The Supreme Court of Missouri recently affirmed the denial of a lender’s motion to compel arbitration of a consumer’s putative class claims because the arbitration provision at issue designated the use of a specific arbitrator which was no longer available to handle creditor claims.
A copy of the opinion in A-1 Premium Acceptance, Inc. v. Hunter is available at: Link to Opinion.
Following the borrower’s default under a small personal loan, the lender brought an action in Missouri state court for collection of the debt. The borrower filed counterclaims against the lender for alleged violations of the Missouri consumer protection statute and requested class certification for her claim.
The lender filed an application with the trial court to compel the borrower’s counterclaim to arbitration.
The loan agreement contained an arbitration provision which provided, in part, that any claim or dispute arising under the agreement “shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure then in effect.”
However, several years prior to the commencement of the present litigation, the National Arbitration Forum entered into a consent decree with the Minnesota State Attorney General which required it to immediately stop providing arbitration services for consumer claims, including the claims asserted by the borrower in the matter at hand. Consequently, NAF was not available to act as an arbitrator.
Due to NAF’s unavailability, the lender requested that the trial court designate a new arbitrator pursuant to Section 5 of the Federal Arbitration Act, 9 U.S.C. § 1 et seq.
The trial court denied the lender’s request and the lender sought an immediate appeal.
The Missouri Supreme Court granted the transfer of the appeal from the intermediate appellate court.
In deciding the issue, the Missouri Supreme Court first noted that the sole question before it was whether or not under the FAA the court was compelled to appoint an arbitrator to replace NAF. The lender had failed to adequately raise in the trial court any argument under Missouri’s Uniform Arbitration Act. The Court did not address whether or not the result may have been different under the Missouri statute.
As explained by the Court, Section 5 of the FAA is merely a default provision which requires a court to appoint a substitute arbitrator unless it appears the parties did not intend to arbitrate before a substitute arbitrator in the event their chosen arbitrator became unavailable. Further, the FAA in general “reflects the overarching principle that arbitration is a matter of contract.” Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 233 (2013). Thus, the question at hand was one primarily of contract interpretation.
The Court recited the standard rules of contract interpretation in Missouri, in that courts ascertain the “intent of the parties by looking at the words of the contract and giving those words their plain, ordinary, and usual meaning.” Ethridge v. TierOne Bank, 226 S.W.3d 127, 131 (Mo. banc 2007). And if those terms are “unequivocal, plain, and clear, the court is bound to enforce the contract as written.” Malan Realty Inv’rs, Inc. v. Harris, 953 S.W.2d 624, 626-27 (Mo. banc 1997).
Applying these standards to the arbitration provision, the Court found that the terms at hand were unequivocal, plain and clear that the parties agreed to arbitrate only before NAF. In addition to the language quoted above, the Court further found that the requirement that the claims be submitted to the NAF headquarters or one of its branches further evidenced the parties’ intent to use NAF exclusively.
The Court further held that “nothing in the FAA authorizes (let alone requires) a court to compel a party to arbitrate beyond the limits of the agreement it made.”
The Court further commented somewhat critically that the contract was one of adhesion freely drafted by the lender, and “having made the choice to insist upon NAF “ and only NAF “as the arbitration forum, [the lender] cannot now look to Section 5 of the FAA to expand the arbitration promise it extracted from [the borrower].”
The Court clarified that its opinion was not that “merely identifying an arbitrator in an arbitration agreement” would support the refusal to appoint a substitute under Section 5 of the FAA, and instead, there must be “a basis to conclude the parties’ arbitration agreement was limited to the specified arbitrator.”
Indeed, the Court noted that a great deal of case law had arisen following the NAF consent decree. Yet the ruling in those cases differed wildly depending upon the exact terms of the arbitration provisions at issue.
Accordingly, the Court affirmed the trial court’s denial of the lender’s motion to compel arbitration and remanded the case for further proceedings.