Missouri Supreme Court Ruling Explained

Reprinted from Qblog

The Missouri Supreme Court issued its opinion and ruling in Nitro Distributing, Inc., et. al. v. Jimmy Dunn et. al. on May 2, 2006. The case is about whether two motivational businesses owned by Amway distributor Ken Stewart - "Nitro Distributing" and "West Palm Convention Services" - have to arbitrate their lawsuit against several other Amway distributors and their respective "tools" businesses - primarily those involved in an Amway "Line of Affiliation" or "system" called Pro-net.

The defendants are: Jimmy Dunn; Jimmy V. Dunn & Associates, Inc.; Hal Gooch; Gooch Support Systems, Inc.; Gooch Enterprises, Inc.; Bill Childers; TNT, Inc.; Tim Foley; T&C Foley, Inc. ; Steven Woods; G.F.I. International, Inc.; Parker Grabill; Grabill Enterprises, Inc.; Pro Net; Don Brindley; Global Support Services, Inc.; Pro Net Global I, Inc.; and Robert A. Blanchard.

Nitro was Stewart's tape, video and book company. West Palm was the business through which he provided speaking services at conventions.

No Confusion
This case should not be confused with Stewart's individual case in the Missouri federal court against Amway and Quixtar, in which United States District Court Judge Richard Dorr ruled that Amway's arbitration agreement was legally unenforceable because it was procedurally and substantively unconscionable. Judge Dorr's order is still on appeal in the federal Eighth Circuit Court of Appeals.

This case involves Stewart's tools businesses as the plaintiff instead of Stewart himself, and it's against other tools kingpins and their tools businesses from the system of which Stewart's tools businesses were once a part - ProNet.

Importantly, unlike the case in Judge Dorr's court, this opinion does not deal with whether the Amway/Quixtar arbitration agreement is legally valid. It mainly concerns whether the different parties can sue to enforce the Amway arbitration agreement as third parties (they can't, said the Missouri Supreme Court) and whether some of the defendants could enforce a different arbitration agreement that was part of the ProNet contracts (they could, held the court).

No Legal Basis
The Missouri Supreme Court concluded that there was no legal basis for any of the parties to enforce the Amway/Quixtar arbitration agreements against Stewart's tools businesses because the tools businesses did not sign the agreements with Amway and, therefore, they weren't legally bound to arbitrate under that agreement. The court also decided that since the suit wasn't against Amway and wasn't brought by an Amway distributor, the Amway arbitration clause wouldn't apply to the lawsuit anyway.

However, the court found that there was another arbitration agreement that came about as part of the formation of ProNet. With regard to the ProNet arbitration agreement, the court held that West Palm never signed it and could not be bound by if for the same reasons West Palm was not bound by the Amway arbitration agreement. On the other hand, Stewart did sign the ProNet arbitration agreement in the name of Nitro. Thus, the court concluded that Nitro was bound by the ProNet arbitration agreement. Not all of the defendants had signed the ProNet agreement though - only Gooch, Childers, Foley, Woods, Grabill, Dunn, Pro Net, and Blanchard.

The court concluded that Nitro's lawsuit against Gooch, Childers, Foley, Woods, Grabill, Dunn, Pro Net, and Blanchard had to be dismissed because of the ProNet arbitration agreement, but that West Palm's claims against all of the defendants could go forward in the trial court, as could Nitro's claims against the non-signatories to the ProNet agreement, Gooch Systems, Gooch Enterprises, TNT, Pro Net I, Global and Brindley.

End Result
The end result: the majority of the case will go back to the trial court as a regular lawsuit, while a small part will be resolved in arbitration. Obviously, this opinion does not have as wide an impact on the arbitration agreements as the federal case involving Amway/Quixtar itself. However, it could be very important, particularly if discovery reveals information about how these tools systems operate.

 

 

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