Missouri Supreme Court Holds Unavailability of National Arbitration Forum Prevents Enforcement of Arbitration Agreement

The Missouri Supreme Court in A-1 Premium Acceptance, Inc. vs. Meeka Hunter affirmed a decision denying arbitration when a chosen arbitration forum was unavailable. The parties’ agreement, contained in a lender’s contract of adhesion, stipulated that the National Arbitration Forum (“NAF”) would resolve any disputes. However, the NAF reached an agreement with the Minnesota Attorney General and agreed not to arbitrate consumer disputes, including the one at issue here. The Missouri Supreme Court held that nothing in the Federal Arbitration Act created an obligation of the court to appoint a substitute arbitration forum or arbitrator.

However, the Missouri Supreme Court recognizes several disparate results in footnote four. In Green v. U.S. Cash Advance Ill., LLC, the 7th Circuit uses § 5 of the FAA to appoint a substitute arbitration forum reasoning that, “[the contract] makes one thing clear: These parties selected private dispute resolution. Courts should not use uncertainty in just how that would be accomplished to defeat the evident choice.” Green v. U.S. Cash Advance Ill., LLC, 724 F.3d 787, 793 (7th Cir. 2013).

Maurice Wutscher LLP provides a more detailed discussion of the procedural history and reasoning.

When Can Courts Substitute Arbitration Organizations?

This question is addressed in “Enforcement Upon theUnwitting: The Overreaching Ability of Courts to Appoint Substitute ArbitrationForums Under the FAA” by Zachary M. Rupiper.

The Abstract:      

Section Five of the Federal Arbitration Act (“FAA”) allows courts to appoint a replacement arbitration forum when the designated arbitration forum is unavailable. However, it is unclear how far the power to replace extends, with the Seventh Circuit in 2013 deepening a current circuit split involving the Section Five replacement power. The Third, Fifth, and Eleventh Circuits recognize the integral part rule, which does not allow a court to appoint a replacement arbitration forum if the designation of the forum in the contract is considered integral. The Seventh Circuit is the lone circuit that has rejected the integral part rule in its entirety, and allows the appointment of a replacement arbitration forum no matter the contract. Furthermore, of the circuits that recognize the integral part rule, only the Fifth Circuit has applied the rule in a way that recognizes an arbitration forum designation as integral. This Note recommends that the Supreme Court adopt the integral part rule, and the application of the rule that finds arbitration forum designations integral to a contract. Such action by the Supreme Court would be justified by traditional contract principles and the congressional intent of the FAA.

Nursing Home Arbitration Enforced

The South Carolina Supreme Court recently enforced a nursing home's arbitration agreement, in
Dean v. Heritage Healthcare of Ridgeway, LLC, __S.E.2d__, 2014 WL 2771300 (S.C. June 18, 2014).

As Liz Kramer explains:

the agreement said that “any arbitration proceeding that takes place under this [] Agreement shall follow the rules of the [AAA]“.  However, the AAA stopped accepting personal injury disputes based on pre-injury arbitration agreements in 2003.  The nursing home moved to compel arbitration and the trial court denied the motion.  It found that the language about the AAA rules meant that the dispute should be heard by the AAA and since the AAA was not available, the arbitration agreement was invalid.  The Supreme Court of South Carolina reversed.  But before the supremes could get to the merits, they had to overrule their own 1993 decision, which held that nursing home contracts did not involve interstate commerce.  After reviewing the intervening cases from SCOTUS, the court found the nursing home agreement does involve interstate commerce and is governed by the FAA.  On the merits, the court found that the availability of the AAA to administer the arbitration was not a material term and instead the parties’ agreement simply calls for the arbitration to be governed by the AAA rules, regardless of what entity administers the proceeding.