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Posted in Consumer & Class Action Blog, General Blog

Missouri Court of Appeals holds its nose and forces consumers to arbitrate claim

July 19th, 2007 by Erich Vieth

In Kirby vs. Grande Crown Travel Network (Missouri Court of Appeals for the Southern District of Missouri, case number 28091), the Missouri Court of Appeals was not happy that it had to force an elderly couple to arbitrate their consumer fraud claim against a vacation club.  The June 18, 2007 opinion was written by Hon. Daniel E. Scott.

The petition alleged that the couple was persuaded to spend more than $3000 on a vacation club as a result of high-pressure tactics and misrepresentations.  They sued the vacation club under the Missouri Merchandise Practices Act, Section 407.025, Missouri Revised Statutes.

The petition challenged the entire contract rather than challenging simply the arbitration clause of the contract.  The Court of Appeals cited Buckeye Check-Cashing Inc. vs. Cardegna, 546 US 440 (2006), decided by the United States Supreme Court.  Cardegna held that arbitration provisions are severable from the remainder of the contract and that a challenge to the contract as a whole must be determined by the arbitrator in the first instance.  Cardegna further held that the Federal Arbitration Act, which compels this requirement for the consumers to arbitrate this claim, applies in state court as well as in federal courts.

The Missouri Court of Appeals noticed that the plaintiffs’ petition did not specifically challenge the arbitration clause (”in fact, never mentions it”).  Although Missouri statute Section 435.350 RSMo can negate arbitration clauses in adhesion contracts, this dispute needs to go to the arbitrator for that determination, based upon the federal preemption of state law by the Federal Arbitration Act. Again, the FAA comes into play whenever plaintiffs challenge a contract as a whole rather than challenging simply the validity of the arbitration agreement.

The court was not happy to make this decision.  It made clear that his hands were tied by precedent based upon the preemption of state laws by the Federal Arbitration Act:

We do so reluctantly and only because a higher authority than this Court has declared the law of the land on these issues . . . such claims are fit particularly for judicial determination and primarily are the province of courts.  Yet arbitrators need not be judges or even lawyers.  Nor are arbitrators necessarily compelled to follow the law, and the party is not assured meaningful review if they fail to do so . . .  [T]his case illustrates how the FAA can be used to deprive MMPA victims of their day in court under RSMo  Section 407.025, thus circumventing Missouri is considered public policy and the will of the citizens expressed through its legislature.  Our frustration is not with arbitration per se, nor with the yet-unproven allegations against defendant.  It stands instead of from our agreement with Justices O’Connor, Scalia and Thomas, and at least 20 state attorneys general, including our own, who have forcefully asserted that the FAA does not and should not apply to stay proceedings. 

For the full opinion, see here.

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