A-1 Premium Acceptance, Inc. v. Hunter, No. SC96672 (Sup. Ct. Mo. Oct. 16, 2018) [click for opinion]
In June and July 2006, Meeka Hunter ("Hunter") applied for $800 in four loans from A-1 Premium Acceptance, Inc. ("A-1"), signing contracts for each loan that contained an arbitration agreement for any claim or dispute to be resolved by arbitration by the National Arbitration Forum ("NAF").
In July 2009, the Minnesota Attorney General sued NAF, alleging consumer fraud, deceptive trade practices and false advertising. Three days after the suit was filed NAF entered into a consent decree requiring it to immediately stop providing arbitration services for consumer claims, including claims such as Hunter's. A-1 has argued that the circuit court must designate a new arbitrator since NAF is now not able to play the role the parties envisioned.
Specifically, A-1 argued that the circuit court must appoint a substitute arbitrator for NAF under Section 5 of the Federal Arbitration Act ("FAA"), which controls the agreements' interpretation and implementation. Section 5 of the FAA, in turn, states that "if for any other reason there shall be a lapse in the naming of an arbitrator . . . the court shall designate and appoint an arbitrator."
The court, noting that the FAA reflects that arbitration is a matter of contract, explained that there are two types of arbitration agreements: (1) agreements in which the parties agree to arbitrate regardless of the availability of the named arbitrator; and (2) agreements in which the parties agree to arbitrate only before a specified arbitrator.
The court noted that for the first type the FAA not only authorizes, but also requires courts to name a substitute arbitrator. However, the court further noted that nothing in the FAA authorizes a court to compel a party to arbitrate beyond the limits of the agreement it made. The court determined that the parties in this case agreed to arbitrate only before NAF, so the circuit court did not err in refusing to compel Hunter to arbitrate before another arbitrator.
The court noted that NAF had aggressively marketed itself to lenders as a forum for arbitration and there have been many litigations addressing whether and how to address arbitration agreements identifying NAF as the arbitrator. Considering the varying language in the arbitration agreements there have been varying results in these cases. In some of these cases, courts have focused not on whether parties have agreed to arbitrate before anyone other than NAF, but on whether the reference to NAF was an "integral part of the agreement to arbitrate" or an "ancillary logistical concern." The court found this analysis troubling, insofar as it could improperly allow a court to name a substitute arbitrator even though the parties had agreed to arbitrate before—but only before—the named arbitrator provided the agreement was not "integral" to the arbitration agreement as a whole. However, it found that it need not reach that issue here.
The court determined that A-1 plainly and unambiguously drafted the contract language to choose to arbitrate before—but only before—NAF. Having made the choice to insist on NAF—and only NAF—A-1 cannot now look to section 5 of the FAA to expand the arbitration promise it extracted from Hunter. Looking at other provisions, such as the requirement the arbitration shall be resolved under the Code of Procedure then in effect, further supported the court's finding, as that code provides that only NAF may administer the code.
The court clarified that the naming of an arbitrator does not alone justify refusing to name a substitute under section 5 of the FAA, but that in the instant case the plain language of the agreement provided the required basis to conclude that the parties' arbitration agreement was limited to the specified arbitrator.