DocketNumber: WD 81202
Citation Numbers: 564 S.W.3d 393
Judges: Witt
Filed Date: 12/4/2018
Status: Precedential
Modified Date: 1/21/2022
Appellants Joe Machens Automotive Group, Inc., Joe Machens Nissan, Inc., and GRD Auto Sales, Inc. (collectively, "Joe Machens") bring an interlocutory appeal challenging the Circuit Court of Boone County, Missouri's denial of Joe Machens's Motion to Stay Proceedings and Compel Arbitration. Joe Machens raises three allegations of error on appeal. We reverse and remand.
Factual Background
On November 3, 2015, Tina and Paul Fogelsong, Patrick Bonnot, and Carol Benna (collectively, "Plaintiffs"), filed a class action suit against Joe Machens alleging that Joe Machens fraudulently sold to Plaintiffs vehicles marketed as "brand new." But, the Plaintiffs allege that their vehicles had previously sustained hail damage which Joe Machens fixed but did not disclose prior to sale. Joe Machens moved to compel arbitration and stay the action pending the outcome of arbitration ("Motion").
Joe Machens's Motion alleged that the Plaintiffs had agreed to binding arbitration in conjunction with their vehicle purchases. At the time of purchase, each of the Plaintiffs entered into a "Retail Buyers Order" which contained an agreement to arbitrate any dispute arising out of or related to the purchase of their vehicle. The arbitration agreement of the Retail Buyers Orders provided:
ARBITRATION
MANDATORY ARBITRATION OF DISPUTES. ANY CLAIM, CONTROVERSY
*395OR DISPUTE OF ANY KIND BETWEEN THE CUSTOMER AND THE COMPANY ARISING OUT OF OR RELATED TO THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT, STATUTE, FRAUD, MISREPRESENTATION OR ANY OTHER LEGAL OR EQUITABLE THEORY) SHALL BE RESOLVED BY FINAL AND BINDING ARBITRATION, PURSUANT TO THE FOLLOWING TERMS.
a. The Federal Arbitration Act, not state law, shall govern the arbitration process and the question of whether a claim is subject to arbitration. The customer, however, retains the right to take any claim, controversy or dispute that qualifies to small claims court rather than arbitration.
b. A single arbitrator engaged in the practice of law will conduct the arbitration. The arbitrator will be selected according to the rules of the American Arbitration Association or, alternatively, may be selected by agreement of the parties, who shall cooperate in good faith to select the arbitrator. The arbitration shall be conducted by, and under the then-applicable rules of, the American Arbitration Association. Any required hearing fees and costs shall be paid by the parties as required by the applicable rules, but the arbitrator shall have the power to apportion such costs as the arbitrator deems appropriate.
c. The arbitrator's decision and award will be final and binding, and judgment on the award rendered by the arbitrator may be entered in any court with jurisdiction.
d. No claim, controversy or dispute may be joined in an arbitration with a claim, controversy or dispute of any other person, or resolved on a class-wide basis. The arbitrator may not award damages that are barred by this Agreement and the Customer and the Company both waive any claims for an award of damages that is excluded under this Agreement.
("Arbitration Agreements"). The Retail Buyers Orders signed by the Plaintiffs required the parties to sign twice. One signature was for the purchase which, directly above the Plaintiffs' signatures, the agreement states: "THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. " Additionally, the Plaintiffs were required to sign a separate box containing the Arbitration Agreement itself.
The parties conducted limited discovery on the Motion. On August 31, 2017, the circuit court held a hearing on the Motion ("Hearing"). The court, on October 17, 2017, denied Joe Machens's Motion finding that the Arbitration Agreements were unconscionable ("Judgment"). This appeal followed. Section 435.440.1(1).
Standard of Review
"When faced with a motion to compel arbitration, the motion court must determine whether a valid arbitration agreement exists and, if so, whether the specific dispute falls within the scope of the arbitration agreement." Nitro Distrib., Inc. v. Dunn ,
"Whether or not a dispute is covered by an arbitration agreement is a question of law for the courts."
*396Kansas City Urology, P.A. v. United Healthcare Servs. ,
Discussion
The circuit court found that the Arbitration Agreements were unenforceable because they were unconscionable. In its first point on appeal, Joe Machens alleges that the circuit court erred in denying its Motion because the Arbitration Agreements delegate the question of arbitrability to the arbitrator. Joe Machens contends that this Court need not decide whether the circuit court was correct in its finding of unconscionability because, under Missouri law as it currently exists, the Arbitration Agreements reserve that threshold question for determination by an arbitrator. As discussed more fully below, this issue was not presented to the circuit court. Thus, we must address whether such a claim is properly before us before we can address the merits of the argument.
The Arbitration Agreements all stated that the arbitration would be conducted "by, and under the then-applicable rules of, the American Arbitration Association." The Consumer Rules of the American Arbitration Association ("AAA") state that: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." Joe Machens seeks to enforce this provision and have the arbitrability of this dispute pursuant to the Arbitration Agreements decided by the arbitrator.
When an arbitration agreement contains a provision or clause delegating threshold issues of arbitrability to the arbitrator, the provision will be upheld so long as the provision represents a "clear and unmistakable" intent to allow issues of arbitrability to be decided by the arbitrator rather than by a court. Rent-A-Center, W., Inc. v. Jackson ,
However, on October 31, 2017, fourteen days after the trial court in this matter entered its Judgment, the Missouri Supreme Court handed down State ex rel. Pinkerton v. Fahnestock ,
The parties are in agreement that, in this case, it was never argued before the circuit court that the Arbitration Agreements contained an enforceable delegation provision. Plaintiffs argue that the applicability of the delegation provision has been waived because it was not raised below. Joe Machens contends that the applicability of the provision has not been waived because there was a firm and clear shift in the law between when the Judgment was rendered and this appeal. According to Joe Machens, it would have been futile to raise the issue of the delegation provision below because, at the time, the case law clearly held that the incorporation of the AAA rules by reference was insufficient to support an enforceable delegation provision. Now that the law deems such incorporation effective, expressly abrogating prior holdings to the contrary, Joe Machens should be allowed to argue the delegation provision's applicability. We agree.
Joe Machens was not prevented from arguing the applicability of the delegation provision of the AAA rules below. Pinkerton proves this fact because the issue was only reviewed by the Supreme Court because the parties in that case specifically raised and argued the delegation clause in the trial court. Defendant's motion in that *398action was granted by the trial court and affirmed by the Supreme Court on appeal.
There are several general principles of law that are at issue here. The "Court will generally not convict a lower court of error on an issue that was not put before it to decide." Smith v. Shaw ,
In Sumners , the Missouri Supreme Court reviewed whether certain property was properly declared to be separate property in a dissolution. Sumners ,
Plaintiffs argue that this case is analogous to the proceedings in Katz ,
Joe Machens argues that Katz is not controlling because Pinkerton was not a clarification of the law but instead clearly articulated an avenue of defense not previously *399available. Instead, Joe Machens contends, the Katz holding actually suggests that the arguments it now makes regarding the delegation provision were not waived. The language of the decision suggests that had Rent-A-Center fashioned a legal argument previously unavailable, the court in Katz would have considered the new arguments regarding the delegation provision on appeal. We are persuaded that it would be unfair to Joe Machens to hold that it waived its right to argue that the Arbitration Agreements contained a valid delegation provision by reference to the AAA rules when such an argument was directly contrary to the law as it existed at the time of the proceedings below. Joe Machens should be given the benefit of the new avenue of defense created by Pinkerton . This is the rare case in which, during the course of the pendency of the appeal, the applicable law was not just clarified or distinguished, but the law actually changed to such an extent that the Supreme Court expressly overruled the existing cases upon which a party had relied in making its arguments below.
Granting to Joe Machens the right to now argue application of the delegation provision should not, however, come at the cost of the Plaintiffs being foreclosed from responding to any arguments raised by Joe Machens and bringing any additional challenges to such a provision. Even if there is a delegation provision contained in an arbitration agreement, the court may still decide any challenges raised to the validity of that provision before ordering the proceedings stayed pending arbitration. Latenser v. Tarmac Int'l, Inc. ,
Conclusion
Given the disposition of Point I, this Court need not address Joe Machens's Points II and III. This case presents the rare situation in which the law fundamentally changed following the circuit court's ruling and this Court's opinion on appeal. While the circuit court may not have erred at the time it denied Joe Machens's Motion, under these circumstances we cannot allow an erroneous interpretation of the law to stand despite the argument not being raised before the lower court. We also cannot allow Plaintiffs to be unfairly prejudiced by not allowing an opportunity to challenge the validity of the newly incorporated provision under Pinkerton . We reverse and remand the case to give all parties the opportunity to litigate the applicability of the delegation provision post Pinkerton and to give the trial court full opportunity to consider and rule on such arguments.
All concur
All statutory references are to RSMo 2016, as currently updated.
Dolly was handed-down on October 3, 2017. This was prior to the circuit court's Judgment on October 17, 2017. It was, however, decided after all briefing on the Motion had been completed and after the Hearing on August 31, 2017. Thus, it reflects the state of Missouri law regarding delegation provisions at the time the Judgment was issued but would not have been available to Joe Machens in deciding whether to argue the existence of a delegation provision to the circuit court.
AAA's web site contains almost 60 different sets of "active rules" depending on the type of agreement. https://www.adr.org/active-rules last viewed October 24, 2019. AAA web site also maintains approximately 150 sets of archival rules that have been previously used but are now no longer current. https://www.adr.org/ArchiveRules. Joe Machens acknowledged at argument that a lay person entering into this type of contract would have difficulty determining which set of AAA rules would be applicable to their particular contract or potential dispute.
It is unclear from the facts, as recited by the Supreme Court, whether 50 Plus Pharmacy had been decided prior to the trial court's ruling in Pinkerton . But, it appears that the trial court likely issued its ruling before 50 Plus Pharmacy , thus diminishing any argument that Joe Machens should have raised the delegation provision below despite the holding in 50 Plus Pharmacy .