Warren v. Smart Choice Payments, Inc. , 306 Or. App. 634 ( 2020 )

634
Argued and submitted May 17, 2019, affirmed September 23, 2020
Jason WARREN,
Plaintiff-Respondent,
v.
SMART CHOICE PAYMENTS, INC.;
Wholesale Merchant Processing, Inc.;
North American Processing Solutions, LLC;
and Todd McCartney,
Defendants-Appellants.
Washington County Circuit Court
17CV05531; A166758
475 P3d 444
Defendants appeal from a trial court order denying their petition to compel
arbitration after plaintiff sued them for breach of contract, unjust enrichment,
and fraud. Defendants contend that the court erred by (1) concluding that a 2008
agreement between the parties with an arbitration clause was superseded by a
2009 agreement that did not require arbitration and (2) deciding in the alterna-
tive that, if the 2008 agreement survived, its arbitration clause was unconscion-
able and therefore unenforceable. Held: The Court of Appeals concluded that the
2009 agreement superseded the 2008 agreement and did not require arbitration
of the dispute. As a result, the court did not reach the trial court’s alternative
conclusion that the 2008 arbitration clause was unconscionable.
Affirmed.
Beth L. Roberts, Judge.
Kevin J. Jacoby argued the cause and filed the briefs for
appellants. Also on the reply brief was Colin P. Mackenzie.
Michael A. Cox argued the cause for respondent. Also on
the brief was Law Office of Michael A. Cox.
Before Armstrong, Presiding Judge, and Tookey, Judge,
and Shorr, Judge.
SHORR, J.
Affirmed.
Cite as 306 Or App 634 (2020) 635
SHORR, J.
Defendants appeal from a trial court order denying
their petition to compel arbitration. Defendants assign error
to the trial court’s denial, contending that the court erred
in (1) concluding that a 2008 agreement with an arbitration
clause was superseded by a 2009 agreement that did not
require arbitration and (2) deciding, in the alternative, that,
if the 2008 agreement survived, its arbitration clause was
unconscionable and unenforceable. We conclude that the
court did not err when it concluded that the 2009 agreement
superseded the 2008 agreement and did not require arbitra-
tion of this dispute. As a result, we do not reach the court’s
alternative conclusion that the 2008 arbitration clause is
unconscionable. We, therefore, affirm.
We begin with the background to this dispute.
The facts relevant to our resolution of the arbitration issue
on appeal are uncontested. The underlying dispute arose
between plaintiff Jason Warren, on one side, and defen-
dant Todd McCartney and entities owned or controlled by
McCartney, on the other side. Plaintiff was initially hired
in March 2007 by defendant McCartney’s wholly-owned
company, Wholesale Merchant Services, Inc. The parties
entered into a “Contract of Employment” in March 2007
that was executed by plaintiff and defendant McCartney on
behalf of Wholesale Merchant Services. Plaintiff was iden-
tified as an employee in the agreement. There is no clause
mandating arbitration of any disputes in the March 2007
agreement.
Plaintiff was hired to sell or lease credit card pro-
cessing equipment and services to potential business cus-
tomers; was provided “leads” for potential business and
directed to make sales calls on those businesses; and was
asked to relocate from Oregon to Sacramento, California.
Plaintiff alleges that he was promised commissions on sales
of any equipment to merchants and also promised future
commissions or “residuals” when those merchants made
ongoing payments for credit-card processing services.
At some point prior to May 2008, defendant
McCartney asked plaintiff to enter into a new agree-
ment with a different entity McCartney owned, defendant
636 Warren v. Smart Choice Payments, Inc.
Wholesale Merchant Processing, Inc. Plaintiff and Wholesale
Merchant Processing entered into an agreement in May
2008 (the 2008 agreement). Unlike the prior agreement, the
agreement identified plaintiff as an independent contractor
rather than an employee. The 2008 agreement provided a
section for payment of fees, which stated that, “[d]uring any
period of time in which this Agreement remains in full force
and effect, compensation to Independent Contractor will be
paid as set forth” in an attached schedule. Significant to this
dispute, the 2008 agreement included a dispute resolution
provision, which spelled out the parties’ obligation to try to
resolve any disagreement, and was immediately followed by
an arbitration clause, which provided, in relevant part:
“All disputes that cannot be resolved pursuant to the
internal issue resolution process identified above will be
submitted to and settled by final and binding arbitration.
The arbitration will take place in Portland, Oregon, and
will apply the governing law of this Agreement. The final
and binding arbitration will be performed by a panel of
three arbitrators in accordance with and subject to the
Commercial Arbitration Rules of the AAA then in effect.
* * * The decision of the arbitrators will be final and bind-
ing, and judgment on the award may be entered in any
court of competent jurisdiction.”
The 2008 agreement also contained a provision that the dis-
pute resolution and arbitration provisions, among others,
“shall survive termination of this Agreement.”1
Plaintiff maintains that he agreed to enter into
that new agreement based on the condition that any “resid-
uals” resulting from ongoing merchant accounts would be
1
We note that, in addition to, or perhaps despite, that arbitration clause, the
2008 agreement also curiously contained the following jurisdiction and venue
provision, which provides, in relevant part:
“The parties hereby agree that any suit to enforce any provision of this
Agreement or arising out of or based upon this Agreement or the business
relationship between the parties hereto shall be brought in federal or state
court in Portland, Oregon. Each party hereby agrees that such courts shall
have exclusive personal jurisdiction and venue with respect to such party,
and each party hereby submits to the exclusive personal jurisdiction and
venue of such courts.”
Based on our analysis later in this opinion that the later 2009 agreement super-
seded the 2008 arbitration clause, we do not need to address this potential conflict
between the arbitration and litigation-venue provisions in the 2008 agreement.
Cite as 306 Or App 634 (2020) 637
“vested” and earned even if he was terminated from his
position. Although there were some substantive changes to
the agreement, plaintiff’s job duties did not change after
that agreement except in the fact that he now reported to
Wholesale Merchant Processing.
In November 2009, Wholesale Merchant Processing
and plaintiff entered into a new agreement (the 2009 agree-
ment). Plaintiff became a sales manager for Wholesale
Merchant Processing and worked out of an Oregon office.
The 2009 agreement identified plaintiff as an employee
again. It did not specifically define plaintiff’s wages or com-
pensation, but noted that the “compensation or other mon-
ies paid or to be paid to [plaintiff] by Wholesale Merchant
Processing” is consideration for plaintiff’s employment.
Notable for this dispute, the 2009 agreement had a
broad integration clause, which provided:
“There are no terms, conditions or obligations made or
entered into by the parties other than as contained herein.
This agreement, upon execution, shall supersede any
and all other employment and compensation agreements
between the Corporation and the Employee.”
Also important to this opinion, there was no arbitration
clause in the 2009 agreement. In fact, the agreement
included several provisions that indicated that the parties
anticipated that disputes “under” or “arising out of” or to
“enforce” the 2009 agreement would be resolved through a
“lawsuit,” “suit,” or sometimes “action,” but never referenced
arbitration. The mandated venue for any such “suit” was
Multnomah County.
Later, in 2014, plaintiff began to work with defen-
dants Smart Choice Payments, Inc., and North American
Processing Solutions, LLC. Plaintiff has never had an arbi-
tration agreement with either entity.
In February 2017, plaintiff filed an action in
Washington County against defendants. Plaintiff alleged
that he had been terminated in September 2015 and had
not been paid the “future” commissions and residuals that
defendants had promised to pay him when defendants
received ongoing payments for merchant-processing services
638 Warren v. Smart Choice Payments, Inc.
and equipment that plaintiff or his team had originally
arranged to sell or rent to defendants’ customers. Plaintiff
alleged claims for breach of contract, unjust enrichment, and
fraud. As to the breach of contract claim, plaintiff alleged
the promises that were breached, but did not make clear
whether he was claiming defendants’ breach of a particular
written or oral agreement. Plaintiff later filed an amended
complaint that continued to identify the promises that were
breached but did not identify a particular contract, such as
the 2008 or 2009 agreement or some other agreement. After
that filing, defendants deposed plaintiff. Plaintiff testified
that the 2008 agreement provided at least a “portion” of the
support for his claim that he had been promised to be paid
future commissions and residuals for the sales and rentals
that he had arranged to make to defendants’ customers.
Defendants then petitioned to stay the litigation and
compel arbitration, contending that plaintiff’s claims arose
out of the 2008 agreement between Wholesale Merchant
Services and plaintiff, and, therefore, the claims were sub-
ject to arbitration under the 2008 agreement’s arbitration
clause. Plaintiff opposed the petition, contending, among
other things, that the 2008 agreement’s arbitration clause
was superseded by the same parties’ 2009 agreement that
does not provide for arbitration but anticipates potential lit-
igation. Plaintiff also contended that, if the 2008 agreement
controlled, it was a contract of adhesion and the arbitration
clause was unconscionable. As noted above, the trial court
agreed with both of plaintiff’s arguments and denied the
petition to compel arbitration and stay the litigation.
We turn to the legal arguments before us and the
standard of review. On appeal, the parties reprise the argu-
ments that they made in the trial court. We review the denial
of a petition to compel arbitration for legal error. Lumm v.
CC Services, Inc., 290 Or App 39, 43, 414 P3d 454 (2018).
We begin with a brief background on the law gov-
erning arbitration agreements. As a general rule, arbitra-
tion agreements that involve interstate commerce are sub-
ject to federal arbitration law and state contract law. Section
2 of the Federal Arbitration Act (FAA), in relevant part,
provides:
Cite as 306 Or App 634 (2020) 639
“A written provision in * * * a contract evidencing a trans-
action involving commerce to settle by arbitration a contro-
versy thereafter arising out of such contract or transaction,
or the refusal to perform the whole or any part thereof, or
an agreement in writing to submit to arbitration an exist-
ing controversy arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revo-
cation of any contract.”
9 USC § 2. “Moreover, section 2 is ‘a congressional decla-
ration of a liberal federal policy favoring arbitration agree-
ments, notwithstanding any state substantive or procedural
policies to the contrary.’ ” Gozzi v. Western Culinary Institute,
Ltd., 276 Or App 1, 4-5, 366 P3d 743, adh’d to as modified on
recons, 277 Or App 384, 371 P3d 1222 (2016) (quoting Moses
H. Cone Hospital v. Mercury Constr. Corp., 460 US 1, 24, 103
S Ct 927, 74 L Ed 2d 765 (1983)). The parties do not dispute
that section 2 of the FAA governs the arbitration clause at
issue in the 2008 agreement.
Section 2 “create[d] a body of federal substantive
law, which was applicable in state and federal courts.”
Buckeye Check Cashing, Inc. v. Cardegna, 546 US 440, 445,
126 S Ct 1204, 163 L Ed 2d 1038 (2006) (brackets in orig-
inal; internal quotation marks omitted). As we explained
in Lumm after summarizing the relevant United States
Supreme Court case law, an arbitration agreement may be
invalidated “based on generally applicable contract defenses
like fraud or unconscionability, but not on legal rules that
apply only to arbitration or that derive their meaning from
the fact that an agreement to arbitrate is at issue.” 290 Or
App at 44 (internal quotation marks omitted).
As noted, the trial court agreed with plaintiff’s
argument that the 2009 agreement superseded the 2008
agreement’s arbitration clause and did not require arbitra-
tion of this dispute. Defendants’ arguments to the contrary
are threefold, and we address each in turn.2
First, defendants contend that the trial court erred
in concluding that the 2009 agreement superseded the 2008
2
We note that defendants do not contend that only the arbitrator and not the
trial court has the authority to decide whether this dispute is arbitrable. As a
result, we do not reach that issue.
640 Warren v. Smart Choice Payments, Inc.
agreement as it relates to the arbitration clause because the
2009 agreement does not specifically state that any prior
arbitration agreements are superseded and is “silent as to
arbitration.” As we explain below, that argument ignores
the clear text of the 2009 agreement, which provides that
it “shall supersede any and all other employment and
compensation agreements between the Corporation and
the Employee.” Indeed, defendants concede that the 2008
agreement is a compensation agreement. That concession
is appropriate because the 2008 agreement has a section
addressing the payment of fees to plaintiff and references a
schedule with a “compensation plan.” The 2008 agreement
is a compensation agreement.
Plaintiff contends that the 2009 agreement is a
partially integrated writing that supersedes inconsistent
terms in prior agreements, including those in the 2008
agreement. Plaintiff notes that the 2009 agreement, which
anticipates the possibility of litigation and does not require
arbitration, is inconsistent with the 2008 agreement’s arbi-
tration clause. Defendants agree that the 2009 agreement is
a partial integration. Defendants contend, however, that the
2009 agreement is “silent as to arbitration” and, therefore,
is not inconsistent with and does not supersede the 2008
arbitration clause.
We assume for this appeal, as the parties do, that
the 2009 agreement is a partial integration. “A partially
integrated writing is one that the parties intended to be a
final expression as to the terms in the writing, but not as
to all the terms of their agreement.” Abercrombie v. Hayden
Corp., 320 Or 279, 288, 883 P2d 845 (1994) (emphasis in
original). As the Supreme Court has stated,
“[a] partial integration may not be contradicted, but it may
be supplemented by evidence of prior consistent, additional
terms. A partially integrated writing supersedes or dis-
charges all prior agreements, written or oral, to the extent
that the prior agreements are inconsistent with the partial
integration.”
Id. at 289 (citations omitted). The terms of the 2009 agree-
ment do not include an arbitration clause, but anticipate
the possibility of a “lawsuit” or “suit” or “action” to resolve
Cite as 306 Or App 634 (2020) 641
disagreements. Venue for such a “suit” was in Multnomah
County. Those terms, individually and collectively in the
agreement, unambiguously indicate that disputes will be
resolved by litigation in court and not through a less formal
proceeding before an arbitrator or arbitration panel. The
terms of the 2009 agreement are entirely inconsistent with
and supersede the 2008 arbitration clause. Those terms are
not silent as to arbitration, as defendants claim, but are
inconsistent with arbitration.3
We turn to defendants’ second argument, that the
2008 arbitration clause was not superseded because the
2008 agreement provides that the dispute resolution and
arbitration sections of that agreement, among several other
sections, “shall survive termination of this [a]greement.”
Defendants’ second argument fails for the same reason as
its first. To the extent that defendants contend that the arbi-
tration section survives the 2008 agreement, that obligation
is entirely inconsistent with the 2009 integration clause,
which states that there are no other obligations between the
parties and that the 2009 agreement supersedes all prior
agreements. As discussed above, an ongoing arbitration
agreement is also inconsistent with the terms of the 2009
agreement that does not discuss arbitration and anticipates
that litigation in court will be used to resolve disputes.
Defendants’ third and final argument is that, if we
conclude that the compensation terms of the 2008 agree-
ment survive, we must also conclude that the 2008 arbitra-
tion clause survives. They further contend that, if we were
to do otherwise, we would disfavor arbitration agreements
in violation of federal law. We do not decide which terms of
the two compensation agreements control or what evidence
may be admitted to prove plaintiff’s employment compensa-
tion terms. That issue is not before us and was not litigated
in the trial court. Indeed, the specific compensation sched-
ule to the 2008 agreement is not part of our record. Further,
the 2009 agreement has no defined compensation terms
3
Both parties rely on case law from federal and other state jurisdictions.
Those cases are dependent on the particular initial and superseding agreements
at issue as well as the agreements’ specific arbitration and integration clauses.
Although instructive, they do not persuade us either way in interpreting the
agreements before us under Oregon law.
642 Warren v. Smart Choice Payments, Inc.
outside of a general reference that the consideration for the
agreement includes “compensation or other monies paid or
to be paid to [plaintiff] by Wholesale Merchant Processing.”
There is no record in the trial court yet of plaintiff’s compen-
sation terms, and the court did not decide what terms con-
trol. That issue remains to be decided based on the factual
record developed on remand.
Defendants, nevertheless, contend that it would dis-
favor arbitration and hold arbitration clauses to more exact-
ing scrutiny in violation of the FAA if the arbitration clause
in the 2008 agreement were superseded and not carried for-
ward with the compensation terms that defendants contend
were bound up with the arbitration clause. In other words,
defendants contend that, if the 2008 arbitration clause is
superseded, then any 2008 agreed compensation terms are
similarly superseded because they must be placed on equal
footing under federal arbitration law.
Plaintiff contends that, because the 2009 agree-
ment is not fully integrated and not in conflict with the 2008
agreement as to compensation, any evidence of compensa-
tion in 2008 remains relevant to what the parties agreed
as to compensation in 2009. That is, plaintiff contends that,
because the 2009 agreement left the precise compensation
terms undefined, the 2008 agreement can at least be used
as evidence for determining what promises were made to
him regarding compensation at that time.
We reject defendants’ final argument as well. As we
observed earlier, an arbitration agreement may be invali-
dated “based on generally applicable contract defenses like
fraud or unconscionability, but not on legal rules that apply
only to arbitration or that derive their meaning from the
fact that an agreement to arbitrate is at issue.” Lumm, 290
Or App at 44 (internal quotation marks omitted). The rules
surrounding integrated agreements and integration clauses
derive from the parol evidence rule, which is a substantive
rule in contract law. Abercrombie, 320 Or at 286. Those
rules reflect long-established and generally applicable con-
tract principles. See Hatley v. Stafford, 284 Or 523, 530, 588
P2d 603 (1978) (tracing the roots of the parol evidence rule,
now adopted by statute, back to the law governing contracts
Cite as 306 Or App 634 (2020) 643
made under the “King’s seal,” which made the document
uncontestable). They are not legal rules that apply to or tar-
get only arbitration clauses or derive their particular mean-
ing from the fact that an arbitration agreement is at issue.
Although we do not decide the compensation terms between
the parties, we conclude that our application of the parol evi-
dence rule and its rules regarding integrated agreements
are generally applicable contract principles and do not
require us to conclude that the 2009 agreement supersedes
the 2008 agreement’s compensation terms, whatever they
may be, merely because we conclude that the 2009 agree-
ment is in conflict with and supersedes the 2008 arbitration
clause.
In sum, we reject each of defendants’ arguments
and conclude that the trial court did not err when it denied
defendants’ petition to arbitrate this dispute.
Affirmed.