Extrinsic Evidence May Be Used to Ascertain the Intent of Ambiguous Arbitration Agreement

The Missouri Court of Appeals held that an arbitration agreement was ambiguous and remanded the case to the trial court to resolve the ambiguity.

In Jackson County v. McClain Enterprises, Inc., No. WD 66025, 2006 WL 1223041 (Mo. Ct. App. May 9, 2006), Jackson County (“the County”) sued McClain and Bill House Excavating (“BHE”) alleging that they had taken soil from county property without authorization.

BHE moved to compel arbitration based on a letter sent by the County to McLain and BHE. In the letter, the County offered “to submit the dispute to binding arbitration before retired Circuit Judge John Moran.” The letter detailed the terms and conditions of the arbitration.

Both McClain and BHE accepted the offer to arbitrate, but the parties later discovered that Judge Moran would not arbitrate the dispute. In opposing the motion to compel arbitration, the County claimed that the agreement was unenforceable because Judge Moran serving as arbitrator was an essential term of the agreement. The trial court denied the motion.

On appeal, the County argued that BHE could not appeal from the order denying the motion to compel arbitration. The Court rejected this argument because the Missouri Uniform Arbitration Act “expressly grants the right to appeal orders denying an application to compel arbitration.”

In interpreting the contract (i.e., the letter), the Court concluded that it was ambiguous whether Judge Moran serving as arbitrator was an essential term of the agreement. Given the ambiguity, the Court noted that it would be proper to use extrinsic evidence to ascertain the intent of the parties.

Since the trial court denied the motion without conducting a hearing or considering extrinsic evidence, the Court remanded the case to the trial court for a hearing on “whether Judge Moran’s service as an arbitrator was an essential term to the contract.”