Laura Denvir Stith, Judge.
CMH Homes, Inc., appeals the trial court's overruling of its motion to dismiss or to stay the court proceeding and to compel arbitration in an action filed by Robert Eaton alleging fraud, negligence, breach of contract, and negligent misrepresentation in regard to CMH's sale to him of a manufactured home. Mr. Eaton opposed arbitration, arguing that the arbitration agreement lacks mutuality and is unconscionable on multiple grounds.
This Court finds that the trial court erred in refusing to compel arbitration. In State ex rel. Vincent v. Schneider, 194 S.W.3d 853 (Mo. banc 2006), this Court held that courts will look to a contract (or amendment) as a whole to determine whether consideration is adequate rather than looking solely at the consideration given for the agreement to arbitrate.
But this Court also clarifies that a lack of mutuality of the obligation to arbitrate is one of the relevant factors a court will consider, along with the other terms of the contract, in determining whether the agreement to arbitrate otherwise is unconscionable. Here, the contract also provides that even if CMH chooses to sue in
This Court finds this anti-waiver clause is unconscionable and invalid because it would prevent Mr. Eaton from bringing defenses to the suit filed by CMH or require him to proceed in two forums with possibly inconsistent results. But the anti-waiver provision can be severed. This Court further finds that Mr. Eaton's remaining objections — that only CMH can choose an arbitrator subject to Mr. Eaton's veto and that the contract is one of adhesion — do not render the contract as a whole unconscionable. Accordingly, the Court finds that the contract, absent the anti-waiver clause, is not unconscionable and remands for further proceedings.
On April 16, 2009, Mr. Eaton purchased a manufactured home from CMH. The contract between Mr. Eaton and CMH included an arbitration clause, which states:
Both CMH and Mr. Eaton signed the contract. CMH then delivered and installed the manufactured home on Mr. Eaton's property. On September 27, 2012, Mr. Eaton sued CMH in the Lincoln County circuit court, alleging that: (1) as a result of CMH's negligence, the manufactured home had defects and irregularities; (2) CMH fraudulently induced him to sign the contract by representing that he would be purchasing a new 2009 manufactured home, but then informed him that he would be purchasing a 2007 manufactured home that he then purchased only under duress because he feared monetary penalties; (3) CMH breached the contract, which stated that the manufactured home would be free from defects; and (4) CMH engaged in negligent or intentional misrepresentation regarding the defects in the manufactured home.
CMH denied Mr. Eaton's allegations, asserted that Mr. Eaton entered into a binding arbitration agreement with CMH, and moved to dismiss or stay the court action and to compel arbitration. The trial court overruled CMH's motion without opinion. CMH appealed. Following an opinion by the court of appeals, this Court granted transfer. Mo. Const. art. V, § 10.
"The trial court's judgment will be affirmed unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law." Robinson v. Title Lenders, Inc., 364 S.W.3d 505, 510 (Mo. banc 2012). "Missouri contract law applies to determine whether the parties have entered a valid agreement to arbitrate." Vincent, 194 S.W.3d at 856. Whether the trial court should have granted a motion to compel arbitration is a question of law that this Court reviews de novo. Id.
The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (2006), governs the applicability and enforceability of arbitration agreements in all contracts involving interstate commerce. The Missouri Uniform Arbitration Act (MUAA), § 435.350 et seq.,
In determining whether an arbitration agreement is valid under the FAA, this
In Concepcion the United States Supreme Court interpreted the provision of the FAA that makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract," 9 U.S.C. § 2 (emphasis added). Concepcion held that this provision allows arbitration agreements "to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Concepcion, 131 S.Ct. at 1746 (internal quotations omitted).
In Brewer and Robinson, this Court reaffirmed that Concepcion does not diminish a trial court's broad authority to evaluate the validity and enforceability of arbitration agreements when considering whether to grant or overrule a motion to compel arbitration. Rather, this Court held, Concepcion "permit[s] state courts to apply state law defenses to the formation of the particular contract at issue." Brewer, 364 S.W.3d at 492.
"As such, arbitration agreements are tested through a lens of ordinary state-law principles that govern contracts, and consideration is given to whether the arbitration agreement is improper in light of generally applicable contract defenses." Robinson, 364 S.W.3d at 515. This means that a Missouri court can declare an arbitration agreement "unenforceable if a generally applicable contract defense, such as fraud, duress, or unconscionability, applie[s] to concerns raised about the agreement." Id.
Here, Mr. Eaton alleges that his agreement to arbitrate is unconscionable under Missouri common law. Unconscionability is one of the common law contract defenses that Concepcion permits state courts to recognize in determining whether an arbitration clause is valid. Id. Therefore, "this Court will analyze the issues in this appeal to determine if, under the factual record presented," Mr. Eaton "has established a[n unconscionability] defense to the formation of the agreement's arbitration clause." Brewer, 364 S.W.3d at 492.
Unconscionability is defined as "`an inequality so strong, gross, and manifest that it must be impossible to state it to one with common sense without producing an exclamation at the inequality of it.'" State of Missouri, Dept. Soc. Servs., Div. of Aging v. Brookside Nursing Ctr., Inc., 50 S.W.3d 273, 277 (Mo. banc 2001) (quoting Restatement (Second) of Contracts § 153 (1981)). Unconscionability doctrine guards against one-sided contracts, oppression, and unfair surprise. Brewer, 364 S.W.3d at 492-93.
Id. at 493.
As Brewer also noted, it is inaccurate to suggest that an agreement or provision
Id. at 489, n.1 (internal citations omitted).
Mr. Eaton first argues that the arbitration agreement is invalid and unenforceable because it does not contain mutual agreements to arbitrate. The principle he invokes is known as "mutuality of contract." "Mutuality of contract means that an obligation rests upon each party to do or permit to be done something in consideration of the act or promise of the other; that is, neither party is bound unless both are bound." Aden v. Dalton, 341 Mo. 454, 107 S.W.2d 1070, 1073 (1937) (internal quotation marks omitted). Applying this principle here, Mr. Eaton argues that the arbitration agreement in his contract with CMH is unconscionable and unenforceable because it obligates him to arbitrate all disputes with CMH, while CMH is not obligated to arbitrate disputes with him "to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement." In effect, Mr. Eaton alleges that this provision means that CMH will never have to arbitrate claims it files because the three listed types of claims are the only types of claims CMH would ever sue on. Unless both parties are required to arbitrate all or comparable claims, Mr. Eaton says that the agreement to arbitrate is not mutual and, so, not supported by adequate consideration, therefore rendering it unconscionable and unenforceable.
In Baker, 450 S.W.3d at 775-77, this Court held that an agreement to arbitrate lacks consideration when it is subject to unilateral change and the return promise purportedly made is effectively illusory. But that is not the case here. This case is more like Vincent, 194 S.W.3d at 855, 859, in which home buyers sued a home builder for violations of the Missouri Merchandising Practices Act, section 407.010 et seq. The home builder's preprinted contracts contained a provision giving the home builder the unilateral right to require any claim arising out of the contract or the home to be decided by binding arbitration. Id. at 855. Vincent held that this did not invalidate the obligation to arbitrate, explaining that as long as the contract as a whole meets the consideration requirement, an arbitration clause in the contract will not be invalidated for a lack of mutuality of the obligation to arbitrate:
Id. at 858-59.
To hold that the agreement is unconscionable solely due to lack of mutuality because CMH, but not Mr. Eaton, is given the option of litigating the issues most important to it in court is inconsistent with the principles set out in Vincent. "The consideration of a contract can consist either in a benefit conferred upon the promisor or in a legal detriment to the promisee, which means that the promisee changes his legal position...." State ex rel. Kansas City v. State Highway Comm'n, 349 Mo. 865, 163 S.W.2d 948, 953 (1942). Both parties exchanged consideration for the entire contract: Mr. Eaton paid the purchase price and CMH provided Mr. Eaton with the home. Mr. Eaton's mutuality argument, which is based on the fact that CMH can choose to bring some matters in court whereas Mr. Eaton cannot do so, does not persuade this Court to overrule Vincent. The lack of mutuality as to the arbitration agreement does not itself invalidate that arbitration agreement.
Although a lack of mutuality of the obligation to arbitrate does not itself make an arbitration agreement invalid, lack of mutuality still is a relevant factor to be considered in answering the larger question of whether the agreement to arbitrate is unconscionable. Here, the arbitration clause contains another provision — the anti-waiver provision — in addition to the one allowing CMH the unilateral right to decide whether to litigate financial issues regarding the security agreement, monetary damages for breach of contract, and foreclosure in court rather than before an arbitrator. The anti-waiver provision specifically provides that:
This Court agrees with Mr. Eaton that the arbitration agreement as written is unconscionable when this anti-waiver clause is considered together with the lack of mutuality of the obligation to arbitrate. As Mr. Eaton notes, the fact that the contract requires him to submit all claims to arbitration, including counterclaims, could create the anomalous situation where his affirmative defenses and counterclaims to claims made by CMH in court must proceed in arbitration at the same time as CMH proceeds on those same claims in court.
This Court agrees that this is unconscionable. In fact, at least one Missouri case has invalidated an arbitration agreement that contained a provision that essentially allowed one party to avoid arbitration in a similar manner. In Greene v. Alliance Automotive, Inc., 435 S.W.3d 646 (Mo.App.2014), the arbitration agreement between a car purchaser and a car dealership: (1) covered "any dispute" between the parties arising out of the contract, related to the purchase and sale or financing of the vehicle, or any resulting transaction; (2) contained a self-help provision; and (3) stated that "no party waives the right to elect arbitration ... by exercising self-help remedies." Id. at 652-53. The self-help provision stated:
Id. at 652. The purchaser defaulted on the contract, and the car dealership exercised self-help by repossessing the purchaser's vehicle. Id. at 653.
Although the self-help provision stated self-help would be used "pending final determination of the Dispute by the arbitrator," the car dealership never attempted to arbitrate the dispute. Id. at 653. As a result, the purchaser was forced to file suit to contest the repossession of the car. The car dealership moved to compel arbitration. Id. at 652-53. Greene invalidated the arbitration agreement because:
Id. at 654. Greene fails to cite Vincent, perhaps because, unlike in Vincent, the promise to arbitrate in Greene was illusory. That is, the contract promised mutuality of arbitration but then effectively permitted the dealer to proceed in court on all issues including repossession while prohibiting the buyer from opposing replevin or taking any other action in court. In so doing, it allowed the dealer to divest itself of this aspect of the agreed-upon consideration because the dealer could foreclose the buyer's right to review of the provisional repossession simply by failing to file for arbitration. In this regard, Greene is
As with the provision at issue in Greene, the anti-waiver provision here goes beyond merely not requiring mutuality. Under the anti-waiver provision, CMH, like the car dealership in Greene, has unilaterally divested itself of the arbitration agreement to the extent that it can bring suit on the key financial issues of importance to it. Yet Mr. Eaton is prohibited from defending these claims in court and risks inconsistent adjudications, or the application of res judicata or collateral estoppel, should he try to file an arbitration claim in which he brings up these defenses, even assuming this is possible.
Mr. Eaton argues the offending anti-waiver clause renders the entire arbitration agreement unconscionable and cannot be severed from the remainder of the arbitration agreement. This Court disagrees. "Whether a contract is severable... depends on the circumstances of the case and is largely a question of the parties' intent." Woods v. QC Fin. Servs., Inc., 280 S.W.3d 90, 99 (Mo.App.2008). "The absence of a severability clause tends to indicate that a contract is entire and not severable." Shaffer v. Royal Gate Dodge, Inc., 300 S.W.3d 556, 561 (Mo.App.2009). There is no mention of a severability clause in Greene. Moreover, in Greene, the unconscionability permeated the entire transaction, as the dealer retained the right to use self-help without review by any court or arbitrator. That is not the case here. Furthermore, here the contract does contain a severability clause, which states:
Generally, this Court will give effect to a severability clause when the clause being severed is not a necessary part of the contract.
This Court recently applied the same principle in Hewitt, which dealt with an arbitration clause between an NFL franchise and an employee of that franchise. Hewitt held that a provision in the arbitration clause that named the NFL commissioner as the arbitrator was unconscionable because the commissioner was an employee of the NFL franchise owners, making him inherently biased. SC93846, slip op. at 19-20, ___ S.W.3d at ___ - ___. But, Hewitt held, the "unconscionability of the terms does not invalidate the entire agreement to arbitrate." Id. at 20, ___ S.W.3d at ___. Hewitt, instead, severed the arbitrator-selection clause and replaced it with MUAA's default arbitrator-selection term found in section 435.360. Id.
Similarly, here, the anti-waiver provision of the arbitration clause is not essential to the agreement to arbitrate. Once it is severed, then, as already noted above, the lack of mutuality of the obligation to arbitrate does not itself render the agreement to arbitrate unconscionable.
In addition, Mr. Eaton argues that the method set out in the contract for selecting an arbitrator is unconscionable because it limits the pool of arbitrators only to those selected by CMH. The arbitration agreement states that all disputes "shall be resolved by mandatory binding arbitration by one arbitrator selected by [CMH] with [Mr. Eaton's] consent." Mr. Eaton compares this to the arbitrator selection method invalidated in Vincent. This Court rejects that comparison.
In Vincent, a sole arbitrator was prescribed by contract, and that arbitrator was biased. Vincent did not suggest that giving the home builder the right to select an arbitrator would have been unconscionable had the chosen arbitrator not been biased. Vincent, 194 S.W.3d at 859-861. Similarly, in Hewitt, SC93846, slip op. at 19-20, ___ S.W.3d at ___ - ___ this Court recently held that the clause designating an arbitrator was invalid because the particular arbitrator selected was inherently biased. The Court did not say that both parties must have equal roles in proposing an unbiased arbitrator.
Here, unlike in Vincent and Hewitt, the contract protects against CMH's selection of a biased arbitrator by specifically allowing Mr. Eaton to veto any arbitrator selected. Moreover, CMH cannot simply avoid arbitration by repeatedly proposing unacceptable arbitrators, nor can Mr. Eaton avoid arbitration by repeatedly vetoing proposed arbitrators. As this Court recently noted in Hewitt, section 435.360 of the MUAA provides a default method by which the trial court can select an arbitrator.
In Robinson, this Court emphasized that "post-Concepcion, a court should not invalidate an arbitration agreement in a consumer contract simply because it is contained in a contract of adhesion or because the parties had unequal bargaining power, as these are hallmarks of modem consumer contracts generally." Robinson, 364 S.W.3d at 515. In fact, "[b]ecause the bulk of contracts signed in this country are [pre-printed,] form contracts ... any rule automatically invalidating [such] contracts would be completely unworkable." Swain, 128 S.W.3d at 107 (internal citations and quotation marks omitted).
For these reasons, rather than automatically invalidating contracts simply because they are contracts of adhesion, a court should look at the terms of the contract to determine whether they are rendered unfair by the contracts take-it-or-leave-it nature:
Woods, 280 S.W.3d at 97.
Here, as evidence of adhesion, Mr. Eaton refers the Court only to the fact that the obligation to arbitrate is not mutual and the fact that the contract says the arbitration will be governed by the FAA. This Court already has held that the mere lack of mutuality does not render the agreement to arbitrate invalid when, as here, adequate consideration otherwise is provided for the agreement. Similarly, the FAA governs applicability and enforceability of arbitration agreements in all contracts involving interstate commerce, 9 U.S.C. § 2; Hewitt, SC93846, slip op. at 5, ___ S.W.3d at ___, while the MUAA governs arbitration matters not preempted by the FAA. Hewitt, SC93846, slip op. at 6, n.4, ___ S.W.3d at ___, n. 4.The fact that
Finally, Mr. Eaton argues that CMH's motion to compel arbitration was premature because there is another defendant who has not yet answered: Henry Concrete, EEC. Mr. Eaton argues that until Henry Concrete enters an appearance or files an answer, then it is premature to send this case to arbitration.
But, as CMH notes, Mr. Eaton served Henry Concrete in 2012. The time for Henry Concrete to enter an appearance or file an answer long has passed. Yet Mr. Eaton has not taken any steps to obtain a default judgment against Henry Concrete. Furthermore, Henry Concrete is not a party to the arbitration agreement. Although Mr. Eaton speculates in his brief that he "expects that there may be evidence that Henry Concrete was an agent of" CMH, Mr. Eaton did not make any such allegation in his pleadings. Accordingly, this Court agrees with CMH that Henry Concrete's failure to enter an appearance should not preclude arbitration.
For the reasons set out above, this Court reverses the judgment of the trial court and remands the case.
Russell, C.J., Breckenridge, Fischer, Draper and Wilson, JJ., concur; Teitelman, J., concurs in part and dissents in part.
Id.; see also Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183-84 (3d Cir.1999) (holding that an arbitration agreement that contained a provision requiring the arbitrator to be "selected by us with the consent of you" was not unconscionable).
