Fogelsong v. Joe Machens Auto. Grp. Inc.

• Decision Date: 28 April 2020
• Docket Number: WD 82705
• Citation: 600 S.W.3d 288
• Parties: Tina and Paul FOGELSONG, et al., Respondents, v. JOE MACHENS AUTOMOTIVE GROUP INC., et al., Appellants.
• Court: Missouri Court of Appeals

600 S.W.3d 288

Tina and Paul FOGELSONG, et al., Respondents,

v.JOE MACHENS AUTOMOTIVE GROUP INC., et al., Appellants.

WD 82705

Missouri Court of Appeals, Western District.

OPINION FILED: April 28, 2020

James Morrow, Kansas City, MO, Counsel for Appellants.

Claudio Molten, Kansas City, MO, Co-Counsel for Appellants.

Blake Butner, Kansas City, MO, Co-Counsel for Appellants.

Thomas Ward, St. Louis, MO, Co-Counsel for Appellants.

Thad Mulholland, Columbia, MO, Counsel for Respondents.

Andrew Veatch, Columbia, MO, Co-Counsel for Respondents.

Blake Green, North Kansas City, MO, Co-Counsel for Respondents.

Before Division One: Lisa White Hardwick, P.J., Cynthia L. Martin, and Thomas N. Chapman, JJ.

Thomas N. Chapman, Judge

Joe Machens Automotive Group, Inc., Joe Machens Nissan, Inc., and GRD Auto Sales, Inc., (collectively "Machens") appeal the Order of the Circuit Court of Boone County, Missouri, denying Machens's motion to stay this class action lawsuit and compel the parties to attend arbitration. Machens advances two points on appeal. For the reasons detailed fully in this opinion, we reverse and remand with directions.

Facts & Procedural Background

Carol Benna, Patrick Bonnot, and Tina and Paul Fogelsong ("Plaintiffs") filed a class action petition against Machens. Plaintiffs alleged that they purchased vehicles from Machens which Machens marketed and sold as "factory-fresh" and brand new. Plaintiffs further alleged that this representation was false, and that Machens fraudulently concealed that the vehicles had in fact sustained hail damage requiring repair prior to the sales. Machens moved to compel the parties to participate in arbitration and to stay the civil action pending the outcome of the arbitration.

In its motion, Machens contended that each of the Plaintiffs had executed a "Retail Buyers Order" in connection with the vehicle purchases. The Retail Buyers Order included an agreement which required the signatories to arbitrate any dispute, claim, or controversy that might arise between the customer and the company. The arbitration agreements that Machens sought to enforce provided as follows:

ARBITRATION

MANDATORY ARBITRATION OF DISPUTES. ANY CLAIM, CONTROVERSY OR DISPUTE OF ANY KIND BETWEEN THE CUSTOMER AND THE COMPANY ARISING OUT OF OR RELATED TO THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT, STATUTE, FRAUD, MISREPRESENTATION OR ANY OTHER LEGAL OR EQUITABLE THEORY) SHALL BE RESOLVED BY FINAL AND BINDING ARBITRATION, PURSUANT TO THE FOLLOWING TERMS.

a. The Federal Arbitration Act, not state law, shall govern the arbitration process and the question of whether a claim is subject to arbitration. The customer, however, retains the right to take any claim, controversy or dispute that qualifies to small claims court rather than arbitration.

b. A single arbitrator engaged in the practice of law will conduct the arbitration. The arbitrator will be selected according to the rules of the American Arbitration Association or, alternatively, may be selected by agreement of the parties, who shall cooperate in good faith to select the arbitrator. The arbitration shall be conducted by, and under the then-applicable rules of, the American Arbitration Association. Any required hearing fees and costs shall be paid by the parties as required by the applicable rules, but the arbitrator shall have the power to apportion such costs as the arbitrator deems appropriate.

c. The arbitrator's decision and award will be final and binding, and judgment on the award rendered by the arbitrator may be entered in any court with jurisdiction.

d. No claim, controversy or dispute may be joined in an arbitration with a claim, controversy or dispute of any other person, or resolved on a class-wide basis. The arbitrator may not award damages that are barred by this Agreement and the Customer and the Company both waive any claims for an award of damages that is excluded under this Agreement.

The Retail Buyers Orders required two signatures from Plaintiffs. The first signature was for the purchase, which indicated directly above the signature line: "THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES." The second signature was for the arbitration agreement itself.

After limited discovery and oral arguments by the parties, the circuit court denied Machens's motion, concluding that the arbitration agreements were unconscionable. Days after the circuit court entered its judgment, the Supreme Court of Missouri handed down its decision in State ex rel. Pinkerton v. Fahnestock , 531 S.W.3d 36 (Mo. banc 2017). In that case, the Supreme Court held that parties to an arbitration agreement can delegate the issue of arbitrability to the arbitrator by incorporating by reference the Rules of the American Arbitration Association ("AAA Rules"). See id. at 48. Machens appealed, citing the language in the Retail Buyers Orders providing for mandatory arbitration "conducted by, and under the then-applicable rules of, the American Arbitration Association." Fogelsong v. Joe Machens Auto. Grp., Inc. , 564 S.W.3d 393, 395-96 (Mo. App. W.D. 2018) (" Fogelsong I ").¹ Machens contended that the AAA Consumer Rules applied to the arbitration provisions contained in the Retail Buyers Orders. Id. at 396. Section R-14 of the AAA Consumer Rules states that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." Id.

Because the parties’ arbitration agreement incorporated the AAA Rules, and because the applicable subset of the AAA Rules expressly delegated threshold issues of arbitrability to the arbitrator, Machens argued that the enforceability of the arbitration agreement was an issue for the arbitrator, rather than the circuit court to decide. Id. On appeal, this Court agreed that remand was required "to give both parties an equal opportunity to argue the validity of the delegation provision to the circuit court following the Supreme Court's recent decision in Pinkerton ." Id. at 399. On remand, Machens filed a renewed motion to stay the proceedings and compel arbitration in light of Pinkerton .

After further briefing by the parties and oral argument, the circuit court entered an order denying Machens's renewed motion. The circuit court found that the arbitration agreement's incorporation of the AAA Rules did not clearly and unmistakably evince the parties’ intent to delegate the threshold issue of arbitrability to the arbitrator. This appeal follows.²

Discussion

Machens asserts two points on appeal. In its first point, Machens argues that the circuit court erred in denying its motion to stay the case and compel arbitration because the Retail Buyers Orders manifest the parties’ clear and unmistakable intent to delegate the issue of arbitrability to the arbitrator. In its second point, Machens argues that the circuit court erred in concluding that the arbitration agreement as a whole is unconscionable and otherwise unenforceable. Plaintiffs respond that the arbitration agreement is "inherently ambiguous" as to the question of whether the parties intended to delegate the issue of arbitrability. They argue further that the delegation provision is unconscionable and unenforceable, as is the arbitration agreement as a whole. Because we grant Machens's first point on appeal, we need not address its second point.

We review the circuit court's denial of a motion to compel arbitration de novo. Soars v. Easter Seals Midwest , 563 S.W.3d 111, 113 (Mo. banc 2018). "An arbitrator's authority over a particular dispute exists only because the parties have agreed in advance to submit such grievances to arbitration." Id. (citation and internal quotation marks omitted). A "delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement. [The Supreme Court of the United States has] recognized that parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Ctr., W., Inc. v. Jackson , 561 U.S. 63, 68–69, 130 S. Ct. 2772, 2777, 177 L. Ed. 2d 403 (2010). Generally, disputes regarding the scope of an arbitration agreement are resolved in favor of arbitrability. Soars , 563 S.W.3d at 114. "However, when considering whether a court or an arbitrator should decide threshold questions of arbitrability, there is generally a presumption against arbitrability." Id. In this regard, the Missouri Supreme Court has recognized that there must be "clear and unmistakable evidence" that the parties intended to arbitrate the question of arbitrability "to overcome this presumption." Id.

In State ex rel. Pinkerton v. Fahnestock , Pinkerton enrolled at an aviation maintenance school. 531 S.W.3d at 40. To attend the school, Pinkerton was required to sign an enrollment agreement which provided, in part, that "any controversy, claim or dispute of any sort arising out of or relating to ... student admission, enrollment, financial obligations and status as a student ... shall be submitted for arbitration, to be administered by the American Arbitration Association located within Virginia Beach, Virginia, in accordance with its commercial arbitration rules." Id. Section R-7 of the AAA Commercial Rules defined the scope of the arbitrator's "jurisdiction" as follows: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." Id. at 41. Pinkerton was not provided a copy of the AAA Commercial Rules, but he nevertheless signed the agreement and enrolled in the aviation technician maintenance program. Id. at 40-41.

Pinkerton eventually graduated as the valedictorian of the night...