Bank v. Garvin

• Decision Date: 31 August 2010
• Docket Number: No. WD 71399.,WD 71399.
• Citation: 318 S.W.3d 772
• Court: Missouri Court of Appeals
• Parties: M & I MARSHALL & ILSLEY BANK, Appellant,v.SADER & GARVIN, L.L.C., et al., Respondents.

318 S.W.3d 772

M & I MARSHALL & ILSLEY BANK, Appellant,v.SADER & GARVIN, L.L.C., et al., Respondents.

No. WD 71399.

Missouri Court of Appeals,

Western District.

Aug. 31, 2010.

Mark S. Carder and Nicholas J. Zluticky, Kansas City, MO, for Appellant.

James C. Morrow and M. Casey McGraw, Kansas City, MO, for Respondents.

Before Division I: JAMES M. SMART, JR., Presiding Judge, and MARK D. PFEIFFER and CYNTHIA L. MARTIN, Judges.

MARK D. PFEIFFER, Judge.

M & I Marshall and Ilsley Bank (M & I) appeals the order of the Circuit Court of Jackson County (trial court) granting Sader & Garvin, L.L.C.'s (S & G) motion to dismiss arbitration. In this interlocutory appeal, M & I argues that (1) the arbitration clause it relies upon was a valid and enforceable contract between the parties and (2) M & I did not waive its right to seek to compel arbitration. We affirm the trial court's ruling and remand for further proceedings.

Background Facts and Procedural History

On December 17, 2007, S & G was retained by an individual who purported to be an executive of Waison Meters Group Limited (WMGL), a Chinese company, for the purpose of assisting WMGL in collecting delinquent payments from the company's vendors. Two days later, on December 19, 2007, S & G received a Citibank “Official Check” from one of these vendors in the amount of $197,570.00. S & G was instructed by the claimed representative of WMGL to deposit the check less the firm's $2,500.00 retainer fee and wire the remaining proceeds into the Korean account of a third entity, Sally S. Trading Company. S & G deposited the check into their bank (M & I) the same day they received it, directing $2,500.00 to be deposited into their general operating bank account and $195,070.00 into the Interest on Lawyer's Trust Account (IOLTA) they maintained on behalf of their clients. Upon S & G's request, on December 20, 2007, M & I wired $195,030.00 to the Industrial Bank of Korea. Shortly after the wire was sent, it became apparent that the check was fraudulent. However, efforts to recall the wire transfer or otherwise reclaim the funds were unsuccessful.

M & I charged back the credit from the December 19th deposit to S & G's IOLTA. Since the IOLTA, which had $11,941.95 of funds belonging to S & G's clients, had an insufficient balance to cover the deficit, M & I then demanded that S & G make good on the deficit of $178,968.56. S & G was unable to do so, and on February 26, 2008, M & I filed a petition alleging that S & G had breached its bank account agreement with the bank and that Neil Sader (Sader) and Gregory Garvin (Garvin) had breached their individual guaranties of the account. In their responsive pleading filed on April 7, 2008, the defendants counterclaimed, asserting in four alternatively pled counts that M & I had (1) impermissibly converted the IOLTA funds; (2) breached the document entitled “Rules For Deposit Accounts And Funds Availability Policies” by making the funds from the fraudulent check available too early; (3) breached the guaranty agreement by “setting-off” funds that were held in trust; (4) negligently failed to follow M & I's “Rules For Deposit Accounts And Funds Availability Policies” and, consequently, negligently failed to ascertain that the deposited check was fraudulent and negligently failed to alert S & G of common check scams such as the one at issue.

M & I filed its reply to the counterclaim on May 9, 2008, and included an affirmative defense alleging the right to submit the counterclaim to arbitration.¹ However, M & I did not move to compel arbitration at that time. From May 9, 2008, to April 20, 2009, the case moved forward with no demand by M & I to compel arbitration. During this period of time, M & I amended its answer with leave of the trial court, designated expert witnesses, objected to S & G's expert witness designation, and the litigants on both sides of this dispute propounded interrogatories, document requests, and deposition notices. On February 4, 2009, the original trial date of April 13, 2009, was continued and a jury trial was scheduled for August 24, 2009.

On April 20, 2009, S & G requested leave to file an amended counterclaim that asserted a claim for punitive damages. Nine days later, on April 29, 2009, M & I filed a demand for arbitration with the American Arbitration Association (AAA). On June 3, 2009, the trial court initially denied S & G's motion for leave to file an amended counterclaim. On June 6, 2009, S & G filed a motion to dismiss, or in the alternative, application to stay arbitration. On June 11, 2009, S & G filed a motion for reconsideration, again seeking leave of court to amend the counterclaim. On June 16, 2009, M & I filed a motion to stay litigation of S & G counterclaims and compel arbitration. On June 24, 2009, M & I filed a motion for summary judgment as to its originally filed petition. Over the next two months, both parties filed numerous legal suggestions in support and in opposition to the pending motions of the respective parties. On August 6, 2009, S & G filed legal suggestions in support of the motion to dismiss arbitration in which S & G argued that it had never agreed to the arbitration agreement that M & I was attempting to compel, and as such, the alleged arbitration agreement was unenforceable. On August 21, 2009, the trial court held a hearing on the various motions before it. M & I presented no evidence supporting an express agreement to arbitrate between the parties and, instead, argued that S & G's counterclaim allegations constituted a judicial admission of the existence and enforceability of the arbitration agreement. The trial court issued an order denying M & I's motion for summary judgment and motion to compel arbitration and granting S & G's motion to dismiss arbitration ² and motion for reconsideration. Accordingly, the trial court granted leave to S & G to amend their counterclaim. M & I timely filed this interlocutory appeal, and S & G filed a motion to dismiss the appeal with this court, arguing that this court lacks jurisdiction.

Jurisdiction

Prior to addressing the propriety of the trial court's order granting S & G's motion to dismiss arbitration, we must first determine whether this interlocutory appeal is properly before this court. “In Missouri, the right to appeal is purely statutory, and where a statute does not confer the right to appeal, no appeal can exist.” State v. Moad, 294 S.W.3d 83, 86 (Mo.App. W.D.2009). Section 435.440.1(1) ³ and (2) permit appeal of an interlocutory order “denying an application to compel arbitration made under section 435.355,” or “granting an application to stay arbitration made under subsection 2 of section 435.355,” or where “the substantive effect” of the order results in denying or staying arbitration.

S & G argues that section 435.440 does not confer the right to submit an interlocutory appeal in this case because the trial court order did not deny “an application to compel arbitration” or grant an order “to stay arbitration.” S & G argues that because the trial court's order granted their motion to dismiss the arbitration and did not deny an action to compel arbitration or order arbitration stayed, the statute is not implicated and an interlocutory appeal is not proper. In essence, S & G is arguing that it is the label a trial court uses in denying a motion to compel arbitration that is controlling and not the effect of the order. We disagree. Though the interlocutory order being appealed to this court is styled as a motion to dismiss arbitration, the character of a pleading is “ ‘determined by its subject matter and not its designation.’ ” Moad, 294 S.W.3d at 86 (quoting Johnson v. Johnson, 112 S.W.3d 460, 464 (Mo.App. W.D.2003)). We therefore look to the substance of the pleading to ascertain its nature. Weber v. Weber, 908 S.W.2d 356, 359 (Mo. banc 1995). The substantive effect of the trial court granting S & G's motion to dismiss arbitration was to deny M & I's claimed right of arbitration. Section 435.440.1 therefore provides M & I with a statutory right of interlocutory appeal. S & G's motion to dismiss this appeal is denied.

Standard of Review

Appellate review of a trial court's order denying arbitration is a question of law, which we review de novo. Lawrence v. Beverly Manor, 273 S.W.3d 525, 527 (Mo. banc 2009). The substantive law of this state governs the issues of the existence, validity, and enforceability of any purported arbitration contract. Morrow v. Hallmark Cards, Inc., 273 S.W.3d 15, 21 (Mo.App. W.D.2008) (citing State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 856 (Mo. banc 2006)). The usual rules of state contract law and canons of contract interpretation apply to the issue of whether or not the parties have entered into an enforceable agreement to arbitrate. Id. (citing to Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 776 (Mo. banc 2005)).

Arbitration Cannot Be Compelled in the Absence of an Agreement to Arbitrate

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). Second, if a valid arbitration agreement exists, we must determine “whether the specific dispute falls within the scope of the arbitration agreement.” Id. Third, if a valid arbitration contract exists, and if the subject dispute is within the scope of the arbitration provision, then we must determine whether the arbitration agreement is subject to revocation under applicable contract principles. See Kansas City Urology, P.A. v. United Healthcare Servs., 261 S.W.3d 7, 11, 14 (Mo.App. W.D.2008).⁴

The first factor, whether or not a valid arbitration agreement exists, is dispositive of this appeal.⁵ “Arbitration is a matter of contract, and a party cannot be required to arbitrate a dispute that it has not agreed to arbitrate.” Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d...