Missouri Supreme Court rules in favor of auto dealer
January 20, 2016  //  By:   //  Arbitration  //  No Comment

In 2013, Lashiya Ellis bought a new car from Jeremy Franklin Suzuki of Kansas City, which failed to pass title to her for the new vehicle. Missouri law states that it’s unlawful to buy or sell a motor vehicle without transfer of certificates of ownership. Ellis argued that because the sale of the vehicle to her did not include a title, it should be voided, and she petitioned the court for damages.

Jeremy Franklin Suzuki argued that Ellis signed an arbitration agreement, so her dispute should not be handled in court proceedings. Ellis argued that the arbitration agreement was part of the sales contract as a whole, and if the sale is void, so is the arbitration agreement. The Jackson County Circuit Court sided with Ellis and denied Jeremy Franklin Suzuki’s application to compel arbitration, according to Biz Journals.

“The Missouri Supreme Court voted 4-3 to vacate the lower court ruling and remand the case for arbitration. Judge Paul Wilson wrote for the majority, stating that according to the U.S. Supreme Court, state courts cannot refuse to enforce an arbitration agreement on grounds that the underlying contract would be invalid under state law,” Biz Journals reported.

“The Supreme Court has held – clearly and repeatedly – that such an infirmity is irrelevant to the enforceability of an arbitration agreement contained within or executed contemporaneously,” Wilson wrote. “… only a discrete challenge directed specifically at the arbitration agreement itself – viewed severally and in isolation from its allegedly void context – and showing that it is invalid under generally applicable state law principles will prevent an arbitration agreement’s enforcement. Ms. Ellis makes no such claim.”

Judge Richard Teitelman wrote the dissent, saying legal consideration is essential for the formation of any contract, including one for arbitration. He said federal law does not require arbitration of claims related to the formation of the contract and that are not subject to arbitration according to the plain language of the contract.

“The plain language of the arbitration contract specifically limits the range of disputes subject to arbitration to those involving the financing, purchase or condition of the vehicle,” Teitelman wrote. “At no point does the arbitration contract purport to authorize the arbitration of defenses pertaining to the formation of the sales contract.”

This case presented several issues for the court in determining whether the circuit court should have granted the dealership’s motion to stay proceedings and compel arbitration. One is whether the arbitration agreement is severable and enforceable separately from the underlying contract documents, including the retail buyer’s order and retail installment contract, or whether all the documents should be construed together. Related are questions of whether the underlying contract lacked consideration, making it void under section 301.210, RSMo, and, if so, whether the state law defense of voidability should have applied to invalidate the arbitration agreement as well or whether the parties mutually agreed to arbitrate. Another issue was whether the circuit court or an arbitrator had authority to determine whether Ellis’ claim can be arbitrated and whether the underlying contract is void.

 

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