Warren v. Smart Choice Payments, Inc.

Decision Date23 September 2020
Docket NumberA166758
Parties Jason WARREN, Plaintiff-Respondent, v. SMART CHOICE PAYMENTS, INC. ; Wholesale Merchant Processing, Inc.; North American Processing Solutions, LLC ; and Todd McCartney, Defendants-Appellants.
CourtOregon Court of Appeals

Kevin J. Jacoby, Salem, argued the cause and filed the briefs for appellants. Also on the reply brief was Colin P. Mackenzie.

Michael A. Cox, Portland, argued the cause for respondent. Also on the brief was Law Office of Michael A. Cox.

Before Armstrong, Presiding Judge, and Tookey, Judge, and Shorr, Judge.


Defendants appeal from a trial court order denying their petition to compel arbitration. Defendants assign error to the trial court's denial, contending that the court erred in (1) concluding that a 2008 agreement with an arbitration clause was superseded by a 2009 agreement that did not require arbitration and (2) deciding, in the alternative, that, if the 2008 agreement survived, its arbitration clause was unconscionable and unenforceable. We conclude that the court did not err when it concluded that the 2009 agreement superseded the 2008 agreement and did not require arbitration of this dispute. As a result, we do not reach the court's alternative conclusion that the 2008 arbitration clause is unconscionable. We, therefore, affirm.

We begin with the background to this dispute. The facts relevant to our resolution of the arbitration issue on appeal are uncontested. The underlying dispute arose between plaintiff Jason Warren, on one side, and defendant Todd McCartney and entities owned or controlled by McCartney, on the other side. Plaintiff was initially hired in March 2007 by defendant McCartney's wholly-owned company, Wholesale Merchant Services, Inc. The parties entered into a "Contract of Employment" in March 2007 that was executed by plaintiff and defendant McCartney on behalf of Wholesale Merchant Services. Plaintiff was identified as an employee in the agreement. There is no clause mandating arbitration of any disputes in the March 2007 agreement.

Plaintiff was hired to sell or lease credit card processing equipment and services to potential business customers; was provided "leads" for potential business and directed to make sales calls on those businesses; and was asked to relocate from Oregon to Sacramento, California. Plaintiff alleges that he was promised commissions on sales of any equipment to merchants and also promised future commissions or "residuals" when those merchants made ongoing payments for credit-card processing services.

At some point prior to May 2008, defendant McCartney asked plaintiff to enter into a new agreement with a different entity McCartney owned, defendant Wholesale Merchant Processing, Inc. Plaintiff and Wholesale Merchant Processing entered into an agreement in May 2008 (the 2008 agreement).

Unlike the prior agreement, the agreement identified plaintiff as an independent contractor rather than an employee. The 2008 agreement provided a section for payment of fees, which stated that, "[d]uring any period of time in which this Agreement remains in full force and effect, compensation to Independent Contractor will be paid as set forth" in an attached schedule. Significant to this dispute, the 2008 agreement included a dispute resolution provision, which spelled out the parties’ obligation to try to resolve any disagreement, and was immediately followed by an arbitration clause, which provided in relevant part:

"All disputes that cannot be resolved pursuant to the internal issue resolution process identified above will be submitted to and settled by final and binding arbitration. The arbitration will take place in Portland, Oregon, and will apply the governing law of this Agreement. The final and binding arbitration will be performed by a panel of three arbitrators in accordance with and subject to the Commercial Arbitration Rules of the AAA then in effect. * * * The decision of the arbitrators will be final and binding, and judgment on the award may be entered in any court of competent jurisdiction."

The 2008 agreement also contained a provision that the dispute resolution and arbitration provisions, among others, "shall survive termination of this Agreement."1

Plaintiff maintains that he agreed to enter into that new agreement based on the condition that any "residuals" resulting from ongoing merchant accounts would be "vested" and earned even if he was terminated from his position. Although there were some substantive changes to the agreement, plaintiff's job duties did not change after that agreement except in the fact that he now reported to Wholesale Merchant Processing.

In November 2009, Wholesale Merchant Processing and plaintiff entered into a new agreement (the 2009 agreement). Plaintiff became a sales manager for Wholesale Merchant Processing and worked out of an Oregon office. The 2009 agreement identified plaintiff as an employee again. It did not specifically define plaintiff's wages or compensation, but noted that the "compensation or other monies paid or to be paid to [plaintiff] by Wholesale Merchant Processing" is consideration for plaintiff's employment.

Notable for this dispute, the 2009 agreement had a broad integration clause, which provided:

"There are no terms, conditions or obligations made or entered into by the parties other than as contained herein. This agreement, upon execution, shall supersede any and all other employment and compensation agreements between the Corporation and the Employee."

Also important to this opinion, there was no arbitration clause in the 2009 agreement. In fact, the agreement included several provisions that indicated that the parties anticipated that disputes "under" or "arising out of" or to "enforce" the 2009 agreement would be resolved through a "lawsuit," "suit," or sometimes "action," but never referenced arbitration. The mandated venue for any such "suit" was Multnomah County.

Later, in 2014, plaintiff began to work with defendants Smart Choice Payments, Inc., and North American Processing Solutions, LLC. Plaintiff has never had an arbitration agreement with either entity.

In February 2017, plaintiff filed an action in Washington County against defendants. Plaintiff alleged that he had been terminated in September 2015 and had not been paid the "future" commissions and residuals that defendants had promised to pay him when defendants received ongoing payments for merchant-processing services and equipment that plaintiff or his team had originally arranged to sell or rent to defendants’ customers. Plaintiff alleged claims for breach of contract, unjust enrichment, and fraud. As to the breach of contract claim, plaintiff alleged the promises that were breached, but did not make clear whether he was claiming defendants’ breach of a particular written or oral agreement. Plaintiff later filed an amended complaint that continued to identify the promises that were breached but did not identify a particular contract, such as the 2008 or 2009 agreement or some other agreement. After that filing, defendants deposed plaintiff. Plaintiff testified that the 2008 agreement provided at least a "portion" of the support for his claim that he had been promised to be paid future commissions and residuals for the sales and rentals that he had arranged to make to defendants’ customers.

Defendants then petitioned to stay the litigation and compel arbitration, contending that plaintiff's claims arose out of the 2008 agreement between Wholesale Merchant Services and plaintiff, and, therefore, the claims were subject to arbitration under the 2008 agreement's arbitration clause. Plaintiff opposed the petition, contending, among other things, that the 2008 agreement's arbitration clause was superseded by the same parties2009 agreement that does not provide for arbitration but anticipates potential litigation. Plaintiff also contended that, if the 2008 agreement controlled, it was a contract of adhesion and the arbitration clause was unconscionable. As noted above, the trial court agreed with both of plaintiff's arguments and denied the petition to compel arbitration and stay the litigation.

We turn to the legal arguments before us and the standard of review. On appeal, the parties reprise the arguments that they made in the trial court. We review the denial of a petition to compel arbitration for legal error. Lumm v. CC Services, Inc. , 290 Or. App. 39, 43, 414 P.3d 454 (2018).

We begin with a brief background on the law governing arbitration agreements. As a general rule, arbitration agreements that involve interstate commerce are subject to federal arbitration law and state contract law. Section 2 of the Federal Arbitration Act (FAA), in relevant part, provides:

"A written provision in * * * a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

9 U.S.C. § 2. "Moreover, section 2 is ‘a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.’ " Gozzi v. Western Culinary Institute, Ltd. , 276 Or. App. 1, 4-5, 366 P.3d 743, adh'd to as modified on recons. , 277 Or. App. 384, 371 P.3d 1222 (2016) (quoting Moses H. Cone Hospital v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983) ). The parties do not dispute that section 2 of the FAA governs the arbitration clause at issue in the 2008 agreement.

Section 2 "create[d] a body of federal substantive law, which was applicable in state and...

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