Express‐Exclusion and Severability in Arbitration Agreements: Carter v. Morrow

Introduction

Carter v. Morrow, decided March 21, 2025 by the Supreme Court of Alabama, arises from a failed real‐estate sale whereby Trista Carter agreed to buy a house and 245 acres from Johnny and Martha Morrow for $1.6 million. The written contract contained an extensive arbitration clause (paragraph 13), but expressly excluded certain disputes—namely disputes over earnest money (paragraph 12) and small‐claims, non‐jury actions (paragraph 11(a)). When Carter failed to close, the Morrows sued for breach of contract and to interplead the $25,000 earnest money held in escrow by Crye‐Leike, Inc. Carter moved to compel arbitration; the trial court denied her motion on the ground that the Morrows’ claims fell within the exclusion for interpleader actions. Carter appealed.

Summary of the Judgment

The Alabama Supreme Court reviewed de novo the trial court’s denial of Carter’s motion to compel arbitration. It held:

The trial court correctly refused to arbitrate the Morrows’ interpleader claim regarding earnest money, because paragraph 12 of the contract expressly carves that dispute out of arbitration.
The trial court erred in denying arbitration of the Morrows’ breach‐of‐contract claim. Paragraph 13 broadly submits “[a]ll disputes… arising out of or relating to this agreement” to arbitration, except those explicitly excluded in paragraphs 11(a) and 12.
Pursuant to the Federal Arbitration Act and controlling precedent (e.g., KPMG LLP v. Cocchi), severable arbitrable claims must be sent to arbitration even if non‐arbitrable claims remain in court.
Accordingly, the Court affirmed in part (interpleader exception) and reversed in part (breach‐of‐contract), remanding for arbitration of the latter claim.

Analysis

Precedents Cited

Parkway Dodge, Inc. v. Yarbrough, 779 So. 2d 1205 (Ala. 2000) – de novo review and summary‐judgment standard for arbitration motions.
TranSouth Fin. Corp. v. Bell, 739 So. 2d 1110 (Ala. 1999) – burden‐shifting once arbitration agreement shown.
Jim Burke Automotive, Inc. v. Beavers, 674 So. 2d 1260 (Ala. 1995) – non-movant’s burden to show arbitration agreement invalid or inapplicable.
Thompson v. Skipper Real Estate Co., 729 So. 2d 287 (Ala. 1999) – interstate‐commerce element in real-estate arbitration.
KPMG LLP v. Cocchi, 565 U.S. 18 (2011) – arbitrable vs. non-arbitrable claims must be severed and arbitrated.
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) – FAA policy favoring arbitration, permitting piecemeal litigation.

Legal Reasoning

Under the Federal Arbitration Act (9 U.S.C. § 1 et seq.), arbitration clauses are “valid, irrevocable, and enforceable” unless a statutory or contractual exception applies. The Court:

Confirmed that Carter met her initial burden by producing the signed agreement and demonstrating the interstate‐commerce nexus.
Held the Morrows bore the burden to show the arbitration clause did not apply. They relied on the contract’s express carve-out for interpleader disputes in paragraph 12.
Distinguished between the Morrows’ two claims:
- The interpleader claim (Count 2) lay squarely within the paragraph 12 carve-out and was non-arbitrable.
- The breach-of-contract claim (Count 1) sought general damages and specific performance—matters “arising out of or relating” to the contract and thus covered by paragraph 13.
Invoked the Supreme Court’s severability principle (KPMG v. Cocchi): where some claims are arbitrable and some are not, the arbitrable ones must be sent to arbitration despite potential piecemeal proceedings.

Impact

Carter v. Morrow clarifies two key points for Alabama contract drafters, practitioners, and courts:

Express-Exclusion Doctrine: Contractual carve-outs from arbitration will be enforced according to their plain terms. Parties must carefully draft any exceptions, and courts will give effect to them.
Severability and PIECEMEAL LITIGATION: Even when a contract excludes certain disputes from arbitration, all other claims covered by the arbitration clause must be sent to arbitration immediately, consistent with FAA policy. Courts may concurrently adjudicate non-arbitrable claims or stay them at their discretion.

This decision underscores the importance of precise drafting and alerts litigants that partial refusals to arbitrate are unlikely—arbitrable claims will be enforced even if litigation on excluded claims continues.

Complex Concepts Simplified

Arbitration Clause: A contractual provision requiring parties to resolve disputes before an arbitrator rather than a court.
Carve-Out / Express Exclusion: A clause specifically stating which disputes the parties agree not to arbitrate.
Interpleader: A procedural device allowing a stakeholder (e.g., an escrow agent) to deposit disputed funds with a court and force claimants to litigate entitlement among themselves.
Summary-Judgment Analogy: Motions to compel arbitration are treated like summary-judgment motions—courts look only at submitted evidence and pleadings.
Federal Arbitration Act (FAA): Federal statute that makes arbitration agreements enforceable as written, subject to narrow defenses (fraud, duress, unconscionability).
Severability Principle: Under FAA precedent, arbitrable and non-arbitrable claims may be separated so that arbitrable claims proceed in arbitration even if others remain in court.

Conclusion

Carter v. Morrow reaffirms Alabama’s commitment to upholding arbitration agreements under the FAA while respecting clearly drafted carve-outs. It demonstrates that:

Parties cannot avoid arbitration simply by grouping arbitrable claims with non-arbitrable ones.
Court‐ordered arbitration will be granted for all disputes within the scope of the arbitration clause, except those expressly excluded.
Contracts must precisely delineate any exceptions to avoid unintended litigated claims.

Going forward, litigants in Alabama will look to Carter v. Morrow when interpreting the interplay of arbitration clauses, carve-out provisions, and the severability of arbitrable claims from non-arbitrable disputes.