Court Opinion

ID: 4427660
Source: CourtListenerOpinion
Date Created: 2019-08-20 18:54:14.729867+00
Date Added: 2024-06-11T13:25:34.778642
License: Public Domain

IN THE MISSOURI COURT OF APPEALS
                   WESTERN DISTRICT
MEGHANN PATRICK,             )
                Respondent, )
                             )
v.                           )               WD81344
                             )
ALTRIA GROUP DISTRIBUTION )                  FILED: March 5, 2019
CO., et al.,                 )
                 Appellants. )
              Appeal from the Circuit Court of Jackson County
                   The Honorable Marco Roldan, Judge
     Before Division Two: Alok Ahuja, P.J., and Thomas H. Newton
                       and Mark D. Pfeiffer, JJ.
      Meghann Patrick is a former employee of Altria Group Distribution

Company. After her employment was terminated, Patrick sued Altria and a

supervisor at Altria, alleging employment-related claims under the Missouri

Human Rights Act, § 213.010, RSMo et seq. The defendants moved to compel
arbitration and stay the civil action. The circuit court denied the defendants’

motion, and they appeal. We affirm.

                               Factual Background
      Patrick was hired by Altria in November 2007 as a Territory Sales Manager.

At the time she began her employment, Patrick agreed to a dispute resolution

program which included an arbitration provision.
      In February 2012, Altria distributed to employees a revised dispute

resolution agreement, which superseded the earlier agreement.1 Patrick executed

the revised agreement on February 10, 2012. The agreement established a dispute

resolution program which provided various options for addressing workplace

disputes. The program describes four dispute resolution options: The Open Door

Policy, The Company Ombudsperson, Mediation, and Arbitration. The first three

dispute resolution mechanisms were optional and non-binding. By contrast, under

the agreement all workplace disputes were subject to mandatory and binding

arbitration.

      The agreement defined a covered “dispute” to mean

      any legal or equitable claim, demand, dispute or controversy, whether
      based in tort, in contract, under statute, by common law, or alleging a
      violation of any legal obligation, by and between the Parties, that
      arises out of or relates in any way to the employment relationship
      between [Patrick] and [Altria] . . . including claims which relate to,
      arise from, concern or involve in any way:
               ....
            2.      separation from employment of an Employee, whether
      involuntary, voluntary or “constructive”, the terms and conditions of
      employment, the cessation of employment, wages alleged to be owed
      which are required to be paid pursuant to state or federal statute, and
      benefits (including any modification, amendment or termination of a
      benefit plan) or incidents of employment with [Altria];
               ....
             4.    any other matter arising out of or related in any way to
      the employment relationship between [Patrick] and [Altria] including,
      by way of example and without limitation, allegations of:
      discrimination or harassment based on race, sex, religion, age, marital
      status, pregnancy, national original or disability or other bases; unpaid

      1        The 2012 agreement consisted of two separate documents: an “Agreement to
the Dispute Resolution Program,” which both Altria and Patrick executed; and the “Dispute
Resolution Program” itself, which was incorporated by reference into the Agreement.
Because the distinction between the two documents is not relevant to the issues raised in
this appeal, for ease of reference we refer to the two documents collectively as “the
agreement.”

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      wages or expenses; harassment prohibited by state or federal statute
      or the common law; retaliation or whistleblower claims, including
      workers’ compensation retaliation; defamation; infliction of emotional
      distress; and violation(s) of any federal, state, local or other
      governmental constitution, statute, ordinance, regulation or common
      law.
The agreement excluded from the definition of a “dispute” (1) issues relating to the

formation, interpretation or enforceability of the agreement; (2) any claim that the

class action waiver in the agreement is void or voidable; and (3) any claim for

workers’ compensation benefits, state disability insurance benefits, or

unemployment compensation benefits.

      The agreement provided that, “[i]n the event you and [Altria] are unable to

resolve, or choose not to resolve, any such legal dispute through any of the other

dispute resolution options, you and [Altria] agree to arbitrate any such legal dispute

under the terms of the Program rather than pursue a lawsuit.”

      The agreement gave Altria the power to unilaterally amend or terminate the

dispute resolution program. The agreement defined a “Material Amendment” as “a

change or modification of the Program that significantly changes a substantive

provision relating to arbitration under the Program, such as a change in the

allocation of fees and costs, the Disputes covered, or the limitations on remedies.” A

“Non-Material Amendment” was defined as “any change to the Program which is
not a Material Amendment.” The agreement provided:

            1.     [Altria] may make a Non-Material Amendment at any
      time with or without notice.
            2.    [Altria] may make a Material Amendment at any time,
      provided that:
                   a)     no such amendment will apply to a Dispute
             previously submitted to arbitration under the Program; and
                   b)    no such amendment will be effective until notice of
             the amendment is published to Employees in a reasonable
             manner, such as electronically through [Altria’s] Intranet or

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                electronic mail system (proof of actual receipt by an Employee is
                not necessary).
             3.    [Altria] may terminate this Program at any time,
       provided that:
                      a)    the Program will remain in full force and effect for
                any Dispute previously submitted to arbitration under the
                Program; and
                       b)     termination will not be effective until 30 days after
                notice of termination is published to Employees in a reasonable
                manner, such as electronically through [Altria’s] Intranet or
                electronic mail system (proof of actual receipt by an Employee is
                not necessary).
       Altria terminated Patrick’s employment in March 2016. Patrick filed an

administrative complaint against Altria and supervisor John Hartnett with the

Missouri Human Rights Commission. Following receipt of a right to sue letter from

the Commission, Patrick filed suit against Altria and Hartnett in the Circuit Court

of Jackson County on July 21, 2017.2 She asserted claims under the Missouri

Human Rights Act for gender discrimination, sexual harassment/hostile work

environment, and retaliation.

       Altria filed a Motion to Compel Arbitration and Stay Action. The motion

alleged that a valid and binding arbitration agreement existed between Patrick and

Altria, which required Patrick to pursue her claims in arbitration. Patrick opposed
the motion. She argued, among other things, that the dispute resolution agreement

was not enforceable because it was not supported by adequate consideration.

       The circuit court denied Altria’s motion to compel arbitration. It concluded

that because Altria was given the right to unilaterally modify or terminate the

dispute resolution agreement, the agreement was not supported by mutual

consideration, and was therefore “invalid and unenforceable.”

       2        We refer to Altria and Hartnett collectively as “Altria” in the remainder of
this opinion.

                                               4
       Altria appeals.3

                                       Discussion
       Altria argues that the circuit court erred in denying its Motion to Compel

Arbitration and Stay Action because the parties were bound by a valid and

enforceable arbitration agreement that was supported by adequate consideration.

In response, Patrick argues, among other things, that Altria’s promises in the

dispute resolution agreement were illusory and do not constitute bargained for

consideration, because Altria retained the unilateral right to modify or terminate its

obligations under the agreement.

       The issue of “[w]hether the trial court should have granted a motion to

compel arbitration is a question of law decided de novo.” Ellis v. JF Enters., LLC,

482 S.W.3d 417, 419 (Mo. 2016) (citation omitted).

              When faced with a motion to compel arbitration, we must
       consider three factors. First, we must determine whether a valid
       arbitration agreement exists. Second, if a valid arbitration agreement
       exists, we must determine whether the specific dispute falls within the
       scope of the arbitration agreement. Third, if a valid arbitration
       contract exists, and if the subject dispute is within the scope of the
       arbitration provision, then we must determine whether the arbitration
       agreement is subject to revocation under applicable contract principles.
       In making these determinations, we should apply the usual rules of
       state contract law and canons of contract interpretation.
Frye v. Speedway Chevrolet Cadillac, 321 S.W.3d 429, 434-35 (Mo. App. W.D. 2010)

(citations and internal quotation marks omitted).

       “Under both the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and the

Missouri Uniform Arbitration Act, chapter 435, RSMo, whether the parties entered

into an enforceable arbitration agreement is a preliminary issue for the court to

       3       The order denying Defendants’ motion to compel arbitration is immediately
appealable. Lawrence v. Beverly Manor, 273 S.W.3d 525, 527 n.2 (Mo. 2009) (“This Court
recognizes the appealability of orders denying arbitration despite the fact that such orders
are not final judgments, under the influence, if not the command of provisions of the
Federal Arbitration Act and the Missouri Uniform Arbitration Act relating to appealability
of such orders.”) (citing 9 U.S.C. § 16(a)(1)(B) and § 435.440.1, RSMo).

                                             5
decide, applying Missouri law.” Johnson v. Vatterott Educ. Ctrs., Inc., 410 S.W.3d
735, 738 (Mo. App. W.D. 2013) (citations omitted). In Missouri, “[t]he essential

elements of any contract, including one for arbitration, are offer, acceptance, and

bargained for consideration.” Baker v. Bristol Care, Inc., 450 S.W.3d 770, 774 (Mo.

2014) (citation and internal quotation marks omitted).

      The only contractual element at issue in this case is whether the parties

exchanged consideration for the Agreement. “Consideration consists either of a

promise (to do or refrain from doing something) or the transfer or giving up of

something of value to the other party.” Id. (citation and internal quotation marks

omitted). Mutual promises can constitute adequate consideration to support an

enforceable contract.

      [B]ilateral contracts are supported by consideration and enforceable
      when each party promises to undertake some legal duty or liability.
      These promises, however, must be binding, not illusory. A promise is
      illusory when one party retains the unilateral right to amend the
      agreement and avoid its obligation.
Id. at 777 (citations omitted); see also Soars v. Easter Seals Midwest, 563 S.W.3d
111, 116 (Mo. 2018); Frye, 321 S.W.3d at 442 (“A contract that purports to exchange

mutual promises will be construed to lack legal consideration if one party retains

the unilateral right to modify or alter the contract as to permit the party to
unilaterally divest itself of an obligation to perform the promise initially made.”).

      In Baker, the Missouri Supreme Court found an employer’s promise to

arbitrate its claims against an employee to be illusory where the employer retained

the “‘right to amend, modify or revoke this agreement upon thirty (30) days’ prior

written notice to the Employee.’” 450 S.W.3d at 776 (quoting agreement). Because

the agreement permitted the employer to modify the arbitration agreement

retroactively, the Supreme Court held that it was illusory and could not supply
adequate consideration. The Court explained:

                                           6
      The fact that Bristol must give prior written notice of an amendment
      to the arbitration agreement does not preclude Bristol from giving
      Baker prior written notice that, effective in thirty days, Bristol
      retroactively is disclaiming a promise made in the arbitration
      agreement. For instance, if in the course of an ongoing arbitration
      process, Bristol concluded that the process was not favorable, Bristol
      could provide Baker notice that, effective in 30 days, it no longer would
      consider itself bound by the results of the arbitration. While the
      dissent concludes summarily that no court would adopt a construction
      of the agreement allowing Bristol to disclaim or modify its arbitration
      promises unilaterally at any time for its own benefit, the fact remains
      that the language of the agreement would permit Bristol to do just
      that.
            . . . . Contracts, like the arbitration agreement in this case, that
      permit unilateral, retroactive amendment are deemed illusory and do
      not constitute consideration to create an enforceable contract.
Id. at 777 (citations omitted).

      The fact that an employer has the unilateral right to amend an arbitration

agreement may not render the agreement illusory, if the employer’s power to modify

the agreement is meaningfully restricted. In Frye, 321 S.W.3d 429, we recognized

that “limiting an employer's unilateral right to amend an arbitration agreement to

amendments that [(1)] are prospective in application and [(2)] about which

employees have been afforded reasonable advance notice may prevent an employer's

mutual promise from being rendered illusory.” Id. at 443.

      In this case, the agreement gives Altria the unilateral right to make

“material amendments” to the dispute resolution agreement, which may include

“change[s] in the allocation of fees and costs, the Disputes covered, or the

limitations on remedies.” Altria’s right to make such material—and unilateral—

modifications is not limited in the fashion Frye contemplated: (1) the agreement

does not limit material modifications to prospective-only application; and (2) the

agreement does not require Altria to give advance notice of material modifications

to employees. Instead, the agreement only prohibits material amendments from
affecting “a Dispute previously submitted to arbitration under the Program”—which

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means that a material amendment could apply to claims which have accrued, and of

which Altria has notice, but which have not yet been submitted to arbitration.

(Such “accrued-but-unasserted” claims would include claims in which an employee

had invoked the voluntary and non-binding dispute resolution mechanisms

specified in the agreement.) In addition, the agreement does not require that Altria

provide advance notice of material amendments to its employees: the agreement

provides that material amendments become effective upon the publication of notice

to employees, meaning that employees are given contemporaneous—but not

advance—notice of material amendments to the dispute resolution agreement.4

      Thus, under Altria’s dispute resolution agreement, if an employee had

complained to the company about alleged employment discrimination, but had not

yet commenced arbitration proceedings, Altria would have the ability to modify the

dispute resolution agreement to eliminate discrimination claims from the scope of

arbitrable disputes, and the employee would have no ability to invoke arbitration

before that modification became effective. Given Altria’s ability to materially

modify the dispute resolution agreement with respect to accrued claims, and

without prior notice to employees, its promise to arbitrate is illusory, and cannot

constitute adequate consideration to support the dispute resolution agreement’s
enforceability.

      Although we are not aware of any reported Missouri decisions addressing this

precise issue, numerous courts in other jurisdictions have held that a party’s

promise to arbitrate is illusory where it retains the unilateral right to modify the

arbitration agreement with respect to claims which have accrued, but are not yet in

arbitration. In some of these cases, the courts have held that the application of

      4        The material amendments provision contrasts with the agreement’s
termination provision, which provides that Altria may not terminate the program “until 30
days after notice of termination is published to Employees.” (Emphasis added.)

                                            8
unilateral contract modifications to accrued-but-unasserted claims renders an

arbitration agreement illusory, even if the other party is provided with advance

notice of the contract modifications. As the California Court of Appeal explained in

a case in which an employer could alter an arbitration agreement on 30 days’ notice,

applicable to any claims for which arbitration had not yet been initiated:

              We do not suggest the Agreement is unenforceable solely
       because it exempts filed claims from contract changes. Rather, the
       Agreement fails because it exempts only filed claims—it does not go far
       enough. The Agreement should also exempt claims that have accrued
       or are known to the employer that are not filed within 30 days.
       Otherwise, Neiman Marcus would have the unfettered unilateral right
       to modify the arbitration process or terminate the Agreement as to
       those claims. It would retain the ability to pick and choose the claims
       it wants to arbitrate, making the company's performance optional and
       thus illusory.
              ....
               The vice of the modification provision in this case is that it
       allows the employer to manipulate the arbitration process, tailoring it
       to fit specific cases, either by making the process more difficult or more
       expensive for the employee, or by revoking the Agreement in the belief
       that a judicial forum is preferable. Accordingly, if a claim has accrued
       or if the employer knows about a claim, all parties to the Agreement
       should be bound by the version in effect at that time; no changes
       should apply after the point of accrual or knowledge.
Peleg v. Neiman Marcus Grp., Inc., 140 Cal. Rptr. 3d 38, 61, 63 (App. 2012) (Texas
law) (emphasis added; citations, brackets, and internal quotation marks omitted).5

       In other cases, courts have held that arbitration promises are illusory where

a party has the unilateral right to modify an arbitration agreement with respect to

accrued-but-unasserted claims, and the other party is not given advance notice of

       5      See also, e.g., Moua v. Optum Servs., Inc., 320 F. Supp.3d 1109, 1113–14
(C.D. Cal. 2018); Totten v. Kellogg Brown & Root, LLC, 152 F. Supp.3d 1243, 1252–53 (C.D.
Cal. 2016); Cummings-Reed v. United Health Group, 2:15-CV-02359-JAM-AC, 2016 WL
1734873, at *3–4 (E.D. Cal. May 2, 2016); Keanini v. United Healthcare Servs., Inc., 33 F.
Supp. 3d 1191, 1197–99 (D. Haw. 2014); Reyes v. United Healthcare Servs., Inc., 2014 WL
3926813, at *2–*3 (C.D. Cal. Aug. 11, 2014); Flemma v. Halliburton Energy Servs., Inc., 303
P.3d 814, 822 (N.M. 2013).

                                            9
the modifications (so that it could initiate arbitration under the unmodified

agreement). As the Texas Court of Appeals explained, without advance notice of

contract modifications,

       once a claim arises, the forum in which that claim will be decided
       hinges not on mutually binding promises, but on a race between
       employer and employee, with the party who acts first controlling the
       outcome. While [the employer] may force the employee to fulfill her
       promise and arbitrate claims, the employer is bound to its own
       reciprocal promise only when the employee reaches the arbitrator's
       door before the employer can unilaterally revise or terminate the
       agreement without notice and at its own discretion. Because [the
       employer’s] ability to select which claims it arbitrates is restrained
       only by the speed at which it can alter or terminate the Agreement
       before formal arbitration commences, its promise was illusory.
Temp. Alts., Inc. v. Jamrowski, 511 S.W.3d 64, 70 (Tex. App. 2014). These cases

hold that a contracting party must be given sufficient advance notice of unilateral

modifications of an arbitration agreement, so that it has an opportunity to invoke

the unmodified arbitration procedures if it chooses.6

       It is unnecessary in this case to decide whether an arbitration agreement is

always illusory if a party is given the power to modify the agreement as to accrued

claims, or whether advance notice of unilateral modifications is sufficient to avoid a

finding that the agreement is unenforceable. In this case, Altria’s dispute
resolution agreement fails under either standard: it plainly allows Altria to make

unilateral, material modifications to the agreement which apply to accrued-but-

unasserted claims; but the agreement also provides that those amendments become

effective without any advance notice to employees. Thus, under either of the

approaches discussed above, Altria’s modification power renders its promise to

       6      See, e.g., Henry & Sons Constr. Co., Inc. v. Campos, 510 S.W.3d 689, 693–95
(Tex. App. 2016); Jaworski v. Ernst & Young U.S. LLP, 119 A.3d 939, 947–48 (N.J. Super.
Ct. App. Div. 2015); Pierce v. Kellogg, Brown & Root, Inc., 245 F. Supp. 2d 1212, 1215 (E.D.
Okla. 2003)

                                            10
arbitrate illusory, and the dispute resolution agreement therefore fails for lack of

consideration.

       Altria makes two additional arguments in defense of the agreement. First, it

argues that concerns over its power to unilaterally modify the dispute resolution

agreement are “purely hypothetical,” because Altria has not in fact exercised its

right to modify the dispute resolution program since it was adopted in 2012. We

determine whether an agreement is supported by consideration as of the time it was

executed, however. Turner v. Sch. Dist. of Clayton, 318 S.W.3d 660, 670 (Mo. 2010)

(consideration “‘must be measured at the time the parties enter into their contract’”;

citation omitted). Whether or not Altria ultimately exercised its authority to modify

the agreement is irrelevant.

       Altria also argues that its right to unilaterally modify the dispute resolution

agreement is “checked by the duty of good faith and fair dealing.” Although the

duty of good faith and fair dealing may in some circumstances be invoked to uphold

an agreement against a claim that it is illusory, the duty of good faith and fair

dealing “has nothing to do with the enforcement of terms actually negotiated and

cannot block [the] use of terms that actually appear in the contract.” Morrow v.

Hallmark Cards, Inc., 273 S.W.3d 15, 31 n.1 (Mo. App. W.D. 2008) (Ahuja, J.,
concurring) (citation omitted). “Thus, any implied duty of good faith and fair

dealing could not ‘trump’ [Altria’s] right to discontinue” or amend the program

under the agreement’s express terms. Id.7 The duty of good faith and fair dealing

could not be invoked to deny Altria its clear contractual right to modify the terms of

       7      As the California Court of Appeal explained in Peleg: “[i]f . . . a modification
provision expressly addresses whether contract changes apply to claims that have accrued
or are known to the employer, the covenant [of good faith and fair dealing] cannot create
implied terms that contradict the express language.” 140 Cal. Rptr. 3d at 68; accord, e.g.,
Moua v. Optum Servs., Inc., 320 F. Supp. 3d 1109, 1114 (C.D. Cal. 2018); Cummings-Reed v.
United Health Group, 2:15-CV-02359-JAM-AC, 2016 WL 1734873, at *3 (E.D. Cal. May 2,
2016); Totten v. Kellogg Brown & Root, LLC, 152 F. Supp.3d 1243, 1253 (C.D. Cal. 2016).

                                             11
the dispute resolution agreement with respect to accrued-but-unasserted claims,

unilaterally and without advance notice.8

                                        Conclusion
       The dispute resolution agreement fails for lack of consideration because

Altria’s promise to arbitrate is illusory in light of its ability to unilaterally and

materially modify the agreement. We affirm the circuit court’s order denying

Altria’s motion to compel arbitration.

                                                   ___________________________________
                                                   Alok Ahuja, Judge
All concur.

       8       In its reply brief, Altria also argues that the modification provision could be
severed, and the remainder of the dispute resolution agreement enforced. Because this
argument was not raised until Altria’s reply brief, at which point Patrick had no
opportunity to respond, it was not properly presented and we do not address it. See, e.g.,
State ex rel. Lavender Farms, LLC v. Ashcroft, 558 S.W.3d 88, 94–95 (Mo. App. W.D. 2018)
(“Issues not raised by appellants in their opening brief cannot be raised for the first time in
the reply brief, and are not properly preserved.”); Blankenship v. Div. of Emp’t Sec., 327
S.W.3d 579, 582 n.4 (Mo. App. S.D. 2010) (same).

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