Traversing Legal Labyrinths in Arbitration
|Darren K. Sharp
Armstrong Teasdale, LLP
|Laurence R. Tucker
Armstrong Teasdale, LLP
Arbitration is an alternative dispute resolution procedure by which the parties agree to submit their dispute to a private forum, where an arbitrator, or a panel of arbitrators, decides claims after hearing testimony and evaluating evidence. Arbitration is a process which allows the parties to avoid the judicial system. Theoretically, it is more efficient, less expensive, and allows experts in a particular industry to resolve the dispute. In the commercial context, corporate clients often prefer disputes to be resolved by arbitrators who have familiarity with the particular industry, as opposed to laypersons who have no familiarity with a given industry.
This article will discuss which law to analyze and apply when counsel is confronted with a dispute that may be governed by an arbitration agreement; the procedures to enforce an arbitration agreement; potential defenses to an arbitration agreement; the bases to vacate or confirm an arbitration award; and appeal issues once an arbitration award is rendered and/or confirmed or vacated. This article is not intended to be an in-depth primer of arbitration law and procedure under the Federal Arbitration Act (FAA)3 or the Missouri Uniform Arbitration Act (MUAA).4 Previous articles in this publication have successfully tackled that daunting challenge, which the authors acknowledge are excellent resources.5 Rather than duplicating those efforts, or merely updating that work, this article is intended to address issues which, in the authors’ experiences, arise frequently when litigating arbitration issues. In doing so, this article is intended to provide attorneys a practical understanding of the interplay and nuances between federal and state law affecting arbitration.
I. Does Federal or State Law Apply?
If a contract is silent as to which law applies to an arbitration agreement, counsel should analyze whether the contract involves interstate commerce. If a contract affects interstate commerce, then the FAA governs an arbitration provision within a contract.6 If the parties’ contract specifies that MUAA applies, even if the contract affects interstate commerce, then state law will likely apply.7 In those instances, however, when the FAA and the MUAA could both apply, the FAA will preempt the MUAA to the extent that the application of the MUAA will deny substantive rights to a party that he or she would otherwise have under the FAA.8 The supremacy clause of the U.S. Constitution obligates a court to apply federal law if the FAA provides substantive rights not found under the MUAA.9
For example, in Duggan v. Zip Mail Services, Inc.,10 the court determined that the FAA and the MUAA could apply with respect to the parties’ agreement to arbitrate. One party argued that § 435.460 of the MUAA requires an arbitration agreement to contain language adjacent to or above the signature line stating, “This contract contains a binding arbitration provision which may be enforced by the parties.”11 As the contract at issue did not have this provision, one party argued the arbitration clause was not enforceable. The Duggan court agreed that this statutory provision under the MUAA would render the agreement unenforceable, but found the agreement would be enforceable under the FAA without the notice provision. The court, therefore, determined that applying the MUAA would deny a party’s substantive rights because the arbitration agreement would be unenforceable under state law, but the agreement would be enforceable under the FAA. The Duggan court ruled that the FAA preempted the MUAA in that instance and ruled that the notice requirement found under § 435.460, RSMo. could not be applied to circumvent rights under the FAA.12 The Duggan court held that to apply the MUAA to defeat a party’s right to arbitrate, when the FAA would permit arbitration to proceed, would violate the supremacy clause of the U.S. Constitution.13
II. Procedures Under the FAA and the MUAA
The FAA was passed in 1925 by Congress to overcome state legislatures’ and state judiciaries’ long-standing opposition to arbitration.14 The FAA represents a strong federal policy in favor of arbitration, and the U.S. Supreme Court has held that any doubts regarding whether an arbitration clause is enforceable should be resolved in favor of arbitration.15
The FAA’s substantive provisions apply in federal and Missouri courts.16 As courts of general jurisdiction, Missouri courts apply the FAA. When applying the FAA to determine whether an arbitration agreement should be enforced, a Missouri court must apply the substantive law of the FAA.17 But the U.S. Supreme Court has never specifically ruled that the procedural provisions of the FAA18 are binding on state courts.19 Whether a law provides procedural rights versus substantive rights has been addressed by the Supreme Court of Missouri:
Procedural law prescribes a method of enforcing rights or obtaining redress for their invasion; substantive law creates, defines and regulates rights; the distinction between substantive law and procedural law is that substantive law relates to the rights and duties giving rise to the cause of action, while procedural law is the machinery used for carrying on the suit.20
The FAA states that “[i]f any suit or proceeding” is filed “in any of the courts of the United States,” the court shall
“. . . stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . .”21 The FAA also provides a party’s right to petition any United States district court to compel arbitration.22
Missouri courts often look to the MUAA and the Missouri Rules of Civil Procedure with respect to the appropriate procedures used to enforce the FAA in a dispute pending in a Missouri court.23 The MUAA provides:
Except as otherwise provided, an application to the court under sections 435.350 to 435.470 shall be by motion and shall be heard in the manner and upon the notice provided by law or rule of the court for the making and hearing of motions. Unless the parties have agreed otherwise, notice of an initial application for an order shall be served in the manner provided by law for the service of a summons in an action.24
Although the procedural provisions of the FAA and the MUAA are similar, there are differences which, if certain FAA’s procedures are used, afford different procedural rights to a party. For example, in Nitro Distributing, Inc. v. Dunn,25 the Court had to determine whether the FAA’s or the MUAA’s procedures applied when a fact issue existed as to whether an arbitration agreement could be enforced. Under the FAA, a jury trial is provided when factual disputes arise regarding the formation of an arbitration agreement.26 Under § 435.355(1) of the MUAA, however, when a factual dispute exists in that instance, the MUAA states that “the court shall proceed summarily” to resolve the fact issue. The Nitro Distributing Court ruled that the phrase “proceed summarily” meant proceedings “without the usual formalities” of a jury trial.27 Although one could argue that a right to a jury trial under the Seventh Amendment to the U.S. Constitution is a substantive right, the Supreme Court of Missouri in Nitro Distributing, Inc. was not bothered by a party not having a jury trial under the MUAA.
Similarly, in Sitelines, L.L.C. v. Pentstar Corp.,28 the court applied § 435.425 of the MUAA, as well as Rule 44.01, to overrule a party’s motion to compel arbitration because the moving party had failed to provide the required notice for hearing the motion under the Missouri Rules of Civil Procedure. Although the party’s motion to compel arbitration was noticed to be argued with a motion for summary judgment involving the application of Missouri law governing contracts, the court determined that the motion to compel arbitration would involve the application of federal substantive law under the FAA, which should not be addressed during the same hearing if counsel was not afforded the appropriate notice to prepare and brief the issue under Missouri’s procedural rules.29
III. Missouri’s Law Governing Contractual Defenses Applies When Federal Courts in Missouri or Missouri State Courts Determine Whether an Arbitration Agreement is Enforceable
“Courts generally should apply ordinary state-law principles governing contract formation when deciding whether an agreement [of arbitration] exists.”30 Even when the FAA applies, courts should apply state law to determine whether an agreement to arbitrate is enforceable based on common law contractual defenses such as duress, fraud, illegality, or lack of consideration.31
For example, in Morrow v. Hallmark Cards, Inc.,32 the Missouri Court of Appeals-Western District applied Missouri’s common law to determine whether an arbitration agreement between Hallmark and its employee was enforceable. Ms. Morrow brought a claim against Hallmark for employment discrimination based on age and gender. Hallmark filed a motion to compel arbitration based on the company’s dispute resolution program (DRP) found in the company’s employment policies. The suit was stayed and referred to arbitration, and an award in favor of Hallmark was entered and subsequently confirmed by the circuit court. Ms. Morrow appealed, arguing that the arbitration agreement was unenforceable because the agreement lacked mutuality.33
Although the Morrow court ruled that the FAA governed the contract because it implicated interstate commerce, the court applied Missouri’s substantive law with respect to the enforceability of the purported arbitration agreement. The Morrow court was particularly troubled by the fact that Hallmark was not obligated to submit its claim to arbitration, but employees were under the company’s DRP. Although Hallmark argued that continued employment under an employment-at-will arrangement provided legal consideration, the court disagreed, and ruled that conditions of at-will employment are not enforceable as contractual duties because neither party is obligated to continued employment. Therefore, under Missouri law, the arbitration agreement between Hallmark and Ms. Morrow was unenforceable because it lacked mutuality, lacked consideration, and was illusory.34
In Whitney v. Alltel Communications, Inc.,35 the Court of Appeals-Western District applied Missouri law and ruled that the arbitration agreement was unconscionable because the terms, as set forth in fine print in the consumers’ monthly statements, limited damages to compensatory damages and prohibited class-wide treatment of any claims. The court determined that the “take it or leave it” arbitration agreement, coupled with the limitation of damages, which would have been only 88 cents per customer, was “procedurally and substantively unconscionable” and was unenforceable under Missouri contract law.36
A similar analysis is found in Ruhl v. Lee’s Summit Honda.37 In Ruhl, the plaintiff filed a class action lawsuit alleging that the defendant car dealership engaged in the unlawful practice of law by charging $199.95 for document preparation charges, and for violating the Missouri Merchandising Practices Act.38 The defendant car dealership moved to compel arbitration pursuant to the parties’ agreements to submit all disputes to arbitration, which included a prohibition against class-wide treatment of claims. The appellate court affirmed the trial court’s decision, which ruled that the prohibition of filing class actions was “substantively unconscionable” because plaintiff was an individual who would have limited damages; thus, there would be little incentive to bring an individual claim against the corporation, which would benefit greatly by collecting substantial amounts of alleged illegal fees without any threat of individual challenges.39
Another defense under Missouri law which may be applied to defeat an arbitration agreement is waiver. Parties choosing to disregard their right to arbitration by litigating their claim may waive their right to compel arbitration in the future.40 “A party waives its right to arbitrate if it: 1) had knowledge of the existing right to arbitrate, 2) acted inconsistently with that right, and 3) prejudiced the party opposing arbitration.”41 There is strong presumption against prejudice, and the party contesting arbitration has the burden to show it experienced prejudice.42
Conversely, a party which chooses to submit a claim to arbitration based on the parties’ arbitration agreement cannot later complain that the issue was not arbitrable, or that the arbitrators lacked jurisdiction over the dispute.43 As the Court of Appeals aptly noted, “. . . a party cannot initiate arbitration, submit a dispute to arbitration, obtain an award, and also claim there is no arbitration agreement.”44
A party may be able to avoid arbitration by asserting and proving that it was defrauded. Whether a fraud claim will defeat an arbitration clause is dependent on whether the party asserting fraud alleges that the contract in general is void, or whether the arbitration agreement alone is void based on fraud.45 In Prima Paint, the U.S. Supreme Court ruled that if a party claims a contract as a whole should not be enforced because of “fraud in the inducement,” it is an issue for the arbitrator to decide.46 However, if the party challenging the arbitration clause argues that the arbitration clause itself was entered into because of fraud, then that issue must be resolved by the court as a matter of law before referring the matter to arbitration.47
IV. Tort Claims May Be Arbitrated
Although arbitration is a creature of contract and typically governs disputes involving contractual disagreements, arbitration may also serve as a forum for resolving tort claims. “Arbitration must be compelled where a tort claim arises directly out of a dispute regarding the terms of the parties’ contract.”48
“[T]o be subject to … arbitration clause, [a tort claim] must raise some issue [for which] the resolution … requires reference to or construction of [a] portion of [a] parties’ contract.”49
V. Non-Signatories to Arbitration Agreements May Be Bound
Another issue which often arises is whether a non-signatory to an arbitration agreement can enforce or be bound by an arbitration agreement. The U.S. Supreme Court has recently provided some clarity on this issue. In Arthur Andersen L.L.P. v. Carlisle,50 the Court resolved a split amongst federal circuits as to whether § 3 of the FAA allowed non-signatories to an arbitration agreement to stay proceedings and seek appellate relief if their requests for stay were denied. The Court in Arthur Andersen ruled that non-signatories could seek stays under § 3 of the FAA if controlling state law permitted enforcement of a contract by or against non-parties through “‘traditional principles’ of state law,” such as “assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver, and estoppel.”51 Many federal courts, including the 8th Circuit, had already ruled that non-signatories to an arbitration agreement can enforce an arbitration clause against a signatory when a sufficiently close relationship exists between the signatory and the non-signatory defendants.52 Otherwise, by refusing non-signatories to invoke arbitration, it may eviscerate the underlying arbitration agreement between signatories.53
Missouri courts closely scrutinize whether a non-signatory to an arbitration clause may enforce the agreement using theories such as third-party beneficiary status or incorporation of other documents by reference.54 And in Finney v. National Healthcare Corp.,55 the court refused to compel arbitration against the daughter of a nursing home patient who had filed a wrongful death suit against the nursing home. Although the nursing home contract with the patient included an arbitration clause, the court held that the wrongful death lawsuit was brought by the daughter of the deceased nursing home patient, and that the wrongful death suit did not belong to the deceased or her estate.56 The court ruled that the daughter was not a party to the contract, and any signatures appearing on the contract were only in a representative capacity for the patient.57
VI. A Suit is Filed in Court Over a Dispute Governed by an Arbitration Agreement: Now What?
If a party chooses to waive an arbitration agreement in their contract, and instead files suit in court, the party wanting to enforce that arbitration agreement may move to compel arbitration and/or stay litigation under either the FAA or the MUAA.58 As noted above, Missouri courts can apply the FAA’s substantive law as courts of general jurisdiction.59 Federal courts, however, are courts of limited jurisdiction, and a federal court must have either federal question or diversity of citizenship jurisdiction before it has proper subject matter jurisdiction over a dispute.60 Although the FAA is a federal statute, the FAA alone will not provide independent grounds for subject matter jurisdiction.61 And, although federal common law has developed interpreting the FAA, federal common law will not confer proper subject matter jurisdiction for a federal court.62
A motion to stay the proceedings in litigation is the generally accepted procedure in Missouri state courts.63 Similarly, the FAA states that “[a]ny application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, accept as otherwise herein expressly provided.”64 Although filing a motion to stay the proceedings is the generally accepted procedure, it may not be the most appropriate if all claims in the lawsuit are subject to an arbitration agreement. In that instance, a motion to dismiss may be worth pursuing.
Counsel may request the court to dismiss the entire case if all the matters should be arbitrated pursuant to a valid arbitration clause.65 If a motion to dismiss is granted, however, counsel should be aware that a final judgment exists and the decision can be appealed, which may delay the proceedings, including arbitration.66 Filing a motion to stay claims subject to arbitration, as opposed to a motion to dismiss, will arguably allow the court to retain jurisdiction over the claims referred to arbitration, which could allow the court to confirm or vacate a subsequent arbitrational award, but it may also prevent an appeal from a decision on the claims not referred to arbitration which remain in litigation.67 It is also important to remember that if litigation is stayed, and some claims are referred to arbitration while others are retained by the court, issues of collateral estoppel may arise if one proceeding is completed before the parallel proceeding is resolved. For example, in John Morrell & Co. v. Local Union 304A,68 the court held that an arbitrator exceeded his authority when he decided the legality of a sympathy labor strike, which had already been decided by a jury.69 And in Cornerstone Propane, L.P. v. Precision Investments, L.L.C.,70 the appellate court determined that the arbitrator was not bound by the trial court’s findings from a bench trial that preceded the arbitration award because there was nothing in the record for the court to conclude that the arbitrator and judge heard evidence regarding the same issues of fact arising from the same properties for which trespass was alleged.71
Whether a motion to compel arbitration should be granted is a legal question, which is subject to de novo review on appeal.72 When considering whether an arbitration agreement should be enforced, a court must first determine whether a valid arbitration agreement exists and then determine whether the specific dispute falls within the arbitration agreement.73 Arbitrations are favored and encouraged under both Missouri and federal law.74
VII. Arbitrating a Dispute
If a dispute arises which is subject to an arbitration agreement, a party wanting to enforce an arbitration agreement should file a demand for arbitration. The parties’ contract will often specify where to file a demand for arbitration and the procedures for doing so. Many commercial contracts specify that a demand for arbitration must be filed with the American Arbitration Association (AAA), the United States Arbitration and Mediation (USA&M) or some other organization. If a contract specifies a demand for arbitration using one of these entities, or similar entities, then counsel should refer to the published procedures for those entities.75 Typically, the filing fee with entities such as the AAA is a percentage of the monetary damages that are demanded in the arbitration, which can be costly if a claim exceeds several hundred thousand dollars.
The parties’ contract may contain specific procedures regarding how to select an arbitrator or a panel of arbitrators. Often a contract will specify that each party is permitted to choose their arbitrator, and the chosen arbitrators then choose a neutral umpire.
Depending on the arbitration service provider that is chosen, arbitrators may allow for written discovery, depositions, and may even issue subpoenas for witnesses to attend an arbitration hearing.76 Parties will often stipulate that written discovery and depositions may be pursued. In those instances, arbitrators typically grant the parties’ request.
Arbitration agreements may or may not specify if any rules of evidence apply. If no particular rules of evidence are specified, then the arbitration will likely proceed without rules of evidence. If the parties choose arbitrators who are non-lawyers for their expertise in a particular industry, then those arbitrators will typically not be familiar with any rules of evidence.
Arbitrators are not, as a matter of law, required to specify the reasons for their awards.77 The parties must ask for a “reasoned” award, which requires the arbitrator to issue its award in writing and explain the basis for his or her decision. Although grounds for appealing an arbitration award are extremely narrow, a reasoned award provides the parties an explanation for the arbitrator’s decision.
VIII. Confirming or Vacating an Arbitration Award
Once an arbitration award is issued, the prevailing party may seek to confirm the arbitration award in court. Under the FAA, a party has one year to confirm an arbitration award.78 The MUAA simply states that a court shall confirm an arbitration award upon application of a party, unless a party seeks to vacate, modify or correct an award within the time otherwise provided by the MUAA.79 If a party wants to vacate an arbitration award, the party must do so within three months after the award is issued under the FAA,80 and must do so within a similar 90 days under the MUAA.81
If a party chooses to confirm or vacate an award under the FAA, then a party may do so in the location where the award was rendered or in any court that is proper under the general federal venue statute.82 In Cortez Byrd Chips, the U.S. Supreme Court ruled that, despite the language in § 10 of the FAA, the venue provisions found in the FAA are permissive, meaning a party may file a motion “to confirm, vacate, or modify” an arbitration award either “where the award was made or in any district [that is] proper under the general [federal] venue statute.”83
The Cortez Byrd Chips ruling reflects practical considerations by the Court when a party seeks to confirm and collect on an arbitration award. Under Cortez Byrd Chips, a party may seek to confirm an arbitration award in a court that is located in a district where the defendant is found, which may also be where the party owns real estate or other property which could be subject to a judgment lien. By seeking to confirm an arbitration award in a venue where a defendant may own property, the prevailing party could eliminate steps in the enforcement process to collect on the judgment.
The FAA instructs a court must confirm an arbitration award unless the award is vacated, modified, or corrected as set forth in §§ 10 and 11 of the FAA. The FAA’s reasons for vacating an arbitration award include:
(1) where the award was cured by option, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.84
The bases for vacating an arbitration award under the MUAA are similar to the FAA.85
In addition to the statutory bases for vacating an arbitration award, many federal courts developed other reasons for vacating an arbitration award under common law. For example, courts have held that arbitration awards can be vacated if they are “arbitrary and capricious,”86 “irrational,”87 or if a party was denied a “fundamentally fair hearing,”88 or if the arbitration award is “contrary to public policy.”89 Perhaps the most notable, non-statutory reason to vacate an arbitration award is the “manifest disregard of the law” standard.90
The manifest disregard of the law standard became one of the most frequently used standards for parties and courts to overturn arbitration awards. The manifest disregard of the law defense arises if arbitrators “understand and correctly state the law, but proceed to disregard it.”91 The manifest disregard of the law has not been used under the MUAA.92
The U.S. Supreme Court in Hall Street Associates, L.L.C. v. Mattel, Inc.93 addressed the legality of whether a court could vacate an arbitration award under the FAA using non-statutory reasons, such as the manifest disregard of the law standard. Hall Street was a case in which a commercial lease dispute was decided by a bench trial. After the bench trial concluded, the parties agreed to arbitrate whether one party was obligated to indemnify the other for any environmental contamination at the leased site. The court set forth in its order the parties’ agreement that, after the arbitration concluded, the court could review the arbitration award for any errors of law. The U.S. Supreme Court granted certiorari to decide whether federal courts and/or parties could agree to expand “the scope of judicial review for [arbitration] awards” beyond what is provided for in §§ 10 and 11 of the FAA.94
The Hall Street Court, in a 6-3 decision, ruled that §§ 10 and 11 of the FAA provide the exclusive reasons to vacate an arbitration award. Since Hall Street was decided, however, many commentators and courts have struggled with whether the Supreme Court overturned prior decisions which vacated arbitration awards based on non-statutory grounds such as the manifest disregard of the law standard. Thus far, it appears most federal courts interpreting Hall Street have ruled that “nonstatutory ground[s] for vacatur” no longer apply, and that courts may only vacate an arbitration award on the grounds set forth in §§ 10 and 11 of the FAA.95
Not every court, however, has subsequently ruled that Hall Street eliminated all non-statutory grounds for vacatur, including the “manifest disregard” of the law standard.96 Those courts have ruled that the manifest disregard of the law standard is “shorthand” for the statutory grounds listed under the FAA, or that the manifest disregard of the law doctrine is simply a collective reference to the FAA’s grounds for vacatur set forth in § 10, including when “the arbitrators exceeded their powers.”97
The California Supreme Court ruled after Hall Street that it would not follow Hall Street when the parties’ agreement to arbitrate was governed by California law. California law permitted judicially-created reasons to vacate an arbitration award, including the manifest disregard of the law standard.98 In Cable Connection, Inc. v. DirecTV, the California Supreme Court ruled that the California Arbitration Act applied, not the FAA; therefore, Hall Street was not applicable because the grounds for vacatur under California law were procedural, not substantive.99
Arbitration awards are not typically overturned if the arbitrator decides issues that the parties agreed to arbitrate.100 Courts are exceedingly deferential to arbitrators, and the party challenging the arbitration award bears a heavy burden.101 Missouri courts have ruled that “it is not the function of the courts to determine if the arbitrator decided the grievance correctly, as long as the arbitrator, under the contract to arbitrate, acted within his jurisdiction.”102 Missouri courts have ruled that arbitrators exceed their powers only when “deciding matters which were beyond the scope of the arbitration agreement or which clearly were not submitted to them.”103 Courts will not overturn an arbitration award simply because the arbitrator misapplied the law or failed to understand the facts. Given these deferential standards and the very narrow statutory bases for vacating an arbitration award under the FAA and the MUAA, a party challenging an arbitration award faces a very difficult challenge.
IX. Appealing Court Orders Governing Arbitration Decisions
The MUAA and the FAA provide bases for appealing court orders related to arbitration decisions. Under the MUAA, appeals can be taken from an order:
(a) denying a motion to compel arbitration;
(b) granting a stay of arbitration;
(c) “confirming or denying confirmation of an [arbitration] award;”
(d) “modifying or correcting an [arbitrational] award;” and
(e) “vacating an award without directing a rehearing.”104
Appellate review in Missouri is de novo.105 Noticeably absent from the Missouri statute is an order compelling arbitration, which is not considered a final and appealable order.106
Under the FAA, appeals may be taken from orders:
(a) refusing to stay litigation for arbitration;
(b) denying arbitration to proceed;
(c) “denying an application … to compel arbitration;”
(d) “confirming or denying” an award; and
(e) “modifying, correcting or vacating an [arbitration] award.”107
Similar to the MUAA, under the FAA a party cannot appeal an order which compels arbitration, or appeal an order refusing to enjoin arbitration.108
Under the FAA, a court’s decision to vacate an arbitration award with remand instructions to the arbitrator is also appealable, unless the court’s remand is solely to clarify an award for the appellate court to have a better informed review.109 If an arbitration dispute is pending in state court, but could be governed by either the MUAA or the FAA, Missouri courts are likely to apply the FAA’s grounds for appeal if appellate relief is provided under the FAA but not the MUAA.110
Parties agreeing to arbitrate disputes, and their counsel, are faced with a myriad of issues. These issues include which law applies, whether to file a demand for arbitration or a motion to compel arbitration, where to file the demand for arbitration, how to file the demand, when to appeal arbitration awards, and on what bases to appeal, confirm or vacate an arbitration award. Counsel should be familiar with the legal issues to avoid arbitrary outcomes when arbitrating or compelling arbitration in Missouri or federal courts.
1 Darren K. Sharp is a partner with Armstrong Teasdale L.L.P. in the Kansas City office. Mr. Sharp received his J.D. from Drake University Law School in 1997.
2 Laurence R. Tucker is a partner with Armstrong Teasdale L.L.P. in the Kansas City office. Mr. Tucker received his J.D. from Duke University in 1972.
3 9 U.S.C. §§ 1-16.
4 Sections 435.350-435.470, RSMo. 2000.
5 See G. William Quatman, Missouri Arbitration Law Part I: The Uniform and Federal Arbitration Act, 52 J. Mo. B. 78 (1996); G. William Quatman, Missouri Arbitration Law Part II: Arbitration Practice and Procedure, 52 J. Mo. B. 163 (1996).
6 See 9 U.S.C. § 2; Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274 (1995) (holding the FAA was intended by Congress to reach the full expanse of the Commerce Clause powers in the United States Constitution); Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 774 n.1 (Mo. banc 2005) (holding a contract involving commerce with an agreement to arbitrate was valid and enforceable under the FAA).
7 See Volt Info. Scis., Inc. v. Bd. of Trs., 489 U.S. 468, 477 (1989) (holding the FAA does not prevent enforcement of arbitration agreements applying state laws).
8 See Southland Corp. v. Keating, 465 U.S. 1, 15-16 (1984); Reis v. Peabody Coal Co., 935 S.W.2d 625, 630 (Mo. App. E.D. 1996).
9 See Boogher v. Stifel, Nicolaus & Co., 825 S.W.2d 27, 29 (Mo. App. E.D. 1992).
10 920 S.W.2d 200 (Mo. App. E.D. 1996).
11 Id. citing Hefele v. Catanzaro, 727 S.W.2d 475, 476 (Mo. App. E.D. 1987).
12 Duggan, 920 S.W.2d at 203.
13 Id.; see also, Bunge Corp. v. Perryville Feed & Produce, Inc., 685 S.W.2d 837, 839 (Mo. banc 1985) (holding the MUAA’s required notice of an arbitration clause conflicted with the FAA and, thus, was unenforceable and preempted by the FAA).
14 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
15 Id.; Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 428 (Mo. 2003).
16 Moses H. Cone Mem’l Hosp., 460 U.S. at 24; Boogher, 825 S.W.2d at 29.
17 9 U.S.C. § 2.
18 9 U.S.C. §§ 3 and 4.
19 See Southland Corp. v. Keating, 465 U.S. 1, 16 n.10 (1984); Nitro Distr., Inc. v. Dunn, 194 S.W.3d 339, 351 (Mo. banc 2006) (“While the FAA’s substantive law applies in state courts, the procedural provisions of the FAA do not bind state courts unless the state procedures in some way defeat the rights granted by Congress.”); Sitelines, L.L.C. v. Pentstar Corp., 213 S.W.3d 703, 706 (Mo. App. E.D. 2007).
20 Wilkes v. Mo. Hwy & Transp. Comm’n, 762 S.W.2d 27, 28 (Mo. banc 1988).
21 9 U.S.C. § 3; Cf. §§ 435.355 and 435.425, RSMo.
22 9 U.S.C. § 4; Cf. §§ 435.355 and 435.425, RSMo.
23 See Nitro Distr., Inc., 194 S.W.3d at 351; Parks v. MBNA Am. Bank, 204 S.W.3d 305, 310 (Mo. App. W.D. 2006); Greenwood v. Sherfield, 895 S.W.2d 169, 172 (Mo. App. S.D. 1995).
24 Section 435.425, RSMo. (2000).
25 194 S.W.3d 339 (Mo. banc 2006).
26 9 U.S.C. § 4.
27 194 S.W.3d at 351.
28 213 S.W.3d at 706.
29 Id. at 707.
30 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 939 (1995).
31 Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987); Flink v. Carlson, 856 F.2d 44, 46 (8th Cir. 1988).
32 273 S.W.3d 15 (Mo. App. W.D. 2008).
33 Id. at 21, 25-28.
34 Id. at 26.
35 Whitney, 173 S.W.3d 300 (Mo. App. W.D. 2005).
36 Id. at 304, 308-309, 312.
37 No. WD70189, 2009 WL 3571309 at *5 (Mo. App. W.D., Nov. 3, 2009).
38 Id. at *1.
39 Id. at *5; see also, Shaffer v. Royal Gate Dodge, Inc., No. ED92839, 2009 WL 4638850 (Mo. App. E.D., Dec. 8, 2009); Brewer v. Missouri Title Loans, Inc., No. ED92569, 2009 WL 4639899 (Mo. App. E.D., Dec. 8, 2009) (ruling that an agreement in which an arbitration clause was found was procedurally and substantively unconscionable because of the parties’ unequal bargaining power, the agreement was an adhesion contract, and the agreement prohibited class actions, which prevented an individual from realistically pursuing a claim for damages).
40 Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 777 (Mo. banc 2005).
41 Getz Recycling, Inc. v. Watts, 71 S.W.3d 224, 229 (Mo. App. W.D. 2002).
43 Cornelius v. CJ Morrill, No. ED93081, 2009 WL 4278270 at *2 (Mo. App. E.D., Dec. 1, 2009).
45 See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403 (1967); Houlihan v. Offerman & Co., 31 F.3d 692, 695 (8th Cir. 1994) (“Because the Houlihans’ claims of fraud in the inducement relate to the contract as a whole, they are subject to mandatory arbitration.”); Lee v. Chica, 983 F.2d 883, 886 (8th Cir. 1993) (holding that parties may draft a contract explicitly allowing an arbitrator to decide arbitrability issues).
46 Prima Paint Corp., 388 U.S. at 403.
48 Northwest Chrysler-Plymouth, Inc. v. DaimlerChrysler Corp., 168 S.W.3d 693, 696 (Mo. App. E.D. 2005).
49 In re Estate of Athon v. Conseco Fin. Servicing Corp., 88 S.W.3d 26, 30 (Mo. App. W.D. 2002); Rhodes v. Amega Mobile Homes Sales, Inc., 186 S.W.3d 793, 798 (Mo. App. W.D. 2006); Seaboard Corp. v. Grindrod Ltd., 248 S.W.3d 27, 32 (Mo. App. W.D. 2008).
50 129 S.Ct. 1896 (2009).
51 Id. at 1902.
52 C.D. Partners, L.L.C. v. Grizzle, 424 F.3d 795, 798-99 (8th Cir. 2005); Letizia v. Prudential Bache Sec., Inc., 802 F.2d 1185, 1188 (9th Cir. 1986) (“…non-signatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles.”).
53 C.D. Partners, 424 F.3d at 798-99.
54 See Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 435-436 (Mo. banc 2003); Greenpoint Credit L.L.C. v. Reynolds, 151 S.W.3d 868, 873-874 (Mo. App. S.D. 2005).
55 193 S.W.3d 393 (Mo. App. S.D. 2006).
56 Id. at 396.
58 9 U.S.C. §§ 3 and 4; §§ 435.355 and 435.425, RSMo. 2000.
59 See State ex rel. St. Joseph Light & Power Co. v. Donelson, 631 S.W.2d 887, 890 (Mo. App. W.D. 1982) (“the Federal Arbitration Act … is substantive law to be given effect in Missouri state courts”).
60 See 28 U.S.C. §§ 1331 and 1332.
61 Moses H. Cone Mem’l Hosp., 460 U.S. at 25 n.32 (holding the FAA “does not create any independent federal-question [subject matter] jurisdiction…”); TM Marketing, Inc. v. Art & Antiques Assoc., L.P., 803 F. Supp. 994, 997 (D.N.J. 1992).
62 Moses H. Cone Mem’l Hosp., 460 U.S. at 25 n.32.
63 State ex rel. St. Joseph Light & Power Co., 631 S.W.2d at 892.
64 9 U.S.C. § 6.
65 See, e.g., Bercovitch v. Baldwin Sch., Inc., 133 F.3d 141, 156 n.21 (1st Cir. 1998) (“a court may dismiss, rather than stay, a case when all of the issues before the court are arbitrable.”); Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988).
66 See Rule 74.01(b); 28 U.S.C. § 1291; Fed. R.Civ. P. 54(b).
67 See Precision Invs., L.L.C. v. Cornerstone Propane, 119 S.W.3d 611, 616 (Mo. App. S.D. 2003) (holding that, when some claims are stayed and referred to arbitration, while other claims are retained by the trial court, the appellate court lacks jurisdiction to hear an appeal on a decision regarding the litigated claims because there was not yet a final judgment due to the stayed claims in arbitration).
68 708 F. Supp. 273 (D. S.D. 1989).
69 Id. at 275-277.
70 126 S.W.3d 419 (Mo. App. S.D. 2004).
71 Id. at 425.
72 Paetzold v. Am. Sterling Corp., 247 S.W.3d 69, 71 (Mo. App. W.D. 2008).
73 AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986) (“an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute”); Netco, Inc. v. Dunn, 194 S.W.3d 353, 357 (Mo. banc 2006).
74 See Moses H. Cone Mem’l Hosp., 460 U.S. at 24; Metro Demolition & Excavating Co. v. H.B.D. Contracting, Inc., 37 S.W.3d 843, 846 (Mo. App. E.D. 2001).
75 The American Arbitration Association’s commercial arbitration rules can be found on the Internet at www.adr.org/drs.
76 See § 435.380, RSMo. 2000.
77 Edward D. Jones & Co. v. Schwartz, 969 S.W.2d 788, 795 (Mo. App. W.D. 1998) (“the arbitration panel did not provide any reason for its decision, nor was it required to do so.”).
78 9 U.S.C. § 9.
79 See § 435.400, RSMo. 2000.
80 9 U.S.C. § 12.
81 Section 435.405, RSMo. 2000.
82 See 9 U.S.C. § 10(a); Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co., 529 U.S. 193, 198 (2000). The parties may also contractually agree to other venues for enforcing an award.
83 Cortez Byrd Chips, Inc., 529 U.S. at 198; 28 U.S.C. § 1391.
84 9 U.S.C. § 10.
85 See § 435.405, RSMo. 2000.
86 See Peebles v. Merrill Lynch, Pierce, Fenner & Smith, 431 F.3d 1320, 1326 (11th Cir. 2005).
87 Stark v. Sandberg, Phoenix & von Gontard, 381 F.3d 793, 799 (8th Cir. 2004).
88 Hicks v. Bank of Am., No. 05-1399, 2007 WL 521175 at *4 (10th Cir., Feb. 21, 2007).
89 See Apache Bohai Corp. LDC v. Texas China BV, 480 F.3d 397, 401 (5th Cir. 2007).
90 See Hofman v. Cargill, Inc., 236 F.3d 458, 461 (8th Cir. 2001).
91 See Kiernan v. Piper Jaffray Cos., 137 F.3d 588, 594 (8th Cir. 1998); Western Waterproofing Co. v. Lindenwood Colleges, 662 S.W.2d 288, 292 (Mo. App. E.D. 1983) (interpreting the FAA standard for manifest disregard of the law in a case pending in state court).
92 See Stifel, Nicolas & Co. v. Francis, 872 S.W.2d 484, 486 (Mo. App. W.D. 1994).
93 128 S.Ct. 1396 (2008).
94 Id. at 1400-1401.
95 See Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009); Prime Therapeutics, L.L.C. v. Omnicare, Inc., 555 F. Supp. 2d 993, 999 (D. Minn. 2008); Med. Shoppe Int’l v. Turner Invs., Inc., No. 4:09MC00102 ERW, 2009 WL 1295978 (E.D. Mo., May 7, 2009).
96 See Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 94 (2nd Cir. 2008); Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009).
97 See Stolt-Nielsen SA, 548 F.3d at 94; Comedy Club, Inc., 553 F.3d at 1290.
98 See Cable Connection, Inc. v. DirecTV, Inc., 82 Cal. Rptr. 3d 229, 242 (Cal. 2008).
99 Id. at 242-245.
100 See Shop ‘N Save Warehouse Foods, Inc. v. United Food & Commercial Workers Int’l Union, Local No. 88, 61 F.3d 632, 634 (8th Cir. 1995); In re Estate Sandefur v. Greenway, 898 S.W.2d 667, 670 (Mo. App. W.D. 1995).
101 See Holman v. Trans World Airlines, 737 F. Supp. 527, 530 (E.D. Mo. 1989).
102 In re Estate of Sandefur, 898 S.W.2d at 670.
103 Edward D. Jones & Co. v. Schwartz, 969 S.W.2d at 794.
104 § 435.440, RSMo 2000.
105 See Triarch Indus., Inc., 158 S.W.3d at 774.
106 See State ex rel. MCS Bldg. Co. v. KKM Med., 896 S.W.2d 51, 52-53 (Mo. App. W.D. 1995).
107 9 U.S.C. § 16.
109 Jays Foods, L.L.C. v. Chem. & Allied Prod. Workers Union, Local 20, 208 F.3d 610, 612-13 (7th Cir. 2000); Forsythe Int’l, S.A. v. Gibbs Oil Co. of Tex., 915 F.2d 1017, 1020 (5th Cir. 1990).
110 See VCW, Inc. v. Mutual Risk Mgmt. Ltd., 46 S.W.3d 118, 121 (Mo. App. W.D. 2001); Reis v. Peabody Coal Co., 935 S.W.2d 625, 630 (Mo. App. E.D. 1996); but see, Whitney v. Alltel Commc’ns, Inc., 173 S.W.3d 300, 306-307 (Mo. App. W.D. 2005) (holding that § 435.440(1) of the MUAA controlled the grounds for appeal in state court, despite otherwise applying 9 U.S.C. § 2).