In an opinion that coins new terms and uses the insouciant tone of a blogger, the 11th Circuit just shut down a putative class action brought by homeowners against a vendor of roof shingles.  The Court found that the terms and conditions printed on the exterior of the shingle packaging formed an enforceable contract (with a class arbitration waiver), and when the roofing contractors opened the shingles, the roofers bound the homeowners who had hired them.  Dye v. Tamko Building Products, Inc., 2018 WL 5729085 (11th Cir. Nov. 2, 2018).

The Dye decision relies heavily on two decades of case law finding that consumers are bound to terms and conditions that accompany software or consumer products or phone apps.  Indeed, the Court suggests that consumers have been on notice that they are bound by terms on the outside of packaging, or with a product, since the 1997 decision in Hill v Gateway 2000, 105 F.3d 1147 (7th Cir. 1997).  Those types of terms are called “shrinkwrap” or “clickwrap” or “scrollwrap” agreements.  And the Court found no reason to treat this agreement, which it termed a “shinglewrap” agreement, any differently.  Therefore, the Court found that by printing its arbitration clause, with a class action waiver, on the exterior of the shingle packaging, the defendant had formed an enforceable contract.

The harder part of the opinion, in my view, is with whom did the defendant form an enforceable contract.  It was not the homeowners who opened the shingle packaging, it was their roofers.  And there are no facts suggesting that the roofers informed the homeowners of the terms on the packaging, or that there were terms at all.  But the Court found that because the roofers were the homeowners’ agents for the purpose of purchasing and installing roof shingles, and because accepting the purchase terms is the kind of thing that should have been expected of the agents, the roofers bound the homeowners to the arbitration agreement (along with the rest of the terms).

[I am aware of at least one court that came out on the opposite side of this “shinglewrap” issue.  In 2015, the Missouri Court of Appeals refused to enforce the same vendor’s arbitration agreement, finding the circumstances distinguishable from cases like Hill v. Gateway.]

Although the Court makes short work of the agency portion of this opinion, I think it merits a deeper analysis.  Usually, even in the case of contracts of adhesion, courts note that the party had some semblance of choice: either to not buy the product, or not work for that employer, etc.  Here, it is hard to see how the homeowners had a choice, since they were unaware that their roofers were considering shingles that would preclude class actions.  Should owners (commercial and residential) put clauses in all their construction contracts revoking the right of contractors and subcontractors to enter into agreements on their behalf??  Is that their only option for unwittingly entering contract terms to which they may object?  I’d love to hear your thoughts.

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And now, a postscript on last month’s post reporting that New Jersey and Missouri refused to enforce arbitration clauses where there was a problem identifying the administrator.  Turns out, other courts have been thinking about the same issue, but resolving it differently.  In Paulozzi v. Parkview Custom Homes, 2018-Ohio-4425 (Ohio Ct. App. Nov. 1, 2018), the Ohio Court of Appeals enforced the parties’ arbitration agreement, even though it called for administration by a now-defunct ADR institution (not NAF).  The Ohio court just severed that aspect of the arbitration clause and called on the trial court to appoint a replacement arbitrator.  In Beltran v. AuPairCare, Inc., 2018 WL 5571319 (10th Cir. Oct. 30, 2018), the arbitration agreement allowed the employer to select the arbitration provider.  The court found that unconscionable, but instead of invalidating the entire arbitration agreement, it also severed that provision and noted that both the FAA and California’s arbitration statutes provide alternate methods of selecting an administrator.

Those two cases make Missouri and New Jersey look out of step.  But, Missouri may now be alone.  I understand that the New Jersey courts have “withdrawn” the decision in Flanzman, and indeed I cannot find it on Westlaw.

**Big thanks to my friends in NJ, Ohio, and NY who alerted me to these developments.

 

The Supreme Court of Missouri has issued two significant arbitration decisions in recent weeks, showing its willingness to sever any aspects of an arbitration agreement that it finds unconscionable (while enforcing the overall obligation to arbitrate).

First, in a contentious decision, the Supreme Court of Missouri found that a former employee of the St. Louis Rams football team does have to arbitrate his age discrimination claims, but he does not have to do so using the NFL Commissioner as the arbitrator. State ex rel. Hewitt v. Hon. Kristine Kerr, __ S.W.3d __, 2015 WL 2061986 (Mo. Apr. 29, 2015). The employment agreement incorporated rules stating the “Commissioner shall have full, complete and final jurisdiction and authority to arbitrate… any dispute between any player, coach, and/or other employee of any [team].” The court found that term unconscionable, because “[i]n effect, [] the commissioner is required to arbitrate claims against his employers.” (The team owners select the commissioner and determine his salary.) The decision has two full dissents and two partial dissents, but a majority of the court hung together for that gutsy decision. (Reading between the lines, the federal judge in the Adrian Peterson labor dispute appeared to agree that the Commissioner should not be arbitrating NFL employment disputes.)  Instead of invalidating the entire agreement to arbitrate, the Supreme Court of Missouri found that the state’s uniform arbitration act would provide the mechanism for appointing an arbitrator to decide the dispute.

More recently, in an uncontentious opinion, the Supreme Court of Missouri also refused to enforce an aspect of an arbitration agreement that it found unconscionable.  Eaton v. CMH Homes, Inc., __ S.W.3d __, 2015 WL 3387910 (Mo. May 26, 2015). In Eaton, a purchaser sued a seller for fraud and negligent misrepresentation. The seller sought to compel arbitration. The purchaser responded that the arbitration agreement was unenforceable, largely because it lacked mutuality. Both the trial court and the intermediate appellate court refused to compel arbitration. The Supreme Court of Missouri reversed.

Missouri’s highest court clarified that lack of mutuality in an arbitration agreement is not sufficient by itself to make the arbitration agreement unconscionable, but is a factor that courts should consider.  In doing so, the court confirmed that its recent Bristol Care decision (which refused to enforce an arbitration agreement in an employment agreement, finding it illusory and without consideration) is not as sweepingly anti-arbitration as some had feared. The court limited the Bristol Care decision to its unique facts: an arbitration agreement that was added by amendment to an existing contract without sufficient consideration and with an illusory promise in return. Even so, the court found that the lack of mutuality in the Eaton arbitration agreement, in combination with an “anti-waiver” provision (requiring the purchaser to arbitrate claims, even if those claims arose as counterclaims to a court action by the buyer), was unconscionable. Instead of refusing to enforce the entire arbitration agreement, the court found those terms were not essential to the agreement to arbitrate and severed them.