Below is a student contribution by Wes Dagestad
Someone comes to your house or business and tells you about this great solar energy program and how you are going to save the planet and potentially make some money. Sounds like a win-win for everyone. Using the tip of your finger you doodle your signature on an iPad screen thinking everyone is on the same page. But what does that ‘doodle’ mean? What did you just agree to? These were the basic circumstances in the pending appellate case of Kansas City Power & Light Co. v. Sharp. 2014 WL 5286452 (Mo. App. W.D.) (App. Brief).
A utility company offered a rebate program to a number of customers and had them memorialize the agreement with the stroke of a finger on a blank iPad screen. No documents were exchanged during the negotiations and after problems surfaced with the Solar Electric Rebate Program (“SERP”), the parties and courts were left guessing what exactly the agreement was, and what forum possessed the authority to hear their dispute.
In Sharp, a class of individuals and business owners (“Customers”) alleged that Kansas City Power & Light Co. (“KCP&L”) breached promises it made in connection with the SERP. KCP&L was statutorily required to offer SERPs to its customers in order to incentivize the use of renewable energy (App. Br. 2). The SERP agreement was based on the idea that Customers would pay an upfront expense to participate in the SERP, and then KCP&L would install solar units on the Customers’ property (App. Br. 2.). The solar units would produce energy, and in turn the Customers were to receive a rebate from KCP&L in exchange for the Customers’ agreement to sell future energy produced from the solar units to KCP&L.
Various representations from KCP&L suggested that KCP&L would also provide the additional servicing and upkeep of the panels. After the installation, Customers claimed the solar panels did not function properly, nor did they receive any rebate previously promised to them by KCP&L. Sometime after disputes arose, but prior to filing their claim against KCP&L, the Customers were provided with a Net Metering Agreement (“NMA”).
The Customers found what appeared to be copied versions of their iPad signatures on the NMA. After Customers filed suit, KCP&L sought to compel the Customers’ claims to arbitration claiming that terms in the NMA required arbitration because the Customers had ratified the NMA by: (1) accepting installation of the solar panels; (2) filing suit and seeking to enforce terms of the NMA; and (3) pleading they agreed to be bound by the NMA in their initial petition.
The circuit court denied KCP&L’s motion to compel arbitration, having been “unpersuaded that a person who claims never to have seen nor sign a contract is required to be bound by the terms therein.”
This article will discuss the nature of the pertinent (a) contract formation issues and how a court is left to construe the various terms of the parties’ oral statements verses the NMA; and (b) whether Missouri law is correct in following the oxymoronic notion that ‘may’ actually means ‘shall.’
1. Mutual Assent — What did the parties actually agree to?
The parties disagree whether or not the NMA reflects the true intentions of their agreement. Under Missouri law the elements of a contract are: “(1) competency of the parties to contract; (2) subject matter; (3) legal consideration; (4) mutuality of agreement; and (5) mutuality of obligation. “ Kunzie v. Jack-In-The-Box, Inc., 330 S.W.3d 476, 483 (Mo. App. E.D. 2010).
From the pertinent facts pled by each of the parties, it seems there was a valid agreement; however, what exactly the terms of that agreement were seem unclear. Under Missouri law, for a valid contract to be formed, “parties must mutually assent to its terms.” Viacom Outdoor, Inc. v. Taouil, 254 S.W.3d 234, 238 (Mo. App. E.D. 2008). Mutual assent has been defined as “a distinct intention, common to both, and without doubt or difference, and… the minds of the contracting parties must meet upon and assent to the same thing in the same sense and at the same time.” Id. (emphasis added).
Further, “[w]hether there is mutual assent sufficient to form a contract depends upon the intentions of the parties,” and intentions of the parties is a question for a factfinder. Collins v. Swope, 605 S.W.2d 538, 549 (Mo. App. S.D 1980). Thus, whether the iPad signatures at the time of the verbal negotiations incorporated the NMA is a question of fact.
KCP&L argues that by accepting the installation of the solar panels and bringing their breach of contract claim, Customers ratified the NMA. However, KCP&L fails to successfully distinguish that under Missouri law, “[t]here is simply no authority for the proposition that mutual asset (i.e. offer and acceptance) to the terms of a bilateral contract can be supplied long after a contract was supposedly formed by a later suit to enforce the contract.” Bair v. Darden Restaurants, 20 S.W.3d 733, 740 (Mo. App. W.D. 2014).
KCP&L points out that if a party failed to sign an agreement, they may later ratify it if the party: signed ancillary agreements; was aware of the contract; and acted as if they were bound by the contract. Clear v. Missouri Coordinating Bd. for Higher Educ., 23 S.W.3d 896 (Mo. App. E.D. 2000). KCP&L seems to misconstrue the timing aspect of “mutual assent” under Missouri Law. The Customers and KCP&L seemed to have never “assented to the same thing in the same sense at the same time.” Bair, 20 S.W.3d, at 741. Without the NMA being incorporated at some point during the SERP negotiations, the terms seem to be inapplicable. Ultimately “[w]hether a party has accepted the terms of a contract in the absence of a signature is thus a question of fact.” Bellemer v. Cable-Dahmer Chevrolet, Inc., 423 S.W.3d 267, 275-76, (Mo. App. W.D 2013).
2. The NMA — Permissive Dispute Resolution or Unilateral Compulsion?
On appeal, KCP&L seeks to overturn the decision arguing that “the word ‘may’ grants one side a right to pursue arbitration if it wished and mandatory arbitration is required when one side so requests.” (App. Br. 5). Thus, KCP&L takes the position that terms granting the parties an optional remedy, turns into a compulsory provision once a party unilaterally decides to enforce it. The pertinent terms of the arbitration provision are:
If any disagreements b/w the Customer-Generator and Company arise that cannot be resolved through normal negotiations between them, the disagreement may be brought to the Missouri Public Service Commission by either, party through an informal or formal complaint.
“Disagreements may be brought to the Missouri Public Service Commission” seems to indicate a permissive remedy, not a mandatory one. However, in a puzzling decision, a Missouri court chose to adopt the logic that “the use of the word ‘may’ grants one side a right to pursue arbitration if it wishe[s] and mandatory arbitration is required when one side so requests.” MFA, Inc. v. HLW Builders, Inc., 303 S.W.3d 620, 624 (Mo. App. W.D. 2010). Unfortunately, the MFA, Inc. court incorrectly relied on two decisions in changing Missouri law to follow the belief that “the use of operative language such as “may elect” does give rise to mandatory arbitration.” MFA Inc., 303 S.W.3d at 624; (Citing: Discover RE Managers, Inc. v. Preferred Employers Group, Inc., No. 3:05CV809, 2006 U.S. Dist. LEXIS 97836, at *22-23 (D. Conn. March 8, 2006)).
A. Discover RE Managers, Inc. v. Preferred Employers Group, Inc.
If one actually reads Discover RE Managers, Inc., they would quickly learn the case actually stands for the exact opposite principle for which the Missouri court cites it. Id. In one sentence and a footnote, the MFA Inc. court leads us to believe that the Discover RE Managers, Inc. decision stands for the principle that the use of “may” in an arbitration clause compels mandatory arbitration. Id. at 624. The language the MFA Inc. court cites verbatim, however, is the very authority the court in Discover RE Managers, Inc. chose to refute. Discover RE Managers, Inc. 2006 U.S. Dist. LEXIS 97836, at *26-28.
The Discover case actually correctly points out that there are two lines of logic when interpreting arbitration clauses containing the permissive term ‘may.’ Id. at *21-28. One legal camp is of the opinion that the use of “may elect” language is “consistent with the well-known rule against interpreting contracts in a manner that renders a provision meaningless.” Id. at *24. Thus, because a provision includes an optional remedy, “providing for permissive arbitration would render [the provision] meaningless, and should be avoided.” Maloney-Rafaie v. Bridge at Sch., Inc., 958 (Del. Ch. 2008).
However, the Discover court then logically cites the contrary line of reasoning that the term “may” actually means what it says. Discover RE Managers, Inc. at *26-28. “The deliberate substitution of the word “may” for the word “shall” showed the parties’ intent to make arbitration permissive and stating that “the term ‘may’ generally imports permissive conduct and the use of discretion.” Id. at *27 (citing DiCesare-Bentley v. City of New London, 1990 WL 283866, at *1 (Conn. Super. Aug. 3, 1990). Following this logic, the Discover court refused to compel arbitration, holding that because the party seeking to compel arbitration drafted the provisions, it “could have demanded language making arbitration a condition precedent… and cannot now seek to enforce arbitration on plaintiffs who never agreed-to submit any dispute to arbitration without their consent.” Id. at *28.
B. Maloney-Rafaie v. Bridge at Sch., Inc.
The only other authority the Missouri court in MFA, Inc. relied on is completely distinguishable from the alleged arbitration agreement at issue between KCP&L and Consumers. The Delaware decision Maloney-Rafie v. Bridge at Sch., Inc., involved an arbitration clause and additional language that failed to suggest arbitration was a permissive rather than a compulsory remedy. 958 A.2d 871, 883 (Del. Ch. 2008). The clause provided:
“any such controversy, claim or dispute…upon mutual agreement of the parties, shall be resolved in accordance with the National Rules for the Resolution of Employment Disputes of the American: “Arbitration Association then in effect.”
The Maloney-Rafaie court held that the terms “upon mutual agreement of the parties” prior to the arbitration clause referred to the execution of the contract rather than a provision governing a “permissive” arbitration process. Id. at 885. The “upon mutual agreement of the parties” when taken with additional language near the signature blocks on the same page of the arbitration clause referred to the mutual contractual assent of the parties rather than a later mutual agreement to arbitrate. (Shown below, bold added) Id.
|The parties indicate their acceptance of the foregoing arbitration requirement by initialing below:|
|For the Company||Employee|
The Missouri court in MFA, Inc., thus incorrectly applied the Maloney-Rafaie logic because Maloney did not in fact contain a permissive arbitration agreement. In Maloney, the entirety of the arbitration provision suggested that any claim the parties had “upon mutual agreement” shall be resolved in Arbitration. First, “may” is nowhere to be found in the Maloney provision. Secondly, the “upon mutual agreement” construed with the separate line above the signature blocks indicate that this is a mandatory not permissive provision. “Parties indicating their acceptance of an arbitration requirement” suggests this is a mandatory rather than a permissive provision. Thus the ‘mutual agreement’ is not a ‘mutual agreement at a later date to agree on arbitration’ it is a warning sign that by entering the contract, the parties agree to submit to arbitration.
The clause at issue in MFA does purport to be a permissive arbitration clause:
To prevent suits and litigations, it is agreed by the parties hereto that should any disputes arise under this Contract…the same may be submitted to arbitration upon the written request of either party hereto. If arbitration is chosen, the Owner and the Contractor shall each choose one arbitrator, and they in turn shall choose a third member. Their decision shall be final, and either the Owner or Contractor shall comply.
Although the provision in MFA starts by expressing the provision’s purpose is to “prevent suits and litigations” it is then qualified by the separate sentence “IF arbitration is chosen…” The MFA court thus incorrectly relied on Maloney in expressing the “use of the word ‘may’ grants one side a right to pursue arbitration if it wished and mandatory arbitration is required when one side so requests. The language in MFA had no additional language indicating an “arbitration requirement” near the signature blocks, nor did the Maloney clause contain the word “may.”
C. What the KCP&L v. Sharp Court Should Consider
The provision between KCP&L and Consumers suggests permissive rather than compulsory arbitration, and therefore the Sharp court should not base its reasoning on the incorrect authority cited in MFA. Instead one may consider, “Arbitration under the [FAA] Act is a matter of consent not coercion, and parties are generally free to structure their arbitration agreements as they see fit.” Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). Additional contract construction principles suggest that if an arbitration clause is ambiguous, “ambiguity must be construed against…the drafter of the agreement.” Bell Atlantic Corp. v. CTC Communications Corp., 159 F.3d 1345, (2nd Cir. 1998). Also see Am. Italian Pasta Co. v. Austin Co., 914 F.2d 1103, 1105 (8th Cir. 1990)(Gibson dissent).
With the construction against draftsman principle in mind the Second Circuit articulated that an “arbitration clause must be read as simply establishing the applicable rules in the event that the parties voluntarily agree to submit a dispute to arbitration after it arises.” Bell Atlantic Corp., 159 F.3d at *2. Further, the Second Circuit noted that when reviewing permissive arbitration agreements, “if the parties agreed to submit to arbitration only by consent, courts are powerless, absent such consent to compel arbitration.” Id. at *3. Although the Bell Atlantic Corp. decision also contained an “upon mutual agreement” (as seen in Maloney) arbitration clause, the contract did not have the additional signature block language found in Maloney, and thus the court declined to compel arbitration.
The Eighth Circuit has also expressed that it follows the canon that permissive arbitration language is a legal misnomer. American Italian Pasta Co. v. Austin Co., 914 F.2d 1103, 1104 (8th Cir. 1990). The court in American Italian Pasta Co., reasoned that if ‘may’ is expressed in connection with an arbitration clause then it fails to give effect to an arbitration provision at all. Id. However, for reasons previously discussed this logic seems like a legal misnomer because the court expressed its holding right after citing authority that in analyzing agreements to arbitrate, a court “constru[es] a contract to give effect to all of its provisions and to avoid rendering any provisions meaningless.” Id.
If courts are to give meaning to parties’ agreements and are free to structure arbitration agreements as they see fit, parties would use ‘must’ or ‘shall’ rather than ‘may’. It seems illogical to bind parties to compulsory arbitration agreements when parties use “permissive” terms and have the right to instead use compulsory terms. With the advancement and convenience of technology there seems to be a trend towards the mantra of “get the deal done now – ask questions later.” Courts are left piecing together the doodles of contractual terms and ugly iPad signatures when deciding what exactly a party’s rights and obligations truly are.
Finally, Missouri law seems to be a victim of reading into blanket arbitration holdings without actually looking into the details of each contract at issue. Contractual disputes are like snowflakes; one usually has to look into the intricacies of each one to figure out how each one is different. Granted that process would take valuable effort, time, and resources, but if being a legal professional were easy everyone would do it.