The Missouri Supreme Court recently ruled on a pair of cases involving arbitration agreements. Both cases featured car buyers who failed to make their payments and had their cars repossessed. The creditor, Bridgecrest Acceptance Corporation, then sold the vehicles to recover its losses and sued the buyers for the remainder.
When the buyers filed countered with claims of illegal business practices, Bridgecrest sought to compel arbitration. The trial court denied Bridgecrest’s request. So did the court of appeals. However, the Supreme Court overturned their rulings. It said Bridgecrest could compel arbitration per its agreement.
In a previous blog post, we outlined the three matters that the Supreme Court found were most important:
- Consideration
- Conscionability
- Collateral estoppel
We also reviewed the Supreme Court’s opinion on the matter of consideration. The Court cleared up some confusion about the severability of arbitration agreements. It noted that their severability does not typically permit courts to consider them outside the context of the larger contract. Instead, courts need to review arbitration agreements as part of the whole contract. As the Court stated, contracts are “a collection of promises […] given in exchange for a collection of promises.”
That brings us to the matters of conscionability and collateral estoppel. Here, the buyers had claimed Bridgecrest’s arbitration agreements were not valid because they were unconscionable. They had also argued that previous judgments should prevent Bridgecrest from pursuing arbitration.
Conscionability
The second argument the buyers raised was that the arbitration agreements were unconscionable. As the Court noted, the unconscionability defense is designed to protect buyers from “one-sided contracts, oppression and unfair surprise.”
However, the Court noted that even if an arbitration clause is one-sided, it may not be so one-sided as to “poison the larger contract with unconscionability.” Instead, a one-sided arbitration agreement may be one of many factors in determining whether a contract is unconscionable.
The Court also reviewed some of the situations in which it had found arbitration agreements unconscionable. It noted how those agreements had created “illusory” promises. Those unconscionable agreements created situations in which parties could see their affirmative defenses and counterclaims split into one venue while the original claims continued in another. Those situations could lead to inconsistent rulings. That was not the case with Bridgecrest.
Collateral estoppel
The buyers also argued that collateral estoppel blocked Bridgecrest from pursuing arbitration. Again, the Court disagreed.
For those unfamiliar with collateral estoppel, it prevents people and businesses from taking the same issues to court multiple times. The idea is that once a court has issued a final judgment on a matter, no party to that decision can take the same issue back to court. As a result, defendants such as the buyers in Bridgecrest can raise collateral estoppel as an affirmative defense. If they can show another court had already issued a final judgment, then it’s typically not proper to relitigate the matter.
In Bridgecrest, the buyers claimed that Bridgecrest had tried to invoke the same arbitration agreement in a previous case. They said the circuit court and court of appeals had both found the agreement invalid.
However, the Supreme Court noted that the cases had not been identical. This meant, immediately, that case didn’t meet the four requirements for collateral estoppel:
- The prior issue was identical to the present issue
- The court reached a final decision on the issue
- The decision involved the party against whom the current estoppel is asserted
- The party involved had a “full and fair opportunity to litigate” the issue
The Court noted that the previous case involved an arbiter who had found the underlying installment contract invalid. For that reason, the previous litigation looked at the arbitration agreement in isolation, not in the larger context of the contract. That meant the case was similar, but not “identical.”
Because the Court recognized this difference in the cases, it said the buyers had no grounds to claim collateral estoppel.
How does the Court’s ruling affect business owners?
In Bridgecrest, the Missouri Supreme Court tightens the standards for legal challenges to arbitration agreements:
- First, parties must review the validity of arbitration agreements in the context of the whole contract. One-sided arbitration agreements might not be enough to “poison” the larger contract.
- Second, the Supreme Court reiterates the standards for claim collateral estoppel. It is not enough to find similar judgments against one of the parties. The concerns must be identical.
The Court’s opinion should reassure many business owners. Businesses often find advantages in taking their disputes to arbitration. This opinion appears to strengthen their ability to continue doing so.