GFS v. Carson

• Docket Number: WD 86185
• Decision Date: 12 December 2023
• Citation: 684 S.W.3d 170
• Parties: GFS, II, LLC, Appellant, v. Janelle CARSON, Respondent.
• Court: Missouri Court of Appeals

684 S.W.3d 170

GFS, II, LLC, Appellant,

v.Janelle CARSON, Respondent.

WD 86185

Missouri Court of Appeals, Western District.

Filed: December 12, 2023

Appeal from the Circuit Court of Jackson County, The Honorable. Jerri J. Zhang, Judge

Brian A. Lamping, Adrian S. Mehdirad, St. Louis, for Appellant.

David R. Angle, Matthew C. Wilson, Columbia, MO for Respondent.

Before Division Two: Gary D. Witt, C.J., and Alok Ahuja and Mark D. Pfeiffer, JJ.

Alok Ahuja, Judge

GFS II, LLC, doing business as Gateway Financial Solutions ("Gateway") filed suit against Janelle Carson in the Circuit Court of Jackson County.Gateway claimed that Carson had defaulted on a loan which financed her purchase of a used car from a Gateway affiliate.Carson counterclaimed, alleging that Gateway had violated both federal and state statutes by selling her a defective vehicle, and by charging her $1,800.00 for an extended warranty.After two years of litigation, Gateway moved to compel arbitration.The circuit court denied Gateway’s motion, finding that it had waived its right to compel arbitration by engaging in substantial litigation.Gateway appeals.We affirm.

Factual Background

On June 17, 2019, Janelle Carson executed a "RETAIL INSTALLMENT SALE CONTRACT – SIMPLE FINANCE CHARGE (WITH ARBITRATION PROVISION)"("the Agreement").The Agreement documented Carson’s purchase of a used 2010 Chevrolet Malibu motor vehicle from Rightway Automotive Credit, and Rightway’s extension of credit to Carson to finance the purchase.The Agreement listed the purchase price of the vehicle as $11,201.00; with fees and an extended warranty costing $1,800.00, the total amount financed was $13,295.00.The Agreement stated that Carson’s loan had an annual percentage rate of 25.00%.The Agreement explained that Carson would pay a total of $20,732.78, including finance charges of $7,437.78, over the 45-month term of the loan.

The Agreement included an arbitration provision which states in relevant part:

ARBITRATION PROVISION PLEASE REVIEW – IMPORTANT – AFFECTS YOUR LEGAL RIGHTS

1.EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.

2.IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.

3.DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, ANDOTHER RIGHTS THAT YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.

Any claim or dispute, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action….You and we retain the right to seek remedies in small claims court for disputes or claims within that court’s jurisdiction, unless such action is transferred, removed or appealed to a different court.Neither you nor we waive the right to arbitrate by using self-help remedies, such as repossession, or by filing an action to recover the vehicle, to recover a deficiency balance, or for individual injunctive relief.… This Arbitration Provision shall survive any termination, payoff or transfer of this contract.

(Italics added).

Rightway assigned the Agreement on the day it was executed to Gateway.The two entities are affiliated.

On November 26, 2019, Gateway sent Carson a notice that she was delinquent on her loan, and that if she did not bring her account current by December 16, Gateway would exercise its rights on default.Carson claims that, shortly after purchasing the vehicle, she told "Rightway and/or [Gateway]" that she had experienced mechanical problems with the vehicle, and was not offered any coverage under the extended warranty.She alleged that she told "Rightway and/or [Gateway]" to repossess the car as she"could not afford to make payments for a defective vehicle."

On December 23, Gateway sent Carson a notice stating that it had repossessed the vehicle and intended to sell it at a private sale some time after January 2, 2020.The notice informed Carson that the sale would reduce the amount she owed, but that she would be liable for any shortfall.On January 29, 2020, Gateway sent Carson a notice of deficiency balance stating that, after sale of the car for $3,100.00, Carson owed a remaining balance of $12,067.24 on her loan.

Carson submitted evidence to the. circuit court indicating that Gateway’s affiliate Rightway was the purchaser of the car after its repossession, and that Rightway later resold the car to another purchaser in August 2020 for $10,344.00, on similar financing terms.

On August 18, 2020, Gateway filed a petition against Carson in the Circuit Court of Jackson County, alleging that Carson was in default under the contract, and that Carson owed a remaining balance of $8,950.65 on the loan as of the date of the petition.Carson answered the petition on June 5, 2021.She asserted several affirmative defenses, and two counterclaims.In her counterclaims, Carson alleged that Gateway had violated the Missouri Motor Vehicle Time Sales Act by requiring her to purchase a purported "extended warranty" as part of the transaction; an,d that it had breached express and implied warranties under the federal Magnuson-Moss Warranty Act by misrepresenting the vehicle’s condition.

Gateway answered Carson’s counterclaims on August 12, 2021.Although Gateway pleaded an affirmative defense, its answer did not suggest that Carson’s counterclaims were subject to mandatory arbitration.

The parties engaged in substantial discovery.Carson served her first requests for production on Gateway on June 5, 2021; she served interrogatories, requests for admissions, and further document requests on December 3, 2021.Gateway served its own interrogatories, requests for production, and requests for admissions on Carson on January 11, 2022.The parties provided initial responses to each other’s written discovery in early 2022.

The circuit court issued at least two substantive rulings concerning discovery-related disputes.Following the deposition of Gateway’s Vice President of Legal Recovery, which suggested that Gateway had possession of additional information responsive to Carson’s discovery requests, Carson filed a motion to enforce discovery, which the circuit court granted.Gateway served supplemental, court-ordered discovery responses in June 2022.Then, in September 2022, the circuit court denied a motion for protective order filed by Gateway, which sought to limit the topics on which Carson could examine a corporate representative designated under Rule 57.03(b)(4).The circuit court’s discovery rulings had the effect of permitting Carson to explore the relationship between Gateway and Rightway.In. particular, the court authorized discovery concerning other instances where Gateway had sought to recover loan deficiencies from Rightway customers, after Rightway had repurchased repossessed vehicles from Gateway, and resold them.

The circuit court held case management conferences in January, February, and June 2022.During a fourth case management conference on July 14, 2022, counsel for both parties informed the court that they were still conducting discovery.The parties jointly requested a jury trial, and the court set the case for a five-day trial beginning on October 16, 2023.

On September 23, 2022, new counsel entered their appearance on Gateway’s behalf.In its appellate brief, Gateway claims that its new counsel then "discovered the Arbitration Agreement"(even though the, agreement to arbitrate appears prominently on the second page of the Agreement, which Gateway had attached to its original petition).Based on, new counsel’s "discover[y]" of the Agreement’s arbitration provision, Gateway filed a motion to compel arbitration on October 31, 2022 – more than two years after the filing of its petition, and more than sixteen months after Carson had asserted her counterclaims.

After receiving briefing and hearing argument from counsel, the circuit court issued an order denying Gateway’s motion to compel arbitration on March 27, 2023.The court stated that "it is uncontested that [Gateway] knew of the existence of its right to arbitrate."The court’s order also emphasized that, "after initiating this lawsuit, [Gateway] continued to litigate this matter and participated in extensive discovery for over two years before filing its Motion to Compel Arbitration," and that Carson "has expended time, money, and energy in this lawsuit for over two years."Accordingly, the court concluded that Gateway had waived its right to compel arbitration.

[1] Gateway appeals.¹

Standard of Review

[2–6]If there is no factual dispute about the existence of an arbitration agreement, the overruling of a motion to compel arbitration is reviewed de novo."An appellate court’s review of the arbitrability of a dispute is de novo" because "[w]hether a dispute is covered by an arbitration provision is relegated to the courts as a question of law."Likewise, this "Courtreviews de novo the legal issue of whether a valid, enforceable delegation clause exists within an arbitration agreement."Because contract interpretation is a question of law, a de novo standard of review is appropriate for appellate review of a denial of a motion to compel arbitration when a court must analyze the terms of an arbitration agreement.

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