What happens when state courts disagree with SCOTUS’s interpretation of the Federal Arbitration Act? They resist, and they have a thousand different ways of doing so. The Mississippi Supreme Court demonstrated one way to resist recently in Pedigo v. Robertson, Rent-A-Center, Inc., 2017 WL 4838243 (Miss. Oct. 26, 2017). (I neglected to mention the state appellate courts as important actors in last week’s post about what we may see now that the CFPB rule is dead.)
In Pedigo, the plaintiff entered into a Rental Purchase Agreement (RPA) from Rent-A-Center. (Yes. The same Rent-A-Center of delegation clause fame.) Within about four months, he stopped making payments. At that point, Rent-A-Center found out that plaintiff had sold the television to a pawn shop shortly after purchasing it. Rent-A-Center then filed a complaint with the police, and the plaintiff was arrested and incarcerated.
After the plaintiff was released from jail, he filed a civil action against Rent-A-Center, alleging the police report was false. Rent-A-Center moved to compel arbitration. The trial court judge compelled arbitration.
On appeal, the high court found that plaintiff’s claims of malicious prosecution were outside the scope of the parties’ arbitration agreement. The RPA itself prohibited the sale or pawning of the leased goods. The arbitration agreement in the RPA stated that covered claims “shall be interpreted as broadly as the law allows and mean any dispute or controversy between you and RAC….based on any legal theory…” The only claims not covered were those for injunctive or declaratory relief, or those seeking less than $5,000 in damages. However, because “the agreement fails to contemplate that a lessor/signatory might pawn collateral and subsequently be indicted and jailed” the court did not require the plaintiff to arbitrate his claims.
Why do I call this “resistance”? Because there are many cases saying that as part of the federal policy favoring arbitration, courts presume that claims are within the scope of a valid arbitration agreement. The coin is weighted towards “heads.” And here, the agreement explicitly prohibited pawning the TV, and the arbitration clause was about as broad as it could be. Yet the court refused to compel arbitration. The implication of this court ruling seems to be that if a specific claim is not enumerated in an arbitration clause in Mississippi (to show it was contemplated), the claim is not arbitrable. And that just does not fit within the federal precedent.
You know what state is not currently resisting? Missouri. The Supreme Court of Missouri faithfully followed the instructions SCOTUS gave in Rent-A-Center, and enforced a delegation clause over the votes of two dissenting justices. In Pinkerton v. Fahnestock, 2017 WL 4930289 (Mo. Oct. 31, 2017), the Missouri high court found that the parties’ incorporation of the AAA rules was a clear and unequivocal delegation clause. It also found that the great majority of the plaintiff’s challenges were not specific to the delegation provision (they applied to the arbitration agreement as a whole) and so could not be considered; the only specific challenge was plaintiff’s argument that it is unconscionable to delegate arbitrability to “a person with a direct financial interest in the outcome.” The court dismissed that out of hand, citing Rent-A-Center. Because the plaintiff had made no successful challenge to the delegation clause, the Missouri high court enforced it, sending the issue of the arbitration agreement’s validity to the arbitrator.