Arbitration is a type of “alternative dispute resolution” often required by contract as it is a private, generally less expensive and a quicker way of resolving disputes. Arbitration proceedings are favored and encouraged if contracted for. A party to a contract containing an arbitration clause may seek to compel arbitration under Missouri law, permitting the court to compel arbitration upon a showing that an enforceable agreement to arbitrate exists. Properly and effectively drafting arbitration language in the first instance may help parties avoid the cost and time of litigating ancillary matters.
The Missouri Court of Appeals’ recent holding in Wind v. McClure, highlights just how important proper drafting is. 643 S.W.3d 691 (Mo. App. E.D. 2022). In this case, Todd J. Wind and Wind Enterprises, LLC entered into an Asset Purchase Agreement with Mark McClure to purchase McClure’s dental practice. They also agreed on certain employment restrictions which were memorialized in a Provider Agreement and a Restrictive Covenant Agreement. Following the sale, Wind filed a lawsuit against McClure alleging violations of the Provider Agreement and Restrict Covenant Agreement. In response, McClure filed a motion to compel arbitration based on the binding arbitration clause contained in the Asset Purchase Agreement.
Among other things, Wind argued that the arbitration clause was invalid and unenforceable because the Asset Purchase Agreement failed to include the mandatory notice language required under Missouri law.
Specifically, § 435.460 of the Missouri Uniform Arbitration Act (MUAA) requires each contract containing a binding arbitration provision to “include adjacent to, or above, the space provided for signatures a statement, in ten-point capital letters, which read[s] substantially as follows: ‘THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.'”
The Circuit Court entered an order denying the motion to compel arbitration and McClure sought immediate appeal. On appeal, McClure relied on Forest Hill Country Club v. Fred Weber, Inc., which suggests that noncompliance with the Missouri statute may be excused if it can be shown that the parties had actual notice of the arbitration provision. In Forest Hill, the court assessed the enforceability of an arbitration agreement contained in a construction contract which did not include the notice statement. The court ultimately decided that because the contract was drafted by both parties, they had actual notice that the provision existed thereby satisfying the purpose behind the statute.
Here, the Court of Appeals disagreed, finding instead that “allowing a broad, judicially-created ‘actual notice’ exception for the inclusion of the required statement undermines the purpose of § 435.460 and is at odds with the statutory language.” Wind, 643 S.W.3d at 697. Consequently, the Court overruled Forest Hills, finding that “[t]he holding in Forest Hills is at odds with the clear and unambiguous language of § 435.460, which requires every contract containing a binding arbitration provision to include the prescribed notice statement. Forest Hills operates to excuse contracting parties from this legislative requirement.” Id.
In applying the language of the statute to the facts of the case, the Court held that the circuit court correctly denied McClure’s motion to compel arbitration because the Asset Purchase Agreement did not contain the requisite language pursuant to § 435.460.
Notably, the Court of Appeals indicated that neither Wind nor McClure argued that the Federal Arbitration Act applied to their lawsuit. The applicability of the FAA renders compliance with § 435.460 unnecessary, which is an important consideration for contracts involving interstate commerce, such as construction contracts dealing with parties and/or materials from different states.
Wind v. McClure has ostensibly eliminated the “actual notice” exception that parties could have potentially relied upon to uphold a noncompliant arbitration clause. As such, parties looking to avoid the time and expense of litigating over whether an arbitration agreement is enforceable must take steps to ensure that a contract containing an arbitration clause is drafted effectively to include the mandatory language as prescribed by Section 435.460 or specifically referencing the FAA, if applicable.
Article written by Associate Attorney Najla Hasic | Gausnell, O’Keefe & Thomas