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Missouri Law Blog Legal updates, news, and commentary from the attorneys of Baker Sterchi Cowden & Rice LLC

Missouri Court of Appeals Finds Arbitrator Lacked Authority to Resolve Automobile Repossession Dispute

September 20, 2021 | John Brooks

The Missouri Court of Appeals, Western District, recently reversed a trial court decision and subsequent arbitration award in favor of an automobile repossessor. In Car Credit, Inc. v. Pitts, the Court of Appeals held that the trial court incorrectly allowed arbitration of Pitts’ claims against Car Credit. The contract at issue designated the National Arbitration Forum (“NAF”) as arbitrator of disputes arising between Car Credit and Pitts related to the vehicle purchase.  At the time Pitts filed her lawsuit, the NAF was not available to serve as arbiter.  Consequently, Car Credit could not resolve Pitts’ claims through arbitration.  

Following Car Credit’s repossession of her vehicle in 2015, Pitts sued Car Credit and claimed breach of contract.  Pitts also sought to pursue a class action lawsuit against Car Credit.  Pitts alleged Car Credit engaged in a “deceptive pattern of wrongdoing . . . regarding collection of alleged deficiencies.”  Car Credit moved to compel arbitration of Pitts’ claims.  Pitts purchased the vehicle at issue from Car Credit in 2011 and financed the purchase.  Pitts signed an arbitration agreement at the time of purchase:

You and we [Car Credit] agree that if any Dispute arises, either you or we may choose to have the Dispute resolved by binding arbitration under the rules then in effect of the Arbitration Organization shown below (if no Arbitration Organization is shown below, the Arbitration Organization shall be the National Arbitration Forum). If such rules conflict with this Arbitration Agreement, the terms of this Arbitration Agreement shall apply.

While the arbitration clause referenced an arbitration organization “listed below,” the arbitration agreement did not identify any specific organization, leaving the NAF as the applicable arbitration organization.  Car Credit cited this arbitration agreement and moved to compel arbitration.  Pitts correctly pointed out that the NAF was no longer available to serve as arbitrator.  Pitts argued that since the NAF was the sole designated arbitration agency and was not available, the court should not compel arbitration.  The NAF stopped providing arbitration services in 2009 after Minnesota’s Attorney General sued it for alleged consumer fraud, false advertising, and deceptive trade practices.

The trial court denied Car Credit’s first motion to compel arbitration.  However, after Pitts moved to certify the class action claims against Car Credit, Car Credit made a renewed motion to compel arbitration.  At the time, the Missouri Court of Appeals had recently held that an arbitration agreement was enforceable even though it designated the NAF as arbitrator in A-1 Premium Acceptance v. Hunter, WD79735, 2017 WL 3026917, at * 5 (Mo. App. W.D. July 18, 2017).  The trial court granted Car Credit’s renewed motion and Pitts’ claims proceeded to arbitration.  After the trial court granted arbitration of Pitts’ claims, the Missouri Supreme Court overruled the Court of Appeals’ decision in the separate case, A-1 Premium Acceptance v. Hunter, 557 S.W.3d 923, 929 (Mo. banc 2018), and held that separate organization could not arbitrate disputes where the NAF was unavailable. 

Meanwhile, in Pitts’ case, since the NAF was unavailable, an arbitrator from the American Arbitration Association (“AAA”) reviewed Pitts’ claims.  That arbitrator found in favor of Car Credit.  Based on that determination, the trial court entered judgment in favor of Car Credit and decertified the class action claims.  Pitts appealed. 

The Court of Appeals reversed, holding that since Pitts and Car Credit agreed to resolve their disputes before the NAF, the AAA arbitrator lacked the authority to determine the validity of Pitts’ claims.  The appellate Court held that the applicable federal law—the Federal Arbitration Act—does not require a court to compel arbitration when the parties agree to arbitrate only before a specified arbitrator.  Furthermore, the Missouri Supreme Court’s recent decision in A-1 Premium Acceptance v. Hunter was on point.  In both cases, the parties agreed that the NAF would resolve disputes: “[T]he agreement clearly provided the parties the opportunity to identify an organization other than NAF, and, with equal clarity, the parties unambiguously declined to do so . . .”

 While Car Credit will have the opportunity to appeal this decision to the Missouri Supreme Court, it is likely that the recent decision in A-1 Premium Acceptance v. Hunter will result in Pitts’ claims against Car Credit, including Pitts’ class action claims, moving forward.  If the applicable arbitration agreement had designated a different arbitrator from the NAF, or had provided an alternative arbitrator, Pitts’ claims likely would have been resolved through arbitration.  Careless drafting was also a key factor here.  Pitts entered into this agreement in 2011, nearly two years after the NAF had stopped arbitration.  Had the applicable arbitration agreement been updated to remove the NAF as arbitrator and designate a different organization after Minnesota’s lawsuit in 2009, Car Credit may have been able to successfully compel arbitration.  Parties seeking to resolve disputes through arbitration should be careful to ensure their agreements are up to date with the current law.  

Back to Basics: Missouri Court of Appeals Highlights Importance of "Plain-Meaning" Rule in Contract Interpretation

September 8, 2021 | Kyra Short

The Eastern District of the Missouri Court of Appeals reversed a trial court’s grant of summary judgment in Pelopidas, LLC et al. v. Keller due to that court’s erroneous contract interpretation, and instead ordered that summary judgment be entered for the opposing party. In its ruling, the Court of Appeals underscored the basic tenets of contract interpretation and highlighted the role of the American Bar Association’s A Manual of Style for Contract Drafting as “a highly regarded authority on contract drafting.”

The case originated from a 2016 dispute concerning the management of a commercial enterprise jointly owned by ex-spouses. The parties entered into a settlement agreement in September 2019, whereby the ex-wife (Keller) agreed to transfer her 50% ownership in the business to Respondents (Pelopidas, LLC and Brown) in exchange for compensation of $8.85 million. Following the September 2019 settlement agreement, the timing of the Keller’s transfer of her Pelopidas stock became a point of contention between the parties, as the contract itself did not contain a date of transfer. Respondents sued to enforce the terms of the settlement agreement, claiming that Keller had transferred her 50% ownership interest effective as of the date of the settlement agreement; seeking to enjoin Keller from claiming she still had an ownership interest in the company; instructing the parties to finalize the settlement under which Keller was to be paid $1.1 million that Brown had placed in escrow; and awarding Respondents their reasonable attorneys’ fees. Keller counterclaimed, seeking damages for Respondents’ alleged failure and refusal to make an accelerated payment of $8.6 million pursuant to the terms of the settlement agreement.

The disputed language in the settlement agreement reads as follows: “… [Keller’s] stock shall be surrendered/sold, escrowed and pledged back to plaintiff.” Respondents argued that the language required Keller’s stock to be immediately transferred upon the date of settlement, September 30, 2019. Keller contended that, according to the settlement agreement’s language, the transfer would become effective on “some future date (i.e., whenever the parties could negotiate, draft, and execute the necessary supplemental documentation).”

The trial court granted summary judgment in favor of the Respondents, finding that “Keller surrendered, transferred, and assigned all right, title, and interest in Pelopidas, LLC effective September 20, 2019.”  The trial court likewise denied Keller’s cross-motion for summary judgment, and awarded Respondents over $400,000 in attorneys’ fees.

On appeal, Keller argued that the lower court erred and that Respondents were not entitled to judgment as a matter of law because the settlement agreement “contained a promise of future performance regarding the transfer of her stock in Pelopidas to Brown.”  Rather, Keller argued, she was entitled to summary judgment, ordering that payment be made at some reasonable future date. The Court of Appeals agreed with Keller.

The appellate court noted that summary judgment in contract interpretation disputes is not appropriate where the contract language is ambiguous or requires a factual determination by the court. But here, there was no dispute that the contract language required Keller to transfer her stock, and the only question at issue was when that transfer should occur. That issue, the Court of Appeals concluded, was ripe for summary disposition.

On the matter of contract interpretation, the appellate court emphasized the familiar principle that the judiciary should use the “plain, ordinary, and usual meaning of the contract’s words” in order to give effect to the intention of the contracting parties. In determining the timing of Keller’s stock transfer to Respondents, the court ruled that the use of “shall be” in the parties’ settlement agreement imposed a future obligation on Keller and did not create a requirement for immediate performance.

In its decision, the court endorsed Keller’s citations to the ABA Manual of Style for Contract Drafting, which instructs that contract drafters can select between “language of performance” and “language of obligation” among other types operative contract language. Language of performance “expresses actions accomplished by means of signing the contract itself” and is typically accompanied by use of the word “hereby.” Language of obligation “is used to state any duty a contract imposes on one or more parties and is typically accomplished by the use of the word “shall.”” The court further emphasized that because the English language does not contain a future tense, “shall and will have come to be used with future time.” The court further instructs that, even though “shall” is “now used in a variety of other ways, “in the stylized context of the language of business contracts … shall continues to serve as the principal means of expressing obligations.” The court also found that Keller’s interpretation of “shall” was consistent with dictionary definitions for the term.

Based on their findings, the appellate court reversed the trial court’s grant of summary judgment against Keller and instead directed the circuit court to enter judgment for Keller, plus interest and attorneys’ fees.

This case serves as an important reminder to go back to basics when drafting business contracts in Missouri. Drafters must pay special attention to the plain language meaning of the language they choose, to avoid ambiguity and ensure that the contract accurately reflects the intention of the parties. And they should pay special heed to the distinction between “language of performance” and “language of obligation”.

* Hannah D. Chanin assisted in the research and drafting of this post.  Chanin earned her J.D. from Washington University School of Law in St. Louis this spring and is a current candidate for admission to the Missouri Bar.   

Related Services: Appellate

Attorneys: Kyra Short

Missouri Court of Appeals affirms denial of motion to compel arbitration based on contract of adhesion

August 10, 2021 | John Brooks

The Eastern District Missouri Court of Appeals recently affirmed a trial court decision that denied Verizon’s motion to compel arbitration. In Rose v. Verizon Wireless Services, LLC, the Court of Appeals held that an arbitration provision was not enforceable because the contract at issue was an unenforceable contract of adhesion and did not match the reasonable expectations of the parties.

Plaintiff Breanna Rose sued Verizon Wireless and its employee Santiago Sabala, Jr. based on a visit to a Verizon store in St. Louis County to exchange her iPhone 6s for a newer model. Rose alleged that Sabala took her iPhone into the back of the store, purportedly to evaluate its condition for the trade in; but that four months later, she discovered Sabala sent an email from Rose’s phone to Sabala’s email address, attaching intimate photographs of Rose. Obtaining private, intimate images of a person without their consent is a felony under Missouri law. R.S. Mo § 573.110.2. Rose claimed negligent infliction of emotional distress and invasion of privacy by Sabala, and negligence and negligent hiring, retention and supervision by Verizon Wireless Services, as the employer of Sabala.

Verizon moved to compel arbitration. Verizon argued that Rose agreed to Verizon’s customer agreement when she purchased her iPhone 6s. That agreement contained a clause requiring arbitration of any customer dispute, under the Federal Arbitration Act:

ANY DISPUTE THAT IN ANY WAY RELATES TO OR ARISES OUT OF THIS AGREEMENT OR FROM ANY EQUIPMENT, PRODUCTS AND SERVICES YOU RECEIVE FROM US (OR FROM ANY ADVERTISING FOR ANY SUCH PRODUCTS OR SERVICES), INCLUDING ANY DISPUTES YOU HAVE WITH OUR EMPLOYEES OR AGENTS, WILL BE RESOLVED BY ONE OR MORE NEUTRAL ARBITRATORS . . ..

Rose argued that Verizon’s customer agreement constituted a contract of adhesion. Contracts of adhesion are typically contracts offered on a “take this or nothing basis,” as opposed to a contract where the terms are negotiated by the parties. Swain v. Auto Servs., Inc., 128 S.W.3d 103, 107 (Mo. App. E.D. 2003). Most people have experienced contracts of adhesion when scrolling through lengthy terms and conditions of service and clicking “accept,” usually without actually reading the terms and conditions. The Circuit Court agreed with Rose, and denied Verizon’s motion to compel arbitration. Ordinarily parties must wait to appeal until a final judgment is entered, but Missouri law allows an immediate appeal from an order denying an application to compel arbitration. § 435.440.1(1), RSMo. Verizon appealed.

The appellate Court ruled against Verizon and affirmed the circuit court’s decision to deny arbitration. As the appellate Court noted, contracts of adhesion can be enforceable, depending on whether the contract matches the reasonable expectations of the parties. However, the store receipt signed by Rose when she purchased her phone did not contain the above arbitration clause itself, but merely referenced the online customer agreement and arbitration, as follows (emphasis added):

I AGREE TO THE CURRENT VERIZON WIRELESS CUSTOMER AGREEMENT (WITH EXTENDED LIMITED WARRANTY/SERVICE CONTRACT, IF APPLICABLE), INCLUDING THE TERMS AND CONDITIONS OF MY PLAN AND ANY OPTIONAL SERVICES I HAVE AGREED TO PURCHASE AS REFLECTED ON THE SERVICE SUMMARY, ALL OF WHICH I HAVE HAD THE OPPORTUNITY TO REVIEW. I UNDERSTAND THAT I AM AGREEING TO AN EARLY TERMINATION FEE PER LINE, LIMITATIONS OF LIABILITY FOR SERVICE AND EQUIPMENT, SETTLEMENT OF DISPUTES BY ARBITRATION INSTEAD OF JURY TRIALS, AND OTHER IMPORTANT TERMS IN THE CUSTOMER AGREEMENT. I AM AWARE THAT I CAN VIEW THE CUSTOMER AGREEMENT ANYTIME AT VERIZONWIRELESS.COM OR IN MY VERIZON ACCOUNT.

The appellate Court noted that while the receipt Rose signed does mention settling disputes by arbitration, that reference was merely a portion of a single sentence and did not set out the full terms of arbitration, as described in Verizon’s customer agreement. The full customer agreement was a separate document from the one signed by Rose. The appellate Court also ruled that the circumstances of the transaction weighed against Verizon, in that Santiago’s alleged actions did not relate to Verizon’s telecommunications business. Because the reasonable expectations of the parties would not include arbitrating disputes related to a Verizon employee allegedly obtaining intimate photographs of a customer, the appellate Court held that Verizon was not entitled to arbitration.

Arbitration is often favored as a less expensive method of resolving disputes. Parties can forego the expense related to interviewing and selecting jurors and generally reach a quicker resolution, while trials may take months or even years. The appellate Court’s decision does not mean that all contracts of adhesion are unenforceable, or even that contracts of adhesion containing arbitration clauses are unenforceable. The Court emphasized that its decision was narrow and based on the specific allegations of misconduct by Sabala. If the allegations were different – for example, if an employee dropped and broke a customer’s phone while handling it – the appellate Court may have permitted arbitration. Likewise, if the full terms regarding arbitration were contained in the receipt signed by Rose, the appellate Court may have permitted arbitration. Parties entering into written contracts should be careful to ensure both sides fully appreciate the contractual terms they are agreeing to, especially terms requiring arbitration of disputes. 

Related Services: Appellate and Employment & Labor

Attorneys: John Brooks

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The BSCR Missouri Law Blog examines significant developments, trends and changes in Missouri law on a broad range of topics of interest to Missouri practitioners and attorneys and businesses with disputes subject to Missouri law. Learn more about the editor, David Eisenberg.

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