Arbitration Might Just Be the Most Exciting Area of Contract Law

Missouri Contract Cases

Most areas of contract law change very little over time. When a new way of doing business comes along, the law might take a while to figure out how to deal with it, but eventually a consensus approach (or two) is adopted by the courts, and things hum along once again.

Recent developments in contract law

An example during my lifetime are boxtop or shrinkwrap agreements that reflect a “terms to come later” approach to contracting. In these situations, merchants sell their computers or software and enclose additional terms in the product package. Thus, the buyer doesn’t have an opportunity to read all of the terms when they purchase the product. This poses a challenge to traditional contract law, which generally doesn’t give effect to silent terms.

More recently, online contracting has challenged the notion that there must be actual agreement (or at least the appearance of agreement) between parties for a contract to form. The difficulty isn’t so much true contracts, such as when you click on the “buy” button on an e-commerce website, but rather the terms of use, terms of service, privacy policy, and other legal terms that purport to bind a website user who never sees them and might never even see a link or reference to them.

The jury’s probably still out as to how prominently website owners have to advertise the existence and content of their terms, but courts have determined that the terms are binding on website users, although there’s often no real contract in a traditional sense. That’s certainly the case in Missouri, unless the Missouri Supreme Court decides to wade in. Of course, all bets are off if the website owner goes off the deep end….

Although contract law is generally low key, every now and then a case will come along to cause some excitement. This happened last year when the U.S. Supreme Court decided Stanford v. Roche, which turned in part on whether the words “agree to assign” in a contract were effective to assign future inventions. I’m sure this caused a lot of attorneys to scramble and revisit assignment language in their form contracts.

Developments in the law of arbitration

On a completely different — and much more massive — scale, two U.S. Supreme Court arbitration decisions handed down in the last couple of years have dramatically changed the arbitration landscape. In the first, Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., the Court held that class arbitration can’t be compelled pursuant to an arbitration agreement that is silent on the matter. Although the case involved sophisticated business entities, commentators correctly predicted that it would also apply to consumer agreements.

A year later, the Court’s decision in AT&T Mobility LLC v. Concepcion effectively paved the way for businesses to avoid being subject to class actions by including a class action waiver in their arbitration agreements. Focusing on the consumer-friendly arbitration provision that was at issue in Concepcion (consumers would be much better off under the process provided in their agreements with AT&T than they would be in class arbitration or a class action in court), I commented at the time — perhaps naively — “If the cost of avoiding class actions is providing real relief to consumers who are harmed, that might not be a bad result for consumers.” I’m still undecided on that point, although it’s clear that the decision has had a massive effect on arbitration agreements.

In the wake of Concepcion, many cases have been sent back down to lower courts to apply the new precedent. For example, the Supreme Court recently granted cert in an American Express arbitration case that I’ve characterized as the case probably most affected by the recent Supreme Court arbitration decisions: AMEX Arbitration Case Goes to the Supreme Court (Again and Again and Again).

Arbitration law in Missouri

The Missouri Supreme Court considered the impact of Concepcion last March, when it handed down a pair of decisions on the same day. The court reversed a lower court’s refusal to enforce an arbitration agreement in Brewer v. Missouri Title Loans, but came to the opposite decision in Robinson v. Title Lenders, Inc. Both cases considered the effect of the state’s unconscionability doctrine on the arbitrability of disputes.

It seems that the Missouri Supreme Court must have been trying to put brackets around cases where  arbitration agreements should be enforced and where they should be struck down. I expect the U.S. Supreme Court will have the last word, but we’ll have to wait and see.

The Missouri Supreme Court heard oral arguments on November 8 in another arbitration case, but it hasn’t yet filed its decision. In Johnson v. JF Enterprises, LLC the Missouri Court of Appeals, Western District affirmed a trial court’s denial of a motion to compel arbitration.

The case involved an arbitration agreement signed in connection with the purchase of a used vehicle. Anita Johnson signed a retail installment contract and a separate arbitration agreement on the same day. The installment contract set forth the terms and conditions of the purchase of the vehicle, and the arbitration agreement provided that all claims or disputes arising between the parties were to be resolved through arbitration.

The court held that the installment contract, which did not contain an arbitration agreement, set forth the entire agreement between the parties, as provided in a merger — or entire agreement — clause it contained. Neither the installment agreement nor the arbitration agreement referenced each other. Because parties can’t be compelled to arbitrate a dispute that they haven’t agreed to arbitrate, the court of appeals affirmed the lower court’s decision to refuse to compel arbitration.

I’ll be curious to see whether the Missouri Supreme Court affirms the decision. While the decision is based on contract law principles, it’s possible that the U.S. Supreme Court would look upon it with suspicion because, although the installment contract purported to contain the entire agreement of the parties, it doesn’t make sense that a document that was signed concurrently with the installment contract was not intended to be meaningful. If the Supreme Court were to find this to be an attempted end-around of the Federal Arbitration Act, it would likely send the case back to Missouri.

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