Eaton v. CMH Homes, Inc.
| Decision Date | 26 May 2015 |
| Docket Number | No. SC 94374,SC 94374 |
| Citation | 461 S.W.3d 426 |
| Parties | Robert S. Eaton, Respondent, v. CMH Homes, Inc., Appellant, and Southern Energy Homes, Inc., and Henry Concrete, LLC, Defendants. |
| Court | Missouri Supreme Court |
CMH Homes was represented by Christopher P. Leritz and Kelly T. Kirkbride of Leritz, Plunkert & Bruning PC in St. Louis, (314) 231–9600.
Eaton was represented by Michael J. Sudekum of Mandel & Mandel LLP in St. Louis, (314) 621–1701.
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.1 The Court, therefore, rejects Mr. Eaton's argument that his agreement to arbitrate was invalid solely based on the fact that the arbitration clause required Mr. Eaton to arbitrate all claims but gave CMH the right to bring suit in court “to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement.”
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 court “to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement,” CMH is protected by an “anti-waiver clause”:
The institution and maintenance of a lawsuit to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this contract, including the filing of a counterclaim in a suit brought by [CMH] pursuant to this provision.
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:
ARBITRATION: All disputes, claims or controversies arising from or relating to this contract, or the subject hereof, or the parties, including the enforceability or applicability of this arbitration agreement or provision and any acts, omissions, representations and discussions leading up to this agreement, hereto, including this agreement to arbitrate, shall be resolved by mandatory binding arbitration by one arbitrator selected by [CMH] with [Mr. Eaton's] consent. This agreement is made pursuant to a transaction in interstate commerce and shall be governed by the Federal Arbitration Act at 9 U.S.C. Section 1. Judgment upon the award rendered may be entered in any court having jurisdiction. The parties agree and understand that they choose arbitration instead of litigation to resolve disputes. The parties understand that they have a right to litigate disputes in court, but that they prefer to resolve their disputes through arbitration, except as provided herein. THE PARTIES VOLUNTARILY AND KNOWINGLY WAIVE ANY RIGHT THEY HAVE TO A JURY TRIAL . The parties agree and understand that all disputes arising under case law, statutory law and all other laws including, but not limited to, all contract, tort and property disputes will be subject to binding arbitration in accord with this contract. The parties agree that the arbitrator shall have all powers provided by law, the contract and the agreement of the parties. These powers shall include all legal and equitable remedies including, but not limited to, money damages, declaratory relief and injunctive relief. Notwithstanding anything hereunto the contrary, [CMH] retains an option to use judicial (filing a lawsuit) or non-judicial relief to enforce a security agreement relating to the Manufactured Home secured in a transaction underlying this arbitration agreement, to enforce the monetary obligation secured by the Manufactured Home or to foreclose on the Manufactured Home. The institution and maintenance of a lawsuit to foreclose upon any collateral, to obtain a monetary judgment or to enforce the security agreement shall not constitute a waiver of the right of any party to compel arbitration regarding any other dispute or remedy subject to arbitration in this contract, including the filing of a counterclaim in a suit brought by [CMH] pursuant to this provision.
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 .2
“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. ,3 governs those Missouri arbitration matters not preempted by the FAA. The MUAA was “fashioned after the Federal Arbitration Act,” and “[t]he FAA and Missouri's Arbitration Act are substantially similar.” State ex rel. Hewitt v. Kerr, 461 S.W.3d 798, 805 No. SC93846, op. at 6, n.4, 2015 WL 2061986, ).
In determining whether an arbitration agreement is valid under the FAA, this Court is guided by the United States Supreme Court's decision in AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 1746, 1750, 179 L.Ed.2d 742 (2011), as interpreted and applied by this Court in Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. banc 2012), and in Robinson v. Title Lenders, Inc., 364 S.W.3d 505 (Mo. banc 2012).
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...
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