Opinion
No. 26064
April 15, 2005
Appeal from the Circuit Court of Greene County, Missouri, Honorable J. Miles Sweeney, Judge.
Larry Bratvold, Robert B. Hankins, Gaspare J. Bono and Ray M. Aragon, for Appellants.
R. Dan Boulware, R. Todd Ehlert Sharon Kennedy, for Respondents.
This cause of action arises out of the business relationship between Appellants and Respondents Netco, Inc. ("Netco") and Schmitz Associates, Inc. ("Schmitz Associates") (collectively "Respondents"), both owned by Charles and Kim Schmitz ("the Schmitzes"). The parties' dispute arises from their participation in a network of business organizations called Pro Net Global Association, Inc. ("Pro Net").
Appellants are all Amway Corporation ("Amway") distributors, Amway related businesses, or their respective principals. The following parties are Appellants herein: Jimmy Dunn ("Dunn"); Jimmy V. Dunn Associates, Inc. ("Dunn Associates"); Harold Gooch, Jr. ("Gooch"); Gooch Support Systems, Inc. ("Gooch Systems"); William Childers ("Childers"); TNT, Inc. ("TNT"); Jim Evans ("Evans"); J.L. Evans Associates, Inc. ("Evans Associates"); Pro Net Global Association, Inc. ("Pro Net"); and, Global Support Services, Inc. ("Global"). Claims against the following parties were dismissed prior to this appeal: Michael P. Abbey ("Abbey"); Abbey Corporation; Gerald Pressley ("Pressley"); and, Pressley Corporation. Additionally, Evans Associates was substituted for original defendant Evans Corporation and Gooch Enterprises, Inc. ("Gooch Enterprises") was added as a defendant and is also a party to this appeal.
To better understand our analysis of Appellants' points relied on, it is necessary that we recite certain evidentiary matters as revealed by the record.
The record reveals that the parties' relationship is based on their involvement with Amway. Amway, now known as "Alticor" or "Quixtar," is a multi-level marketing business which sells consumer goods through a vast network of independent distributors. These Independent Business Owners ("IBOs") merchandise products directly to consumers, not in fixed retail stores.
The Amway business structure and the distribution of its products is governed by the Amway Rules of Conduct ("Rules of Conduct"), to which each Amway distributor is required to subscribe in its initial "Distributor Application."
The Rules of Conduct define and establish certain principles to be followed in the development and maintenance of an Independent Business ("IB") and the rights, duties and responsibilities of each IBO.
With each IBO acting as an independent contractor, Amway employs a pyramid-like structural hierarchy. Every IBO is in charge of building and managing its own sales force by recruiting and sponsoring new distributors, who are then supplied and trained to sell Amway products.
IBOs are compensated by receiving a percentage of the sales from their entire sales pyramid as well as from earnings derived from their own sales to retail customers. The distributorships that occupy positions below a particular IBO in each branch of the Amway network are referred to as that IBO's "downline." As such, an IBO's downline includes those persons the IBO personally sponsors, as well as people whom those below them sponsor. Conversely, those distributorships that occupy positions in the network above a given IBO are referred to as that distributorship's "upline." These positions are determined by the essential Amway concept of the "line of sponsorship." Amway distributors are instructed that respect and observance of the line of sponsorship is mandatory; that they should support and edify their upline distributors; and, that their upline distributors are there to teach and support them.
With that being said, the present matter does not directly involve the purchase or sale of Amway products. Instead, this matter relates to the parallel business of selling Business Support Materials ("BSMs") to Amway distributors.
IBOs use these non-Amway produced BSMs, called "tools" and "functions," as a way to train, guide, and motivate their downline sales force. "Tools" are sponsoring and merchandising aids, such as audio and video tapes, literature and flip charts. Similarly, "functions" are educational seminars, rallies, and other meetings conducted by distributors for others in their line of sponsorship.
The use and distribution of these independently produced BSMs "are entirely optional;" are "strictly voluntary;" and, "must comply" with specific provisions of the Rules of Conduct.
In the present matter, the Schmitzes originally became involved with Amway in 1984. In 1990, they incorporated Netco, and assigned their interest in their Amway distributorship to Netco. The Schmitzes also operated their non-Amway "tools" business through Netco.
In their "Application for Amway Distributor Authorization (Corporate)," which assigned their Amway distributorship to Netco, the Schmitzes and Netco agreed to "comply with the Amway Sales and Marketing Plan and the Code of Ethics and Rules of Conduct for Amway distributors."
In 1992, the Schmitzes formed Schmitz Associates, a corporation which facilitated their "functions" business. Schmitz Associates "operated in tandem with Netco to build, support and enhance the Amway business."
Rule 3.14.2 of the Amway Rules of Conduct prohibits an Amway distributorship from engaging in any business other than the sale of Amway products or services. Accordingly, as the tool and function business is not technically part of Amway, it is "customary for the distributor to operate his/her tool and function business through one or more different corporations, separate from the operating entity for the distributor's Amway business."
The record reveals that in their petition, the Schmitzes collectively referred to the above-named entities as the "Schmitz Organization."
During the fifteen years that the Schmitzes were involved with Amway, they personally sponsored fifty-three Amway distributors, had a network of over eight thousand downline distributors, and reached the exclusive "diamond" level of leadership within Amway.
In July of 1999, the Schmitzes sold their Amway distributorship as well as their tools and functions businesses to Joanne Schmitz, Charles Schmitz's ("Schmitz") mother.
In 1998, Pro Net was formed as an organization "to facilitate the sale of Amway-related [BSMs] by its members." Pro Net proposed that Pro Net members would transfer to Pro Net the copyright and intellectual property rights in the BSMs they produced. Pro Net would, in turn, make the members' tapes available for sale and distribution to all other Pro Net members. Pro Net contracted with Appellant Global to fill the orders of its members and distribute the BSMs.
The founding members of Pro Net, most of whom are Appellants herein, were Respondents' upline distributors within the Amway line of sponsorship. As such, the Pro Net founding members invited the Schmitzes to join Pro Net. As a result, the Schmitzes attended a conference given by Pro Net in Myrtle Beach, South Carolina, in May of 1998, at which time they were formally invited to join the organization and were advised of the terms and conditions of membership.
The founding members of Pro Net were Gooch; Ken Stewart; Steve Woods; Tim Foley; and Childers.
Thereafter, on December 9, 1998, Schmitz, on behalf of Netco, signed a "Pro Net Global Association Membership Application," and submitted the form to Pro Net. Though he paid the twenty-five dollar application fee, Schmitz wrote on the application: "I sign this with the understanding that I am not giving up my right to buy-sell or produce support materials from other suppliers or manufacturers. *As per phone conv [sic] with Paul Brown 12/8/98/s/CH."
In the "Member Name" line of the membership application, Schmitz wrote "Netco, Inc. (Charlie Kim Schmitz)."
As discussed more fully below, while initially reluctant to accept Netco's application containing Schmitz's written reservation, Pro Net ultimately accepted the application and granted Netco full membership benefits.
Attached to the Pro Net Membership Application submitted by Schmitz were the Pro Net Terms and Conditions. The Pro Net Terms and Conditions included the statement that "[m]ember agrees to adhere to the Amway Corporation's Code of Ethics and Rules of Conduct for distributors, the Association's Bylaws" and "[m]ember agrees to refrain from using [BSMs] unless they have been approved by the Association."
In addition, Paragraph 11 of the Pro Net Terms and Conditions contained an alternative dispute resolution provision applicable to all members:
Any dispute, controversy, or claim arising out of, relating to, or concerning the interpretation or performance of the contract created by acceptance of the Membership Application, or the breach thereof, or any dispute, controversy, or claim between one or more members of the Association or between the Association and any of its members which cannot be resolved through negotiation . . . shall be submitted to mediation administered by the Association. Each party to the dispute shall name a mediator who shall be an Association Member at the diamond level or higher of Amway. Upon the selection of two mediators, the two chosen mediators shall select a third mediator who shall be an Association Member at the diamond level or higher of Amway. If agreement is not reached by the parties by mediation, any Dispute shall be submitted to and settled by binding arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules in effect at that time, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. . . .
According to Gooch, who was a founding member of Pro Net, the above dispute resolution clause was added to the Pro Net Terms and Conditions because "Amway had just incorporated an arbitration provision in its rules and that [Pro Net] wanted to follow the same approach."
On June 27, 2000, Respondents Netco and Schmitz Associates filed suit against Appellants alleging, inter alia, that Appellants "primary objectives were to monopolize, control and manipulate the tool and function business, ignore and circumvent the essential 'lines of sponsorship' in the BSMs business, to boycott [Respondents], to impair [Respondents'] networks of downline distributors and to convert [Respondents'] tool and function business to their own pecuniary benefit and advantage. . . ."
The original petition included R.K. Kelm Co., L.L.C. ("Kelm") and "Joanne Schmitz d/b/a Schmitz Co." as plaintiffs. Both of these parties voluntarily dismissed their claims against Appellants prior to this appeal.
Respondents subsequently filed their "First Amended Petition" alleging twelve counts of liability against Appellants: tortious interference; promissory estoppel; fraudulent misrepresentation; negligent misrepresentation; "Breach of Implied-in-Fact Contract Concerning the Tool Business;" "Breach of Duty of Good Faith and Fair Dealing Concerning the Contract Governing the Tool Business;" "Breach of Implied-in-Fact Contract Concerning the Function Business;" "Breach of Duty of Good Faith and Fair Dealing Concerning the Contract Governing the Function Business;" unlawful pyramid scheme; "Antitrust Violation — Conspiracy to Monopolize;" "Antitrust Violation — Group Boycott;" and, "Antitrust Violation — Price Fixing and Allocation of Customers."
As previously related, in response to Respondents' claims, Appellants filed a motion to compel arbitration and stay the proceedings. In a four-line "Order," the trial court denied Appellants' motion to compel arbitration and stay litigation, to-wit:
The motion to compel arbitration was filed by Appellants Dunn, Dunn Associates, Evans, Evans Associates, Abbey, and Pressly. These Appellants were later joined in the motion by Gooch, Gooch Systems, Childers, TNT, Pro Net, and Global.
NOW, on this 22nd day of January, 2004, it is ORDERED that, after consideration, [Appellants'] Motion to Compel Arbitration and Stay Litigation and [Appellants'] Motion for Rehearing are hereby denied. The Court orders the parties to mediate the case within ninety (90) days unless a timely appeal or writ is filed in regard to this determination.
This same Order was issued in Netco, Inc., et al., v. Jimmy Dunn, et al. , a companion case to the present matter, which involves many of the same Appellants as in this appeal and is similarly on appeal in this Court.
This appeal followed.
Appellants' three points of trial court error are premised upon the trial court's denial of their motion to stay litigation and compel arbitration. In their first point on appeal, Appellants assert all of the parties in this matter were bound to arbitrate under the Amway arbitration provisions, as set out in the Amway Rules of Conduct, because the subject matter of each of Respondents' claims was within the scope of that provision. Specifically, Appellants maintain that Netco is contractually bound to comply with the Amway arbitration provisions; and that Schmitz Associates is also bound to the Amway arbitration provisions because it is either a "third-party beneficiary of Netco's Amway distributorship," or an agent of Netco, and, as such, it is equitably estopped from denying that it is bound by the Amway arbitration provisions.
In their second point, Appellants contend the trial court erred as a matter of law in concluding the Amway arbitration procedures were unconscionable and in failing to sever the allegedly unconscionable procedures from the Amway Rules of Conduct and the Amway arbitration clause.
In their last point, Appellants maintain the trial court erred in failing to address specifically the separate Pro Net arbitration agreement, "which independently bound all of the parties to arbitrate all issues in this case in an arbitration to be administered by the American Arbitration Association." We have chosen to address Appellants' points on appeal out of order and choose to begin our review with Appellants' third point relied on. It is dispositive of this appeal.
"An appellate court's review of the arbitrability of a dispute is de novo." Dunn Indus. Group, Inc. v. City of Sugar Creek , 112 S.W.3d 421, 428 (Mo. banc 2003). "Whether a dispute is covered by an arbitration clause is a matter of law." Azbill v. UMB Scout Brokerage Servs., Inc. , 129 S.W.3d 480, 483 (Mo.App. 2004). "'[C]ourts favor and encourage arbitration proceedings.'" Getz Recycling, Inc. v. Watts , 71 S.W.3d 224, 228 (Mo.App. 2002) (quoting Metro Demolition and Excavating Co. v. H.B.D. Contracting, Inc. , 37 S.W.3d 843, 846 (Mo.App. 2001)).
Both the United States Congress and the Missouri General Assembly have enacted arbitration legislation. See 9 U.S.C.S. § 1 (2004), et seq.; § 435.350. This Court recognizes the existence of a public policy of actively enforcing private arbitration agreements under both the Federal Arbitration Act ("FAA") and the UAA. Greenwood v. Sherfield , 895 S.W.2d 169, 173 (Mo.App. 1995). However, when an arbitration agreement involves interstate commerce, the effect of the arbitration clause is governed by the FAA, whether suit is brought in state or federal court. Byrd v. Sprint Communications Co. , 931 S.W.2d 810, 813 (Mo.App. 1996).
"Missouri has adopted the Uniform Arbitration Act ("UAA"), fashioned after the federal act, found in §§ 435.350-.470. . . ." Sheffield Assembly of God Church, Inc. v. Am. Ins. Co. , 870 S.W.2d 926, 929 (Mo.App. 1994). Section 435.350 provides that:
[a] written agreement to submit any existing controversy to arbitration or a provision in a written contract, except contracts of insurance and contracts of adhesion, to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Unless otherwise specified, all statutory references are to RSMo 2000 and all Rule references are to Missouri Court Rules (2005).
"Because the contracting parties in this case reside in different states, this agreement relates to interstate commerce within the meaning of the FAA." Swain v. Auto Servs., Inc. , 128 S.W.3d 103, 106-107 (Mo.App. 2003); see 9 U.S.C.S. § 2 (2004); Duggan v. Zip Mail Servs., Inc. , 920 S.W.2d 200, 202 (Mo.App. 1996).
Under the FAA, "[d]oubts as to arbitrability should be resolved in favor of coverage." Dunn , 112 S.W.3d at 429; see 9 U.S.C.S. § 2 (2004). See Moses H. Cone Mem'l Hosp. v. Mercury Constr. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983); McCarney v. Nearing, Staats, Prelogar and Jones , 866 S.W.2d 881, 890 (Mo.App. 1993).
9 U.S.C.S. § 2 (2004) states:
A written provision . . . to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
"Before a party may be compelled to arbitrate under the FAA, a court must determine whether a valid agreement to arbitrate exists between the parties and whether the specific dispute falls within the substantive scope of that agreement." Dunn , 112 S.W.3d at 427-28; see Houlihan v. Offerman Co., Inc. , 31 F.3d 692, 694-95 (8th Cir. 1994). As previously related, "'[w]hether a dispute is covered by an arbitration clause is relegated to the courts as a matter of law and is to be determined from the contract entered into by the parties.'" Estate of Athon v. Conseco Fin. Servicing Corp. , 88 S.W.3d 26, 30 (Mo.App. 2002) (quoting Greenwood , 895 S.W.2d at 174).
In their third point relied on, Appellants posit the Pro Net arbitration provision was a valid agreement which was completely independent of the Amway provision and required arbitration under the rules of the American Arbitration Association ("AAA"), not under the Amway Rules of Conduct. Appellants argue that Netco is bound by the Pro Net arbitration provision through Netco's membership in Pro Net and Pro Net's acceptance of Netco's application for membership. Further, Appellants premise Schmitz Associates is bound by the Pro Net arbitration clause "because [Schmitz Associates] was an integral part of the 'Schmitz Organization' which was a member of Pro Net." Appellants also assert Schmitz Associates is bound by the Pro Net agreement as a third party beneficiary and/or under the doctrine of equitable estoppel. Accordingly, Appellants maintain that all of the claims in this matter arise under the Pro Net agreement and the Pro Net Terms and Conditions cover the parties' dispute.
With that being said, "Missouri courts have held that under either the Missouri Arbitration Act or the [FAA] 'before a court may grant a party's motion to compel arbitration, it must decide whether the agreement containing the arbitration provision is valid and legally binding.'" Estate of Burford ex rel. Bruse v. Edward D. Jones Co., L.P. , 83 S.W.3d 589, 592 (Mo.App. 2002) (quoting Hitcom Corp. v. Flex Fin. Corp. , 4 S.W.3d 618, 620 (Mo.App. 1999)). "The trial court, not an arbitrator, is the one to resolve" issues related to the validity of the contract. Silver Dollar City, Inc. v. Kitsmiller Constr. Co., Inc. , 874 S.W.2d 526, 536 (Mo.App. 1994). The trial court must determine (1) that a valid agreement exists between the parties and (2) that the dispute at issue falls within that agreement. Dunn , 112 S.W.3d at 427-28. If the court finds that the contract containing an arbitration agreement is valid and binding on the parties, the moving party is entitled to an order compelling arbitration. Silver Dollar City , 874 S.W.2d at 537. "If the trial court finds the contract void or, for some other reason, unenforceable, there is obviously no valid arbitration provision." Id. In such determinations, "general state law principles of contracts and agency govern the question of which parties are bound by an arbitration agreement." Byrd , 931 S.W.2d at 813. "[G]enerally, applicable state law contract defenses, such as fraud, duress and unconscionability, may be used to invalidate arbitration agreements without contravening the FAA." Swain , 128 S.W.3d at 107; see Doctor's Asssoc., Inc. v. Casarotto , 517 U.S. 681, 687, 116 S.Ct. 1652, 1656, 134 L.Ed.2d 902, 909 (1996). "As the obligation to arbitrate rests on free assent and agreement, the subsistence and validity of an arbitration clause are governed by the usual rules and cannons [sic] of contract construction." Greenwood , 895 S.W.2d at 174.
"The right of appeal is purely statutory." Albright v. Kelley , 926 S.W.2d 207, 209 (Mo.App. 1996). Under section 435.440.1(1), "[a]n appeal may be taken from . . . [a]n order denying an application to compel arbitration made under section 435.355." We have jurisdiction to review the trial court's Order denying Appellants' motion to compel arbitration and stay the proceedings. See Dunn , 112 S.W.3d at 427.
As previously set out, Netco disputes Pro Net's assertion that it was a member of that organization. However, the record reveals that on December 9, 1998, Schmitz signed the "Pro Net Global Association Membership Application" as "President" of Netco. In the line of the application denoted for "Member Name," Schmitz typed, "Netco, Inc. (Charlie Kim Schmitz)." By his signature, Schmitz bound Netco to the Pro Net agreement. See Gaar v. Gaar's Inc. , 994 S.W.2d 612, 619 (Mo.App. 1999) (holding that "the president of a corporation may, without any special authority . . . perform all acts of an ordinary nature which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the usual course of business.")
Additionally, Schmitz executed Netco check #5333, in the amount of twenty-five dollars, and sent it to Pro Net as the "initiation fee" for joining the organization. This check was subsequently cashed by Pro Net. Schmitz's handwritten reservation, which stated that he wanted to retain his right to "buy-sell or produce support materials from other suppliers or manufacturers," did not in any way seek to alter the terms of the arbitration provisions as set out in the Pro Net Terms and Conditions. While Netco contends Schmitz's application was rejected by Pro Net, we find that Netco's application, inclusive of Schmitz's handwritten reservation, was accepted. This is born out by the fact that Netco was subsequently permitted to engage in all the activities provided to Pro Net members and was allowed the full benefits of membership. The trial court erred in its implicit determination that Netco was not bound under the terms of the Pro Net agreement.
"The manifestation of acceptance of an offer need not be made by the spoken or written word; it may also come through the offeree's conduct in accord with the terms of the offer." Medicine Shoppe Int'l, Inc. v. J-Pral Corp. , 662 S.W.2d 263, 271 (Mo.App. 1983).
In his affidavit relating to Schmitz's attempt to handwrite a reservation of rights onto his Pro Net application, Gooch, one of the founding members of Pro Net, stated
Upon receiving Schmitz's membership application, Paul Brown was asked to contact [Schmitz] to request that he submit another application because the initial application contained certain additional language added by [Schmitz]. However, it was later determined that Pro Net would accept the application, and Pro Net did accept the application. Pro Net also cashed the application check. . . . The Schmitz Organization was permitted to continue their Pro Net membership, and it did so.
We turn now to the issue of whether Schmitz Associates is bound to arbitrate under the terms of the Pro Net agreement. We recognize that while the federal policy favoring arbitration is strong, it alone cannot authorize a non-party to invoke arbitration or require a non-signatory to arbitrate. Greenwood , 895 S.W.2d at 174.
Among Appellants' arguments, they assert that Schmitz Associates was a party to the Pro Net agreement, including its arbitration provision, based on the principles of equitable estoppel.
In Casarotto , the Supreme Court of the United States noted that "[b]y enacting [9 U.S.C.S.] § 2, we have several times said, Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed 'upon the same footing as other contracts.'" Cassarotto , 517 U.S. at 687 (quoting Scherk v. Alberto-Culver Co. , 417 U.S. 506, 511, 94 S.Ct. 2449, 2453, 41 L.Ed.2d. 270, 276 (1974)). More recently, in Dunn , the Supreme Court of Missouri observed that "[b]y accepting benefits, a party may be estopped from questioning the existence, validity, and effect of a contract." Dunn , 112 S.W.3d at 437.
Here, we determine that Schmitz Associates benefited from Netco's agreement with Pro Net. We note preliminarily that the Schmitzes, as well as the other members of the Pro Net organization, classified Schmitz, Netco and Schmitz Associates as a singular "Schmitz Organization," and paid little deference to the individual nature of the separate entities. In their "First Amended Petition," Respondents themselves pled that "Schmitz Associates facilitated Netco's rally, convention and function business for the Schmitzes, and operated in tandem with Netco to build, support and enhance the Amway business." Indeed, Respondents set out that "[t]he Schmitzes and [Netco and Schmitz Associates] are collectively referred to herein as the 'Schmitz Organization.'"
As best we discern from the record, Pro Net intended its members to be neither individuals nor individual entities; instead, Pro Net classified its members as "Organizations" or by the last name of their principals and did not consider the fact that the "Organizations" were made up of individual corporate entities. Such treatment of its members as singular units known by the name of their principals, illustrates the fact that membership in Pro Net was intended to benefit and bind all of an organization's individual entities.
Not only was Schmitz the principal of both Netco and Schmitz Associates, but the two entities were run as a single unit. Netco and Schmitz Associates were operated out of the same office by the Schmitzes; Schmitz was the principal of both corporations; and, both corporations used the same letterhead and facsimile number. Additionally, Schmitz Associates paid Netco a management fee to perform its business operations. Based on the foregoing, there is no denying that Netco's agreement with Pro Net was set up to benefit the entire Schmitz Organization, including Schmitz Associates.
The Schmitz Organization and Schmitz Associates, which was in charge of the Schmitz Organization's "functions" business, accepted the benefits of Pro Net membership by purchasing BSMs to which they otherwise would not have had access from Global. The record reveals that in 1998 the Schmitz Organization purchased from Global: 187 books, 5,970 tapes, 39,463 items of literature, and 279 videos for a total of 45,899 orders; and, that in 1999 the Schmitz Organization purchased from Global: 8,360 books, 8,714 tapes, 42,593 items of literature, and 2,526 videos for a total of 54,669 orders.
It is important to note that Pro Net had contracted with Global to not only fill the orders of Pro Net members but also to distribute the BSMs.
The Schmitz Organization and Schmitz Associates also utilized the Pro Net website; customized the Schmitz Associates/Netco website to include references to Pro Net, including the posting of the "ProNet Global" logo as a banner on the website; listed their own BSMs for sale in the Global catalogue distributed to Pro Net members; ordered two hundred copies of "Profiles" which is a Pro Net magazine; and, the Schmitzes personally attended Pro Net functions.
As previously mentioned, Schmitz Associates "facilitated Netco's rally, convention and function business . . . and operated in tandem with Netco to build, support and enhance the Amway business. . . ." As a general rule, "[a] party is estopped from denying its obligation to arbitrate when it receives a 'direct benefit' from a contract containing an arbitration clause." Am. Bureau of Shipping v. Tencara Shipyard S.P.A. , 170 F.3d 349, 353 (2nd Cir. 1999) (holding that the owners of a ship were estopped from denying the applicability of an arbitration provision in a contract between the shipbuilder and an entity that certified the ship as safe and seaworthy, where the owners received the direct benefits of lower insurance rates and the ability to sail under the French flag); see also E.I. Dupont de Nemours Co. v. Rhone Poulenc Fiber Resin Intermediates, S.A.S. , 269 F.3d 187, 200 (3rd Cir. 2001) (holding that "[g]enerally, these cases involve non-signatories who, during the life of the contract, have embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the contract."). Based on the foregoing, Schmitz Associates is estopped from refusing to arbitrate its dispute in accordance with the dispute resolution provision of the Pro Net Agreement.
Nevertheless, a party must receive a "direct benefit" from a contract containing an arbitration provision, as opposed to an "indirect" benefit. In Thomson-CSF, S.A., v. Am. Arbitration Assoc. , 64 F.3d 773, 778 (2nd Cir. 1995), Rediffusion, a company in the business of building flight simulators, entered into a "Working Agreement" containing an arbitration clause with Evans Sutherland Computer Corporation ("E S") to purchase computer-generated image equipment exclusively from E S. In return, E S agreed to supply its imaging equipment only to Rediffusion. Id. at 775. Subsequently, Thomson-CSF ("Thomson") acquired Rediffusion and E S sought to bind Thomson to the Working Agreement. Id. As a result, Thomson sought a declaration that it was not bound under the Working Agreement. Id. The Second Circuit determined that "[h]ad Thomson directly benefitted [sic] from the Working Agreement by seeking to purchase equipment from E S or enforcing the exclusivity provisions of the Agreement, it would be estopped from avoiding arbitration." Id. at 779. The appellate court noted, however, that the "benefit which E S asserts, derives directly from Thomson's purchase of Rediffusion, and not from the Working Agreement itself; Thomson received no benefit at all from the Working Agreement (as opposed to the acquisition). Thus, Thomson [was] not bound by its subsidiary's arbitration agreement. . . ." Id. at 779.
Pursuant to our finding that Schmitz Associates is equitably estopped from denying the arbitration clause in the Pro Net agreement, we will not address Appellants' third-party beneficiary theory.
We reiterate that "[a] dispute must be arbitrated if . . . the dispute falls within the scope of th[e] agreement." Getz , 71 S.W.3d at 229; see Lyster v. Ryan's Family Steak Houses, Inc. , 239 F.3d 943, 945 (8th Cir. 2001). In the instant matter, the Pro Net arbitration clause required arbitration of:
[a]ny dispute, controversy, or claim arising out of, relating to, or concerning the interpretation or performance of the contract created by acceptance of the Membership Application, or the breach thereof, or any dispute, controversy, or claim between one or more members of the Association or between the Association and any of its members. . . .
A general provision for the arbitration of "[a]ny dispute, controversy, or claim," such as that found in the Pro Net clause, "covers every breach, regardless of importance, that is asserted and denied. . . ." McCarney , 866 S.W.2d at 889.
Respondents' claims come within the substantive scope of the Pro Net arbitration clause. First, the clause covers all issues arising between "one or more members of the Association or between the Association and any of its members. . . ." Here, seven of the eleven named Appellants are either members of Pro Net or members of "Organizations" with Pro Net membership and, as found above, Netco is a member of Pro Net. Accordingly, the disputes at issue are between "members of the Association" as stated in the arbitration clause. Second, the Pro Net clause covers all issues "arising out of, relating to, or concerning the interpretation or performance of the contract created by acceptance of the [Pro Net] Membership Application. . . ." In this case, all of Respondents' claims relate to the interpretation and the performance of the relationship between Pro Net, Netco, and Schmitz Associates within the parameters of the Pro Net agreement. As a result, these claims fall squarely within the Pro Net arbitration clause.
It appears that of the eleven named Appellants, only Global, Evans, and Evans Associates were not actual members of Pro Net.
The trial court erred in failing to compel Netco and Schmitz Associates to arbitrate pursuant to the arbitration provision set out in the Pro Net agreement. Appellants' third point is granted.
In Appellants' original Motion to Compel Arbitration, Appellants set out that "all of the claims asserted in this action by [Respondents] are subject to one or more binding arbitration agreements." (Emphasis added). Based on our finding that the parties are bound by the Pro Net arbitration provision, and Appellants' argument that the parties were subject "to one or more" arbitration clauses, this Court need not address Points I and II. Appellants' third point on appeal is dispositive.
The trial court in this matter was required to grant Appellants' motion to compel arbitration under the Pro Net arbitration clause and was also required to stay litigation during this process. The trial court's failure to do so was error. See Duggan , 920 S.W.2d at 208. The order of the trial court denying Appellants' motion to compel arbitration and stay litigation is reversed, and the cause is remanded to the trial court for further proceedings and the entry of an order consistent with this opinion.
SHRUM, J. and BATES, C.J.