Do you have a valid and enforceable arbitration agreement? Is your arbitration provision unconscionable? Have you waived your right to arbitration? Missouri litigants may have the right to submit these threshold legal questions to an arbitrator.
In TD Auto Finance, LLC v. Bedrosian, the Missouri Court of Appeals, Eastern District, reversed the circuit court’s denial of a motion to compel arbitration, finding that the threshold issues of arbitrability were delegated to an arbitrator under the parties’ agreement and the circuit court erred in finding a lack of consideration for the arbitration agreement.
Bedrosian purchased a vehicle from a Missouri dealership. In seeking to finance her purchase, Bedrosian executed a Credit Application through TD Auto Finance, LLC (“TD Auto”). Bedrosian ultimately defaulted on her loan payments. TD Auto repossessed and sold the vehicle and then sued Bedrosian to the collect the deficiency. Bedrosian answered and filed a counterclaim. TD Auto moved to compel arbitration.
The credit application contained a section titled: “IMPORTANT CONTRACT OF ARBITRATION.” (Capitalized text in original) The arbitration provisions that provided “If any of us chooses, any dispute between or among us will be decided by arbitration and not in court” and “Any claim or dispute, whether in contract … (including any dispute over the interpretation, scope, or validity of this Important Contract of Arbitration or the arbitrability of any issue)… shall, at the election of any of us… be resolved by neutral, binding arbitration and not by a court action.”
Bedrosian opposed arbitration claiming: (1) the purported arbitration agreement was never formed or concluded because it lacked mutual promises and thus lacked consideration; (2) even if the arbitration agreement had been formed, the agreement was unconscionable; and (3) event if the agreement was valid and enforceable TD Auto had waived its right to arbitration by repossessing the vehicle and initiating a lawsuit against her. The trial court agreed with all three points raised by Bedrosian and denied the motion to compel arbitration.
On appeal, TD Auto contended: (1) the claims addressed by the circuit court were reserved for an arbitrator to decide, including the threshold issues of arbitrability; and (2) the court erred in finding a lack of consideration because the arbitration provision was part of the credit application which did have mutual obligations.
The Court of Appeals found that the circuit court erred in evaluating separate consideration for the arbitration provision because under Eaton v. CMH Homes, Inc., mutuality of the whole agreement satisfies the consideration for an arbitration provision.
The Court of Appeals also found that like arbitration in general, the question of who decides threshold arbitrability questions is a matter of contract and that the parties can agree by contract that an arbitrator will resolve threshold arbitrability questions as well as the underlying disputes.
The Court of Appeals thus concluded that threshold questions of arbitrability, concerning unconscionability and waiver by litigation were “reserved for the arbitrator. The circuit court should not have ruled on these matters.”