Arbitrator Decides Whether Arbitration Clause Applies: 8th Cir.
Or so we thought.
Last month, the Missouri Court of Appeals upheld going to arbitration even after a customer was beaten and robbed in his own home by an employee. That's right: Even an incidental tort claim might be governed by the arbitration agreement. This is way worse than American Express charging extra fees.
Didn't Expect That
Kenneth Johnson bought a TV and refrigerator from Rent-a-Center. In 2012, Johnson let Rent-a-Center employee Eric Patton into his house to service the refrigerator, like he'd done several times before. This time, though, Patton seriously beat and robbed Johnson.
Johnson sued Rent-a-Center, alleging negligent hiring and failure to warn. Makes sense, right? You don't normally expect an employee to rob you. Except that Rent-a-Center moved to compel arbitration, saying not only was the claim governed by the arbitration agreement, but even the issue of whether the arbitration clause applied was subject to arbitration.
There's Nothing We Can Do
It's enough to make you think you've awoken as a giant cockroach. The appellate court didn't say specifically whether the arbitration clause did apply. Instead, it said it was up to the arbitrator to determine, as a "gateway" issue, whether the arbitration agreement applied.
The appellate court said, begrudgingly, that it was bound by the U.S. Supreme Court decision in Rent-a-Center West v. Jackson, a 5-4 opinion in which the High Court explicitly stated that challenges to the applicability of an arbitration clause must be submitted to the arbitrator.
Even looking at the Missouri case charitably, Jackson's facts seem more readily applicable to arbitration. The question at issue, employment discrimination, falls under the umbrella of an employment agreement. But in this case, the agreement between Johnson and Rent-a-Center is only tangentially related to the tort involved here and no one said that the contract even mentioned claims unrelated to the business of providing appliances on credit. That didn't matter to the appellate court, which broadly construed the applicability provision to give the arbitrator "exclusive authority to resolve any dispute relating to the ... applicability ... of this [Arbitration] Agreement," even though nothing in the arbitration agreement mentions torts unrelated to, say, the operation of the appliances.
While acknowledging "that allowing an arbitrator to decide arbitrarily based upon a provision contained within an invalid or inapplicable arbitration agreement is illogical and circular," the court threw up its hands and said, "Sorry, nothing we can do." The end result is that, even if a claim obviously falls outside the scope of a contract containing an arbitration clause, the arbitration clause can still reach through the contract into the real world, and, like Freddy Krueger, use the Supreme Court-sharpened blades on its glove to slash an actual lawsuit to pieces.
- Another Federal Appeals Court Finds Availability of Class Arbitration Is Question for Court (Arbitration Nation)
- Industry Standards and Course of Dealing Prevail in Contracts Case (FindLaw's U.S. Eighth Circuit Blog)
- Insurance Policy is a Contract: No Paid Premiums, No Benefits (FindLaw's U.S. Eighth Circuit Blog)