The U.S. Court of Appeals for the Eighth Circuit recently held that the court, and not an arbitrator, must decide whether the defendant real estate brokers could enforce the arbitration agreements at issue against unnamed class members.
In so ruling, the Eighth Circuit also held that the brokers could not enforce the subject arbitration agreements because the brokers were neither parties nor third-party beneficiaries of the agreements. Thus, the Court held, the arbitration agreements were inapplicable including as to the unnamed class members.
A copy of the opinion in Burnett v. HomeServices of America, Inc. is available at: Link to Opinion.
Several Missouri home sellers filed a putative class action against a group of national real estate brokerage firms, alleging that the brokers enforced anticompetitive rules that resulted in damages. Specifically, the home sellers alleged that the rules required them to compensate the home buyer’s broker.
At the trial level, the brokers conceded that neither the named plaintiffs nor any purported class member had any contract or direct relationship with the brokers relevant to the claims asserted in this case. Additionally, the listing agreements the brokers’ agents executed with the home sellers, which included arbitration agreements incorporating the American Arbitration Association (AAA) rules, did not name the actual brokers as parties or third-party beneficiaries.
Therefore, the trial court denied the brokers’ motion to compel arbitration. The brokers timely appealed.
On appeal, the brokers argued that an arbitrator instead of the court must decide the gateway issue of whether unnamed class members must arbitrate their claims. Specifically, the brokers asserted that the incorporation of the AAA rules into the arbitration agreements was a clear and unmistakable indication that the parties intended for the arbitrator to decide threshold questions of arbitrability, pursuant to Eckert/Wordell Architects, Inc. v. FJM Props. of Willmar, LLC, 756 F.3d 1098, 1100 (8th Cir. 2014).
The brokers also argued that the Missouri Supreme Court has held that the following language – “[a]ny controversy or claim between the parties to this Contract, its interpretation, enforcement or breach… will be settled by binding arbitration” – which is found in the arbitration agreements, “constitutes a ‘delegation clause’ that is ‘clear in evincing a manifest intention to delegate threshold questions of arbitrability to a neutral arbitrator.’” Id. at 16–17 (quoting Soars v. Easter Seals Midwest, 563 S.W.3d 111, 113–14 (Mo. 2018) (en banc)).
The Eighth Circuit began by noting that Missouri law does permit contracting parties to make arbitration agreements that commit issues such as arbitrability to their chosen arbitrator. Theroff v. Dollar Tree Stores, Inc., 591 S.W.3d 432, 439 (Mo. 2020) (en banc). Furthermore, the Court noted that it previously held that the incorporation of the AAA rules into a contract requiring arbitration is a “clear and unmistakable indication the parties intended for the arbitrator to decide threshold questions of arbitrability.” Eckert, 756 F.3d at 1100 (citing Green v. SuperShuttle Int’l, Inc., 653 F.3d 766, 769 (8th Cir. 2011)).
However, the Eighth Circuit also observed that, in Missouri, “[o]nly parties to a contract and any third-party beneficiaries of a contract have standing to enforce that contract. To be bound as a third-party beneficiary, the terms of the contract must clearly express intent to benefit that party or an identifiable class of which the party is a member.” Id. (quoting Verni v. Cleveland Chiropractic Coll., 212 S.W.3d 150, 153 (Mo. 2007) (en banc)). A “strong presumption” exists “[i]n cases where the contract lacks an express declaration of that intent” “that the third party is not a beneficiary and that the parties contracted to benefit only themselves.” Id. (quoting Verni, 212 S.W.3d at 153).
Here, because the brokers conceded to the trial court that they did not have any contracts or direct relationships with any of the named plaintiffs, and because the listing agreements and arbitration agreements did not name the brokers as parties or third-party beneficiaries, the Eighth Circuit determined that the trial court correctly concluded that the court must decide whether the brokers could enforce the arbitration agreements.
The Eighth Circuit concluded that the brokers could not enforce the arbitration agreements because the brokers were neither parties nor third-party beneficiaries of the listing agreements or arbitration agreements. Thus, the arbitration agreements were also inapplicable to any dispute between the unnamed class members and the brokers.
Accordingly, the Eighth Circuit affirmed the judgment of the trial court and held that the trial court did not err in denying the brokers’ motion to compel.