District Court (Mo.) Says FTC Holder Rule Swings Both Ways; Auto Finance Company Can Enforce Arbitration Clause in RISC

In Henry v. Vantage Credit Union, No. 4:20-cv-01865-SRC, 2021 U.S. Dist. LEXIS 101571 (E.D. Mo. May 28, 2021), Judge Clark granted an auto finance company’s motion to compel arbitration.

As stated above, state law governs the validity of an arbitration agreement and Henry’s argument has been explicitly rejected in Missouri. See Boulds v. Chase Auto Finance Corp., 266 S.W.3d 847 (Mo. Ct. App. 2008). In Boulds, the plaintiff purchased an automobile and signed a contract with the dealership. Id. at 849. The contract included a Retail Buyer’s Order, an Arbitration Addendum to the Retail Buyer’s Order, and a Retail Installment Contract. Id. The Retail Installment Contract included a section at the bottom labeled “Assignment.” Id. The plaintiff filled out this section of the Retail Installment Contract, assigning it to an automobile financing corporation. Id. The Retail Installment Contract also included the FTC holder rule, stating “[a]ny holder of this consumer credit  contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof . . . .” Id. (citing 16 C.F.R. § 433.2). On appeal, the plaintiff noted that the dealership’s assignment to the automobile financing corporation appeared only in the Retail Installment Contract. Thus, she “argue[d] that this means she has no arbitration agreement with [the automobile financing corporation] because the Retail Installment Contract was a separate document and only that document was assigned to the auto financing corporation.” Id. at 851. The court rejected this argument. It acknowledged that “nothing in the Retail Installment Contract mention[ed] arbitration[,] but explained that even in absence of explicit incorporation, instruments executed at the same time, by the same contracting parties, for the same purpose, and in the course of the same transaction will be considered and construed together.” Id. (citing Jennings v. Todd, 118 Mo. 296, 24 S.W. 148, 150 (1893); Keeley v. Indem. Co. of Am., 222 Mo.App. 439, 7 S.W.2d 434, 437 (1928)). The plaintiff signed all three documents together and the arbitration agreement stated that it was “part of your contract with the dealer.” Id. Thus, the plaintiff’s overall contract included all three documents and when the dealership assigned its interest to the automobile financing corporation, the corporation “assumed the contract as [the dealership] had it—including the contract’s arbitration agreement.” Id. The Court also explained that “the FTC holder rule included in the Retail Installment Contract puts the holder in the shoes of the seller.” Id. at 852 (citation omitted). Under the FTC holder rule, the liability of the automobile financing corporation was “subject to the same limitations as [the dealership].” Id. Thus, just as the plaintiff must have arbitrated the dispute with the dealership, it likewise needed to arbitrate the dispute with the automobile financing corporation. Id. After finding that the plaintiff’s claim did not fall under any exceptions listed in the arbitration agreement, it concluded that the plaintiff was “left to seek recourse through arbitration.” Id. The Missouri Supreme Court later reaffirmed that documents signed together as part of a single purchase and financing transaction must be treated as one agreement, even when one of the documents contains a merger clause and does not reference the document containing the arbitration agreement. See Johnson ex rel. Johnson v. JF Enterprises, LLC, 400 S.W.3d 763, 764-69 (Mo. banc 2013). The court ultimately reversed the  denial of the dealership’s motion to compel arbitration of the buyer’s claims because the parties executed the arbitration agreement “as part of a single sales transaction” along with a sale agreement and an installment contract. Id. Like the plaintiff in Bounds, Henry signed the Retail Buyers Order (containing the arbitration provision) and the Retail Installment Contract and Security Agreement (containing the assignment provision) on the same day. Henry’s overall contract therefore included, among other documents, both the Retail Buyers Order and the Retail Installment Contract and Security Agreement. Boulds, 266 S.W.3d at 851. When Honda of Frontenac assigned the Retail Installment Contract and Security Agreement to Vantage, Vantage “assumed the contract as [Honda of Frontenac] had it—including the contract’s arbitration agreement.” Id. Moreover, due to the inclusion of the FTC holder rule, Vantage stepped into the shoes of Honda of Frontenac and thus, just as Henry must have arbitrated the dispute with the dealership, she likewise must arbitrate the dispute with Vantage. Id. Henry attempts to distinguish Boulds by arguing that the court “erred by failing to consider the language of the assignment clause  itself,” correctly noting that “[n]owhere in Boulds is the language of the assignment clause quoted[.]” Doc. 32 at p. 9. Henry claims that, in contrast to Boulds, the precise language of the Retail Installment Contract and Security Agreement limits its scope. The assignment clause at issue states that Honda of Frontenac gave Vantage “full power, either in its own name or in Seller’s name, to take all legal or other actions which Seller could have taken under this Contract.” Doc. 32 at p. 5 (emphasis in original) (quoting Doc. 25 at p. 19.). The Retail Installment Contract and Security Agreement also includes a “Definitions” section, which states “‘Contract’ refers to this Retail Installment Contract and Security Agreement.” Doc. 25-1 at p. 19. Based on this language from Retail Installment Contract and Security Agreement, Henry argues that Honda of Frontenac assigned only that contract to Vantage, and thus did not assign rights the dealership possessed under other, related contracts. See Doc. 32 at pp. 6, 10. The Court finds that Henry takes an overly narrow view of Boulds. In Boulds, the Court concluded that under the contract as a whole, including all documents signed at the time of purchase, the dealership and the buyer “intended the arbitration agreement to cover all disputes save the exceptions listed in the [arbitration] agreement itself.” 266 S.W.3d at 851. In other words, the plaintiff “knew when she signed these documents that if a problem with [the dealership] ever arose, an arbitrator would resolve it.” Id. Thus, even though the dealership assigned only the Retail Installment Contract to the automobile financing group, the court still concluded the dealership also assigned the arbitration agreement to the dealership. Id. Therefore, as in Boulds, even though Honda of Frontenac assigned only the Retail Installment Contract and Security Agreement to Vantage, it also assigned the arbitration agreement to Vantage. Stated differently, Vantage assumed the Retail Installment Contract and Security Agreement as Honda of Frontenac had it, meaning that Vantage could compel Henry to arbitration just as the dealership could. Accordingly, the Court concludes that a valid arbitration agreement exists between Henry and Vantage.