Getz Recycling, Inc. v. Watts

• Decision Date: 26 March 2002
• Docket Number: No. WD 59717.,WD 59717.
• Citation: 71 S.W.3d 224
• Parties: GETZ RECYCLING, INC., Appellant, v. Loren L. WATTS, et al., Respondent.
• Court: Missouri Court of Appeals

71 S.W.3d 224

GETZ RECYCLING, INC., Appellant, v. Loren L. WATTS, et al., Respondent.

No. WD 59717.

Missouri Court of Appeals, Western District.

March 26, 2002.

Ralph A. Monaco, II, Esq., Kansas City, for Respondent.

Thomas M. Franklin, Esq., Kansas City, for Appellant.

Before SMART, P.J., LOWENSTEIN and ELLIS, JJ.

HAROLD L. LOWENSTEIN, Judge.

This appeal involves the applicability of an arbitration clause to a suit and countersuit concerning disputes over the lease of heavy construction equipment. The questions are: 1) whether the disputes are within the scope of an arbitration clause, and 2) whether the agreement to arbitrate has been waived.

Factual and Procedural History

Loren and Gary Watts, the plaintiffs-respondents, own a rock-crushing business called Rock Ledge (hereafter "Loren Watts," "Gary Watts" or "Rock Ledge") in Jackson County, Missouri.

On September 8 and 9, 1999, Loren Watts traveled to Phoenix, Arizona, and met with representatives of plaintiff-appellant Getz Recycling, an Arizona corporation. Loren Watts signed an Equipment Rental Agreement and paid a security deposit on a rock-crushing machine (called a "Rubble Hog") after having observed the machine operate.

The rental agreement contained the following arbitration clause:

In the event of any dispute as to the terms and/or conditions as set forth in the agreement, arbitration is to be conducted under the rule of the American Arbitration Association in Phoenix Arizona at a time and location to be specified by GETZ RECYCLE, INC. or its authorized representative.

The lease agreement also called for the Wattses to bring the machine to their place of business in the Kansas City area and to pay a security deposit of $17,000. The rental amount was $19,900 per month.

The Rubble Hog was delivered to Kansas City in November, 1999. After having paid only one month's rent, the facts giving rise to the suit and countersuit arose. Getz filed a civil action (in Jackson County) against the Wattses alleging breach of contract and seeking declaratory relief, replevin and an injunction in a First Amended Petition filed February 9, 2000. Getz complains that the Wattses stopped paying the monthly $19,900 rent after the first month's payment and that they refused to surrender possession of the Rubble Hog.

The Wattses countersued for breach of contract, breach of implied warranty, breach of express warranty, breach of warranty of merchantability, negligent misrepresentation and misrepresentation on April 11, 2000. Generally they contend that the machine was totally useless for the purposes for which they intended to use it. Gary Watts further asserted that he was not a proper party because he did not sign the rental agreement.

Shortly after Getz filed its petition and before the Wattses filed their countersuit, Getz filed for a temporary restraining order (again in Jackson County) and an order of replevin seeking an immediate return of the Rubble Hog pending resolution of the underlying lawsuits. Getz alleged that its:

right to possession and the need for an immediate temporary restraining order arise from (i) defendants [sic] ongoing use of the Rubble Hog, (ii) the failure of the defendants to furnish proof of insurance, (iii) the inability of Getz Recycle to monitor the use of the Rubble Hog, (iii)[sic] intentional destruction plaintiff's [sic] property by Gary Watts earlier during a fit of rage, and (iv) threats by Gary Watts to damage the machine so it would never be usable again.

As a result of that motion and an accompanying show-cause hearing on why the court should not order an injunction and replevin, the parties stipulated that the Wattses would return the equipment and that Getz would obtain a replevin bond for $45,000 pending resolution of the suits. The stipulation was incorporated in the order of the circuit court, dated April 19, 2000, and disposed of the motion for a temporary restraining order and order of replevin. An affidavit by the attorney for the Wattses indicates that, prior to the show-cause hearing, he discussed with Getz's counsel the arbitration provision and that, instead of enforcing the terms, the attorneys elected to stipulate to the return of the Rubble Hog and bond pending resolution of the suits. At oral argument before this court, Getz stated that it chose to file a suit first and then invoke arbitration later in part because arbitrators do not always know that they can effect possession.

Less than a month after the above order was issued, Getz filed an application to stay the court proceedings and to enforce the arbitration clause of the rental agreement. Because the Wattses did not timely respond to that application, it was treated as an unopposed motion and sustained on June 20, 2000. The case was transferred to a new judge, who in January of 2001, after motion by the Wattses, set aside the earlier order for arbitration (without making any findings or conclusions) and then set the case for trial. Getz appeals, alleging that the arbitration clause has not been waived and effectively blocks this civil action.

Standard of Review

In reviewing whether a motion to stay proceedings pending arbitration is appropriate the standard of review is essentially de novo, though "[c]ourts favor and encourage arbitration proceedings." Metro Demolition and Excavating Co. v. H.B.D. Contracting, Inc., 37 S.W.3d 843, 846 (Mo.App.2001).

As noted more fully below, "[a]n arbitration clause is to be construed so as to favor arbitrability." Hamilton Metals, Inc. v. Blue Valley Metal Prods. Co., 763 S.W.2d 225, 227 (Mo.App.1988). However, the determination of whether a party has waived its right to arbitrate is reviewed de novo. McIntosh v. Tenet Health Sys. Hosps., Inc./Lutheran Med. Ctr., 48 S.W.3d 85, 89 (Mo.App.2001).

Analysis

The parties do not contest that the arbitration clause in the equipment rental agreement is valid and enforceable under the Federal Arbitration Act.¹ Therefore, this court need address only: 1) whether the scope of the arbitration clause covers the claims and counterclaims, 2) whether Getz has waived its right to enforce the arbitration clause.

I. Scope of Arbitration Clause

The arbitration clause in the rental agreement, set forth above, encompasses disputes over "the terms and/or conditions as set forth in the agreement." The Wattses contend that their countersuit for breach of contract, breach of implied warranty, breach of express warranty, breach of warranty of merchantability, negligent misrepresentation and misrepresentation are not within the scope of the arbitration clause because that clause is narrowly drawn. Specifically, the Wattses argue that their claims do not relate to any term and/or condition of the agreement and thus that the dispute is not ripe for arbitration.

Appellant Getz, however, points to several "terms and/or conditions" in the arbitration agreement indicating that the dispute may fall into those categories. Noteworthy are the following two provisions:

Lessee acknowledges that he has inspected said equipment at Lessor's yard, that said equipment is new and/or used equipment, and has satisfied himself that said equipment is in good working order, without defect except as otherwise noted hereon, and is satisfactory to perform the use intended by Lessee, and Lessee accepts said equipment "as is."

and

LESSEE ACKNOWLEDGES THAT LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF FITNESS, MERCHANTABILITY, OR OTHERWISE, AND THERE ARE NO AGREEMENTS, REPRESENTATIONS, PROMISES OR STATEMENTS OF ANY CHARACTER UNLESS EXPRESSLY SET FORTH ON THIS CONTRACT.

A dispute must be arbitrated if there is a valid agreement to arbitrate and the dispute falls within the scope of that agreement. Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir.2001) (citations omitted). "An arbitration clause is to be construed so as to favor arbitrability and an order to arbitrate should not be denied unless it may be said with positive assurance that the arbitration clause does not cover the asserted dispute." Hamilton Metals, 763 S.W.2d at 227 (Mo.App.1988). Moreover, the Federal Arbitration Act "establishes that `as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'" Lyster, 239 F.3d at 945; Moses H. Cone Memorial Hosp. v. Mercury Const., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

In this case, the counterclaims sounding in tort are not so clearly outside of the arbitration agreement that this court can hold the scope of the clause does not apply. This is particularly true given that appellant Getz, as lessor and drafter of the contract, included language (noted above) concerning merchantability and representations. Because of the strong presumption against finding that a dispute is outside the scope of an arbitration clause and because of the contractual language relating to merchantability and representations, this court holds that the claims and counterclaims are within the scope of the arbitration clause.

II. Waiver of arbitration clause

Generally, a court must stay litigation if it determines that the parties agreed to arbitrate. McIntosh, 48 S.W.3d at 89. However, the right to arbitrate may be waived. Id. A party waives its right to arbitrate if it: 1) had knowledge of the existing right to arbitrate, 2) acted inconsistently with that right, and 3) prejudiced the party opposing arbitration. Mueller, 5 S.W.3d at 187. There is, however, a strong presumption against waiver. Id.; Lyster, 239 F.3d at 945 (as a matter of federal law, any doubts concerning an allegation of waiver should be resolved in favor of arbitrability).

In this case, there is no question that Getz had knowledge of its right to arbitrate, given that it drafted the agreement....