TD Auto Fin., LLC v. Bedrosian

• Decision Date: 16 June 2020
• Docket Number: No. ED 107438,ED 107438
• Citation: 609 S.W.3d 763
• Parties: TD AUTO FINANCE, LLC, Appellant, v. Michelle BEDROSIAN, Respondent.
• Court: Missouri Court of Appeals

609 S.W.3d 763

TD AUTO FINANCE, LLC, Appellant,

v.Michelle BEDROSIAN, Respondent.

No. ED 107438

Missouri Court of Appeals, Eastern District, DIVISION THREE.

Filed: June 16, 2020

Motion for Rehearing and/or Transfer to Supreme Court Denied July 28, 2020

Application for Transfer Denied November 24, 2020

Jonathan L. Shoener, P.O. Box 10110, Columbia, Mo. 65205, Brain D. Schmalzbach, Co-Counsel, 800 East Canal Street, Richmond, VA 23219, K. Issac Devyer, Co-Counsel, Jared L. Buchanan, Co-Counsel, P.O. Box 10110, Columbia, Mo. 65205, Melissa M. Taylor, Co-Counsel, 260 Forbes Ave, Pittsburgh, PA 15222, for appellant.

Martin L. Daesch, Jesse B. Rochman, Co-Counsel, 110 E. Lockwood Ave, St. Louis, MO. 63119, for respondent.

Angela Turner Quigless, Judge

In this debt-collection action, TD Auto Finance LLC appeals from the circuit court's order denying its motion to compel arbitration. We reverse and remand.

Factual and Procedural Background

This case began as a debt collection after Michelle Bedrosian allegedly failed to make required payments on her vehicle. Ms. Bedrosian purchased a vehicle in September 2011 from a Missouri dealership. In so doing, she signed a Retail Installment Sale Contract.¹ That sale contract states the terms of Ms. Bedrosian's required contractual payments and contains other provisions governing the parties’ contractual relationship, which are not at issue in this appeal. Ms. Bedrosian also executed a Credit Application to finance the purchase through TD Auto Finance LLC (TDAF). That credit application contains a section titled: "IMPORTANT CONTRACT OF ARBITRATION." (Capitalized text in original). The arbitration contract sets out ten numbered paragraphs, including in relevant part:

1. If any of us chooses, any dispute between or among us will be decided by arbitration and not in court.

... 6. Any claim or dispute, whether in contract ... (including any dispute over the interpretation, scope, or validity of this Important Contract of Arbitration or the arbitrability of any issue) ... which arises out of or relates to this application and Important Contract of Arbitration, any installment sale contract ... or any resulting transaction or relationship ... shall, at the election of any of us ... be resolved by a neutral, binding arbitration and not by a court action. Any claim or dispute is to be arbitrated on an individual basis and not as a class action. Whoever first demands arbitration may choose to proceed under the rules of the American Arbitration Association ... or any other arbitration association you choose that is acceptable to us.²

Ms. Bedrosian's signature appears twice on the credit application. Ms. Bedrosian does not dispute that she signed the application.

Over a year later, TDAF alleged that Ms. Bedrosian was in default for failing to make payment as required by the sale contract.³ TDAF repossessed and sold the vehicle, and then after sending notice and a demand, sued Ms. Bedrosian to collect the deficiency, in the amount of $9,466.18. Ms. Bedrosian filed an answer and counterclaim. TDAF filed a motion to compel arbitration. Ms. Bedrosian opposed the motion, on three grounds. First, she argued that the purported arbitration agreement was never formed or concluded because it lacked mutual promises and thus lacked consideration. Second, Ms. Bedrosian argued that even if the arbitration agreement had been formed, the agreement was unconscionable and could not be enforced. Lastly, Ms. Bedrosian argued that even if the agreement was formed and enforceable, TDAF had waived its right to arbitration by initiating a lawsuit against her.

The circuit court held a hearing, then denied TDAF's motion. The circuit court found that a valid agreement to arbitrate did not exist because the arbitration agreement lacked mutuality. The circuit court further noted that even if an arbitration agreement had been formed, the terms were unconscionable and thus unenforceable. The circuit court also found that TDAF had waived its right to arbitrate by initiating suit. TDAF appeals.

Standard of Review

Whether the circuit court should have granted TDH's motion to compel arbitration is a question of law that this Court will review de novo. Theroff v. Dollar Tree Stores, Inc. , 591 S.W.3d 432, 436 (Mo. banc 2020). We acknowledge that Ms. Bedrosian disputes whether an arbitration agreement exists in the first instance, and that under similar circumstances the Supreme Court of Missouri recently applied a Murphy v. Carron standard of review in its recent decision in Theroff .⁴ Theroff , 591 S.W.3d at 436. However, the dispute in this case is a matter of law and not a factual dispute as in Theroff . Id. Resolution of the dispute here turns on analysis of the terms of the parties’ agreement. Compare Id. (outcome turned on circuit court's fact-finding role). Accordingly, a de novo standard of review is appropriate. Id. (noting that appellate review is de novo if no factual dispute exists regarding the existence of an arbitration agreement).

Points on Appeal

TDAF sets out five points on appeal, alleging the circuit court erred in a variety of ways in denying TDAF's motion to compel arbitration. In general, TDAF argues that all claims addressed by the circuit court were reserved for an arbitrator to decide. TDAF alleges the circuit court erred in finding that consideration was lacking and thus that a valid arbitration agreement did not exist. TDAF contends that the mutuality of obligation present in the credit application as a whole, of which the arbitration agreement is a part, supplies adequate consideration, and therefore a valid and enforceable arbitration agreement exists. Next, TDAF contends that the arbitration agreement delegates all disputes to an arbitrator, including threshold issues of arbitrability. TDAF maintains that the delegation is enforceable because Ms. Bedrosian did not specifically challenge the delegation. Finally, TDAF alleges the circuit court erred in finding that the arbitration agreement was unconscionable and that TDAF had waived its right to arbitrate.

We find the following issues relevant and dispositive: the existence of a contract and agreement to arbitrate; the delegation of threshold issues of arbitrability; and the lack of a specific challenge to that delegation.

Discussion

Arbitration is a method of resolving disputes. Caldwell v. UniFirst Corp., 583 S.W.3d 84, 90 (Mo. App. E.D. 2019). Both the United States Supreme Court and the Supreme Court of Missouri recognize that parties to a contract may agree that an arbitrator rather than a court will resolve disputes arising out of the contract. Henry Schein, Inc. v. Archer and White Sales, Inc., ––– U.S. ––––, 139 S.Ct. 524, 527, 202 L.Ed.2d 480 (2019) ; Ellis v. JF Enterprises, LLC , 482 S.W.3d 417, 420 (Mo. banc 2016). Before referring a dispute to an arbitrator, however, a court must make certain antecedent inquires. Theroff , 591 S.W.3d at 437 (principle opinion) and 442 (J. Breckenridge concurring); Schein , 139 S.Ct. at 530. In particular, the court must determine whether a valid agreement to arbitrate exists between the parties. Theroff , 591 S.W.3d at 437 ; Schein , 139 S.Ct. at 530. Arbitration is a matter of contract. Theroff , 591 S.W.3d at 437 ; Schein , 139 S.Ct. at 529. Parties can agree to arbitrate, but there must be a contract in the first instance. Theroff , 591 S.W.3d at 439 ("existence of [an] agreement to arbitrate is a prerequisite to compelling arbitration"). Arbitration will only be compelled where a valid arbitration agreement exists and the specific dispute falls within the scope of that agreement. Caldwell , 583 S.W.3d at 90 ; Dunn Indus. Grp., Inc. v. City of Sugar Creek , 112 S.W.3d 421, 427-28 (Mo. banc 2003). A party can not be compelled to arbitrate a dispute unless they have contractually agreed to be bound by arbitration. Theroff , 591 S.W.3d at 440.

Existence of Contract & Agreement to Arbitrate?

We accordingly first address whether the parties formed a valid contract that binds them to arbitrate.

"The essential elements of any contract, including one for arbitration, are " ‘offer, acceptance, and bargained for consideration.’ "

Baker v. Bristol Care, Inc. , 450 S.W.3d 770, 774 (Mo. banc 2014) (internal quotation omitted). "Consideration "consists either of a promise (to do or refrain from doing something) or the transfer or giving up of something of value to the other party." Id.

Ms. Bedrosian argued that an arbitration agreement never formed because the purported arbitration agreement lacked mutual promises and thus lacked consideration.⁵ "Mutuality of contract means that an obligation rests upon each party to do or permit to be done something in consideration of the act or promise of the other; that is, neither party is bound unless both are bound." Baker , 450 S.W.3d at 781 n.4 ; Eaton v. CMH Homes, Inc., 461 S.W.3d 426, 433 (Mo. banc 2015). Ms. Bedrosian argued that mutuality was lacking because the purported arbitration agreement obligated her to arbitrate all disputes while TDAH had self-help and court actions available to it, in addition to arbitration. She contended that TDAH's promise to arbitrate is merely illusory. In arguing that consideration was lacking, Ms. Bedrosian focused solely on the arbitration agreement. Mutuality, however, is satisfied if there is consideration as to the whole agreement, regardless of whether the included arbitration clause itself was one sided. Eaton, 461 S.W.3d at 434 ; State ex rel. Vincent v. Schneider , 194 S.W.3d 853, 858-9 (Mo. banc 2006).⁶ "[A]s long as the contract as a whole meets the consideration requirement, an arbitration clause in the contract will not be invalidated for a lack of mutuality of the obligation to arbitrate." Eaton, 461 S.W.3d at 434 ; Vincent , 194 S.W.3d at 858-9.

Here, the arbitration agreement is part of a larger integrated agreement, the credit application. The credit application and the arbitration agreement are continually paginated, and...