Does an Arbitration Clause Have to Provide for Equivalent Rights and Remedies to Both Sides, in Order to Be Enforceable?

ABSTRACT: The Missouri Court of Appeals for the Southern District recently reversed a Circuit Court decision that denied a corporate defendant's motion to compel arbitration, finding arbitration clauses are enforceable under Missouri law, even when they are more favorable to one party, provided there is consideration on both sides.

The Missouri Court of Appeals for the Southern District recently reversed a Circuit Court decision that denied a corporate defendant’s motion to compel arbitration, in Keeling v. Preferred Poultry Supply, LLC. Plaintiff Brandon Keeling sued Preferred Poultry Supply, alleging breach of contract, fraudulent misrepresentation, and negligent misrepresentation. Preferred Poultry and Keeling entered into a written contract in May of 2016. Preferred Poultry agreed to construct six broiler chicken buildings on Keeling’s poultry farm in Newton, Missouri in exchange for a payment of $2,048,321.00.

Following construction of the buildings, Keeling sued Preferred Poultry. Keeling alleged that he discovered defects related to the construction and repairs would cost in excess of $745,516.00. Keeling also alleged Preferred Poultry made false and misleading representations to Keeling. In response, Preferred Poultry filed a combined dispositive motion: a motion to dismiss, or in the alternative, motion to order arbitration. Preferred Poultry attached the contract between Keeling and Preferred Poultry to its motion and highlighted the arbitration clause of the contract, titled “BINDING ARBITRATION”:

All claims, disputes and matters in question arising out of or relating to this Contract or any claimed breach of this Contract shall be decided by binding arbitration in accordance with the Uniform Arbitration Act in force in Arkansas . . . . This agreement to arbitrate shall be specifically enforceable under the Federal Arbitration Act since this Contract involves interstate commerce. . . . The location of the arbitration proceedings shall be in Fayetteville, Arkansas. . . . Any award of arbitration may be entered in the Circuit Court for Washington County, Arkansas and will have the force of a judgment from that court.

The contract provided that Arkansas law would govern disputes between Keeling and Preferred Poultry. The trial court denied Preferred Poultry’s motion to compel arbitration. Preferred Poultry appealed that denial. Missouri law allows the right to an immediate appeal of an order denying a stay of proceedings relating to a matter that may be arbitrable.  If Preferred Poultry had not appealed, the case would have continued in Newton County Circuit Court through the completion of a trial.

On appeal, Keeling first challenged Preferred Poultry’s appeal as premature. Typically, a party may only appeal a final judgment which disposes of all issues in a case. But Missouri law (§ 435.440.1(1), RSMo.), federal law (9 U.S.C.A. § 16(a)(1)(C)), and Arkansas law (Ark. Code Ann. § 16-108-228(a)(1)) all specifically allow an appeal from an order denying an application to compel arbitration. The appellate Court applied Missouri law and deemed the appeal timely.

Keeling also argued that his tort claims for negligent misrepresentation and fraudulent misrepresentation should not be arbitrated because under Arkansas law, tort claims are not subject to arbitration. The appellate Court disagreed. The Court cited Riley v. Lucas Lofts Investors, LLC, 412 S.W. 3d 285, 290 (Mo. App. E.D. 2013), as well as Arkansas case law, and concluded that Keeling’s claims all related to the contract with Preferred Poultry.

Even though Keeling characterized his some of his claims as tort claims, the Court determined that he could not avoid the arbitration provision. The Court noted that Keeling’s tort claims both sought damages, as opposed to rescission of the contract. Under Missouri law, when damages are sought for claims of poor workmanship, those claims are typically subject to arbitration.

Finally, the Court reviewed the arbitration clause in the contract to determine whether it was enforceable. Keeling argued that the arbitration agreement was invalid because the arbitration clause allowed Preferred Poultry to pursue all available rights under any state law, including filing a lien upon Keeling’s property. Keeling, however, was limited to arbitration as a remedy. Keeling argued this clause created a non-mutual obligation.

The appellate Court rejected this argument. The appellate Court noted that the Federal Arbitration Act does not require mutual obligations to arbitrate. Furthermore, the Court reviewed both Arkansas law and Missouri law, and noted that both states allow non-identical obligations in contracts as a whole, as long as the contract contains sufficient consideration. The appellate Court cited Eaton v. CMH Homes, Inc., 461 S.W.3d 426, 431 (Mo. banc 2015), where the Missouri Supreme Court found that the trial court erred in denying the defendant’s motion to compel arbitration. The appellate Court noted that the arbitration clause in Eaton similarly allowed only the contractor the option to pursue other remedies beyond arbitration, including foreclosure. In Eaton, as here, there was sufficient consideration on both sides: the contractor in Eaton (and Preferred Poultry) agreed to provide a building, and the buyer (and Keeling) agreed to pay a set amount for the building.

Accordingly, the appellate Court reversed and remanded the case to the trial court, with directions to refer the case to arbitration, because the parties’ arbitration agreement was valid and enforceable.

The key takeaway from the Court’s decision is that arbitration clauses are enforceable under Missouri law, even where they are more favorable to one party, provided there is consideration on both sides. Arbitration is often less expensive than a trial because the rules of evidence are more informal and there is no jury panel. A party in arbitration can spend less time preparing for trial and navigating written discovery. The appellate Court’s decision here emphasizes that when both parties agree to arbitration as the forum for resolving their disputes, that contractual agreement will ordinarily be enforced. Keeling and Preferred Poultry agreed to arbitration, and Preferred Poultry was able to successfully enforce arbitration.