Rose v. Sabala
| Decision Date | 29 June 2021 |
| Docket Number | No. ED 109193,ED 109193 |
| Citation | 632 S.W.3d 428 |
| Parties | Breanna ROSE, Respondent, v. Santiago E. SABALA, Jr., Respondent, and Verizon Communications, Inc., Appellant. |
| Court | Missouri Court of Appeals |
This is an interlocutory appeal pursuant to § 435.440(1) RSMo.1 Defendant Verizon Wireless Services, LLC (Verizon) challenges the trial court's denial of its application to compel arbitration. Because the arbitration provision was contained in a contract of adhesion that does not comport with the reasonable expectations of the parties, we affirm.
Plaintiff Breanna Rose's claims relate to an incident occurring on March 7, 2018, when she entered a Verizon store to exchange her iPhone for a newer model and a store employee allegedly transferred several images from her phone to his email account without her consent. According to her petition, the store employee took her phone to the back of the store where he was researching a value for the phone exchange, Plaintiff believed. Approximately four months later, Plaintiff discovered that an email had been sent from her account to an email address associated with the Verizon employee and at a time coinciding with her visit to the Verizon location. The email included several attached photographs and a video displaying nude and partially nude images of Plaintiff, as well as a reproduction of Plaintiff nursing an infant. Based on this, Plaintiff sued both the Verizon employee and Verizon, specifically alleging multiple claims relating to the March 7 incident.
Subsequently, Verizon filed its "Motion to Compel Arbitration and to Stay Proceedings," arguing that the Plaintiff's action should be removed from circuit court pursuant to their binding arbitration agreement. More specifically, Verizon relies on a Verizon store receipt that Plaintiff signed in September 2015, following an earlier visit to a Verizon store.2 The 2015 store receipt includes language identifying the Verizon product of purchase, references the "SETTLEMENT OF DISPUTES BY ARBITRATION INSTEAD OF JURY TRIALS," and refers to an online "Customer Agreement" accessible on Verizon's website.
According to evidence submitted by Verizon, the Customer Agreement in effect at the time Plaintiff signed the store receipt was dated July 24, 2015. A separate writing from the store receipt itself, the online July 2015 Customer Agreement states that a customer activating Verizon services is "agreeing to every provision of this Agreement whether or not [the customer] ha[s] read it." The Customer Agreement includes arbitration language on pages seven to nine. Among other relevant language, it reads:
ANY DISPUTE THAT IN ANY WAY RELATES TO OR ARISES OUT OF THIS AGREEMENT OR FROM ANY EQUIPMENT, PRODUCTS AND SERVICES YOU RECEIVE FROM US (OR FROM ANY ADVERTISING FOR ANY SUCH PRODUCTS OR SERVICES), INCLUDING ANY DISPUTES YOU HAVE WITH OUR EMPLOYEES OR AGENTS, WILL BE RESOLVED BY ONE OR MORE NEUTRAL ARBITRATORS ....
The Customer Agreement further specifies that the "FEDERAL ARBITRATION ACT APPLIES TO THIS AGREEMENT." The Customer Agreement also provides that Verizon "may change prices or any other term of your Service or this agreement at any time ...." Other provisions limit Verizon customers’ rights with respect to disputes over billing and service interruptions.3
The trial court denied Verizon's "Motion to Compel Arbitration and to Stay Proceedings" on September 9, 2020. When doing so, the court held that the arbitration provision was "both procedurally and substantively unconscionable, and a contract of adhesion." Further, the court held the provision "was not a negotiated contract" and "does not comport with the reasonable expectations of the parties" because an individual purchasing a new mobile device "would not reasonably expect that any and all disputes, especially like those regarding the allegations herein, would have to be resolved by arbitration ...."
Verizon now appeals, requesting the court reverse the trial court's denial of its Motion to Compel Arbitration and direct the trial court to enter an order compelling Plaintiff to submit to arbitration and stay the litigation. Verizon raises three interrelated points. In Point I, it argues that the trial court erred in applying the Missouri Uniform Arbitration Act (MUAA), rather than the Federal Arbitration Act (FAA). In Points II and III, Verizon contends that the arbitration provision was not unconscionable or a contract of adhesion and met the parties’ reasonable expectations, contrary to the trial court's conclusions.
The trial court's factual determinations regarding the existence of a valid, enforceable arbitration agreement 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. Brewer v. Missouri Title Loans , 364 S.W.3d 486, 492 (Mo. banc 2012) ; see also Theroff v. Dollar Tree Stores, Inc. , 591 S.W.3d 432, 436 (Mo. banc 2020). Where there is no factual dispute or the question is one of contract interpretation, review is de novo. Theroff , 591 S.W.3d at 436.4
The FAA provides that arbitration agreements "involving commerce" are enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. §§ 1 - 2. The latter provision is sometimes referred to as the FAA's "savings clause." State ex rel. Hewitt v. Kerr , 461 S.W.3d 798, 806 (Mo. banc 2015). The FAA's purpose is to place arbitration agreements on equal footing with other contracts. Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). The phrase "involving commerce" is a broad one, and extends the reach of the FAA to any contract affecting interstate commerce. Bull v. Torbett , 529 S.W.3d 832, 838 (Mo. App. W.D. 2017). Because the present matter involves the sale or transaction of wireless telephones and services, interstate commerce is involved and the FAA applies. Accordingly, the issue is whether the arbitration provision is revocable under any grounds involving a Missouri contract and as allowed by the FAA's savings clause.5 In Brewer , 364 S.W.3d at 491-92, the Missouri Supreme Court recognized that application of state-law contract defenses in connection with the FAA's savings clause requires a fact-specific "case-by-case" approach.
Here, the parties’ arguments focus on two issues: (1) whether the contract was unconscionable, and (2) whether it was an unenforceable contract of adhesion. As a matter of Missouri law, either of these is a reason to revoke or decline to enforce "any contract," and neither is specific to arbitration agreements. See Brewer , 364 S.W.3d at 487 (); Estrin Const. Co. v. Aetna Cas. & Sur. Co. , 612 S.W.2d 413, 419 (Mo. App. W.D. 1981) (); Hartland Computer Leasing Corp. v. Insurance Man, Inc. , 770 S.W.2d 525, 527-28 (Mo. App. E.D. 1989) (). Either theory would therefore fall within the FAA's savings clause. See Brewer , 364 S.W.3d at 492 (). We hold the arbitration provision is an unenforceable contract of adhesion and affirm on that basis without reaching the question of unconscionability.
A contract of adhesion is a form contract created and imposed by a stronger party on a weaker one. Swain v. Auto Servs., Inc. , 128 S.W.3d 103, 107 (Mo. App. E.D. 2003) ; Robin v. Blue Cross Hosp. Serv., Inc. , 637 S.W.2d 695, 697 (Mo. banc 1982). These contracts are often described as being on a "take this or nothing" basis. Id. "[T]hey are not expected to be read ...." Estrin Const. Co. , 612 S.W.2d at 419. Adhesion contracts are not "inherently sinister and automatically unenforceable." Swain , 128 S.W.3d at 107. The bulk of contracts signed in this country are form contracts and "much of modern business is done on terms dictated by one contract party to another who has no voice in its formulation." 1 Corbin on Contracts § 1.4 (Rev. ed. 1993); see also Swain , 128 S.W.3d at 107. Any rule automatically invalidating this kind of contract would be "completely unworkable." Hartland Computer Leasing Corp. , 770 S.W.2d at 527. When a contract of adhesion exists, the writing is not necessarily unenforceable. Id. But pursuant to Missouri law, courts review adhesion contracts to ensure that the contract matches the parties’ "reasonable expectations." Id. ; Swain , 128 S.W.3d at 107.
The Customer Agreement in this matter is an adhesion contract. Plaintiff is an individual customer and Verizon is a sophisticated corporation. Signed by Plaintiff, the 2015 store receipt loosely refers to the settlement of disputes by arbitration, but does not contain the contract terms. In particular, the store receipt does not contain language regarding which disputes would be subject to arbitration, including language Verizon relies on regarding disputes with its employees. Instead, the store receipt language simply refers Plaintiff to the online Customer Agreement that is only accessible on the Verizon website and outside the receipt's boundaries. The Customer Agreement was later identified by Verizon as a particular version (dated July 24, 2015) rather than as a negotiated document specific to Plaintiff or Verizon's transaction with Plaintiff.
Additionally, the Customer Agreement language consists of ten pages of single-spaced text, with pages seven through nine specifying the enforceable arbitration language Verizon advocates. This arbitration language is printed in all capital letters and extends beyond one page in length. The transaction structure screams of "take this or nothing," effectively nullifying any meaningful negotiation opportunity....
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... ... and the reasonable expectations of persons that would sign ... such a contract or agreement. Rose v. Sabala , 632 ... S.W.3d 428, 434 (Mo.Ct.App. 2021) (an adhesion contract is ... unconscionable when its “terms ... are outside and ... ...