By: Rachel Taylor
Bridgecrest Acceptance Corp. v. Donaldson, 648 S.W.3d 745, 758 (Mo. 2022), as modified (Aug. 30, 2022)
I. INTRODUCTION
In Bridgecrest Acceptance Corp. v. Donaldson, the Supreme Court of Missouri held an arbitration agreement was enforceable despite claims that the agreement lacked consideration, was unconscionable, and the party seeking to enforce the agreement was collaterally estopped from doing so.1 The court also found that a decision from the Supreme Court of the United States, Morgan v. Sundance, Inc., that was handed down after briefing and argument for Bridgecrest was inapplicable.2
II. FACTS AND HOLDING
In 2017, Kelly Donaldson and Robert Haulcy together and Christopher Jones individually (“Consumers”) entered into an installment contract with DriveTime Car Sales Company, LLC, to finance and purchase a vehicle.3 The installment contract referenced the arbitration agreement, and the arbitration agreement referenced the installment contract.4 Relevant provisions included in the arbitration agreements were: (1) a provision stating “claim” had the “broadest reasonable meaning” and included “claims of every kind and nature;” and (2) an anti-waiver provision.5 Drivetime later assigned its interests in both installment contracts and the vehicles to Bridgecrest Acceptance Corporation (“Bridgecrest”).6
Consumers did not make the necessary payments for the vehicles, which resulted in Bridgecrest repossessing and selling the vehicles.7 After selling the vehicles, Bridgecrest sought to recover the debt still owed on the installment contracts and filed suits against Consumers in circuit court.8 Consumers counterclaimed, bringing putative class claims against Bridgecrest for unlawful and deceptive business practices in violation of the Uniform Commercial Code.9 Bridgecrest moved to dismiss or stay the counterclaims and to compel arbitration under the arbitration agreements.10 In both cases, the circuit court overruled Bridgecrest’s motion.11
Bridgecrest appealed the rulings, and the court of appeals affirmed.12 On appeal, Bridgecrest argued its motion to compel arbitration should not have been overruled because the arbitration agreement was a legally valid and enforceable contract because (1) there was adequate consideration for the arbitration agreement; (2) the agreement was conscionable; and (3) Bridgecrest was not collaterally estopped from enforcing the arbitration agreement.13
Consumers argued Bridgecrest did not prove the existence of an arbitration agreement between Bridgecrest and Consumers.14 Bridgecrest attached the signed arbitration agreements to its motions to compel arbitration but failed to authenticate or introduce the agreements at an evidentiary hearing.15 Consequently, Consumers contended Bridgecrest did not factually prove the existence of the arbitration agreement.16 The Supreme Court of Missouri rejected this argument because Consumers did not contest the existence of the arbitration agreement in the circuit court. 17 Under RSMo § 435.355, if a party opposing a motion to compel arbitration denies the existence of the agreement to arbitrate, the circuit court must conduct an evidentiary hearing to determine whether an agreement to arbitrate exists.18 Here, Consumers conceded the existence of an arbitration agreement and opposed the motion to compel arbitration for legal reasons, not factual ones.19 Thus, the court only reviewed the legal issues raised regarding Bridgecrest’s motion to compel—whether the agreements were invalid, unconscionable, and whether Bridgecrest was legally estopped from enforcing them.20
The Supreme Court of Missouri found the circuit court erred in overruling Bridgecrest’s motion to compel arbitration because the agreement was supported by adequate consideration, was not unconscionable, and Bridgecrest was not collaterally estopped from enforcing the agreement.21
III. LEGAL BACKGROUND
Contract law governs arbitration agreements.22 The Federal Arbitration Act (“FAA”), enacted in 1925, exemplifies the national policy favoring arbitration and gives arbitration agreements equal power as afforded to all other contracts.23 The Supreme Court has found only two limitations to the enforcement of an arbitration provision under section 2 of the FAA: (1) the provision must be part of a written maritime contract or a contract “evidencing a transaction involving commerce;” and (2) the provision can be revoked based on the same grounds that exist for revocation of any contract.24
In Missouri, state contract law applies when determining whether parties have entered into a valid arbitration agreement.25 The elements of a valid contract are offer, acceptance, and bargained for consideration.26 Consideration requires either “a promise (to do or refrain from doing something) or the transfer or giving up of something of value to the other party.”27
Defenses to the formation of a contract may also be used to challenge the formation of an arbitration agreement.28 One such contract defense is unconscionability.29 If a contract is unconscionable, the transaction is so unfair that it “would offend the conscience of the court to enforce it.”30 Consequently, the function of the unconscionability doctrine “is to guard against one-sided contracts, oppression, and unfair surprise.”31 There are two aspects to unconscionability—procedural unconscionability and substantive unconscionability.32 Procedural unconscionability looks to the formalities of making a contract, and substantive unconscionability looks to the contract’s terms.33 Substantive unconscionability refers to undue harshness in the contract’s terms.34 A contract that is found to be unconscionable will not be enforced.35
The Supreme Court of the United States recently addressed an arbitration agreement in Morgan v. Sundance, Inc, finding that “the FAA’s “policy favoring arbitration” does not authorize federal courts to invent special, arbitration-preferring procedural rules.”36 Appellate courts had permitted parties to engage in extensive litigation and act as if they were not going to exercise their right to compel arbitration without risking waiver of their right to compel arbitration so long as the opposing party was not prejudiced.37 The Supreme Court found these prior rulings were invalid because the FAA is meant to “place such agreements upon the same footing as other contracts.”38
In Morgan, the party seeking to compel arbitration initially defended the lawsuit as if there was no arbitration agreement.39 Almost eight months after the lawsuit was filed, the party moved to compel arbitration under the FAA.40 The Court of Appeals found that the nonmoving party would not be prejudiced by arbitrating the case and sent the case to arbitration.41 On appeal, the Supreme Court found that by requiring a showing of prejudice, the Court of Appeals created an arbitration-specific rule, which was contrary to the FAA.42
IV. INSTANT DECISION
The court found the arbitration agreement contained adequate consideration, was conscionable, and Bridgecrest was not collaterally estopped from enforcing the arbitration agreement.43 Because the parties did not contest the factual existence of the arbitration agreement, the court reviewed the overruling of the motion to compel arbitration de novo.44
1. Consideration
The court first analyzed whether the arbitration agreement contained sufficient consideration.45 Bridgecrest argued there was adequate consideration because the consideration supporting the installment contract also provided the consideration for the arbitration agreement.46 Bridgecrest also argued that the arbitration agreement alone contained adequate consideration.47 The court noted that the installment contract and arbitration agreement were part of one contract.48 Both the installment contract and arbitration agreement referenced the other, and the court found “these plain and explicit references” showed the parties’ intent to incorporate the two agreements into a singular contract.49 When determining whether consideration is adequate, courts look to the contract as a whole and not only the arbitration agreement.50 Thus, the court stated if there was sufficient consideration for the installment contract, then there was sufficient consideration for the arbitration agreement.51
Consumers had not challenged the adequacy of the consideration for the installment contract, and even if they had, the court found the argument would fail.52 Bridgecrest gave Consumers a vehicle and provided financing.53 In return, Consumers promised to pay, in addition to other promises such as the promise to arbitrate several claims.54 The court also found the installment contract, including the arbitration agreement, met the requirement of mutuality—”the requirement that each party to a contract be bound by taking on some obligation in consideration of an act or promise.”55 Thus, the court found adequate consideration supported the arbitration agreement.56
2. Conscionability
Next, the court addressed whether the arbitration agreement was conscionable under Missouri law.57 Consumers argued the arbitration agreement was unconscionable because it “lack[ed] mutuality and ma[de] illusory promises that enable[d] Bridgecrest to unilaterally divest itself of an obligation to perform under the agreement.”58 Particularly, Consumers argued that the anti-waiver provision in the agreement permitted Bridgecrest to commence litigation in circuit court and “engage in self-help repossession” without waiving Bridgecrest’s right to compel arbitration regarding other claims.59 The court, however, found the self-help and anti-waiver provisions of the arbitration agreement did not make the agreement one-sided nor did they “unilaterally divest” Bridgecrest of the agreement to arbitrate.60 The court acknowledged that overly one-sided terms or lack of mutuality can make a contract unenforceable, but this requires either terms so unduly harsh they would “unfairly surprise an innocent party” or terms that indicate an imbalance in the rights and obligations imposed by the contract.61
Here, the court stated that excluding self-help from arbitration did not make the agreement one-sided.62 Consumers held the right to challenge Bridgecrest’s exercise of self-help in court with injunctive relief and were not entirely constrained from challenging self-help through arbitration.63 Thus, the court reasoned the arbitration agreement did not exempt Bridgecrest’s claims from arbitration while forcing Consumers to arbitrate its relevant defenses, affirmative defenses, and counterclaims.64 Either party could compel arbitration on any claim covered by the arbitration agreement.65 The court found the agreement did not “allow Bridgecrest to unilaterally divest itself of its obligation to arbitrate.”66 Therefore, the court held the agreement was not unconscionable.67
3. Collateral Estoppel
Finally, the court considered whether Bridgecrest’s claims were barred by collateral estoppel.68 Consumers argued Bridgecrest was estopped from enforcing the arbitration agreements because Bridgecrest was estopped from enforcing the same arbitration agreement in another case.69 In that case, the circuit court and court of appeals found the arbitration agreement invalid.70 The Supreme Court of Missouri found this argument was without merit because Consumers failed to establish an element of collateral estoppel—that “the issue decided in the prior adjudication was identical to the issue presented in the present action.”71 In the previous case, an arbiter had determined the underlying installment contract was fraudulent and void.72 The Supreme Court of Missouri stated the circuit court had evaluated the arbitration agreement in isolation, and the crux of the parties’ argument was whether there was consideration for the formation of the arbitration agreement.73 Here, the Supreme Court of Missouri reasoned, the circuit court did not determine the installment contract was invalid.74 Additionally, the installment contract was capable of providing consideration to support the arbitration agreement.75 The court stated this fact showed that the issue in the previous case was considerably different from the present case and held collateral estoppel was inapplicable to Bridgecrest’s motion to compel arbitration.76
After this case was briefed and argued, the Supreme Court of the United States handed down its decision in Morgan v. Sundance, Inc.77 Consumers argued that under Morgan, Bridgecrest had waived its right to compel arbitration by filing a deficient claim in circuit court, and consequently, the circuit court correctly overruled Bridgecrest’s motion.78 The Supreme Court of Missouri dismissed this argument.79 The court explained that Consumers were ignoring the anti-waiver provision in their agreements with Bridgecrest.80 In exchange for mutual consideration, Consumers had specifically agreed that neither party waived the right to arbitrate any other new claim even if the parties elected to litigate a claim in court.81 The court reasoned that the arbitration agreement contained a valid and enforceable anti-waiver provision, and Morgan did not affect the outcome of Bridgecrest Acceptance Corp. v. Donaldson.82
V. COMMENT
In this case, the Supreme Court of Missouri correctly found the Supreme Court of the United States’ decision in Morgan did not apply to Bridgecrest. There are decades of cases expressing the importance of holding arbitration agreements to the same principles applied to all contracts.83 If the Supreme Court of Missouri had found Morgan did apply, it would have been ignoring a clear provision in the contract—the anti-waiver provision, which provided that if either party elected to litigate a claim in court, either party could still elect to arbitrate any other claim, “including a new Claim in that lawsuit or any other lawsuit.”84
An arbitration agreement is a contract.85 As such, if the contract is valid, then the parties have mutually agreed that they will arbitrate their claims.86 However, many arbitration agreements are included in contracts of adhesion—a contract where the terms are created by one party, and there is no opportunity for the other party to negotiate for different terms.87 When a party signs a contract of adhesion, they are still voluntarily entering the agreement as they would if they had negotiated the terms of the contract.88 However, the extent of the party with the weaker bargaining power’s voluntariness could be questioned. For example, many cellphone service providers include arbitration provisions in their service contracts.89 A report from the Consumer Financial Protection Bureau in 2015 found that 99.9 percent of wireless subscribers were subject to “forced arbitration agreements.”90 Owning a cellphone is becoming more and more essential to daily life in our modern society.91 Thus, most people are left with no choice but to enter a contract containing an arbitration provision with a service provider. Consequently, there should be protections for consumers who are, in a sense, forced to enter these arbitration agreements. The Supreme Court’s decision in Morgan accomplishes this by limiting the scope of the FAA’s policy favoring arbitration.92 However, it did this while still maintaining the important premise of the FAA—placing arbitration agreements on equal footing with other contracts.
The Supreme Court’s holding in Morgan is important. Although there is a strong policy favoring arbitration under the FAA, arbitration agreements must still be treated the same as any other contract. In Bridgecrest, if the Supreme Court of Missouri had found the anti-waiver provision did not apply, the court would not have been treating the arbitration agreement the same as other contracts.93 Additionally, in Morgan, the Supreme Court did not hold that anti-waiver provisions are unenforceable.94 Rather, the Supreme Court held that a court may not condition waiver of the right to arbitrate on a showing of prejudice.95 That principle did not apply in Bridgecrest. In Bridgecrest, Consumers agreed to the anti-waiver provision.96 As the Supreme Court of Missouri found, the arbitration agreement, including the anti-waiver provision, was not unconscionable.97 Thus, enforcing the agreement to arbitrate was aligned with the federal policy favoring arbitration and not contrary to Morgan.
VI. CONCLUSION
The Supreme Court of Missouri correctly found that the arbitration agreement between Bridgecrest and Consumers was valid and that it was unaffected by the Supreme Court of the United States’ holding in Morgan.
FOOTNOTES
[1] Bridgecrest Acceptance Corp. v. Donaldson, 648 S.W.3d 745, 758 (Mo. 2022), as modified (Aug. 30, 2022).
[2] Id. at 758 n.12.
[3] Id. at 749.
[4] Id. The installment contract stated the arbitration agreement was “incorporated by reference into and is part of this Contract.” Id.
[5] Id. at 750. The anti-waiver provision provided:
Even if you and we elect to litigate a Claim in court, you or we may elect to arbitrate any other Claim, including a new Claim in that lawsuit or any other lawsuit. Nothing in that litigation waives any rights in this Agreement.
[6] Id. at 749.
[7] Id. at 750.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id. at 750–51.
[14] Id. at 750.
[15] Id. at 750–51.
[16] Id. at 750–51.
[17] Id. at 751.
[18] Id.
[19] Id.
[20] Id.
[21]Id. at 758.
[22] Rent-A-Ctr. W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010).
[23] Id.
[24] Southland Corp. v. Keating, 465 U.S. 1, 10–11 (1984) (quoting 9 U.S.C. § 2).
[25] Baker v. Bristol Care, Inc., 450 S.W.3d 770, 774 (Mo. 2014).
[26] Johnson v. McDonnell Douglas Corp., 745 S.W.2d 661, 662 (Mo. 1988).
[27] Baker, 450 S.W.3d at 774.
[28] Brewer v. Missouri Title Loans, 364 S.W.3d 486, 492 (Mo. 2012).
[29] Id.
[30] Brian A. Blum & Amy C. Bushaw, Contracts: Cases, Discussions, and Problems 488 (4th ed. 2017)
[31] Brewer, 364 S.W.3d at 492.
[32] State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 858 (Mo. 2006).
[33] Id.
[34] Id.
[35] Id.
[36] Morgan v. Sundance, Inc., 212 L. Ed. 2d 753 (May 23, 2022).
[37] Bridgecrest Acceptance Corp. v. Donaldson, 648 S.W.3d 745, 758 n.12 (Mo. 2022), as modified (Aug. 30, 2022).
[38] Id.
[39] Morgan, 212 L. Ed. 2d 753.
[40] Id.
[41] Id.
[42] Id.
[43] Bridgecrest Acceptance Corp., 648 S.W.3d at 758.
[44] Id. at 751. The court’s review was de novo because whether a dispute is covered by an arbitration provision is a question of law. Id.
[45] Id. at 751–54.
[46] Id. at 752.
[47] Id.
[48] Id.
[49] Id.
[50] Id.
[51] Id.
[52] Id. at 753.
[53] Id.
[54] Id.
[55] Id.
[56] Id. Consumers also argued the Federal Arbitration Act required the arbitration agreement alone be supported by adequate consideration because under the FAA arbitration agreements are “severable.” Id. The court stated severability means that a party’s challenge to another part of the contract or the contract as a whole does not preclude a court from enforcing an arbitration agreement. Id. Thus, Consumers misconstrued the law regarding severability and arbitration agreements. Id.
[57] Id. at 754.
[58] Id.
[59] Id.
[60] Id.
[61] Id. at 754–55.
[62] Id. at 755.
[63] Id. at 755–56.
[64] Id. at 756.
[65] Id.
[66] Id.
[67] Id. at 753.
[68] Id. at 757. A party seeking to assert the doctrine of collateral estoppel must demonstrate: ‘(1) ‘the issue decided in the prior adjudication was identical to the issue … in the present action’; (2) ‘the prior adjudication resulted in a judgment on the merits’; (3) ‘the party against whom estoppel is asserted was a party or was in privity with a party to the prior adjudication’; and (4) ‘the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the prior suit.”’
[69] Id.
[70] Id.
[71] Id.
[72] Id. at 757–58.
[73] Id. at 757–58.
[74] Id. at 758.
[75] Id.
[76] Id.
[77] Id. at 758 n.12.
[78] Id.
[79] Id.
[80] Id.
[81] Id.
[82] Id.
[83] See supra Part III.
[84] Bridgecrest Acceptance Corp., 648 S.W.3d at 750.
[85] Id. at 751.
[86] Id. at 751–52.
[87] adhesion contract (contract of adhesion), Cornell L. Sch., https://www.law.cornell.edu/wex/adhesion_contract_(contract_of_adhesion) (last visited Oct. 30, 2022).
[88] Cell Phones, Fair Arb. Now, https://fairarbitrationnow.org/cell-phone-arbitration/ (last visited Oct. 30, 2022).
[89] Id.
[90] Id.
[91] See Importance of Cell Phone in Our Daily Life and in Student Life, IMPOFF, (Mar. 28, 2021) https://impoff.com/importance-of-cell-phone/#:~:text=Friendly%20communication%3A%20Mobile%20phones%20provides,and%20communicate%20with%20each%20other.
[92] Karla Gillbride & Jonathon Sheldon, Shocker: Supreme Court Limits Policy Favoring Arbitration, NCLC (May 27, 2022) https://library.nclc.org/article/shocker-supreme-court-limits-policy-favoring-arbitration.
[93] Bridgecrest Acceptance Corp. v. Donaldson, 648 S.W.3d 745, 756 (Mo. 2022), as modified (Aug. 30, 2022).
[94] See generally Morgan v. Sundance, Inc., 212 L. Ed. 2d 753 (May 23, 2022).
[95] Id.
[96] Bridgecrest Acceptance Corp., 648 S.W.3d at 754.
[97] Id. at 753.