Arbitration: Missouri Appelate Panel Enforces Buckeye, But Voices Strong Criticism (Web)

In Kirby v. Grand Crowne Travel Network LLC, No. 28091 (Mo.App. S.D. June 18, 2007) (available at: http://www.courts.mo.gov/courts/pubopinions.nsf/8e937ac7ce0301288625661f004bc963/043089a7441930d7862572fe0070170c?OpenDocument), the Missouri Court of Appeals contritely reversed the trial court's denial of the defendant's motion to compel arbitration, holding that due to U.S. Supreme Court rulings, the Federal Arbitration Act applied in a case where an elderly couple subject to a high pressure travel sales pitch, and signed a contract obligating them to pay more than $3,400.

The appellate panel found that since the plaintiffs challenged the validity of the contract as whole, and not the individual arbitration provision, the case must go to arbitration, even if doing so avoided apparently applicable Missouri consumer protection laws and public policy.

Plaintiff-respondents William and Esther Kirby, elderly Iowa residents, alleged that they were persuaded to buy a travel club membership through high pressure tactics and misrepresentations. They had responded to a telemarketer's offer of two nights in Branson, Mo., in return for a 90- minute sales presentation, by defendant-appellant, Grand Crowne Travel Network.

The Kirbys alleged that Grand Crowne’s tactics were prohibited by the Missouri Merchandise Practices Act, or MMPA. The Kirbys sought to cancel the contract and to recover actual and punitive damages, and attorney fees.

Grand Crowne moved to compel arbitration, given that the contract required arbitration as the form of dispute resolution for “any controversy or claim arising out of or relating to this contract, or the breach thereof.”

The arbitration was to be administered by the American Arbitration Association in accordance with its commercial arbitration rules. The trial court denied Grand Crowne's motion to compel arbitration.

On the issue of how the case should proceed, the unanimous three-judge Missouri appeals court reluctantly held that the case had to go to arbitration due to U.S. Supreme Court controlling authority, highlighting Buckeye Check Cashing Inc. v. Cardegna, 546 U.S. 440 (2006)(available at: http://www.supremecourtus.gov/opinions/05pdf/04-1264.pdf).

In Buckeye, the nation’s top court confirmed that the Federal Arbitration Act applies in both state and federal courts, stating three propositions applicable to Kirby

--an arbitration provision is severable from the remainder of the contract;
--unless the arbitration clause itself is challenged, the issue of the whole contract's validity is one for arbitration; and
--these rules apply in state and federal courts.

The Missouri Court of Appeals stated that apparently these rules apply “even if the plaintiff invokes state consumer protection laws or state public policy.”

Thus, since the Kirbys’ cause of action challenges the contract as a whole and not the specific arbitration provision, the appeals court sent the case to arbitration.

The panel noted that while the MMPA may negate arbitration clauses in adhesion contracts, “this arbitration is mandated by a preemptive federal law” and “cannot be applied to circumvent a FAA-enforceable arbitration provision.”

As a conclusion, the court offered a biting commentary on the FAA’s application to state issues. The opinion states that the decision is made “reluctantly and ‘only because a higher authority than this Court has declared the law of the land on these issues.’ Martz v. Beneficial Montana Inc., 135 P.3d 790, 796 (Nelson, J., dissenting).”

While acknowledging that arbitration “has its place, particularly in resolving contract disputes between business equals,” the panel said that it felt that claims of victimization due to unlawful acts, like the plaintiffs’ claims in the case, are “fit particularly for judicial determination and primarily are the province of the courts.”

The court states that “this case illustrates how the FAA can be used to deprive MMPA victims of their day in court . . . thus circumventing Missouri's considered public policy and the will of its citizens expressed through its legislature.”

In closing, the court cited the statements of former U.S. Supreme Court Associate Justice Sandra Day O'Connor, Supreme Court Associate Justices Antonin Scalia and Clarence Thomas, as well as, it noted, “at least 20" state attorneys-general, including Missouri's, all of whom “have forcefully asserted that the FAA does not and should not apply to state proceedings.”

The Missouri Court of Appeals reversed and remanded for further proceedings consistent with its opinion.

-- Carol Bahan, CPR Intern