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Supreme Court OKs arbitration for claims against loan servicer

Scott Lauck//July 21, 2022//

Supreme Court OKs arbitration for claims against loan servicer

Scott Lauck//July 21, 2022//

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The Missouri Supreme Court ruled on July 12 that a group of former car owners remain bound by an agreement to arbitrate their claims against a loan servicer even as they are being sued in court for what they still owe on their cars.

In a unanimous opinion encompassing two nearly identical cases, the court overruled cases by the Court of Appeals that had read sales agreements and the arbitration agreements they included as separate contracts, with each required to offer separate consideration to the parties. That approach, Judge W. Brent Powell wrote, “would contravene the often-repeated mandate that agreements to arbitrate must be governed by the same rules as apply generally in contract law.”

“Specifically, such a holding would violate the black letter law that a court cannot go line by line ensuring each promise is counterbalanced,” he wrote.

The cases at issue involved two cars that were repossessed after the owners — Kelly Donaldson and Robert Haulcy in one case, and Christopher Jones in the other —allegedly failed to make multiple payments.

Bridgecrest Acceptance Corporation, which was assigned the cars’ contracts after the sales, sued the buyers in St. Louis County Circuit Court to collect the remaining value of the vehicles after they were resold. When the defendants filed class-action counterclaims that Bridgecrest had violated consumer-protection laws, the company sought to compel arbitration.

The circuit court declined to enforce the agreements and the Court of Appeals Eastern District affirmed. In amicus briefs filed in the Supreme Court, the U.S. and Missouri Chambers of Commerce and several other business and lending groups said the Eastern District opinion, though unpublished, had created “significant uncertainty.”

The Supreme Court reached the opposite conclusion as the Eastern District did in its earlier opinion, which was wiped out when the high court accepted the case on transfer. Although the Supreme Court has said in prior cases that arbitration agreements can be enforceable even if the contract to which it relates is not, Powell said that rule is “irrelevant when a party challenges the embedded arbitration agreement itself, rather than the viability of the larger contract.”

Because the overall contract and the arbitration agreement are part of the same transaction, “if the consideration given in exchange for the installment contract was adequate, it likewise supported the arbitration agreement,” Powell wrote.

In a footnote, he also said a 2020 Eastern District case, Caldwell v. UniFirst Corp., “appears to contradict this rule” and should no longer be followed. According to court records, the Eastern District originally ruled on the case in 2018, but the Supreme Court ordered it to be reconsidered in light of a different precedent. On rehearing, the case was heard by a three-judge panel that included Judge Robin Ransom, who has since been appointed to the Missouri Supreme Court and joined the opinion that overturned her earlier case. The Supreme Court had been asked to review the second Caldwell case, but the court declined the request without comment.

In Caldwell, the appellate court had held that there wasn’t adequate consideration to support the arbitration clause because the agreement allowed the company to sue the plaintiff in court while forcing Caldwell to arbitrate his claims. The Supreme Court has previously struck down other arbitration agreements on similar grounds. But the cases against Bridgecrest were different, Powell said, because the consumers retained the right to seek injunctive relief and were not “wholly constrained” to contesting the company via arbitration.

David Helms of GM Law, an attorney for Bridgecrest, said in an interview that his client’s arbitration agreement was totally unlike the one-sided contracts the court had previously struck down and that the ruling would increase predictability in the law.

Jesse Rochman of OnderLaw, an attorney for the consumers, couldn’t be reached for comment.

The cases are Bridgecrest Acceptance Corporation v. Donaldson, SC99269, and Bridgecrest Acceptance Corporation v. Jones, SC99270

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