Missouri Supreme Court Punts Two Lawsuits in a Row, on Direct Flights to Arbitration
Arbitration agreements have faced tackles and turbulence in a series of cases litigated in Missouri courts over the past few years. In the fall of 2017, the Supreme Court of Missouri issued two favorable arbitration agreement decisions: one involved an aviation school, the other arose from a training facility lease with the Rams football team, which has since left Missouri for California and was previously involved in a different arbitration-related case in Missouri. Other parties stand to benefit from these decisions if they carefully draft and execute arbitration clauses and properly incorporate and reference the procedural and substantive rules of the American Arbitration Association (AAA), Judicial Arbitration and Mediation Services (JAMS), or a professional alternative dispute resolution organization that uses similar language in its rules.
A Quick Review
Some arbitration clauses have been enforced by Missouri courts, but others have been called for unnecessary roughness and invalidated. In 2014, for example, the Supreme Court of Missouri refused to enforce an employment arbitration agreement signed by an at-will employee, holding at-will employment was not valid consideration for the agreement. A few months later, the Eastern District of the Missouri Court of Appeals found another arbitration fumble—a carve out that allowed the employer to bypass arbitration and go to court to enforce noncompetition restrictions—and refused to enforce arbitration with regard to an employee’s discrimination and harassment claims. In contrast, later in the 2015 season, the Supreme Court of Missouri enforced an employment arbitration agreement in which the Rams football team and one of its former employees made mutual promises to arbitrate, ruling the agreement was valid and supported by consideration. In the following two months, contracting parties both lost and gained yardage: the Supreme Court of Missouri rejected an arbitration clause because the agreement purportedly allowed the employer to modify the agreement unilaterally and retroactively, while the Western District of the Missouri Court of Appeals referred a case to arbitration because the parties’ agreement delegated to the arbitrator the exclusive authority to decide whether the issues raised in the petition were subject to arbitration.
Two Arbitration Touchdowns in Quick Succession
The Supreme Court of Missouri delivered a one-two blitz in October and November of 2017 in favor of arbitration clauses. These two decisions should bode more favorably for parties, including employers, trying to enforce arbitration clauses in 2018 and beyond.
In State ex rel. Pinkerton v. Fahnestock, the Supreme Court of Missouri held that, if an arbitration agreement incorporates by reference the AAA’s arbitration rules regarding the jurisdiction of the arbitrator, then the parties “clear[ly] and unmistakabl[y]” demonstrated their intent to delegate all issues relating to their claims and defenses to the arbitrator for a decision on all threshold issues, such as whether a contract was formed, whether consideration existed for the parties’ promises and obligations, and ultimately whether the agreement is valid and enforceable. In this case, the state supreme court held that an aviation student’s challenge to an arbitration agreement against his school, the Aviation Institute of Maintenance, must be directed to an arbitrator—rather than the court—because being granted enrollment in the aircraft technical engineering program came in exchange for the student’s promise to arbitrate any claims he had against the aviation school.
In State ex rel. Regional Convention and Sports Complex Authority v. Burton, the Supreme Court of Missouri addressed whether a declaratory judgment action fell within the scope of a lease’s broad arbitration agreement. Even though the agreement had a few inconsistent provisions that seemed to create potential loopholes, such as allowing either the Rams football team (yes, the Rams again resurfaced in Missouri for this case) or the landlord of the football training facility to litigate some of their claims against each other in court, the supreme court enforced the arbitration agreement in this case because “the parties’ intent to arbitrate disputes involving the lease is clear.” The supreme court did not require any extra consideration to support the arbitration clause, and there was no “unambiguous or unmistakable” exclusion of the type of claim brought in the lawsuit. With this case, the Rams are “2 and 0” with enforcement of arbitration clauses in their agreements.
A New Year’s Resolution for Employers: Audit and Update Your Arbitration Agreements
Even well-drafted arbitration clauses can be difficult to enforce. These decisions could help employers seeking to enforce their arbitration agreements in Missouri. As 2017 comes to a close and employers gear up for 2018, businesses may want to review their arbitration agreements to make sure they are drafted in a way that will allow the parties to enforce their arbitration clauses—or at least get any legal challenges to the agreements on a direct flight to the arbitrator for a decision.
For example, employers may want to consider incorporating in all arbitration agreements a provision that expressly provides for—and requires—that any controversy, claim and dispute, (including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim) be snapped to the arbitrator in the first instance and not intercepted by a court of law. Employees seem to attack contract formation more and more these days, so clearly stating that such issues will be decided by the arbitrator will assist with shifting these matters to arbitration. Another turnover risk would be one party preserving the right to unilaterally modify or rescind the arbitration clause or other terms in the agreement. That penalty can easily be avoided.
Making these adjustments to the playbook in 2018 may go a long way in getting the ball into the end zone . . . where the arbitrator is waiting.