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Missouri Court of Appeals affirms denial of motion to compel arbitration based on contract of adhesion

The Eastern District Missouri Court of Appeals recently affirmed a trial court decision that denied Verizon’s motion to compel arbitration. In Rose v. Verizon Wireless Services, LLC, the Court of Appeals held that an arbitration provision was not enforceable because the contract at issue was an unenforceable contract of adhesion and did not match the reasonable expectations of the parties.

Plaintiff Breanna Rose sued Verizon Wireless and its employee Santiago Sabala, Jr. based on a visit to a Verizon store in St. Louis County to exchange her iPhone 6s for a newer model. Rose alleged that Sabala took her iPhone into the back of the store, purportedly to evaluate its condition for the trade in; but that four months later, she discovered Sabala sent an email from Rose’s phone to Sabala’s email address, attaching intimate photographs of Rose. Obtaining private, intimate images of a person without their consent is a felony under Missouri law. R.S. Mo § 573.110.2. Rose claimed negligent infliction of emotional distress and invasion of privacy by Sabala, and negligence and negligent hiring, retention and supervision by Verizon Wireless Services, as the employer of Sabala.

Verizon moved to compel arbitration. Verizon argued that Rose agreed to Verizon’s customer agreement when she purchased her iPhone 6s. That agreement contained a clause requiring arbitration of any customer dispute, under the Federal Arbitration Act:

ANY DISPUTE THAT IN ANY WAY RELATES TO OR ARISES OUT OF THIS AGREEMENT OR FROM ANY EQUIPMENT, PRODUCTS AND SERVICES YOU RECEIVE FROM US (OR FROM ANY ADVERTISING FOR ANY SUCH PRODUCTS OR SERVICES), INCLUDING ANY DISPUTES YOU HAVE WITH OUR EMPLOYEES OR AGENTS, WILL BE RESOLVED BY ONE OR MORE NEUTRAL ARBITRATORS . . ..

Rose argued that Verizon’s customer agreement constituted a contract of adhesion. Contracts of adhesion are typically contracts offered on a “take this or nothing basis,” as opposed to a contract where the terms are negotiated by the parties. Swain v. Auto Servs., Inc., 128 S.W.3d 103, 107 (Mo. App. E.D. 2003). Most people have experienced contracts of adhesion when scrolling through lengthy terms and conditions of service and clicking “accept,” usually without actually reading the terms and conditions. The Circuit Court agreed with Rose, and denied Verizon’s motion to compel arbitration. Ordinarily parties must wait to appeal until a final judgment is entered, but Missouri law allows an immediate appeal from an order denying an application to compel arbitration. § 435.440.1(1), RSMo. Verizon appealed.

The appellate Court ruled against Verizon and affirmed the circuit court’s decision to deny arbitration. As the appellate Court noted, contracts of adhesion can be enforceable, depending on whether the contract matches the reasonable expectations of the parties. However, the store receipt signed by Rose when she purchased her phone did not contain the above arbitration clause itself, but merely referenced the online customer agreement and arbitration, as follows (emphasis added):

I AGREE TO THE CURRENT VERIZON WIRELESS CUSTOMER AGREEMENT (WITH EXTENDED LIMITED WARRANTY/SERVICE CONTRACT, IF APPLICABLE), INCLUDING THE TERMS AND CONDITIONS OF MY PLAN AND ANY OPTIONAL SERVICES I HAVE AGREED TO PURCHASE AS REFLECTED ON THE SERVICE SUMMARY, ALL OF WHICH I HAVE HAD THE OPPORTUNITY TO REVIEW. I UNDERSTAND THAT I AM AGREEING TO AN EARLY TERMINATION FEE PER LINE, LIMITATIONS OF LIABILITY FOR SERVICE AND EQUIPMENT, SETTLEMENT OF DISPUTES BY ARBITRATION INSTEAD OF JURY TRIALS, AND OTHER IMPORTANT TERMS IN THE CUSTOMER AGREEMENT. I AM AWARE THAT I CAN VIEW THE CUSTOMER AGREEMENT ANYTIME AT VERIZONWIRELESS.COM OR IN MY VERIZON ACCOUNT.

The appellate Court noted that while the receipt Rose signed does mention settling disputes by arbitration, that reference was merely a portion of a single sentence and did not set out the full terms of arbitration, as described in Verizon’s customer agreement. The full customer agreement was a separate document from the one signed by Rose. The appellate Court also ruled that the circumstances of the transaction weighed against Verizon, in that Santiago’s alleged actions did not relate to Verizon’s telecommunications business. Because the reasonable expectations of the parties would not include arbitrating disputes related to a Verizon employee allegedly obtaining intimate photographs of a customer, the appellate Court held that Verizon was not entitled to arbitration.

Arbitration is often favored as a less expensive method of resolving disputes. Parties can forego the expense related to interviewing and selecting jurors and generally reach a quicker resolution, while trials may take months or even years. The appellate Court’s decision does not mean that all contracts of adhesion are unenforceable, or even that contracts of adhesion containing arbitration clauses are unenforceable. The Court emphasized that its decision was narrow and based on the specific allegations of misconduct by Sabala. If the allegations were different – for example, if an employee dropped and broke a customer’s phone while handling it – the appellate Court may have permitted arbitration. Likewise, if the full terms regarding arbitration were contained in the receipt signed by Rose, the appellate Court may have permitted arbitration. Parties entering into written contracts should be careful to ensure both sides fully appreciate the contractual terms they are agreeing to, especially terms requiring arbitration of disputes.