I think they may
have done just that, at least in Missouri.
Us kids who work with or in the financial services industry know that
brokers like Edward Jones frequently run to court when a broker leaves
them. They seek a TRO, ostensibly to
prevent the broker from misusing confidential information or violating a
non-complete agreement. Fair
enough.
Now, ask
yourself – When is the last time the financial adviser went to court to seek
some kind of equitable relief? Almost
never, in part because the circumstances that would invite equitable relief for
the adviser himself are much narrower.
According to the
typical Investment Adviser Account Agreement between the financial adviser and
the broker-dealer, both parties are required to resolve their disputes in a
FINRA Arbitration. Would that
arbitration clause be binding in the Eastern District? Or does it lack the requisite mutuality,
since, in effect, only the broker-dealer can avail itself of the state and
federal courts?
Last month, in
the case of Jimenez v. Cintas Corp., No. ED 1011015 (2014), the Court of
Appeals affirmed the trial court’s refusal to grant arbitration of
Ms. Jimenez’ employment discrimination claim. The Court’s affirmation rested upon its own
conclusion that the parties’ “Employment Agreement” contained a binding
arbitration clause that excluded claims for declaratory judgment or injunctive
relief concerning the employees covenants only. The covenants include confidentiality and
competition obligations. Id. at 3.[1] Therefore, the agreement to arbitrate lacked
uniformity. As such, the employer’s “promise to arbitrate
[was] devoid of mutuality of obligation.
Accordingly, [employer’s] professed promise to arbitrate [was] not valid
consideration and does not support a determination that the parties formed a
valid agreement.” Id. at 14.
The Court of
Appeals observed initially that the contract at issue was “bilateral”, and that
valid consideration for a bilateral contract “rests solely on whether the
parties promises to each other are mutually binding.” Since, in
effect, the employer could
still side-step arbitration in non-compete matters, the promises to arbitrate
were not equally binding. Id. At 9. More specifically, citing Frye v. Speedway
Chevrolet Cadillac, 321 S.W.3d 429 (Mo. App. W.D. 2010), the Court
stated:
“A contract that
purports to exchange mutual promises will be construed as lacking legal
consideration if one party retains the right to unilaterally divest itself of
an obligation to perform the promise initially made.”
The following
analysis should bring a chill to the broker-dealer’s in-house counsel, or counsel
for any party that blindly succeeds in divesting itself of a contractual
obligation to perform a mutual promise, whether it be arbitration, confidentiality, or
competition:
Section 8 of the
Agreement requires that Cintas and Jimenez arbitrate any unresolved “claims for
damages, as well as reasonable costs and attorney’s fees, caused by [the
other]’s violation of any provision of this Agreement or any law, regulation or
public policy.” However, it expressly
exempts from arbitration: “workers’
compensation claims, unemployment benefits claims, clams for a declaratory judgment or injunctive relief concerning any
provision of Section 4 and claims not lawfully subject to arbitration. . .
.”
(Emphasis
added).
Defendants argue
that the above terms in Section 8 plainly require both parties to arbitrate
their disputes, with several exceptions, and these terms should be construed as
“mutual in all relevant respects.” On
its face, we agree that the language in Section 8 plainly states that both
parties must arbitrate all of their claims except: workers’ compensation claims, unemployment
benefits claims, claims not lawfully subject to arbitration, and “claims for a
declaratory judgment or injunctive relief concerning any provision of Section 4
. . . .”
Jimenez, however,
correctly points to additional language in Section 4, providing that only
the:
Employer[,] may
apply to any court of competent jurisdiction for a temporary restraining order,
preliminary injunction or other injunctive relief to enforce Employee’s
compliance with the obligations, acknowledgments and covenants in this Section
4. Employer may also include as part of
such injunction action any claims for injunctive relief under any applicable
law arising from the same facts or circumstances as any threatened or actual
violations of Employee’s obligations, acknowledgments and covenants in this
Section 4.
The effect of
the language in Section 4, Jimenez asserts, is that Cintas alone is exempted
from arbitrating alleged violations of the Non-Compete Provisions.
Defendants reply
that the plain terms of Section 8 do not specify which party may seek judicial
relief for alleged violations of the Non-Compete Provisions of Section 4, and
so we should construe Section 8 to mean that both parties are exempt from
arbitrating alleged violations of the Non-Compete Provisions of Section 4. But this interpretation would render
meaningless the express language of Section 4, which provides that Cintas alone
may apply “for a temporary restraining order, preliminary injunction or other
injunctive relief to enforce [Jimenez]’s compliance with the obligations,
acknowledgements and covenants in this Section 4.”
We construe a
contract as a whole so as not to render any terms meaningless. See
Chochorowski v. Home Depot U.S.A., 404 S.W.3d 220, 229 (Mo. banc
2013). Furthermore, when construing the
language of a contract, specific terms and provisions are given preference over
general terms. See General American Life Ins. Co. v. Barrett, 847 S.W.2d 125, 133 (Mo. App. W.D.
1993). We, therefore, cannot ignore
the specific language of Section 4.
We agree with
Jimenez that Cintas alone is exempted from arbitrating disputes concerning
Section 4’s Non-Compete Provisions, while Jimenez is bound to arbitrate those
same claims. We also agree that this
exception allows Cintas to refrain from arbitrating those claims it is most
likely to bring against Jimenez.
[Footnote excluded]. At the same
time, Jimenez is bound to arbitrate all of those claims legally
arbitrable. [Footnote excluded]. Thus, the Agreement allows Cintas to seek
redress through the court system for those claims it is most likely to have
against Jimenez, while binding Jimenez to arbitrate all legally arbitrable
claims she may have against Cintas.
Equally critical
to resolution of this issue is that the plain language of Section 4 allows
Cintas to file “any claims for injunctive relief under any applicable law arising from the same facts or
circumstances as any threatened or actual violation of Employee’s obligations .
. . in this Section 4.” (Emphasis
added). This expansive clause arguably
renders illusory Cintas' promise to arbitrate, by permitting Cintas to seek
redress in the courts based upon its bare allegation that such claims are tied
to Section 4’s Non-Compete Provisions.
Cintas may litigate at its discretion, while Jimenez is bound to
arbitrate all of her legally arbitrable claims.
Where the practical
effect of an arbitration agreement binds only one of the parties to
arbitration, it lacks mutuality of promise and is devoid of consideration.
Id. At 11-13. Food for thought when evaluating the
enforceability of an arbitration clause in Missouri.
[1] Notably, the trial court rested
its conclusion upon lack of consideration, as well as unconsciousability.
