be consistent as between Gatlinburg LLC and Frizzell Construction Company, Inc. 5. The Court denies the Motion to Consolidate all the above-styled pending actions and may schedule a conference in the future if the Court deems it appropri- ate. 6. The Motion of Gatlinburg to shorten time for Response to Discovery is withdrawn by Gatlinburg. 32a ENTER this 23 day of March, 1998. APPROVED FOR ENTRY: /s/ TELFORD FORGETY CHANCELLOR C. PAUL HARRISON Long, Ragsdale & Waters 1111 Northshore Drive Knoxville, Tennessee 37919 /s/ BERNARD E. BERNSTEIN CELESTE H. HERBERT Bernstein, Stair & McAdams 530 S. Gay Street, Suite 600 Knoxville, Tennessee 37902 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1025%3A1. Public record. Not legal advice.