CYNTHIA L. MARTIN, Judge.
Speedway Chevrolet Cadillac, Inc. ("Speedway"), Daniel F. Ladd ("Ladd"), the President of Speedway, and Brice Ackerman ("Ackerman"), the General Sales Manager of Speedway, (collectively the "Defendants") appeal from the trial court's order denying Defendants' motion to compel arbitration of Kimberly Frye's employment related claims. The Defendants contend that a program adopted by Speedway after Kimberly Frye began employment with Speedway is a legally enforceable contract. We affirm the trial court's denial of Defendants' motion to compel arbitration.
In early May 2003, Kimberly Frye ("Kimberly")
Speedway's Program described four options for resolution of employee disputes, beginning with in-house efforts to resolve issues and escalating to submission of disputes to mediation and/or binding arbitration. The Program defined covered claims broadly as "any legal or equitable claim, demand or controversy, in tort, in contract, under statutory or common law doctrines to include future statutory or common law doctrines that do not exist as of the date of this policy, or alleging violation of any legal obligation, between persons bound by the Plan." Speedway contends the Program mutually bound Speedway and its employees to submit their disputes to resolution pursuant to the Program.
The Program stated that "after March 1, 2004, your decision to accept employment
The Program permitted Speedway the unilateral right to modify the Program. The Program provided that "no amendment shall apply to a Dispute of which Sponsor had actual notice on the date of the amendment."
In early December, 2004, Speedway terminated Kimberly's employment.
Though the Program provided that "[i]f legal action is instituted, the court will be requested to refer the matter to the Dispute Resolution Program for final resolution," Speedway did not immediately respond to Kimberly's lawsuit with a motion to compel arbitration. Instead, on January 19, 2007,
On April 12, 2007, each Defendant filed an answer. Although the answers raised numerous affirmative defenses, none of the answers asserted that Kimberly was obligated to arbitrate her claims pursuant to the Program. Speedway's answer asserted a counterclaim against Kimberly alleging fraud, breach of fiduciary duty, and
On April 29, 2008, eighteen months after Kimberly's lawsuit was filed, the Defendants filed a joint motion to compel arbitration. Kimberly opposed the motion. Kimberly argued that Defendants had waived their right to seek enforcement of the Program; that the acknowledgment and agreement form the Defendants' claimed Kimberly had signed did not comport with section 435.460;
On June 27, 2008, the trial court heard arguments regarding the Defendants' motion to compel arbitration.
On August 26, 2009, the trial court denied Defendants' motion to compel arbitration by a docket entry. On September 25, 2009, the Defendants requested that the trial court's docket entry be modified to denote that it was a "judgment." On November 9, 2009, the trial court entered an Order Denying Motion to Compel Arbitration.
Defendants appeal.
When faced with a motion to compel arbitration, we must consider three factors. First, we must "determine whether a valid arbitration agreement exists." Nitro Distrib., Inc. v. Dunn, 194 S.W.3d 339, 345 (Mo. banc 2006) (citations omitted). Second, if a valid arbitration agreement exists, we must determine "whether the specific dispute falls within the scope of the arbitration agreement." Id. Third,
Appellate review of a trial court's denial of a motion to compel arbitration is de novo. Lawrence v. Beverly Manor, 273 S.W.3d 525, 527 (Mo. banc 2009). We also review de novo whether the right to insist on arbitration, if present, has been waived. MFA, Inc. v. HLW Builders, Inc., 303 S.W.3d 620, 625 (Mo.App. W.D.2010).
The trial court's order denying the Defendants' motion to compel arbitration does not specify the basis for the trial court's decision. We do not know, therefore, whether the trial court found there was no enforceable contract to arbitrate, whether the trial court found that there was an enforceable contract but that the claims asserted by the parties were in whole or in part beyond the scope of an enforceable contract to arbitrate, whether the trial court found that there was an enforceable contract to arbitrate but that the contract was subject to revocation because it was procedurally and substantively unconscionable, or whether the trial court found there was an enforceable contract to arbitrate but that the right to seek its enforcement had been waived. The absence of such guidance, however, is not critical to our review. Our primary focus is on whether the trial court's result is correct, not the route taken to reach it. City of Kansas City v. N.Y.-Kan. Bldg. Assocs., L.P., 96 S.W.3d 846, 853 (Mo.App. W.D.2002).
Speedway asserts four points on appeal. Each point begins with the statement that the trial court erred in denying Defendants' motion to compel arbitration because the parties entered into a valid and enforceable contract and Kimberly's claims fall within the scope of that contract. Following this common statement, each point then registers a specific argument in support of the general statement. First, Speedway contends that the Program is not illusory or unconscionable as Speedway reserved the right to make only prospective changes and as the mutual promises exchanged between Speedway and its employees were sufficient to provide consideration for the contract. Second, Speedway contends that it did not waive the right to compel arbitration. Third, Speedway contends that the Program covers Kimberly's claims against co-employees Ladd and Ackerman. Fourth, Speedway contends that the Program is subject to the Federal Arbitration Act and that the requirements of section 435.460 are not applicable. As point one and point two are dispositive of this appeal, we will focus our discussion accordingly and need not address the issues raised in Speedway's third or fourth points.
Speedway contends in its first point on appeal that the Program is a valid and enforceable agreement and is not illusory
Missouri substantive law governs whether a valid arbitration contract exists. State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 856 (Mo. banc 2006).
Morrow is the seminal case addressing these essential contract elements in the context of enforceability of an arbitration provision against at-will employees. 273 S.W.3d 15. In Morrow, the employer adopted a dispute resolution program ("DRP"). Id. at 19. The DRP provided that an employee's continued employment after the policy's effective date would be deemed to be the employee's agreement to submit to and be bound by the policy. Id. The DRP stated that employees would remain at-will employees after the effective date of the DRP. Id. at 27. The DRP defined covered claims as employment-related claims filed by an employee against the employer, but not claims Hallmark might have against its employees. Id. at 23. The DRP described four escalated levels of recourse to address employee claims, the last level being mandatory arbitration. Id. at 19. The DRP provided that Hallmark could, in its sole discretion, modify or discontinue the DRP at anytime. Id. at 25. This language did not limit amendments to prospective application. Id.
Morrow was terminated. Id. at 19. Morrow sued Hallmark for age discrimination and retaliatory discharge. Id. Hallmark argued that Morrow's willing continuation of her at-will employment following adoption of the DRP, where the plaintiff knew that her decision to continue employment would be viewed as an agreement to submit to the DRP, constituted an enforceable contract. Id. at 25-27.
We found that even if Morrow could be viewed as having "accepted" the arbitration program by continuing her employment after the DRP became effective, id. at 29,
Kimberly contends that Morrow is dispositive of this case. Speedway disagrees. Speedway contends there are three differences between the DRP and the Program which distinguish this case from Morrow. First, Speedway contends Kimberly signed the Program, where Hallmark only claimed an employee's continued employment could be deemed acceptance of the DRP. Second, Speedway claims that the Program incorporates mutual promises. Third, Speedway argues that although it had the unilateral right to modify the Program, it could only do so by notifying employees about the amendment in writing, and it could not apply an amendment to disputes about which it had "actual knowledge" at the time of the amendment. Speedway thus argues that in contrast to the DRP in Morrow, the Program possesses the three essential contract elements (offer, acceptance, and consideration) and is an enforceable contract to arbitrate. We will address each of the distinctions from Morrow argued by Speedway.
In its brief, Speedway contends Kimberly signed an "Acknowledgement and Agreement" dated May 5, 2003, (the day Kimberly commenced employment) wherein Kimberly acknowledged receipt of, and agreed to be bound by, the terms and conditions of Speedway's Employee Handbook and the Speedway Alternative Dispute Resolution program. Kimberly denies signing this Acknowledgement. The trial court did not resolve this factual dispute in its order denying the motion to compel arbitration, and it expressly noted on the record during oral argument on the motion that it would not take evidence on the issue of signature. The trial court observed that it need not resolve the factual issue of signature if it otherwise found the Program to be unenforceable as a matter of law, or enforceable but waived as a matter of law.
Even assuming the truth of Speedway's allegation in its brief,
We turn our discussion, therefore, to Speedway's contention that the Program includes mutual promises sufficient to provide legal consideration for its employees' waiver of the right to access the courts.
"`Consideration' ... generally consists either of a promise (to do or refrain from doing something) or the transfer or giving up of something of value to the other party." Id. at 25. It is an elemental principle of contract law that a contract "that contains mutual promises imposing some legal duty or liability on each promisor is supported by sufficient consideration to form a valid, enforceable contract." Sumners v. Serv. Vending Co., 102 S.W.3d 37, 41 (Mo.App. S.D.2003). Generally speaking, therefore, if a contract contains mutual promises, such that a legal duty or liability is imposed on each party as a promisor to the other party as a promisee, the contract is a bilateral contract supported by sufficient consideration. Id.
The Program states that "[t]he consideration for the execution of this agreement is the mutual exchange of promises and employment or the confirmation of employment." The Program thus suggests two independent sources of consideration—mutual promises and the continuation of at-will employment.
On appeal, Speedway has not asserted that the continuation of at-will employment constitutes consideration for Kimberly's waiver of her right to access to the courts. Such an argument would have been ineffective, in light of Morrow. As with the DRP, the Program expressly states it does not alter the fundamental component of the at-will employment relationship—the ability to quit or be fired at anytime for any reason. As with the DRP, the Program expressly states that an employee's decision to continue employment following adoption of the Program evidences an agreement to be bound by the Program. "Employment at-will is not a legally enforceable employment relationship because it is terminable at the will of either party on a moment-by-moment basis." Morrow, 273 S.W.3d at 26. Because "`an essential element to an employment contract is a statement of duration,'" and Speedway neither gave its employees a specific duration nor placed limitations on discharge following implementation of the Program, the mere continuation of at-will employment provided no consideration for
On appeal, Speedway relies on the second component of "consideration" stated in the Program—"the mutual exchange of promises." Speedway claims in its brief that the Program was supported by Speedway's mutual promise to be "bound by the terms of the Program." Speedway's brief does not clearly explain what Speedway means by this assertion and does not identify the provision of the Program on which Speedway relies to make this assertion. We note that Speedway's mutual promise to be "bound by the terms of the Program" could mean two entirely different things. The promise to be bound by the Program could mean that Speedway promised to submit any disputes it had against employees to the dispute resolution procedures described in the Program—in other words that Speedway had the mutual obligation to submit claims to arbitration.
When asked at oral argument to explain what it meant by its contention that its mutual promise was that it was "bound by the Program," Speedway claimed that it had the mutual obligation to submit its claims to the Program. However, our review of the Program suggests otherwise.
The Program includes numerous provisions which support this conclusion. These provisions discuss only an
(All bold and italicized passages are emphasis added.)
These provisions (along with numerous others provisions not cited) universally address
The Program does provide that "[e]ffective 1 March 2004,
This conclusion is supported by other language in the Program. For example, the Program provides that Speedway will train its managers and supervisors to assist in resolving
If Speedway had intended to implement a dispute resolution process that bound Speedway to submit its claims against employees to arbitration, then it could have easily done so. It did not. We conclude that Speedway has not promised to submit its claims against employees to the Program.
Though we conclude that Speedway did not promise to submit its claims against employees to arbitration, Speedway's promise to be "bound to use the Program" must have some meaning. We construe this provision as nothing more than Speedway's promise to participate with employees who submit their disputes to the Program. This "promise" is identical to the promise Hallmark claimed to have made to its employees in the DRP. Morrow, 273 S.W.3d at 25. We did not determine in Morrow whether such "so-called `promise[s]'" constitute a mutual promise sufficient to provide consideration for an employee's waiver of the right to access to the courts. Id. Nor do we need to resolve that question here.
A contract that purports to exchange mutual promises will be construed to lack legal consideration if one party retains the unilateral right to modify or alter the contract as to permit the party to unilaterally divest itself of an obligation to perform the promise initially made.
Morrow, 273 S.W.3d at 30 (Ahuja, J. concurring) (second emphasis added) (quoting Sumners v. Serv. Vending Co., 102 S.W.3d 37, 41 (Mo.App. S.D.2003)).
Thus, a purported agreement may include "mutual promises" sufficient to suggest mutuality of contract and thus legal consideration. However, if the agreement also includes language permitting one party to unilaterally modify the agreement such that the party could relieve itself of its promises, there is no meaningful mutuality at all, and the contract is illusory and unenforceable. Am.
In Morrow, Hallmark's ability to avoid its claimed contractual obligations via its right to unilaterally amend the DRP rendered the DRP an illusory and unenforceable contract to arbitrate. 273 S.W.3d at 18. We were particularly concerned in Morrow that Hallmark's unfettered right could be employed to modify or terminate the DRP even to the detriment of known claims or pending arbitration proceedings. Id. at 25. Speedway argues that unlike Morrow, its right to amend the Program is subject to two limitations—any amendment to the Program can only be prospective in its application, and Speedway's employees must be advised about an amendment in writing. Speedway thus argues that its right to amend the Program does not render its promise to be bound by the Program illusory.
Notwithstanding Speedway's contention, we note that the Program's provisions on the subject of notice to employees are inconsistent. On the second page of the Program, it states that "the terms can only be modified by providing notice of the change to employees in writing." (Emphasis added.) Here, there is no mention that modifications will be given only prospective application. In paragraph 5, titled "Amendment," the Program provides "[t]his Plan may be amended by Sponsor at any time. However, no amendment shall apply to a Dispute of which Sponsor had actual notice on the date of amendment." (Emphasis added.) Here, there is no mention that notice of the amendment must be provided to the employees.
Even assuming these inconsistencies can be reconciled, Speedway cites no authority for the proposition that the limits it has imposed on its power to amend the Program are sufficient to prevent its promise to be bound by the Program's terms from being rendered illusory. Speedway incorrectly claims that Morrow stands for this proposition. In Morrow, Hallmark argued that its unfettered right to amend the DRP should be construed by this court as having only prospective application. 273 S.W.3d at 25. Though we characterized Hallmark's appellate concession as "worthy," we did not hold that the concession carried with it any legal significance in evaluating the mutuality of promises contained in the DRP. Id. In fact, we subsequently characterized Hallmark's offer as a "gratuitous gesture," a phrase synonymous with "worthy," suggesting we were merely acknowledging the "benevolence" of Hallmark's argument. Id.
Though Speedway did not do so, we have located cases which hold that limiting an employer's unilateral right to amend an arbitration agreement to amendments that are prospective in application and about which employees have been afforded reasonable advance notice may prevent an employer's mutual promise from being rendered illusory. In Pierce v. Kellogg, Brown, Root, Inc., the court concluded that a dispute resolution program was supported by sufficient consideration in the form of the parties' mutual promises to forego litigation of their disputes where the agreement provided any amendment by the employer would not be effective as to disputes "for which a proceeding has been initiated pursuant to the Rules." 245 F.Supp.2d 1212, 1215-16 (E.D.Okla.2003) (citing Dumais v. Am. Golf Corp., 299 F.3d 1216 (10th Cir.2002)). In addition,
These cases suggest that the right to amend prospectively, if coupled with advance notice of the amendment, may prevent the right to amend from rendering a mutual promise illusory. We need not decide, however, whether the unilateral right to amend an agreement on mere advance notice, without requiring mutual consent, or without affording recourse to the non-amending party if the amendment is not acceptable, comports with settled principles of contract law in Missouri as the Program
We find, therefore, that Speedway's argued limitations on its right to amend the Program are not sufficient to avoid rendering Speedway's claimed mutual promise to be bound by the Program's terms illusory.
The Program is not supported by legal consideration and is not an enforceable contract to arbitrate.
In its second point, Speedway contends that it did not waive its right to enforce the provisions of the Program requiring arbitration of Kimberly's claims. We disagree. Had we concluded that the Program was an enforceable contract, we would nonetheless find that Speedway waived its right to enforce the Program against Kimberly.
"A party may waive a valid arbitration agreement." Major Cadillac, Inc. v. Gen. Motors Corp., 280 S.W.3d 717, 721 (Mo.App. W.D.2009). "`A party waives its right to arbitrate if it: (1) had knowledge of the existing right to arbitrate; (2) acted inconsistently with that right, and (3) prejudiced the party opposing arbitration.'" MFA, 303 S.W.3d at 624-25 (quoting Major Cadillac, 280 S.W.3d at 721).
Here, Speedway concedes that it had knowledge of its purported right to insist on arbitration of Kimberly's claim pursuant to the Program. In fact, the Program expressly provides that "[i]f legal action is instituted, the court will be requested to refer the matter to the Dispute Resolution Program for final resolution." Speedway contends, however, that it did not act in a manner inconsistent with the right to enforce arbitration and that Kimberly was not in any case prejudiced. We disagree.
Speedway acted inconsistently with a right to enforce arbitration of Kimberly's claims. After Kimberly filed her petition against the Defendants, Defendants removed the case to the federal court. After the case was remanded following the filing of an amended petition, the Defendants each filed answers, none of which asserted as a defense the obligation to arbitrate. In addition, Speedway filed a counterclaim alleging fraud, breach of fiduciary duty, and civil conspiracy, seeking actual and punitive damages, all claims which were clearly within the scope of the Program. The counterclaim necessitated the filing of a reply by Kimberly. Then, following an eleven month delay were no apparent action was being taken in the case, Kimberly was required to propound discovery on the Defendants to move the litigation along. Then and only then did the Defendants file a motion to compel arbitration. Speedway's actions, along with the delay in asserting its claimed right to compel arbitration, are indicative of a desire to adjudicate, at least for a time, and are clearly inconsistent with a right to arbitrate. See, e.g., Major Cadillac,
Though the first two prongs to establish waiver are established, a court cannot find waiver without first finding prejudice, and the burden of showing prejudice is on the party seeking waiver. Mueller v. Hopkins & Howard, P.C., 5 S.W.3d 182, 187 (Mo.App. E.D.1999). "Delay in seeking to compel arbitration does not itself constitute prejudice; but delay and the moving party's trial-oriented activity are material factors in assessing prejudice." Id. "Prejudice is determined on a case-by-case basis." Major Cadillac, 280 S.W.3d at 723.
In this case, Speedway did not assert a right to compel arbitration until it had engaged in significant trial-oriented activities including an effort to change the forum of Kimberly's suit to federal court, the filing of an answer that did not raise the obligation to arbitrate, and the assertion of a substantial counterclaim. Kimberly was required to file a reply, thus incurring expense to defend Speedway's counterclaim. Kimberly also incurred expense when she was required to initiate substantial discovery on the Defendants to advance her claims after nearly eleven months of no activity. Further, the three month delay between the filing of Kimberly's lawsuit and removal of the case to federal court was due to Speedway's unsuccessful pursuit of a substantive motion to dismiss in Larry's case based on Larry's and Kimberly's joint bankruptcy filings. Speedway conceded at oral argument that had the motion to dismiss been successful in Larry's case, a similar motion would have been filed in Kimberly's case. Though Speedway's motion to dismiss was not "trial-oriented activity" occurring directly in Kimberly's case, there is no contest that the activity was in part intended to substantively impact Kimberly's case. We have no difficulty concluding on this record that prejudice was sufficiently established. MFA, 303 S.W.3d at 625 (finding prejudice was sufficiently established where the party asserting arbitration waited nineteen months to do so and in the interim asserted affirmative claims against the party suggesting waiver).
Speedway waived any right it may have had to insist on arbitration of Kimberly's claims pursuant to the Program. Point Two is denied.
We affirm the trial court's order denying Speedway's motion to compel arbitration.
All concur.
