Robert S. Eaton v. CMH Homes, Inc., and Southern Energy Homes, Inc., and Henry Concrete, LLC

SUPREME COURT OF MISSOURI
en banc
ROBERT S. EATON, )
)
Respondent, )
)
v. ) No. SC94374
)
CMH HOMES, INC., )
)
Appellant, )
)
and )
)
SOUTHERN ENERGY HOMES, INC., )
and HENRY CONCRETE, LLC, )
)
Defendants. )
APPEAL FROM THE CIRCUIT COURT OF LINCOLN COUNTY
The Honorable Chris Kunza Mennemeyer, Judge
Opinion issued May 26, 2015
CMH Homes, Inc., appeals the trial court’s overruling of its motion to dismiss or
to stay the court proceeding and to compel arbitration in an action filed by Robert Eaton
alleging fraud, negligence, breach of contract, and negligent misrepresentation in regard
to CMH’s sale to him of a manufactured home. Mr. Eaton opposed arbitration, arguing
that the arbitration agreement lacks mutuality and is unconscionable on multiple grounds.
This Court finds that the trial court erred in refusing to compel arbitration. In
State ex rel. Vincent v. Schneider, 194 S.W.3d 853 (Mo. banc 2006), this Court held that
courts will look to a contract (or amendment) as a whole to determine whether
consideration is adequate rather than looking solely at the consideration given for the
agreement to arbitrate. 1 The Court, therefore, rejects Mr. Eaton’s argument that his
agreement to arbitrate was invalid solely based on the fact that the arbitration clause
required Mr. Eaton to arbitrate all claims but gave CMH the right to bring suit in court
“to foreclose upon any collateral, to obtain a monetary judgment or to enforce the
security agreement.”
But this Court also clarifies that a lack of mutuality of the obligation to arbitrate is
one of the relevant factors a court will consider, along with the other terms of the
contract, in determining whether the agreement to arbitrate otherwise is unconscionable.
Here, the contract also provides that even if CMH chooses to sue in court “to foreclose
upon any collateral, to obtain a monetary judgment or to enforce the security agreement,”
CMH is protected by an “anti-waiver clause”:
The institution and maintenance of a lawsuit to foreclose upon any
collateral, to obtain a monetary judgment or to enforce the security
agreement shall not constitute a waiver of the right of any party to compel
arbitration regarding any other dispute or remedy subject to arbitration in
this contract, including the filing of a counterclaim in a suit brought by
[CMH] pursuant to this provision.
This Court finds this anti-waiver clause is unconscionable and invalid because it would
1
This case, therefore, is unlike Baker v. Bristol Care, Inc., 450 S.W.3d 770 (Mo. banc
2014), in which the employer sought to amend the employee’s terms of at-will
employment to include an agreement to arbitrate without providing additional
consideration. As this Court held, such an amendment is not supported by consideration,
and therefore, is not enforceable because the employer has made no legally enforceable
promise. Id. at 775-77; see also Frye v. Speedway Chevrolet Cadillac, 321 S.W.3d 429,
438-439 (Mo. App. 2010); Morrow v. Hallmark Cards, Inc., 273 S.W.3d 15, 26-27 (Mo.
App. 2008) (both holding that continued at-will employment is not consideration for
requiring an at-will employee to sign an agreement to arbitrate).
prevent Mr. Eaton from bringing defenses to the suit filed by CMH or require him to
proceed in two forums with possibly inconsistent results. But the anti-waiver provision
can be severed. This Court further finds that Mr. Eaton’s remaining objections – that
only CMH can choose an arbitrator subject to Mr. Eaton’s veto and that the contract is
one of adhesion – do not render the contract as a whole unconscionable. Accordingly,
the Court finds that the contract, absent the anti-waiver clause, is not unconscionable and
remands for further proceedings.
I. STATEMENT OF FACTS AND PROCEDURAL HISTORY
On April 16, 2009, Mr. Eaton purchased a manufactured home from CMH. The
contract between Mr. Eaton and CMH included an arbitration clause, which states:
ARBITRATION: All disputes, claims or controversies arising from or
relating to this contract, or the subject hereof, or the parties, including the
enforceability or applicability of this arbitration agreement or provision and
any acts, omissions, representations and discussions leading up to this
agreement, hereto, including this agreement to arbitrate, shall be resolved
by mandatory binding arbitration by one arbitrator selected by [CMH] with
[Mr. Eaton’s] consent. This agreement is made pursuant to a transaction in
interstate commerce and shall be governed by the Federal Arbitration Act at
9 U.S.C. Section 1. Judgment upon the award rendered may be entered in
any court having jurisdiction. The parties agree and understand that they
choose arbitration instead of litigation to resolve disputes. The parties
understand that they have a right to litigate disputes in court, but that they
prefer to resolve their disputes through arbitration, except as provided
herein. THE PARTIES VOLUNTARILY AND KNOWINGLY
WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL. The parties
agree and understand that all disputes arising under case law, statutory law
and all other laws including, but not limited to, all contract, tort and
property disputes will be subject to binding arbitration in accord with this
contract. The parties agree that the arbitrator shall have all powers
provided by law, the contract and the agreement of the parties. These
powers shall include all legal and equitable remedies including, but not
limited to, money damages, declaratory relief and injunctive relief.
Notwithstanding anything hereunto the contrary, [CMH] retains an option
3
to use judicial (filing a lawsuit) or non-judicial relief to enforce a security
agreement relating to the Manufactured Home secured in a transaction
underlying this arbitration agreement, to enforce the monetary obligation
secured by the Manufactured Home or to foreclose on the Manufactured
Home. The institution and maintenance of a lawsuit to foreclose upon any
collateral, to obtain a monetary judgment or to enforce the security
agreement shall not constitute a waiver of the right of any party to compel
arbitration regarding any other dispute or remedy subject to arbitration in
this contract, including the filing of a counterclaim in a suit brought by
[CMH] pursuant to this provision.
Both CMH and Mr. Eaton signed the contract. CMH then delivered and installed
the manufactured home on Mr. Eaton’s property. On September 27, 2012, Mr. Eaton
sued CMH in the Lincoln County circuit court, alleging that: (1) as a result of CMH’s
negligence, the manufactured home had defects and irregularities; (2) CMH fraudulently
induced him to sign the contract by representing that he would be purchasing a new 2009
manufactured home, but then informed him that he would be purchasing a 2007
manufactured home that he then purchased only under duress because he feared monetary
penalties; (3) CMH breached the contract, which stated that the manufactured home
would be free from defects; and (4) CMH engaged in negligent or intentional
misrepresentation regarding the defects in the manufactured home.
CMH denied Mr. Eaton’s allegations, asserted that Mr. Eaton entered into a
binding arbitration agreement with CMH, and moved to dismiss or stay the court action
and to compel arbitration. The trial court overruled CMH’s motion without opinion.
CMH appealed. Following an opinion by the court of appeals, this Court granted
4
transfer. Mo. Const. art. V, § 10. 2
II. STANDARD OF REVIEW
“The trial court’s judgment will be affirmed unless there is no substantial evidence
to support it, it is against the weight of the evidence, or it erroneously declares or applies
the law.” Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 510 (Mo. banc 2012).
“Missouri contract law applies to determine whether the parties have entered a valid
agreement to arbitrate.” Vincent, 194 S.W.3d at 856. Whether the trial court should have
granted a motion to compel arbitration is a question of law that this Court reviews de
novo. Id.
III. THE ARBITRATION AGREEMENT BETWEEN MR. EATON AND CMH
HOMES IS VALID AS MODIFIED
A. General Principles Governing Validity of Agreement to Arbitrate
The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (2006), governs the
applicability and enforceability of arbitration agreements in all contracts involving
interstate commerce. The Missouri Uniform Arbitration Act (MUAA), § 435.350 et
seq., 3 governs those Missouri arbitration matters not preempted by the FAA. The MUAA
was “fashioned after the Federal Arbitration Act,” and “[t]he FAA and Missouri’s
Arbitration Act are substantially similar.” State ex rel. Hewitt v. Kerr, -- S.W.3d --, No.
2
In the trial-court petition, Mr. Eaton also raised claims against Southern Energy Homes,
Inc., and Henry Concrete, LLC. Neither of these parties is involved in this appeal.
Although normally an order that does not dispose of all the parties and claims is not
appealable, an order overruling a motion to compel arbitration is immediately appealable
under section 435.440.1(1), RSMo 2000.
3
All statutory references are to RSMo 2000 unless otherwise noted.
5
SC93846, slip op. at 6, n.4 , (quoting CPK/Kupper Parker Commc’ns, Inc. v. HGL/L.
Gail Hart, 51 S.W.3d 881, 883 (Mo. App. 2001)).
In determining whether an arbitration agreement is valid under the FAA, this
Court is guided by the United States Supreme Court’s decision in AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1746, 1750 (2011), as interpreted and applied by this Court
in Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. banc 2012), and in Robinson v.
Title Lenders, Inc., 364 S.W.3d 505 (Mo. banc 2012).
In Concepcion the United States Supreme Court interpreted the provision of the
FAA that makes arbitration agreements “valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any contract,” 9 U.S.C. § 2
(emphasis added). Concepcion held that this provision allows arbitration agreements “to
be invalidated by generally applicable contract defenses, such as fraud, duress, or
unconscionability, but not by defenses that apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at issue.” Concepcion, 131 S. Ct.
at 1746 (internal quotations omitted).
In Brewer and Robinson, this Court reaffirmed that Concepcion does not diminish
a trial court’s broad authority to evaluate the validity and enforceability of arbitration
agreements when considering whether to grant or overrule a motion to compel
arbitration. Rather, this Court held, Concepcion “permit[s] state courts to apply state law
defenses to the formation of the particular contract at issue.” Brewer, 364 S.W.3d at 492.
“As such, arbitration agreements are tested through a lens of ordinary state-law
principles that govern contracts, and consideration is given to whether the arbitration
6
agreement is improper in light of generally applicable contract defenses.” Robinson, 364
S.W.3d at 515. This means that a Missouri court can declare an arbitration agreement
“unenforceable if a generally applicable contract defense, such as fraud, duress, or
unconscionability, applie[s] to concerns raised about the agreement.” Id.
B. Determining Unconscionability under Missouri Law
Here, Mr. Eaton alleges that his agreement to arbitrate is unconscionable under
Missouri common law. Unconscionability is one of the common law contract defenses
that Concepcion permits state courts to recognize in determining whether an arbitration
clause is valid. Id. Therefore, “this Court will analyze the issues in this appeal to
determine if, under the factual record presented,” Mr. Eaton “has established a[n
unconscionability] defense to the formation of the agreement’s arbitration clause.”
Brewer, 364 S.W.3d at 492.
Unconscionability is defined as “‘an inequality so strong, gross, and manifest that
it must be impossible to state it to one with common sense without producing an
exclamation at the inequality of it.’” State of Missouri, Dept. Soc. Servs., Div. of Aging v.
Brookside Nursing Ctr., Inc., 50 S.W.3d 273, 277 (Mo. banc 2001) (quoting Restatement
(Second) of Contracts § 153 (1981)). Unconscionability doctrine guards against one-
sided contracts, oppression, and unfair surprise. Brewer, 364 S.W.3d at 492-93.
Oppression and unfair surprise can occur during the bargaining process or
may become evident later, when a dispute or other circumstances invoke
the objectively unreasonable terms. In either case, the unconscionability is
linked inextricably with the process of contract formation because it is at
formation that a party is required to agree to the objectively unreasonable
terms.
7
Id. at 493.
As Brewer also noted, it is inaccurate to suggest that an agreement or provision
must be separately found to be both procedurally and substantively unconscionable to be
invalid. 4 Id. at 492, n.3. It is more accurate to state that a court will look at both the
procedural and substantive aspects of a contract to determine whether, considered
together, they make the agreement or provision in question unconscionable. Accord, id.
Brewer identified some of the numerous common factors that bear on unconscionability,
including but not limited to:
[H]igh pressure sales tactics, unreadable fine print, misrepresentation or
unequal bargaining positions all indicate deficiencies in the making of a
contract. Courts also consider whether the terms of an arbitration
agreement are unduly harsh. This is a fact-specific inquiry focusing on
whether the contract terms are so one-sided as to oppress or unfairly
surprise an innocent party or which reflect an overall imbalance in the
rights and obligations imposed by the contract at issue.
Id. at 489, n.1 (internal citations omitted).
C. Lack of Mutuality of the Agreement to Arbitrate Does not by Itself
Render an Agreement to Arbitrate Unconscionable
Mr. Eaton first argues that the arbitration agreement is invalid and unenforceable
because it does not contain mutual agreements to arbitrate. The principle he invokes is
known as “mutuality of contract.” “Mutuality of contract means that an obligation rests
upon each party to do or permit to be done something in consideration of the act or
promise of the other; that is, neither party is bound unless both are bound.” Aden v.
4
For example, a contract that provided that a violation would subject the signer to
involuntary servitude would be unconscionable because of this substantive provision
8
Dalton, 107 S.W.2d 1070, 1073 (Mo. 1937) (internal quotation marks omitted). Applying
this principle here, Mr. Eaton argues that the arbitration agreement in his contract with
CMH is unconscionable and unenforceable because it obligates him to arbitrate all
disputes with CMH, while CMH is not obligated to arbitrate disputes with him “to
foreclose upon any collateral, to obtain a monetary judgment or to enforce the security
agreement.” In effect, Mr. Eaton alleges that this provision means that CMH will never
have to arbitrate claims it files because the three listed types of claims are the only types
of claims CMH would ever sue on. Unless both parties are required to arbitrate all or
comparable claims, Mr. Eaton says that the agreement to arbitrate is not mutual and, so,
not supported by adequate consideration, therefore rendering it unconscionable and
unenforceable.
In Baker, 450 S.W.3d at 775-77, this Court held that an agreement to arbitrate
lacks consideration when it is subject to unilateral change and the return promise
purportedly made is effectively illusory. But that is not the case here. This case is more
like Vincent, 194 S.W.3d at 855, 859, in which home buyers sued a home builder for
violations of the Missouri Merchandising Practices Act, section 407.010 et seq. The
home builder’s preprinted contracts contained a provision giving the home builder the
unilateral right to require any claim arising out of the contract or the home to be decided
by binding arbitration. Id. at 855. Vincent held that this did not invalidate the obligation
to arbitrate, explaining that as long as the contract as a whole meets the consideration
without regard to whether portions of the contract were procedurally unconscionable
considered separately.
9
requirement, an arbitration clause in the contract will not be invalidated for a lack of
mutuality of the obligation to arbitrate:
“The majority of courts adhere to the Restatement of Contract’s view that
mutuality is satisfied if there is consideration as to the whole agreement,
regardless of whether the included arbitration clause itself was one-sided.”
State Law, 2003 Journal of Dispute Resolution at 485-86. This is the clear
result from Missouri law considering that “[t]he usual rules and canons of
contract interpretation govern the subsistence and validity of an arbitration
clause.” Dunn, 112 S.W.3d at 428. Furthermore, the terms of a contract
should be read as a whole. Id. Finally, given Missouri’s preference for the
arbitrability of disputes, Id. at 429, a rule of contract construction that
would be an exception to the general rules of contract construction and that
would make arbitration less likely should not be erected.
Id. at 858-59.
To hold that the agreement is unconscionable solely due to lack of mutuality
because CMH, but not Mr. Eaton, is given the option of litigating the issues most
important to it in court is inconsistent with the principles set out in Vincent. “The
consideration of a contract can consist either in a benefit conferred upon the promisor or
in a legal detriment to the promisee, which means that the promisee changes his legal
position ….” State ex rel. Kansas City v. State Highway Comm’n, 163 S.W.2d 948, 953
(Mo. banc 1942). Both parties exchanged consideration for the entire contract:
Mr. Eaton paid the purchase price and CMH provided Mr. Eaton with the home.
Mr. Eaton’s mutuality argument, which is based on the fact that CMH can choose to
bring some matters in court whereas Mr. Eaton cannot do so, does not persuade this
Court to overrule Vincent. The lack of mutuality as to the arbitration agreement does not
itself invalidate that arbitration agreement.
10
D. The Contract’s Waiver of Defenses Provision Is Unconscionable
Although a lack of mutuality of the obligation to arbitrate does not itself make an
arbitration agreement invalid, lack of mutuality still is a relevant factor to be considered
in answering the larger question of whether the agreement to arbitrate is unconscionable.
Here, the arbitration clause contains another provision – the anti-waiver provision – in
addition to the one allowing CMH the unilateral right to decide whether to litigate
financial issues regarding the security agreement, monetary damages for breach of
contract, and foreclosure in court rather than before an arbitrator. The anti-waiver
provision specifically provides that:
The institution and maintenance of a lawsuit to foreclose upon any
collateral, to obtain a monetary judgment or to enforce the security
agreement shall not constitute a waiver of the right of any party to compel
arbitration regarding any other dispute or remedy subject to arbitration in
this contract, including the filing of a counterclaim in a suit brought by
[CMH] pursuant to this provision.
This Court agrees with Mr. Eaton that the arbitration agreement as written is
unconscionable when this anti-waiver clause is considered together with the lack of
mutuality of the obligation to arbitrate. As Mr. Eaton notes, the fact that the contract
requires him to submit all claims to arbitration, including counterclaims, could create the
anomalous situation where his affirmative defenses and counterclaims to claims made by
CMH in court must proceed in arbitration at the same time as CMH proceeds on those
same claims in court.
CMH argues that the anti-waiver clause should be interpreted simply to mean that
CMH’s decision to bring suit on one or more of the three listed grounds does not waive
11
its right to have unrelated claims determined in arbitration. The contract language does
not permit CMH’s interpretation of the anti-waiver provision. Under the arbitration
agreement’s plain language, Mr. Eaton must have all his claims determined by an
arbitrator, including counterclaims to CMH’s claims related to the enforcement of the
security agreement, for monetary damages related to any breach, or for foreclosure of the
manufactured home. This means he could be forced to proceed on the same issues in two
separate forums, risking inconsistent results, particularly because effectively he could be
precluded from asserting his defenses to the claims brought in court.
This Court agrees that this is unconscionable. In fact, at least one Missouri case
has invalidated an arbitration agreement that contained a provision that essentially
allowed one party to avoid arbitration in a similar manner. In Greene v. Alliance
Automotive, Inc., 435 S.W.3d 646 (Mo. App. 2014), the arbitration agreement between a
car purchaser and a car dealership: (1) covered “any dispute” between the parties arising
out of the contract, related to the purchase and sale or financing of the vehicle, or any
resulting transaction; (2) contained a self-help provision; and (3) stated that “no party
waives the right to elect arbitration ... by exercising self-help remedies.” Id. at 652-53.
The self-help provision stated:
Self–Help: Notwithstanding this arbitration agreement, the Parties retain
the right to exercise self-help remedies and to seek provisional remedies
from a court, pending final determination of the Dispute by the arbitrator.
No Party waives the right to elect arbitration of a Dispute by exercising
self-help remedies, filing suit, or seeking or obtaining provisional remedies
from a court.
Id. at 652. The purchaser defaulted on the contract, and the car dealership exercised self-
12
help by repossessing the purchaser’s vehicle. Id. at 653.
Although the self-help provision stated self-help would be used “pending final
determination of the Dispute by the arbitrator,” the car dealership never attempted to
arbitrate the dispute. Id. at 653. As a result, the purchaser was forced to file suit to
contest the repossession of the car. The car dealership moved to compel arbitration. Id.
at 652-53. Greene invalidated the arbitration agreement because:
[I]f the anti-waiver provision means that [the dealership] can exercise its
primary remedy of self-help repossession without waiving arbitration of
other disputes, then the agreement itself allows [the dealership] to
unilaterally divest itself of the promise to arbitrate. [The dealership]
apparently interprets the agreement in this manner as it solved its own
dispute with [the purchaser] by repossessing her vehicle, but now relies on
the express language of the arbitration agreement to compel [the purchaser]
to arbitrate her claims.
Id. at 654. Greene fails to cite Vincent, perhaps because, unlike in Vincent, the promise
to arbitrate in Greene was illusory. That is, the contract promised mutuality of arbitration
but then effectively permitted the dealer to proceed in court on all issues including
repossession while prohibiting the buyer from opposing replevin or taking any other
action in court. In so doing, it allowed the dealer to divest itself of this aspect of the
agreed-upon consideration because the dealer could foreclose the buyer’s right to review
of the provisional repossession simply by failing to file for arbitration. In this regard,
Greene is like Baker, 450 S.W.3d at 775-77, which held that an arbitration provision that
permits the seller to unilaterally change the terms of arbitration and unilaterally divests
itself of the obligation to arbitrate lacks consideration. Accord, Frye, 321 S.W.3d at 442
(“A contract that purports to exchange mutual promises will be construed to lack legal
13
consideration if one party retains the unilateral right to modify or alter the contract as to
permit the party to unilaterally divest itself of an obligation to perform the promise
initially made”).
As with the provision at issue in Greene, the anti-waiver provision here goes
beyond merely not requiring mutuality. Under the anti-waiver provision, CMH, like the
car dealership in Greene, has unilaterally divested itself of the arbitration agreement to
the extent that it can bring suit on the key financial issues of importance to it. Yet
Mr. Eaton is prohibited from defending these claims in court and risks inconsistent
adjudications, or the application of res judicata or collateral estoppel, should he try to file
an arbitration claim in which he brings up these defenses, even assuming this is possible. 5
This provision of the arbitration agreement, therefore, is unconscionable.
E. The Waiver of Defenses Clause Is Severable
Mr. Eaton argues the offending anti-waiver clause renders the entire arbitration
agreement unconscionable and cannot be severed from the remainder of the arbitration
agreement. This Court disagrees. “Whether a contract is severable … depends on the
circumstances of the case and is largely a question of the parties’ intent.” Woods v. QC
Fin. Servs., Inc., 280 S.W.3d 90, 99 (Mo. App. 2008). “The absence of a severability
clause tends to indicate that a contract is entire and not severable.” Shaffer v. Royal Gate
Dodge, Inc., 300 S.W.3d 556, 561 (Mo. App. 2009). There is no mention of a severability
5
CMH’s counsel conceded at oral argument that if Mr. Eaton had defenses, then in that
particular case the agreement could be modified to let Mr. Eaton file counterclaims in
court rather than proceeding on those counterclaims in arbitration. Mr. Eaton should not
14
clause in Greene. Moreover, in Greene, the unconscionability permeated the entire
transaction, as the dealer retained the right to use self-help without review by any court or
arbitrator. That is not the case here. Furthermore, here the contract does contain a
severability clause, which states:
[I]f any provision of this contract shall be prohibited by or be invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of the contract.
Generally, this Court will give effect to a severability clause when the clause being
severed is not a necessary part of the contract. 6 Vincent applied this principle to an
arbitration agreement, holding that although provisions of the arbitration agreement
allowing an inherently biased individual to serve as arbitrator and placing all costs of
arbitration on the individual were unconscionable, these provisions could be severed from
the remainder of the agreement. Vincent, 194 S.W.3d at 859-61.
This Court recently applied the same principle in Hewitt, which dealt with an
arbitration clause between an NFL franchise and an employee of that franchise. Hewitt
held that a provision in the arbitration clause that named the NFL commissioner as the
arbitrator was unconscionable because the commissioner was an employee of the NFL
have to depend on CMH’s willingness to make a case-by-case modification of an
obligation to force arbitration that CMH expressly reserved in the arbitration agreement.
6
See, e.g., Shaffer, 300 S.W.3d at 561. (class-action waiver provision was not severable
because it was essential to the arbitration agreement); Swain v. Auto Servs., Inc., 128
S.W.3d 103, 108-09 (Mo. App. 2003) ((1) remedy provision was severable because it was
separate from the opening paragraph of the arbitration clause and not essential to the
remainder of the clause, and (2) venue provision was severable and not essential to the
arbitration agreement because it was “certainly possible” to conduct arbitration in another
venue).
15
franchise owners, making him inherently biased. SC93846, slip op. at 19-20. But,
Hewitt held, the “unconscionability of the terms does not invalidate the entire agreement
to arbitrate.” Id. at 20. Hewitt, instead, severed the arbitrator-selection clause and
replaced it with MUAA’s default arbitrator-selection term found in section 435.360. Id.
Similarly, here, the anti-waiver provision of the arbitration clause is not essential
to the agreement to arbitrate. Once it is severed, then, as already noted above, the lack of
mutuality of the obligation to arbitrate does not itself render the agreement to arbitrate
unconscionable.
F. The Other Unconscionability Arguments Are Not Persuasive
In addition, Mr. Eaton argues that the method set out in the contract for selecting
an arbitrator is unconscionable because it limits the pool of arbitrators only to those
selected by CMH. The arbitration agreement states that all disputes “shall be resolved by
mandatory binding arbitration by one arbitrator selected by [CMH] with [Mr. Eaton’s]
consent.” Mr. Eaton compares this to the arbitrator selection method invalidated in
Vincent. This Court rejects that comparison.
In Vincent, a sole arbitrator was prescribed by contract, and that arbitrator was
biased. Vincent did not suggest that giving the home builder the right to select an
arbitrator would have been unconscionable had the chosen arbitrator not been biased.
Vincent, 194 S.W.3d at 859-861. Similarly, in Hewitt, SC93846, slip op. at 19-20, this
Court recently held that the clause designating an arbitrator was invalid because the
particular arbitrator selected was inherently biased. The Court did not say that both
parties must have equal roles in proposing an unbiased arbitrator.
16
Here, unlike in Vincent and Hewitt, the contract protects against CMH’s selection
of a biased arbitrator by specifically allowing Mr. Eaton to veto any arbitrator selected.
Moreover, CMH cannot simply avoid arbitration by repeatedly proposing unacceptable
arbitrators, nor can Mr. Eaton avoid arbitration by repeatedly vetoing proposed
arbitrators. As this Court recently noted in Hewitt, section 435.360 of the MUAA
provides a default method by which the trial court can select an arbitrator. 7 Hewitt,
SC93846, slip op. at 20. Similarly, here, if the parties are not able to agree on an
arbitrator, the court can select one under section 435.360. The arbitrator selection
provision of Mr. Eaton’s contract, therefore, is not unconscionable. 8
Finally, Mr. Eaton argues that this Court should hold the arbitration agreement as
a whole unconscionable because of the contract’s adhesive nature. Under Missouri law,
7
Section 435.360 provides: “If the arbitration agreement provides a method of
appointment of arbitrators, this method shall be followed. In the absence thereof, or if the
agreed method fails or for any reason cannot be followed, or when an arbitrator appointed
fails or is unable to act and his successor has not been duly appointed, the court on
application of a party shall appoint one or more arbitrators. An arbitrator so appointed has
all the powers of one specifically named in the agreement.”
8
Cf. Lackey v. Green Tree Financial Corp., 498 S.E.2d 898, 904 (S.C. Ct. App. 1998).
Also involving a manufactured home, Lackey held that if the buyer rejects the seller’s
proposed arbitrator, then a court can use default provisions to select an arbitrator, stating:
Under [a nearly identical to the one here] provision, the [buyers] are
protected because the clear language of the agreement allows them to block
[the seller’s] selection of arbitrators by simply disagreeing with it. Without
their agreement, no arbitrator can be selected by [the seller]. Under the
default provisions of the FAA, a court then makes the selection of an
impartial arbitrator upon application of either party. There is nothing
inherently unfair or oppressive about this process.
17
however, the fact that a contract is one of adhesion does not necessarily make it invalid.
An adhesion contract is a contract created by the stronger of the contracting parties and
offered on a “take this or nothing” basis. Robin v. Blue Cross Hosp. Servs., Inc., 637
S.W.2d 695, 697 (Mo. banc 1982). An adhesion contract’s terms “are imposed upon the
weaker party who has no choice but to conform,” and such terms “unexpectedly or
unconscionably limit the obligations and liability of the drafting party.” Id.
In Robinson, this Court emphasized that “post-Concepcion, a court should not
invalidate an arbitration agreement in a consumer contract simply because it is contained
in a contract of adhesion or because the parties had unequal bargaining power, as these
are hallmarks of modern consumer contracts generally.” Robinson, 364 S.W.3d at 515.
In fact, “[b]ecause the bulk of contracts signed in this country are [pre-printed,] form
contracts … any rule automatically invalidating [such] contracts would be completely
unworkable.” Swain, 128 S.W.3d at 107 (internal citations and quotation marks omitted).
For these reasons, rather than automatically invalidating contracts simply because
they are contracts of adhesion, a court should look at the terms of the contract to
determine whether they are rendered unfair by the contracts take-it-or-leave-it nature:
In determining whether to enforce the terms of a contract of adhesion,
courts have looked not only to the take it or leave it nature or the
standardized form of the document, but also to the subject matter of the
contract, the parties’ relative bargaining positions, the degree of economic
compulsion motivating the “adhering” party, and the public interests
affected by the contract.
Id.; see also Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183-84 (3d Cir. 1999)
(holding that an arbitration agreement that contained a provision requiring the arbitrator
to be “selected by us with the consent of you” was not unconscionable).
18
Woods, 280 S.W.3d at 97.
Here, as evidence of adhesion, Mr. Eaton refers the Court only to the fact that the
obligation to arbitrate is not mutual and the fact that the contract says the arbitration will
be governed by the FAA. This Court already has held that the mere lack of mutuality
does not render the agreement to arbitrate invalid when, as here, adequate consideration
otherwise is provided for the agreement. Similarly, the FAA governs applicability and
enforceability of arbitration agreements in all contracts involving interstate commerce,
9 U.S.C. § 2; Hewitt, SC93846, slip op. at 5, while the MUAA governs arbitration matters
not preempted by the FAA. Hewitt, SC93846, slip op. at 6, n.4. The fact that the
contract designates the FAA as governing does not provide a basis to invalidate the
contract as a contract of adhesion. 9
G. The Motion to Compel Arbitration Was Not Premature
Finally, Mr. Eaton argues that CMH’s motion to compel arbitration was premature
because there is another defendant who has not yet answered: Henry Concrete, LLC.
Mr. Eaton argues that until Henry Concrete enters an appearance or files an answer, then
it is premature to send this case to arbitration.
But, as CMH notes, Mr. Eaton served Henry Concrete in 2012. The time for
9
Moreover, Mr. Eaton has not argued that he attempted to negotiate but those attempts
were rejected or that all manufactured home agreements contain similar provisions. See,
e.g., Vincent, 194 S.W.3d at 857; Grossman v. Thoroughbred Ford, Inc., 297 S.W.3d 918,
922 (Mo. App. 2009) (refused to render an arbitration agreement unconscionable on
adhesion grounds by looking to similar factors as those in Vincent, explaining that the
buyer offered no proof that all other area Ford dealers used the same arbitration terms and
did not attempt to negotiate or inquire about the contractual terms or contest
negotiability). This Court does not address the issue of duress, which was not developed
19
Henry Concrete to enter an appearance or file an answer long has passed. Yet Mr. Eaton
has not taken any steps to obtain a default judgment against Henry Concrete.
Furthermore, Henry Concrete is not a party to the arbitration agreement. Although
Mr. Eaton speculates in his brief that he “expects that there may be evidence that Henry
Concrete was an agent of” CMH, Mr. Eaton did not make any such allegation in his
pleadings. Accordingly, this Court agrees with CMH that Henry Concrete’s failure to
enter an appearance should not preclude arbitration.
IV. CONCLUSION
For the reasons set out above, this Court reverses the judgment of the trial court
and remands the case.
_________________________________
LAURA DENVIR STITH, JUDGE
Russell, C.J., Breckenridge, Fischer, Draper
and Wilson, JJ., concur; Teitelman, J.,
concurs in part and dissents in part.
below but which remains open for consideration on remand.
20