MARK HOPWOOD and MARY HOPWOOD, Plaintiffs-Respondents v. CITIFINANCIAL, INC. and ZACHREY B. BOULWARE

• Court: Missouri Court of Appeals
• Decided: February 5, 2014
• Docket: SD32633
• Status: Published

Opinion

MARK HOPWOOD and ) MARY HOPWOOD, ) ) Plaintiffs-Respondents, ) ) v. ) No. SD32633 ) Filed: 2-5-14 CITIFINANCIAL, INC. and ) ZACHREY B. BOULWARE, ) ) Defendants-Appellants. )

APPEAL FROM THE CIRCUIT COURT OF POLK COUNTY

Honorable Michael O. Hendrickson, Circuit Judge

AFFIRMED

CitiFinancial, Inc. (CitiFinancial) and Zachrey Boulware (collectively,

Appellants) appeal from the trial court’s judgment denying their motion to compel

arbitration of claims of Mark and Mary Hopwood (Respondents) for fraudulent

misrepresentation, negligent misrepresentation, and violation of the Missouri

Merchandising Practices Act (MMPA). Finding no merit in either of Appellants’ points,

we affirm the trial court’s judgment.

The facts giving rise to this interlocutory appeal are not in dispute. Between 2003

and 2005, Respondents executed three arbitration agreements with CitiFinancial in conjunction with three separate loan transactions. Each of the nearly identical arbitration

agreements purported to cover all future extensions of credit and the arbitrability of any

claims against CitiFinancial:

“Credit Transaction” means any one or more past, present, or future extensions, applications, or inquiries of credit or forebearance of payment . … “Claim” means any case, controversy, dispute, tort, disagreement, lawsuit, or claim now or hereafter existing between You and Us. A Claim includes, without limitation, anything related to: The Note, this Agreement, or the enforceability or arbitrability of any Claim pursuant to this Agreement, including but not limited to the scope of this Agreement and any defenses to enforcement of the Note or this Agreement[.]

In 2006, Respondents executed a “Note and Security Agreement” with

CitiFinancial (the 2006 Note), which is the subject of this appeal. Respondents did not

execute an arbitration agreement in conjunction with the 2006 Note. Further, the 2006

Note contained a merger clause, which stated: “To protect you (Borrower(s)) and us

(Creditor) from misunderstanding or disappointment, any agreements we reach covering

such matters are contained in this writing, which is the complete and exclusive statement

of the agreement between us, except as we may later agree in writing to modify it.”

In 2012, Respondents filed the underlying action against Appellants alleging

claims for fraudulent misrepresentation, negligent misrepresentation, and violation of the

MMPA regarding the 2006 Note and subsequently executed “Adjustment of Terms”

agreements. Appellants responded with a motion to compel arbitration, arguing that the

arbitration agreements executed between 2003 and 2005, which purported to govern

future extensions of credit, applied to Respondents’ claims. The trial court denied

Appellants’ motion.1 This appeal followed.

1 In a docket entry, the trial court specifically noted that the 2006 Note was silent as to arbitration and contained the merger clause.

2 In Point I, Appellants assert the trial court erred in denying their motion because

pursuant to the arbitration agreements, the arbitrator must decide whether arbitration is

appropriate. In Point II, Appellants state the trial court erred in denying their motion

because the three arbitration agreements executed between 2003 and 2005 apply to

Respondents’ claims derived from the 2006 Note. We address Appellants’ points

together for clarity of analysis.2

The question of whether a motion to compel arbitration should have been granted

is one of law, which we review de novo. Johnson ex rel. Johnson v. JF Enters., LLC,

400 S.W.3d 763, 766 (Mo. banc 2013).

Appellants’ first argument fails because it presumes the existence of a valid

arbitration agreement applicable to Respondents’ underlying claims. A party can be

forced to arbitrate a dispute only when it has agreed to do so. AJM Packaging Corp. v.

Crossland Constr. Co., Inc., 962 S.W.2d 906, 911 (Mo. App. 1998). “Before a party

may be compelled to arbitrate under the FAA, a court must determine whether a valid

agreement to arbitrate exists between the parties and whether the specific dispute falls

within the substantive scope of that agreement.” Dunn Indus. Group, Inc. v. City of

Sugar Creek, 112 S.W.3d 421, 427-28 (Mo. banc 2003) (emphasis added). Therefore,

the first question properly before the trial court was whether there was an enforceable

arbitration agreement between Appellants and Respondents.

2 We note that the Federal Arbitration Act (FAA) would apply in this case, as the transaction is one “involving commerce” and some of the parties reside in different states. Kansas City Urology, P.A. v. United Healthcare Servs., 261 S.W.3d 7, 10 (Mo. App. 2008); see also 9 U.S.C. § 2 (2006). The first question for our determination is whether or not the parties executed a valid, enforceable arbitration agreement applicable to claims arising out of the 2006 Note. To answer that question, we “apply the usual rules of state contract law and canons of contract interpretation.” Netco, Inc. v. Dunn, 194 S.W.3d 353, 358 (Mo. banc 2006).

3 In support of their position, Appellants rely heavily on First Options of Chicago,

Inc. v. Kaplan, 514 U.S. 938 (1995). Appellants’ reliance on First Options is misguided,

and we disagree with Appellants’ broad interpretation of the Court’s analysis. In First

Options, the Court was faced with a question regarding the appropriate level of deference

given to an arbitrator’s arbitrability decision. Id. at 942-43. The Court’s analysis made

clear that the question of whether the parties intended to submit the issue of arbitrability

to an arbitrator was one for determination by a court applying ordinary state law contract

principles:

When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally (though with a qualification we discuss below) should apply ordinary state-law principles that govern the formation of contracts. … Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.

Id. at 944 (citation and quotation marks omitted). First Options does not dictate, as

Appellants insist, that the trial court “usurped” its authority in finding in the first instance

that there was no binding arbitration agreement between the parties. Appellants’ faulty

reasoning presumes that the three prior arbitration agreements are binding on the parties

for claims arising out of the 2006 Note transaction. In doing so, they also presume that

the language of the earlier arbitration agreements – stating that the parties agree to

arbitrate arbitrability – applies to Respondents’ claims. The trial court found otherwise

and determined that there was no arbitration agreement between the parties applicable to

Respondents’ claims. In the absence of an enforceable arbitration agreement applicable

to the 2006 Note transaction, there are no issues for an arbitrator to decide.

In response to Point II, we agree with the trial court that the earlier-executed

arbitration agreements do not apply to Respondents’ claims arising from the 2006 Note.

4 Appellants preface their second point by arguing that public policy dictates we must

resolve all doubts in favor of arbitration. While that general principle is true, the

preference for arbitration only applies when a valid arbitration agreement exists between

the parties. See Korte Constr. Co. v. Deaconess Manor Ass’n, 927 S.W.2d 395, 398

(Mo. App. 1996). “Standing alone, a public policy favoring arbitration is not enough to

extend the application of an arbitration clause far beyond its intended scope.” Northwest

Chrysler-Plymouth, Inc. v. DaimlerChrysler Corp., 168 S.W.3d 693, 696 (Mo. App.

2005). “The FAA places arbitration agreements on an equal footing with other contracts,

and courts will examine arbitration agreements in the same light as they would examine

any contractual agreement.” Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 776 (Mo.

banc 2005). “The guiding principle of contract interpretation under Missouri law is that a

court will seek to ascertain the intent of the parties and to give effect to that intent.” Id.

Here, the 2006 Note was silent as to arbitration, and no separate arbitration

agreement was contemporaneously executed.3 In addition, the 2006 Note contains a

merger clause stating that it was “the complete and exclusive statement of the agreement”

between the parties. This procedure stands in stark contrast to the three prior transactions

between the parties. In each of those transactions, a new arbitration agreement was

executed in conjunction with the note. More importantly, each of those arbitration

agreements referenced – by date and account number – the note to which it was related.

3 Appellants argue that the trial court erred by looking to the 2006 Note to determine the intent of the parties as to arbitration. While courts traditionally evaluate the arbitration agreement to determine the intent of the parties with respect to dispute resolution, this case presents a unique scenario in that the arbitration agreements Appellants assert apply in this instance were executed years earlier as a part of completely different and independent transactions. There was no arbitration agreement or clause executed as part of the instant transaction for the court to evaluate.

5 In spite of those facts, Appellants ask us to interpret the general definition of

“credit transaction” in the earlier arbitration agreements to apply to the 2006 Note

transaction on the theory that the parties intended to agree to arbitrate any dispute of any

transaction arising at any time between the parties, so long as it involved an extension,

application or inquiry of credit. We decline to adopt such an unreasonable interpretation

of the earlier arbitration agreements. See Wildflower Community Ass’n, Inc. v.

Rinderknecht, 25 S.W.3d 530, 536 (Mo. App. 2000) (when interpreting a contract, a

court attempts to avoid absurd results). If Appellants’ interpretation were correct, only

one arbitration agreement would have needed to be executed in conjunction with the first

extension of credit. The execution of the next two arbitration agreements would be

meaningless, as would the language in each arbitration agreement identifying the specific

note and account numbers related to that transaction. Because Appellants executed a

specific arbitration agreement for each of the earlier three transactions, it was reasonable

for the trial court to conclude that the different procedure employed with respect to the

2006 Note (including its merger clause) demonstrated the parties’ intent not to arbitrate

issues relating to that extension of credit. See Johnson, 400 S.W.3d at 769 (finding the

intent of the parties evidenced by the documents signed contemporaneously); Stone v.

Farm Bureau Town & Country Ins. Co. of Missouri, 203 S.W.3d 736, 745 (Mo. App.

2006) (applying “the well-established principle that the interpretation placed on a

contract by the parties before it becomes a matter of controversy is entitled to great

weight in ascertaining their intent and understanding, and the courts will generally follow

the parties’ own practical interpretation of the agreement”). The trial court’s decision

correctly applied the principle in First Options that “[c]ourts should not assume that the

6 parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence

that they did so.” First Options, 514 U.S. at 944 (quotation marks omitted). The court

properly considered the documents executed in connection with the earlier notes, as well

as those executed contemporaneously with the 2006 Note, to determine the parties’

intent.

Appellants argue that our Supreme Court’s analysis in Johnson is dispositive here

and requires us to ignore the impact of the merger clause contained in the 2006 Note. We

disagree. In Johnson, the Court interpreted two documents that were executed

contemporaneously: a sales contract containing a merger clause and an arbitration

agreement. Johnson, 400 S.W.3d at 768-69. The Court found that the documents could

be harmonized and evidenced the parties’ intent to give effect to the arbitration

provisions with respect to all disputes:

[T]he circumstances demonstrate that they were part of a single transaction. Under the general rule that contemporaneously signed documents relating to one subject matter or transaction are construed together, the parties intended to give effect to all the documents Ms. Johnson executed in her purchase of the vehicle. Because there is no evidence of contrary intent, this Court considers the purchase documents together to determine the parties’ intent as to the scope of the merger clause and of the arbitration agreement.

Id. at 768. Thus, our Supreme Court looked at all of the documents contemporaneously

signed as part of a single transaction, including the arbitration agreement, to discern the

parties’ intent. See id. The case at bar is different because it involves four extensions of

credit at different times that did not use the same documents for each transaction. Unlike

Johnson, there is evidence of a contrary intent here because: (1) the parties executed

individual arbitration agreements in the first three transactions; but (2) but they did not do

so in connection with the 2006 Note, which also contained a merger clause. Therefore,

7 Johnson is factually distinguishable, and its analysis is consistent with the result we

reach here.

Appellants’ points are denied, and the judgment of the trial court is affirmed.

JEFFREY W. BATES, P.J. – OPINION AUTHOR

DON E. BURRELL, J. – CONCUR

MARY W. SHEFFIELD, J. – CONCUR