State ex rel. Vincent v. Schneider

• Decision Date: 30 June 2006
• Docket Number: No. SC 87203.,SC 87203.
• Parties: STATE ex rel. Gayle VINCENT, et al., Relators, v. Honorable Nancy SCHNEIDER, Judge, Eleventh Judicial Circuit, Respondent.
• Court: Missouri Supreme Court

194 S.W.3d 853

STATE ex rel. Gayle VINCENT, et al., Relators, v. Honorable Nancy SCHNEIDER, Judge, Eleventh Judicial Circuit, Respondent.

No. SC 87203.

Supreme Court of Missouri, En Banc.

June 30, 2006.

COPYRIGHT MATERIAL OMITTED

David C. Knieriem, Clayton, for relators.

Steven M. Cockriel, St. Louis, for respondent.

James B. Deutsch, Jane A. Smith, Jefferson City, for Amicus Curiae Home Builders Association of Greater St. Louis.

Original Proceeding in Mandamus

WILLIAM RAY PRICE, JR., Judge.

I

Relators seek to direct the trial court (Respondent) to deny defendant's motion to compel arbitration. Portions of the arbitration provision are unconscionable and unenforceable, but the case may proceed, consistent with this opinion, after the trial court selects an arbitrator.

II

Relators, plaintiffs below, were purchasers of single family homes from defendant, McBride & Son Homes, Inc. (McBride). Written contracts were executed for each home purchase. Each of McBride's preprinted contracts contained a provision that gives McBride the unilateral right to require any claim by the Relators arising out of the contract or the home to be decided by binding arbitration. Specifically, it provides:

4. It is agreed between the parties that Seller's liability to Purchaser for damages of any breach of this contract (including, without limitation, defects in construction items warranted hereunder or breach of Seller's warranties) shall be limited to the reasonable cost of repair or replacement of any defective items of labor or material. In the event of any claim by Purchaser against seller arising out of this Contract or the Residence, Seller, at its option, may either:

(a) By written notice to Purchaser, repurchase the Residence ...; or

(b) By written notice to Purchaser, submit the resolution and determination of such claim by Purchaser against Seller to binding arbitration pursuant to the provisions of the Missouri Uniform Arbitration Act, Mo.Rev.Stat. Ch. 435 (1986), as amended, and/or the Federal Arbitration Act, Title 9 U.S.C. §§ 1 et seq., as amended. The arbitrator shall be selected by the President of the Homebuilders Association of Greater St. Louis. The arbitration shall take place in St. Louis County, Missouri at such place and such dates as directed by the arbitrator. The decision of the arbitrator shall be binding on both parties and enforceable in a court of competent jurisdiction. Purchaser shall be liable to Seller for all court, arbitration and attorney's fees and costs incurred by Seller in enforcing this provision.

Each of the Relators initialed their respective contracts in the margin adjacent to the arbitration provision, acknowledging that they had read, understood, and agreed to the terms.

Subsequently, Relators discovered problems with their homes and filed suit against McBride alleging violations of the Missouri Merchandising Practices Act, fraudulent misrepresentation, breach of the implied warranty of habitability, and breach of fiduciary duty. A letter dated April 19, 2005, from counsel for McBride to Relators notified each Relator that McBride was requiring resolution of their claims by binding arbitration and warned that the contract required payment of all of McBride's costs to enforce the agreement to arbitrate by Relators. The letter also provided counsel for Relators with alternative methods for appointment of the arbitrators to hear their claims because the president of the Homebuilders Association of Greater St. Louis happened to be the president of McBride and was no longer willing to appoint an arbitrator.

McBride then filed a motion to compel arbitration, which was granted by Respondent on September 13, 2005. Respondent found that the contracts were not contracts of adhesion, that there was an agreement to arbitrate, and that the arbitration provisions were not unconscionable. Relators sought a writ of mandamus from this Court to compel respondent to deny McBride's motion to compel arbitration. This Court entered an alternative writ of mandamus.

III

Missouri contract law applies to determine whether the parties have entered a valid agreement to arbitrate. State ex rel. PaineWebber, Inc., v. Voorhees, 891 S.W.2d 126, 128 (Mo. banc 1995). The question of whether or not McBride's motion to compel arbitration should have been granted is one of law, to be decided de novo. Triarch Industries, Inc., v. Crabtree, 158 S.W.3d 772, 774 (Mo. banc 2005) (citing Dunn Industrial Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 428 (Mo. banc 2003) ("An appellate court's review of the arbitrability of a dispute is de novo.")).

IV

First, this case poses the question of whether this contract is a contract of adhesion.¹ An arbitration clause in a contract of adhesion is not enforceable, pursuant to section 435.350.² Section 435.350 provides:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract, except contracts of insurance and contracts of adhesion, to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. Contracts which warrant new homes against defects in construction and reinsurance contracts are not "contracts of insurance or contracts of adhesion" for purposes of the arbitration provisions of this section.³

(emphasis added).

A contract of adhesion, as opposed to a negotiated contract, is a form contract that is created and imposed by the party with greater bargaining power. Robin v. Blue Cross Hospital Service, Inc. 637 S.W.2d 695, 697 (Mo. banc 1982). The "stronger party" has more bargaining power than the "weaker party," often because the "weaker party" is unable to look elsewhere for more attractive contracts. Id.; see also Corbin on Contracts, Section 559 (1960). The "stronger party" offers the contract on a "take this or nothing" basis. See Estrin Construction Co. v. Aetna Casualty & Surety Co., 612 S.W.2d 413, 418 (Mo.App.1981). The terms in the contract are imposed on the weaker party and "unexpectedly or unconscionably limit the obligations and liability of the [stronger party]." Robin, 637 S.W.2d at 697.

Relators have offered no proof that these were contracts of adhesion. At the hearing before the motion court, McBride's general counsel, Jeff Berger, testified that all of the terms in McBride's contracts were negotiable. Relators' counsel did elicit testimony from Berger that the arbitration provision has never been negotiated. However, this does not prove the negative. This minimal evidence was the extent of Relators' proof that the contracts were contracts of adhesion.

Relators offered no proof that they were unable to look elsewhere for more attractive contracts. Relators offered no proof that all St. Louis metropolitan area builders used the same arbitration terms or proof that they were forced to purchase their homes from McBride. Furthermore, there was no "unexpected surprise advantage" for McBride, because each of the Relators signed the contract and initialed the section of the contract providing for arbitration.

Relators cannot simply allege that a pre-printed contract is a contract of adhesion and offer no other proof on the matter. "Because the bulk of contracts signed in this country are [pre-printed,] form contracts ... any rule automatically invalidating [such] contracts would be `completely unworkable.'" Swain v. Auto Services, Inc. 128 S.W.3d 103, 107 (Mo.App.2003) (internal citations omitted). Relators did not prove that the disputed contracts are contracts of adhesion.

V

The second question posed by this case is whether this arbitration provision was unconscionable. Unconscionability has two aspects: procedural unconscionability and substantive unconscionability. Procedural unconscionability deals with the formalities of making the contract, while substantive unconscionability deals with the terms of the contract itself. See Bracey v. Monsanto Co., Inc., 823 S.W.2d 946, 950 (Mo. banc 1992); see also Hollis, et al., Is State Law Looking for Trouble?, 2003 Journal of Dispute Resolution 463, 487 ("The doctrine of unconscionability gives courts the discretion to invalidate contracts that cause one of the parties to be subject to an absence of meaningful choice and unfairly oppressive terms."). Procedural unconscionability focuses on such things as high pressure sales tactics, unreadable fine print, or misrepresentation among other unfair issues in the contract formation process. Whitney v. Alltel Communications, Inc., 173 S.W.3d 300, 308 (Mo.App.2005). Substantive unconscionability means an undue harshness in the contract terms. Id. Relator's claims in this matter concern issues of substantive unconscionability.

An unconscionable contract or clause of a contract will not be enforced. Whitney 173 S.W.3d at 310; see also Bracey, 823 S.W.2d at 953. Although section 400.2-302 does not apply directly to this sale of real estate, it is instructive when guiding an analysis of unconscionability; it provides:

If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

Relators have alleged three specific issues of unconscionability; each will be addressed in turn.

A

Relators argue that the arbitration clause is unconscionable because it gives only McBride the right to select arbitration. This argument is the "mutuality of obligations" defense to an attempt to force arbitration. As noted in Triarch, courts of other jurisdictions have come to varying conclusions on the validity of such clauses, which allow only one party to seek arbitration. 158 S.W.3d at...