A-1
Premium Acceptance, Inc. (“A-1”) gave high interest loans to Meeka Hunter in an
amount totaling $800.[1] Hunter eventually defaulted on the loans when
she owed over $7,000.[2] A-1 filed a lawsuit against Hunter and she
counterclaimed.[3] The loan contracts contained an arbitration
provision that required the borrower to use the National Arbitration Forum (“NAF”)
to settle disputes.[4] However, the NAF was unable to arbitrate her dispute
after it was prosecuted by the Minnesota Attorney General and required by the
court to stop arbitrating commercial disputes.[5] A-1 motioned to compel arbitration and have
the court assign another arbitrator.[6] The circuit court did not compel arbitration
and the Supreme Court of Missouri affirmed because the language of the arbitration
provision contemplated that the parties would arbitrate before only the NAF.[7]
I.
Factual Background
A-1
filed a lawsuit against Hunter to recover an unpaid debt.[8] In 2006 Hunter took out four loans from A-1 for
a total $800 and defaulted in 2015 when she still owed $275 in principal, and
$6,957.62 in interest.[9] The loan contract expressly allowed A-1 to
collect debts in court but required Hunter to submit to binding arbitration by
the NAF for any claim against the lender.[10] In 2009, the Minnesota Attorney General
prosecuted NAF for consumer fraud, deceptive trade practices, and false
advertising.[11] The complaint alleged that NAF was secretly,
intentionally, and consistently working with creditors to ensure positive
outcomes in one-sided arbitrations.[12] Three days after the Minnesota Attorney
General filed this action, NAF entered into a consent decree prohibiting it
from arbitrating consumer claims in the United States.[13] Consequently A-1 was unable to arbitrate this
dispute.[14]
In
2015 A-1 filed a lawsuit against Hunter in Jackson County to recover over
$7,000 in debt, attorney fees, and costs.[15] Hunter counterclaimed that A-1 violated the
Missouri Merchandising Practices Act on behalf of herself and a class of
similarly situated consumers.[16] A-1 motioned to compel arbitration by another
arbitrator.[17] The circuit court denied A-1’s motion and A-1
appealed.[18]
II.
Legal Background
Arbitration
provisions in contract are governed in part by federal law.[19] The Federal Arbitration Act (“FAA”) requires
courts to recognize arbitration provisions in maritime or commercial settings.[20] Congress enacted the FAA in response to
judicial hostility to agreements to arbitrate.[21] The FAA manifests “a liberal federal policy
favoring arbitration” and requires courts to enforce arbitration agreements
according to their terms.[22] Under the FAA, any legal claim may be
arbitrated unless specifically excepted in some other federal law.[23] Consequently, courts “rigorously enforce”
arbitration agreements according to their terms.[24] Notably, arbitration agreements can even
waive class action lawsuits.[25] Thus, arbitration is simply a matter of
contract and arbitration provisions are interpreted according to ordinary
principles of contract construction, [26] which is usually governed
by state law.[27]
The
FAA governs arbitration provisions “in all contracts involving interstate
commerce.”[28] The United States Supreme Court has said that
the FAA was intended to be the “broadest permissible exercise of Congress’
Commerce Clause power.”[29] Thus, the FAA applies to any contract that
Congress has the constitutional ability to regulate.[30] For example, the FAA even applies when two
residents of one state make an agreement and at least one party to that
agreement does business in multiple states.[31]
In
contrast, the Missouri General assembly has adopted a version of the Uniform
Arbitration Act, which requires courts to enforce arbitration agreements except
in insurance contracts or adhesion contracts.[32] As a general rule, federal law preempts any
conflicting state law.[33] However, state law is allowed to inversely
preempt federal law when state law regulates “the business of insurance.”[34] A state law may only inversely preempt a
federal law if (1) the federal law does not specifically relate to the business
of insurance, (2) the federal law would supersede the state law, and (3) the
state law was enacted for the purpose of regulating the business of insurance.[35] Thus, the Missouri statute preempts the
federal statute only in insurance contracts[36] and “governs those
arbitration matters not preempted by the FAA.”[37] So, in Missouri, arbitration provisions in adhesion
contracts would only be unenforceable between Missouri residents who do not
conduct any business outside of Missouri.
Under
the FAA, arbitration agreements may designate an arbitrator, designate a
procedure for an arbitrator, or remain silent on these issues.[38] If the arbitration agreement does not
designate an arbitrator then the default rule is that a court will designate an
arbitrator.[39] When an arbitration agreement designates an arbitrator
that becomes unavailable, an interesting contract question arises about whether
a court should compel arbitration.[40]
The
guiding principal of Missouri law on contract interpretation is to “ascertain the intention of the parties and to give effect
to that intention.”[41] When a contract is clear and unambiguous,
then a court must give those terms their plain meaning as understood by an
average person.[42] A contract is only ambiguous if it is
reasonably susceptible to more than one different meaning.[43] A contract term is not ambiguous simply
because the parties disagree about the meaning of that term.[44] In addition, the contract terms should be
interpreted in the context with due consideration given to the rest of the
relevant provisions of the contract.[45]
III.
Instant Decision
The
court limited its decision to one question: whether the arbitration provision
required the circuit court to appoint a substitute arbitrator.[46] The court began its analysis by emphasizing
the contract language that designated NAF as the arbitrator, specified the procedure
that would govern an arbitration, and designated that any claims may be filed
at any NAF location.[47] Next the court stated that the default rule
for arbitration agreements under the FAA is that the court should appoint an
arbitrator if there is a lapse of time in naming an arbitrator.[48] The court framed its analysis by designating two
relevant types of arbitration agreements: (1) agreements where the parties
agree to arbitrate regardless of the specific arbitrator and (2) agreements
where the parties agree to arbitrate before only one arbitrator.[49]
The
court looked at the circumstances of the case and noted that the NAF
aggressively marketed its services to lenders like A-1.[50] The court recognized that the parties agreed
to arbitrate under the NAF code and procedures.[51] In addition, the court recognized that the
contract stated that the claims “shall be resolved” by the NAF.[52] Finally, the court noted that the agreement
required the parties to file claims in an NAF office.[53] The court assessed all of these
considerations and held that the contract clearly and unambiguously required
the parties to arbitrate before only the NAF.[54]
IV.
Comment
The
Supreme Court of Missouri interpreted a contract that did not expressly contemplate
what would happen if NAF became unavailable.
As a result, the court had to infer the parties’ intent based on the
contract’s language. Almost
paradoxically, the court stated that the terms of the contract were “clear and
unambiguous” as to a situation that was apparently not contemplated by the contract. The contract expressly contemplated that the
parties would use the NAF’s procedure and file a claim in the NAF office. Anyone can recognize that its difficult, if
not impossible, to obtain an arbitrator’s services using a competitor’s
procedure and filing your claim at a competitor’s office. Thus, it appears that the parties intended to
arbitrate only before the NAF.
The
court framed the question in this case and that question dictated the
outcome. If the court had framed the
issue differently, then the result would have been different. For example, if instead of asking whether the
parties intended to arbitrate only before the NAF, the court asked what the
parties contemplated would happen if NAF became unavailable, then the result
would have been different. Both
questions reasonably frame this issue. The
court’s question directs the reader to look at the arbitration procedures laid
out in the contract. The alternative
question directs the reader to search for terms that express the parties’
intent on that issue. Apparently,
nothing in the contract expresses what would happen if the NAF became
unavailable.[55] Under the alternative question the court
could have concluded that the contract did not address the issue and that the
“default rule” or section 5 of the FAA governs.[56] If the
court followed this line of reasoning, then the court would have remanded the
case and ordered that the circuit court compel arbitration. This case puts the flexibility of the law on
display.
A-1
engages in predatory lending,[57] and Ms. Hunter is a
sympathetic defendant. After all, she
took out $800 in loans, and nine years later her debt grew to over $7,000.[58] The fact that she would put herself in this
situation shows she desperately needed money. A-1 took advantage of Ms. Hunter’s desperation
and profited off of her poverty. Additionally,
as demonstrated by the NAF,[59] arbitrations can be one
sided and overly business friendly.[60] In a high interest loan dispute, reasonable
people may be concerned that arbitration will not adequately protect the
vulnerable. Perhaps latent public policy
concerns led to the result in this case.
After all, when there are two reasonable ways to decide a case, why not
choose the method that promotes “access to justice”[61] for the vulnerable?
-David O'Connell
[1] A-1 Premium Acceptance, Inc. v.
Hunter, 557 S.W.3d 923, 924 (Mo. 2018) (en banc).
[2] Id.
[3] Id.
[4] Id. (The NAF did business in Missouri but was headquartered in
Minnesota).
[5] Id.
[6] Id.
[7] Id. at 924, 929.
[8] Id. at 924.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id. (Mo Rev. Stat. §
435.440 authorizes a party to appeal a motion to compel arbitration).
[19] 9 U.S.C. § 2 (2012); Mo. Rev. Stat. § 435.350 (2016).
[20] 9 U.S.C. § 2 (2012).
[21] Am. Express Co. v. Italian Colors
Rest., 570 U.S. 228, 232 (2013).
[22] CompuCredit Corp. v. Greenwood,
565 U.S. 95, 98, 132 (2012) (quoting Moses H. Cone Memorial Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24 (1983).
[23] See id.
[24] Italian Colors, 570 U.S. at 233.
[25] Id. at 232.
[26] Id. at 233.
[27] See Barker v. Golf U.S.A., Inc., 154 F.3d 788, 791 (8th Cir. 1998).
[28] State ex rel. Hewitt v. Kerr, 461 S.W.3d 798, 805 (Mo. 2015) (en banc).
[29]
Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003).
[30] Id.
[31] State ex rel. Hewitt, 461 S.W.3d at 805 (citing Citizens Bank, 539 U.S. at 57).
[32] Mo.
Rev. Stat. § 435.350 (2016).
[33] Foresight Energy, LLC v. Certain
London Mkt. Ins. Cos., 311 F. Supp. 3d 1085, 1092
(E.D. Mo. 2018).
[34] 15 U.S.C. § 1012 (2012).
[35] Standard Sec. Life Ins. Co. of New
York v. West, 267 F.3d 821, 823 (8th Cir. 2001).
[36] Id.
[37] State ex rel. Hewitt v. Kerr, 461 S.W.3d 798, 805 n.4 (Mo. 2015) (en
banc).
[38] 9 U.S.C. § 9 (2012).
[39]
Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 587 (2008) (citing
9 U.S.C. § 5 (2012)).
[40] See A-1 Premium Acceptance, Inc. v. Hunter, 557 S.W.3d 923, 927–28
n.4 (Mo. 2018) (en banc) (discussing
various cases that have resolved this question).
[41] Speedie Food Mart, Inc. v. Taylor,
809 S.W.2d 126, 129 (Mo. Ct. App. 1991).
[42] Id.
[43] Id.
[44] Id.
[45] See Hunter, 557 S.W.3d at 929.
[46] Id. at 926.
[47] Id. at 924–26.
[48] Id. at 926–27.
[49] Id. at 926.
[50] Id. at 927.
[51] Id. at 929.
[52] Id. at 928.
[53] Id. at 929.
[54] Id.
[55] See generally id.
[56] Id. at 926 n.3; Wal-Mart Stores, Inc. Assocs'. Health & Welfare
Plan v. Wells, 213 F.3d 398, 402 (7th Cir. 2000).
[57] See Graham McCaulley & Brenda Procter, Show-Me Predatory Lending: Where Does the Money Go?, Poverty at Issue Res. Rep., 8 (Jan.
2012), http://extension.missouri.edu/cfe/wcap/Show-MePredatoryLendingReport.pdf.
[58] Hunter, 557 S.W.3d at 923.
[59] Id.
[60] Christopher R. Drahozal, "Unfair" Arbitration Clauses, 2001 U. Ill. L. Rev. 695, 697 (2001).
