Opinion
No. 26063
April 15, 2005
Appeal from the Circuit Court of Greene County, Missouri, Honorable J. Miles Sweeney, Judge.
Larry Bratvold, Michael Cully, Gaspare J. Bono and Daniel G. Jarcho, 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 Nitro Distributing, Inc. ("Nitro") and West Palm Convention Services, Inc. ("West Palm") (collectively "Respondents"), both owned by Ken Stewart ("Stewart"). The parties' dispute arises from their participation in a network of business organizations called Pro Net Global Association, Inc. ("Pro Net").
As best we discern, Appellants are all Amway Corporation ("Amway") distributors, Amway related businesses, or their respective principals. The following parties are Appellants herein: Jimmy V. Dunn ("Dunn"); Jimmy V. Dunn Associates, Inc. ("Dunn Associates"); Harold Gooch, Jr. ("Gooch"); Gooch Support Systems, Inc. ("Gooch Systems"); Gooch Enterprises, Inc. ("Gooch Enterprises"); Bill S. Childers ("Childers"); TNT, Inc. ("TNT"); Thomas D. Foley ("Foley"); TC Foley, Inc. ("TC"); Steven S. Woods ("Woods"); G.F.I. International, Inc. ("G.F.I."); Parker E. Grabill ("Grabill"); Grabill Enterprises, Inc. ("Grabill Enterprises"); Pro Net; Don Brindley ("Brindley"); Global Support Services, Inc. ("Global"); Pro Net Global I, Inc. ("Pro Net Profit"); and, Robert A. Blanchard ("Blanchard").
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, Stewart became involved with Amway in 1985 and incorporated non-party Stewart Associates International, Inc. ("Stewart Associates") as an Amway distributorship.
In their "Application for Amway Distributor Authorization (Corporate)," Stewart and Stewart Associates agreed to "comply with the Amway Sales and Marketing Plan and the Code of Ethics and Rules of Conduct for Amway distributors."
In 1988, Stewart incorporated Nitro as an entity which would engage solely in the tools business. According to Stewart, the purpose of Nitro was to facilitate the tools business for the Stewart Associates Amway distributorship. In fact, "Nitro owned and operated a multi-million dollar warehouse in Springfield, Missouri, where tapes and other tools were stored for sale and dissemination to the Stewart Organization downline."
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."
Thereafter, in 1996, Stewart incorporated West Palm in the state of Florida. Prior to its incorporation in Florida, West Palm was a Missouri corporation whose charter dated back to 1992. West Palm is engaged in the function business and "facilitated the rally, convention and function business for Stewart Associates and Ken Stewart. . . ." Stewart maintains that Nitro "operate[d] in tandem with [West Palm] to build, support and enhance Stewart Associates' Amway business."
West Palm, Nitro, and Stewart Associates are referred to by Stewart as the "Stewart Organization."
Over the twenty years in which Stewart was involved in the Amway business, he built a downline network of over seventy thousand independent distributors; had over eighteen thousand distributors attend one of his major functions; and, reached the coveted "crown" status within Amway.
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 or cross-line distributors within the Amway line of sponsorship. Prior to Pro Net's incorporation, the Founding Members invited Stewart to join them in creating and incorporating Pro Net. Stewart then entered into discussions with them to join the organization as a Founding Member.
The Founding Members of Pro Net were Gooch; Stewart; Woods; Foley; and Childers. Gooch, Childers, and Dunn were part of Stewart Associates' upline; however, Foley, TC, Woods, G.F.I., Grabill, and Grabill Enterprises were members of Stewart Associates' cross-line due to the fact that they were in the Gooch line of sponsorship.
In anticipation of the creation of Pro Net, Nitro consigned approximately $650,000.00 worth of tools to Pro Net in order to stock Pro Net's Florida warehouse. Shortly after making the shipment to Pro Net, Nitro closed its own warehouse in August of 1998.
During this transitional period in early 1998, before the actual creation of Pro Net, the Founding Members of Pro Net entered into an arbitration agreement. This "Transition-to-Pro Net" agreement was signed by Yager, Foley, Stewart, Childers, and Woods on March 1, 1998; by Brown on April 6, 1998; and, by Gooch on May 14, 1998.
In addition to Stewart, Gooch, Woods, Foley, and Childers, other parties to this agreement were Yager, on behalf of his companies DB Enterprises, Inc. ("DB") and InterNet Services ("InterNet"), and Paul Brown ("Brown") on behalf of Global. As best we can glean from the record, DB and InterNet had previously been supplying BSMs to the Founding Members and their downlines.
The Transition-to-Pro Net agreement stated, inter alia:
The Parties hereby agree to submit . . . to final and binding arbitration with J.A.M.S./ENDISPUTE, in accordance with Rule 7 of the Amway/ADA Arbitration Rules and Procedures any and all issues arising out of the transition of the Foley, Gooch, Childers, Stewart and Woods organizations from working with DB Enterprises[,] Inc[.] and InterNet Services to being responsible for the training and education of their distributor organizations.
Thereafter, on July 2, 1998, Stewart signed a "Pro Net Global Association Membership Application," and submitted the form to Pro Net. As explained more fully below, it appears from the record that Stewart agreed to join the organization and was considered to be a Founding Member of Pro Net. Stewart became a member of Pro Net's original board of directors, acted as Secretary of the organization, and was a member of the Pro Net "Steering Committee."
Stewart filled out the Pro Net Membership Application in the name of "Ken Stewart/Nitro Distributing" and signed the form as "president — Nitro Distrib." Despite this action by Stewart, Respondents maintain that neither Nitro nor West Palm were members of Pro Net; instead it is their assertion that non-party Stewart Associates was the only member of the Stewart Organization bound by the Pro Net Membership Application.
Attached to the Pro Net Membership Application submitted by Stewart 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, 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."
Later, Respondents brought suit against Appellants, claiming, inter alia, that Appellants "and their co-conspirators conduct[ed] wrongful and illicit schemes to misappropriate [Respondents'] tool and function business" and that in their "ruthless pursuit of [Respondents'] tool and function business," Appellants made repeated "efforts to monopolize, control and manipulate the tool and function business."
The record is unclear as to when the original petition was filed in this matter; however, we note that the "First-Amended Petition" was filed on December 7, 2001, and the "Third Amended Petition" was filed on November 15, 2002.
In their "Third Amended Petition," Respondents set forth fourteen counts against Appellants: unlawful pyramid scheme; tortious interference; "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;" "Breach of Duty of Good Faith and Fair Dealing Concerning Nitro's Consignment of BSMs Inventory to ProNet;" promissory estoppel; fraudulent misrepresentation; negligent misrepresentation; "Antitrust Violation — Conspiracy to Monopolize;" "Antitrust Violation — Group Boycott;" "Antitrust Violation — Price Fixing and Allocation of Customers;" and, "Antitrust Violation — Illegal Tying Arrangement."
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, Gooch, Gooch Systems, Gooch Enterprises, Childers, TNT, Foley, TC, Woods, G.F.I., Grabill, Grabill Enterprises, Global, Pro Net, Pro Net I, and Blanchard.
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 appeal followed.
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.
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 maintain the trial court erred in basing its decision only on the arbitration clause in the Amway Rules of Conduct and in failing to specifically address the separate Pro Net arbitration agreement which bound all of the parties to arbitrate independent of the Amway Rules of Conduct. In their second point, Appellants assert the trial court erred in basing its decision solely on the arbitration clause in the Amway Rules of Conduct and in failing "to consider the Transition-to-Pro Net arbitration agreement which bound [Respondents] and fourteen of the eighteen [Appellants] to arbitrate all issues in this case." In their last point, Appellants contend the trial court misapplied the law in concluding the Amway arbitration procedures were unconscionable, because the Amway Rules of Conduct bound all the parties in this matter and, accordingly, required arbitration.
"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 first 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 Nitro is bound by the Pro Net clause through Nitro's membership in Pro Net and Pro Net's acceptance of Nitro's application for membership. Further, Appellants premise West Palm is bound by the Pro Net clause because "its claims are integrally related to its association with Pro Net" and its closeness with Nitro. Appellants also assert Respondents are 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 that 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; Greenwood , 895 S.W.2d at 172.
As previously set out, Nitro disputes it was a member of Pro Net. Nitro maintains it could not have been bound by the Pro Net arbitration provision because (1) it was ineligible for membership in Pro Net; (2) even if it were eligible for membership, it was a Founding Member and the arbitration provision was only applicable to Regular Members; and, (3) Nitro never received a written letter accepting its Pro Net Membership Application.
In our review, we first note Nitro maintains that as a tools business it was ineligible for membership in Pro Net because the Pro Net Bylaws limited membership to "[a]ny company or business that is engaged in distributing AMWAY products or services." According to Nitro, the only member of the Stewart Organization that was also a member of Pro Net was non-party Stewart Associates. Despite Nitro's contention that it was not a member of Pro Net, it should be recalled that Stewart completed and submitted the Pro Net Membership Application in which he specifically wrote "Ken Stewart/Nitro Distributing" in the "Member Name" line and signed the document in his capacity as "president — Nitro Distrib." As further proof of Nitro's seeking membership in Pro Net, on the line designated for "Member's Tax Identification Number or Social Security Number" Stewart did not write his own social security number or even Stewart Associates' Federal Tax Identification Number; instead, he wrote "43-1494962," which is Nitro's Federal Tax Identification Number. Further, in the "Third Amended Petition," Nitro plainly states that "Nitro joined the Pro Net fold. . . ." (Emphasis added.) By his signature, Stewart bound Nitro 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.")
Second, we turn to Nitro's argument that even if it were a member of Pro Net, the arbitration provision was only applicable to Regular Members and not to Founding Members such as itself.
According to Nitro, it was Stewart's understanding "that the [F]ounding [M]embers of Pro Net would not be subject to the terms and conditions that were being drafted for Pro Net membership because those terms and conditions, which included a dispute resolution procedure, would apply only to the [R]egular [M]embers." Nitro bases this assertion in part on the "plain and express language" of the Pro Net Membership Application, which stated "[t]his Membership Application must be completed by all applicants . . . for regular membership in Pro Net Global Association." Nitro further argues that the application for membership clearly stated "[t]his is an application for non-voting membership;" whereas, Founding Members were given voting rights in the Pro Net Bylaws.
The record shows that a Founding Member was defined in the Pro Net Bylaws as "[a]ny company or business that is engaged in distributing AMWAY products or services and supports the objectives of [Pro Net] . . . provided such company joined [Pro Net] at the time [Pro Net] was formed." Regular membership was similarly limited to "[a]ny company or business that is engaged in distributing AMWAY products or services. . . ." The Pro Net Bylaws required that all "Organizations seeking membership in [Pro Net] as Regular Members must submit a completed application. . . ."
It is noteworthy that each and every Founding Member of Pro Net filled out and submitted a Pro Net Membership Application for regular membership. Saliently, the four other members of the Steering Committee, besides Stewart, maintain "[t]here was never any discussion . . . that the terms and conditions of membership should not apply to the [F]ounding [M]embers. It was fully understood that the terms and conditions of membership applied to every member, both [F]ounding [M]embers and [R]egular [M]embers, regardless of when they became a member." We also note there was no specific provision in either the Pro Net Bylaws or the Pro Net Terms and Conditions which exempted Founding Members from the arbitration provisions.
The Pro Net Membership Applications of the other Founding Members read as follows: Gooch wrote "Hal Susan Gooch" in the "Member Name" line, signed the document in his own name, and wrote "President" next to the word "Title;" Childers wrote "Bill Childers — Hona Childers" in the "Member Name" line, signed his own name, and left the designation for "Title" blank; Foley wrote "Tim and Connie Foley" in the "Member Name" line, signed the document in his own name, and wrote "Pres. Foley Mgmt. Intl." in the line designated for "Title;" and, Woods wrote "Steve Woods" in the line for "Member Name," signed the document with his own name, and left the line for "Title" blank.
"[G]eneral 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. When Nitro submitted its Pro Net Membership Application for regular membership, which clearly set out that "[t]he undersigned applicant agrees to abide by all Terms and Conditions of Association Membership," it was contractually bound by the arbitration provision contained in those terms and conditions. Under the particular circumstances in this case, any distinction between Founding Members and Regular Members, as related to the Pro Net Terms and Conditions previously set out, was made moot when the Founding Members, including Nitro through Stewart, signed their respective applications for regular membership in Pro Net.
Lastly, Nitro argues that it was not a member of Pro Net because it never received a written letter of acceptance from Pro Net. While the record is unclear as to whether Pro Net sent such letters to any members, we find this contention to be without merit due to the fact that after receipt of the membership application, Pro Net allowed the Stewart Organization, including Nitro, to engage in the full benefits of membership. "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).
Based on the foregoing, the trial court erred in its implicit determination that, inter alia, Nitro was not bound under the terms of the Pro Net agreement.
We turn now to the issue of whether West Palm 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 West Palm was a party to the Pro Net arbitration agreement 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.
Based on the record before us, this Court determines West Palm both embraced and benefited from Nitro's agreement with Pro Net. We note preliminarily that Stewart, as well as the members of the Pro Net organization, classified Nitro, West Palm and Stewart Associates as a singular "Stewart Organization," and paid little deference to the individual nature of the separate entities. In their "Third Amended Petition," Respondents themselves pled that "West Palm facilitated the rally, convention and function business for Stewart Associates and Ken Stewart, and operated in tandem with Nitro to build, support and enhance Stewart Associates' Amway business." Indeed, Respondents set out that "Nitro, West Palm and non-party Stewart Associates are collectively referred to herein at times as the 'Stewart Organization.'"
Appellants allege no specific principal-agent relationship between Nitro, West Palm, Stewart Associates and Stewart in their argument regarding the Pro Net agreement.
The record also shows that Nitro and West Palm operated out of the same office; Stewart was the principal of both corporations; and, both corporations used the same phone and facsimile number. In Respondents' own words, West Palm worked with Nitro and Stewart Associates "in sponsoring, organizing and holding . . . major functions, which regularly drew thousands of Amway distributors. . . ." In their petition, Respondents stated that "Nitro and West Palm, working in concert, participated in and were highly successful . . ." in the BSMs business. In fact, Respondents concede that if "Nitro is eligible for membership in Pro Net, it, as well as West Palm and non-parties Ken Stewart and Stewart Associates, are '[F]ounding' [M]embers." Based on the foregoing, there is no denying that Nitro's agreement with Pro Net was set up to benefit the entire Stewart Organization, including West Palm.
As best we discern, 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.
The record reveals that the Stewart Organization and West Palm, accepted the benefits of Pro Net membership by purchasing BSMs to which they otherwise would not have had access from Global. The record also shows that in 1998, the Stewart Organization purchased from Global: 23,879 books, 111,014 items of literature, and 6,101 videos for a total of 140,994 orders; that in 1999, the Stewart Organization purchased from Global: 66,023 books, 86,120 items of literature, and 16,858 videos for a total of 169,001 orders; that in 2000, the Stewart Organization purchased from Global: 38,832 books, 17,724 items of literature, 6,492 videos, and 9,141 disks for a total of 72,189 orders; that in 2001, the Stewart Organization purchased from Global: 17,132 books, 8,604 items of literature, 2,010 videos, and 733 disks for a total of 28,479 orders; and, that in 2002, the Stewart Organization purchased from Global: 19 audiobooks, 1,165 compact disks, 4,710 books, 2,608 items of literature, 431 videos, and 127 disks for a total of 9,060 orders. From 1998 to November of 2002, the Stewart Organization purchased 1,556,325 audiotapes alone through Global and realized $6,758,842.90 in "distributable profit" from such sales.
The Stewart Organization and West Palm also utilized the Pro Net website; listed over seventy of their own BSMs for sale in the Global catalogue distributed to Pro Net members; and, Stewart personally attended Pro Net functions and served on its Steering Committee.
Not only was Stewart the principal of both Nitro and West Palm, but the two entities were run as a single unit. As previously set out, Respondents stated in their petition that West Palm "operated in tandem with Nitro to build, support and enhance Stewart Associates' 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, West Palm is estopped from refusing to arbitrate its dispute in accordance with the arbitration provisions set out in the Pro Net Terms and Conditions.
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 West Palm 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, thirteen of the eighteen named Appellants are either members of Pro Net or members of organizations with Pro Net membership and, as found above, Nitro 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, Nitro, and West Palm within the parameters of the Pro Net Membership Application. As a result, these claims fall squarely within the scope of the arbitration provision.
It appears that of the eighteen named Appellants, only Global, Brindley, Pro Net Profit, and Blanchard were not actual members of Pro Net.
The trial court erred in failing to compel Nitro and West Palm to arbitrate pursuant to the arbitration clause set out in the Pro Net agreement. Appellants' first 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 II and III. Appellants' first 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.