FAA Trumps Missouri Law Regarding Formation of a Valid Arbitration Agreement

An arbitration agreement that violates arbitration notification procedures required by Missouri law is valid because the Federal Arbitration Act (FAA) trumps Missouri law, according to the Missouri Court of Appeals.

In Kagan v. Master Home Products, No. ED 86574, 2006 WL 1527140 (Mo.App. June 6, 2006), a dispute arose over a royalty agreement regarding a shower attachment product called “Mr.Misty.” The parties signed an agreement which contained an arbitration clause, calling for all “disagreements as to royalties” to be arbitrated. Kagan brought suit alleging an accounting deficit of $188.

The Court first concluded that the dispute fell within the scope of the arbitration clause. Royalties accounting did constitute a “disagreement as to royalties,” because an action in accounting was not separate from any dispute concerning royalties.

The Court then addressed whether the FAA preempted the Missouri Act, which required specific arbitration notification language, and concluded that it did. The agreement also stipulated that Illinois law applied, and arbitration would be required in the present dispute in Illinois. The fact that the dispute involved interstate commerce and parties from different states, provided further justification to apply the FAA.

The FAA clearly preempted the “notice of arbitration provisions” of the Missouri Act because the FAA has no similar notice requirement. Bunge Corp. v. Perryville Seed & Produce, Inc., 685 S.W.2d 837, 838 (Mo. 1985).