Your Arbitration Agreement May Be Enforceable Even if Your Contract Is NotFebruary 2016
The Missouri Supreme Court recently issued an opinion declaring that the courts may refuse to enforce an arbitration agreement only if a party brings a discrete challenge to the arbitration agreement, not merely to the contract as a whole. According to the Missouri Supreme Court, the question before it—whether an agreement to arbitrate must be enforced if the underlying or contemporaneous contract is void under state law—had already been answered with an emphatic "YES!" by the United States Supreme Court.
In the case before the Missouri Supreme Court, the plaintiff, Lashiya Ellis had entered into a contract with JF Enterprises, LLC for the purchase and finance of a new vehicle. As part of the contract, Ms. Ellis also signed an arbitration agreement in which she agreed that any dispute relating to the purchase would be subject to arbitration. After JF Enterprises failed to pass title for her new vehicle, Ms. Ellis sued and requested that the trial court declare the contract void under Missouri law. JF Enterprises responded by requesting that the trial court enforce the arbitration agreement since Ms. Ellis's allegations related to the purchase of the vehicle. The trial court refused to compel arbitration and JF Enterprises ultimately appealed to the Missouri Supreme Court.
In the Missouri Supreme Court, Ms. Ellis argued that the arbitration agreement was unenforceable because the contract for the purchase and finance of the vehicle was void under a Missouri state law requiring title to pass at the time of the contract. Ms. Ellis did not put forth a distinct challenge to the arbitration agreement. She simply argued that if the contract falls, the arbitration agreement must necessarily fall as well. The Missouri Supreme Court acknowledged that Ms. Ellis may be right as a matter of Missouri law. The Court explained, however, that it is federal law (the Federal Arbitration Act (FAA)), not Missouri law, that governs.
According to the Court, under the FAA, agreements to arbitrate are severable—that is, they are to be considered separate and apart from underlying or contemporaneous agreements. And under well-established precedent of the United States Supreme Court, a challenge to the enforceability of a contract as a whole is irrelevant to the enforceability of an arbitration agreement. Instead, in order to prevent the enforcement of an arbitration agreement, a challenge must be directed specifically at the arbitration agreement showing that it is invalid under generally applicable state law principles. Because Ms. Ellis had not made any distinct challenge to the validity of the arbitration agreement, the Missouri Supreme Court determined that the enforceability of the parties' contract was for the arbitrator to decide.
In dissent, Judge Teitelman (joined by Judge Stith and Judge Draper) suggested that Ms. Ellis should not be required to arbitrate because the arbitration agreement did not cover her dispute. According to the dissent, the parties' arbitration agreement covered disputes involving "the financing, purchase, or condition of the vehicle" but did not cover disputes over whether a contract had ever been formed. Thus, in the dissent's opinion, Ms. Ellis should not have been compelled to arbitrate a claim that she never agreed to arbitrate.
The Missouri Supreme Court's decision further strengthens the long line of state and federal court cases favoring arbitration. As the Missouri Supreme Court's opinion made clear, if a contract contains an arbitration agreement, any disputes relating to the enforceability of the contract as a whole will likely be for the arbitrator to decide. Because of the strong presumption in favor of arbitration, it is important to consult an experienced attorney when dealing with contracts containing arbitration clauses or when faced with litigation that may involve an arbitration agreement.