A Contractual Dilemma: Where Arbitration Agreements and Delegation Provisions Collide.

• Author: Hamoud, Trent H.

Theroff v. Dollar Tree Stores, Inc., 591 S.W.3d 432 (Mo. 2020) (en banc).

1. INTRODUCTION

   Interpretation of arbitration agreements continues to present unique and challenging issues in Missouri law. Arbitration is a mainstay of the wider field of alternative dispute resolution, seeking to merge the competing interests of would-be litigants in a speedier, less expensive, less formalized environment. Delegation provisions, however, serve as an additional analytical hurdle in determining when and what disputes can be rightfully sent to arbitration. At first glance, a seemingly irreconcilable dilemma is presented. Must assent to the arbitration agreement, and thus the delegation provision, exist before the dispute will be sent to arbitration? Or is the simple appearance of a delegation provision, combined with an absence of an explicit challenge to that same provision, per se sufficient to send the arbitrability dispute to the arbitrator?

   The American Bar Association defines arbitration as "a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments." (1) Delegation provisions are separate agreements between parties allowing for threshold issues of the arbitration agreement, such as whether a particular controversy is included within the agreement, to be decided through arbitration. (2) So widespread is the use of arbitration agreements in American society that it is estimated more than sixty million American workers are bound by individual agreements. (3) Notably, approximately eighty percent of the largest companies designate workplace-related disputes for arbitration. (4)

   Part II of this Note summarizes the facts and procedural background of Theroff's employment dispute. Part III outlines the legal background relevant to the Supreme Court of Missouri's ruling, explaining the common law evolution of arbitration and providing a brief primer on pertinent contract law principles. Part IV details the Theroff court's divided ruling, which ultimately held that there was neither an agreement to compel arbitration nor assent to the delegation provision. (5) Part V distinguishes related U.S. Supreme Court cases, while briefly opining on possible implications of the principal opinion's reasoning and the enforcement or lack thereof of arbitration agreements and delegation provisions, more generally.

2. FACTS AND HOLDING

   Theroff v. Dollar Tree Stores, Inc. arose from an employment dispute. (6) Plaintiff Nina Theroff alleged she was constructively discharged by Defendants Dollar Tree Stores, Inc. ("Dollar Tree") and store manager Janie Harper when her request for a reasonable workplace accommodation was refused. (7) Specifically, Theroff wished to allow her service dog to accompany her. (8)

   After Plaintiff Nina Theroff applied for a job at Dollar Tree, she was invited to the store for an interview with Assistant Manager Kayla Swift. (9) It was during this interview that Theroff informed Swift she was legally blind and required the use of various assistive devices. (10) Swift then told Theroff that she was hired and directed her to return to the store a few days later to complete electronic hiring paperwork. (11)

   One of the documents digitally signed by Theroff, and at issue in the present case, was a mutual agreement to arbitrate claims. (12) Under the mutual agreement, it was specified that JAMS employment arbitration rules and procedures controlled. (13) JAMS Rule 11(b) grants the arbitrator the authority to determine jurisdictional and arbitrability disputes. (14)

   Theroff alleged she only brought a small magnifier with her to the interview, as she was not told in advance that the hiring paperwork was to be completed electronically. (15) Noticing that use of the magnifier on the computer screen would take some time, Swift offered to help Theroff complete the hiring paperwork by taking control of the keyboard and directing Theroff for certain information, such as her address, phone number, and account information, unless Swift thought it would be faster for Theroff to enter the information herself. (16) With the entire process lasting approximately thirty minutes, Theroff maintains that Swift never discussed arbitration, waiver of a jury trial, or JAMS Rules. (17)

   Swift's version of events substantially differs from Theroff's account. Swift denies that she assisted Theroff in navigating the electronic hiring paperwork. (18) Swift also disputed that Theroff was legally blind or even that Theroff informed her of her need to use assistive devices because of her visual impairments. (19) Swift stated that she did not electronically sign the mutual agreement for Theroff, nor field any of Theroff's questions relating to the mutual agreement. (20) Questioning revealed inconsistencies regarding Swift's awareness of facts regarding Theroff's hiring. (21)

   After an evidentiary hearing, the circuit court overruled the motion to compel arbitration. (22) Both the Missouri Court of Appeals for the Western District and the Supreme Court of Missouri affirmed the circuit court. (23) The highest court held that there existed neither a valid agreement to compel arbitration, nor assent to the delegation provision. (24)

3. LEGAL BACKGROUND

   Before close attention is given to the Theroff opinion, a brief background discussion is first necessary. This Part begins by introducing the Federal Arbitration Act of 1925 and the Missouri Uniform Arbitration Act, as well as how these Acts mesh with contracts of adhesion and the unconscionability defense. Next, key U.S. Supreme Court and Supreme Court of Missouri decisions in the arbitration space are examined. Finally, this Part concludes by teeing up the critical topics of delegation provisions and severability.

   1. The FAA and UAA

      Courts today understand arbitration as a contract matter. (25) Therefore, elementary contract principles such as mutual assent - offer plus acceptance - and consideration dictate the validity of an arbitration agreement. (26) But what exactly constitutes an arbitration agreement? As noted above, arbitration is defined as "a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments." (27) From this definition, it becomes evident that assent is a critical component in upholding an arbitration agreement. (28)

      A review of courts' historical treatment of arbitration agreements sheds light on the modern jurisprudence. One might find interesting that one of the earlier high court cases regarding arbitration is a Pennsylvania probate case from 1791. (29) The Seventeenth and Eighteenth Centuries saw courts refusing to compel arbitration under the doctrines of ouster and revocability. (30) Early common law contradictions between contract theory and arbitration are perhaps best illustrated by courts recoiling at the prospect that more sophisticated parties could escape judicial oversight altogether if they instead contracted upfront for resolution of a future dispute by another party arising from that same contract. (31) It was not until the adoption of the Federal Arbitration Act of 1925 ("FAA") that arbitration agreements could be reconciled with more traditional "freedom to contract" principles. (32)

      The FAA can be placed into further context through this economic and historical lens. Consider Lochner v. New York, the case that would ultimately lead to the early Twentieth Century period of American jurisprudence known as the Lochner Era. (33) Lochner represented a strong deference by the Supreme Court to economic due process rights and freedom of contract. (34) While Lochner has long since been overruled and today largely stands as no more than a relic of a laissez-faire economic past, "many of the arguments made to support a broad application of the [FAA] recall Lochner's libertarian underpinnings." (35)

      The FAA, however, does not stand in isolation in Missouri arbitration law. Missouri's Uniform Arbitration Act ("UAA") provides that any written contract or agreement submitting any controversy between parties is valid, enforceable, and irrevocable, absent some limited exceptions. (36) In practice, one key difference between the FAA and the UAA is that the latter contains a conspicuousness requirement, while the former does not. (37) While the UAA will exclusively control for an entirely Missouri-based employer, challenges may arise in those instances where the FAA supersedes the UAA. (38) Therefore, by the Supremacy Clause of the U.S. Constitution, the FAA controls whenever the UAA would otherwise conflict with federal law. (39)

   2. Adhesion Contracts and the Unconscionability Defense

      Certain contracts of adhesion can constitute a limited exception under the UAA. (40) An adhesion contract is created by a party with disproportionately stronger bargaining power, offered by that party to its weaker counterpart on a "take this or nothing basis." (41) That a contract is one of adhesion, however, does not necessarily mean under contemporary doctrine that it is one of unconscionability. (42) Resistance by American courts to arbitration agreements can be closely traced to the evolution of the unconscionability defense in contract law. (43) Modernly, the two species of the unconscionability defense are procedural and substantive unconscionability. (44) Procedural unconscionability involves the mechanics of contract formation, whereas substantive unconscionability involves the actual terms of the contract itself. (45) As applied to arbitration, cases asserting substantive unconscionability could contest the guiding rules, chosen arbitrator(s), and provision for or disallowance of appeal. (46) Procedural unconscionability, however, involves the mechanics of the formation of the contract. (47) Cases challenging an arbitration agreement on the basis of procedural unconscionability...