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Arbitration Agreements Need Not Be Balanced

ABSTRACT: The Missouri Supreme Court says if you want a real shot at challenging the enforceability of an arbitration agreement, you had better assert a factual basis for doing so at the trial court level.

The Missouri Supreme Court, in an en banc Opinion issued last month, reversed the Missouri Court of Appeals’ opinion and held in favor of a movant’s attempt to compel arbitration. The Missouri Court of Appeals had previously upheld the respective trial courts’ decision in companion cases, where Bridgecrest’s motion to compel arbitration was denied.

Framed within a somewhat unique procedural posture wherein the party compelling arbitration was the first to initiate suit, the Bridgecrest opinion is a helpful practice reminder that, although courts may look for factual bases to decline to compel arbitration, it is a tough sell to win a purely legal argument about the enforceability of an arbitration provision.

The underlying litigation arose from two virtually identical retail installment contracts wherein Bridgecrest’s predecessor provided financing for the purchase of vehicles and was granted a security interest in the collateral, each of which contained a robust arbitration agreement. The arbitration clause provided for a detailed and broad spanning definition of “claims subject to arbitration,” but it expressly excluded claims for self-help such as repossession. Bridgecrest filed two very similar lawsuits against consumers to recover deficiency judgments against them following their default under the respective loan agreements and repossession of the collateral vehicles. The consumers each then counterclaimed, alleging unlawful and deceptive business practices in violation of the Missouri Uniform Commercial Code. Bridgecrest then moved to stay or dismiss the counterclaims and to compel arbitration as to those claims.

Notably, the Missouri Supreme Court found that the consumers had conceded to the fact that there was an arbitration agreement between the parties; instead, relying on a purely legal argument that the agreements were unconscionable and should not be enforced.

Turning then to the legal arguments, the Court first held that there was valid consideration for the arbitration clause, as it was part of a larger agreement wherein the secured party provided financing for the purchase of a vehicle. The Court similarly found the consumers’ arguments about unconscionability unavailing, as the rights and duties contained in arbitration agreements do not have to be equally balanced for the agreement to be enforceable. In so holding, the Court distinguished the present case from Eaton v. CMH Homes, Inc., 461 S.W.3d 426 (Mo. 2015), wherein the arbitration agreement was completely one-sided in that it precluded arbitration for any conceivable claim the manufacturer could have brought but required it as to any claim the homebuyers could have brought. Contrarily, in Bridgecrest, the agreement exempted self-help repossession from the arbitration clause but not other claims, such as the deficiency claim, which the consumers could have but chose not to compel to arbitration.

The Bridgecrest decision is a helpful reminder that:

  1. Any factual dispute concerning the existence of an arbitration must be properly raised at the trial court level, and
  2. Even an imbalanced arbitration agreement does not give rise to unconscionability, where the right to arbitrate is not completely one-sided and where the entire contract contains adequate consideration.