A recent appeals court decision affirmed a lower court ruling that Missouri’s statutory arbitration notice statement is mandatory, even in cases involving interstate commerce.[1]
When Tri-Star Imports, Inc., d/b/a Mercedes-Benz of St. Louis (“Client”) signed an engagement agreement (the “Contract”) with its law firm, Jackson Lewis, P.C. (“Law Firm”), the Contract included an arbitration agreement under a section titled “Dispute Resolution,” in which the parties “agree that any dispute between [them] arising out of, or relating to, this [Contract], or the breach thereof, shall be resolved by binding arbitration between the parties.” Additionally, the arbitration agreement in relevant part states: “Arbitration shall be in accordance with the Uniform Arbitration Act of Missouri [“MUAA”]. The dispute will be resolved by a single arbitrator to be selected by the parties.[] The arbitrator must be an attorney in good standing [in] Missouri.”
When Client filed suit against Law Firm in Missouri Circuit Court, Law Firm filed a Motion to Stay and Compel Arbitration based on the language of the Contract. However, the Contract failed to comply with Section 435.460 of the MUAA. Section 435.460 of the MUAA, i.e., the mandatory notice statement provides: Each contract subject to the provisions of sections 435.350 to 435.470 shall include adjacent to, or above, the space provided for signatures a statement, in ten point capital letters, which read substantially as follows: ‘THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.’
After acknowledging that the Contract did not contain the mandatory MUAA notice statement, Law Firm argued in an affidavit from its Managing Principal for the St. Louis Office that “a failure to comply with [section] 435.460 [] is not fatal to an arbitration [agreement]” when “a dispute is subject to the Federal Arbitration Act [(“FAA”)].” Relying on the affidavit, Law Firm asserted the enforceability of the arbitration agreement is governed by the FAA, and not the MUAA, because “[t]he parties are from different states, some of the work on the underlying dispute was performed in Texas, and payments of [Law Firm’s] fees for the underlying dispute[] utilized the U.S. Mail and interstate wire services.”
In rejecting Law Firm’s arguments, the Court of Appeals noted that the Contract stated: “Arbitration shall be in accordance with the [MUAA].” In its arguments on appeal Law Firm essentially asked the court to ignore the contractual language because the matter involved interstate commerce. The Court rejected Law Firm’s argument.
“Regardless of whether the Contract involves interstate commerce, the parties expressly agreed the MUAA would govern future arbitration proceedings.”… “Our holding is also consistent with United States Supreme Court precedent – Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468 (1989), which similarly found that when parties to an arbitration agreement expressly agreed to ‘abide by state rules of arbitration’ under a choice-of-law clause, the FAA will not preempt enforcement of arbitration proceedings and state law will govern, even when the contract involves interstate commerce.”
In sum, when parties expressly agreed that State law governs an arbitration agreement, federal law does not pre-empt State law, even when the agreement involved interstate commerce. Because the parties agreed that the MUAA applied to their arbitration agreement, the Federal Arbitration Act did not apply. The Contract did not contain Missouri’s mandatory notice provision. Therefore, the Motion to Compel Arbitration was denied and upheld on appeal.
If you have questions about a “mandatory” arbitration provision in a contract, it is important that you speak with knowledgeable attorneys to determine whether the contract is actually enforceable or just a bluff.
[1] Tri-Star Imports, Inc., d/b/a Mercedes-Benz of St. Louis, v. Jackson Lewis, P.C., et al. Missouri Court of Appeals-Eastern District - ED113734.