State ex rel. Pinkerton v. Fahnestock
| Decision Date | 31 October 2017 |
| Docket Number | No. SC 94822,SC 94822 |
| Citation | 531 S.W.3d 36 |
| Parties | STATE EX REL. Steven PINKERTON, Relator, v. The Honorable Joel P. FAHNESTOCK, Respondent. |
| Court | Missouri Supreme Court |
Pinkerton was represented by Kevin A. Jones and Martin M. Meyers of The Meyers Law Firm LC in Kansas City, (816) 444-8500; and Lee R. Anderson of the Civil Justice Law Firm LLC in Kansas City, (816) 825-2029.
The trade school was represented by Ramsay C. McCullough and Thomas M. Lucas of Jackson Lewis PC in Norfolk, Virginia, (757) 648-1424; and Kyle B. Russell and Lindsey Poling of Jackson Lewis PC in Overland Park, Kansas, (913) 981-1018.
Steven Pinkerton seeks a writ of mandamus or, in the alternative, a writ of prohibition requiring the circuit court to overrule the motion to compel arbitration filed by Aviation Institute of Maintenance (the school). In the alternative, Mr. Pinkerton seeks a writ of mandamus requiring the circuit court to enforce discovery and allow him to file additional opposition to the school's motion to compel arbitration. Mr. Pinkerton contends the circuit court improperly sustained the school's motion to compel arbitration because: (1) the school's incorporation of the delegation provision into the arbitration agreement by reference to the American Arbitration Association's commercial rules was not clear and unmistakable evidence the parties intended to arbitrate threshold questions of arbitrability; (2) issues regarding the formation of the arbitration agreement cannot be delegated to an arbitrator; and (3) he specifically challenged the validity and enforceability of the delegation provision.
This Court issued a preliminary writ and now holds the incorporation of the American Arbitration Association (AAA) rules into the arbitration agreement provided clear and unmistakable evidence the parties intended to delegate threshold issues of arbitrability to the arbitrator. Mr. Pinkerton's only specific challenge to the delegation provision—that it would be unconscionable to delegate a determination of unconscionability to a person with a direct financial interest in the outcome—was without merit, and he did not otherwise specifically challenge the validity or enforceability of the delegation provision. Accordingly, the circuit court properly sustained the school's motion to compel arbitration, stayed the case, and ordered the parties to arbitrate threshold issues of arbitrability. The preliminary writ is quashed.
In 2009, Mr. Pinkerton e-mailed the school and requested information about becoming an aircraft technician.1 In response, Adrian Rothrock, an admissions representative, scheduled an appointment at the school's Kansas City campus. Soon thereafter, Mr. Pinkerton met with Mr. Rothrock and received a tour of the school and a packet of information. A few weeks later, Mr. Pinkerton visited the school for a second time and submitted an application for admission. Four days later, he returned to the school to sign the two-page enrollment agreement for the aviation maintenance technical engineer program.
The enrollment agreement listed information about the program's duration, graduation requirements, tuition and fees, scheduling, and its policies regarding cancellation, termination, withdrawal, and refunds. The enrollment agreement also included an arbitration agreement. The arbitration agreement was about three-fourths from the top of the enrollment agreement's first page. The heading "Arbitration Agreement" was in bold face type, and the terms of the arbitration agreement were in the same type size as the remainder of the enrollment agreement. The arbitration agreement provided:
I agree that any controversy, claim or dispute of any sort arising out of or relating to matters including, but not limited to: student admission, enrollment, financial obligations and status as a student, which cannot be first resolved by way of applicable internal dispute resolution practices and procedures, 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. All fees and expenses of arbitration shall be shared equally and any award rendered in favor of a student will be limited to the total amount paid to the School by the student. Any award or determination rendered by the arbitrator(s) shall be final and entered as a judgment by a court of competent jurisdiction.
Mr. Pinkerton did not receive a copy of the AAA commercial rules.2
Rule R-7 of the commercial rules defined the scope of the arbitrator's "jurisdiction." It read, in relevant part:
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.
Mr. Pinkerton signed the enrollment agreement and received a copy. An admissions representative and another school official also signed the agreement.
On September 28, 2009, Mr. Pinkerton began attending classes. Almost six months later, he requested to switch from the school's 100-week aviation maintenance technical engineer program to a shorter 80-week aviation technician program. The enrollment agreement he signed for the aviation technician program was dated March 24, 2010, and contained a change in the credit hours required for graduation, the cost of books per semester, the total length of the program, and the estimated total student cost per quarter. Otherwise, the enrollment agreement for the aviation technician program included the same information as the enrollment agreement for the aviation maintenance technical engineer program as well as the same arbitration agreement.3
In 2011, Mr. Pinkerton graduated from the school as the valedictorian of the night program. Having fulfilled the graduation requirements, he received a certificate of aviation maintenance, which entitled him to take the federal aviation administration examinations to become an airline mechanic. He took both required examinations and received his temporary airman certificate from the federal aviation administration in 2012. Despite having obtained his certification, Mr. Pinkerton alleges he cannot find employment in the aviation field.
In 2014, Mr. Pinkerton filed a lawsuit against the school, Mr. Rothrock, and the school's owner, W. Gerald Yagen, alleging the school engaged in fraud, misrepresentation, and deception related to the school's graduation and job placement rates, starting salaries, and the costs and benefits of its educational programs. The lawsuit included claims for violations of the Missouri Merchandising Practices Act, fraudulent misrepresentation, negligent misrepresentation, money had and received, and unjust enrichment.
The school moved to dismiss, or in the alternative, to compel arbitration and stay the proceedings, citing the arbitration agreement in the enrollment agreement requiring Mr. Pinkerton to arbitrate "any controversy, claim or dispute." The school further contended the arbitration agreement delegated threshold arbitrability disputes, such as whether an arbitration clause is enforceable or its applicability to the dispute at issue, to the arbitrator by incorporating by reference the AAA's jurisdictional rule into the arbitration agreement. The school requested the circuit court enforce this delegation provision if Mr. Pinkerton challenged the arbitration agreement. The school also filed a motion to stay discovery and all other pending pretrial proceedings.
In response, Mr. Pinkerton filed his preliminary opposition to the school's motion to compel arbitration and the school's motion to stay discovery. Mr. Pinkerton argued the threshold issue of the existence of an enforceable arbitration agreement cannot be delegated to an arbitrator but, instead, is always a decision for the court. He also filed a motion to stay briefing and ruling on the motion to compel arbitration until the parties could conduct discovery related to the arbitration agreement. The circuit court sustained Mr. Pinkerton's motion to stay briefing and ruling on the motion to compel arbitration and allowed the parties 90 days to conduct discovery limited to "the issue of whether an arbitration contract was formed and the scope of any arbitration contract."
The school subsequently renewed its motion to compel arbitration, contending Mr. Pinkerton had not specifically challenged the delegation provision but challenged only the arbitration agreement as a whole. In response, Mr. Pinkerton argued he had challenged the existence of the delegation provision by challenging the existence of any arbitration agreement—including any agreement to delegate issues of arbitrability—in his preliminary opposition. Mr. Pinkerton also contended, for the first time, that the delegation provision was not clearly and unmistakably incorporated into the arbitration agreement, that both the arbitration agreement and the delegation provision lacked consideration, and that the delegation provision was unconscionable.
After conducting a hearing on the matter, the circuit court sustained the school's motion to compel arbitration.4 The circuit court concluded the delegation provision was enforceable because Mr. Pinkerton did not challenge the delegation provision specifically. The circuit court further held the provision provided for delegation of the gateway question of whether the parties agreed to arbitrate and, therefore, the issue of whether the arbitration agreement was unconscionable is left to the arbitrator per the clear and unmistakable intent of the parties expressed by the incorporation of the AAA rules into the agreement.
Mr. Pinkerton petitions this Court for a writ of mandamus or prohibition, requesting the Court order the circuit court to overrule the school's motion to compel arbitration or, in the alternative, order ...
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