625 S.W.3d 713
Ark. Ct. App.2021Background
- EBF Partners, LLC (d/b/a Everest Business Funding) and Letha’s Pies, LLC executed a Purchase and Sale of Future Receivables Agreement in December 2016 containing an arbitration clause.
- The arbitration clause allowed either party (or a guarantor) to demand arbitration; it also included a 14-day opt-out right for Seller and guarantors. The clause waived jury trials and barred class/representative proceedings.
- Other contract provisions gave EBF certain post-default "self-help" and judicial remedies (e.g., confession of judgment, suits in New York, ACH debits, foreclosure/replevin-type remedies) unless arbitration was invoked.
- On July 3, 2019, Letha’s and its owners filed a putative class action against EBF and argued the arbitration clause was unenforceable for lack of mutuality because EBF retained judicial remedies.
- The circuit court denied EBF’s motion to compel arbitration, finding the remedies provisions created an asymmetry and destroyed mutuality. EBF appealed.
- The Court of Appeals reversed and remanded, holding that under controlling Arkansas and U.S. precedent (notably Jorja Trading), the agreement’s arbitration provision is valid and mutuality was not defeated by EBF’s reserved remedies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is unenforceable for lack of mutuality of obligation | Letha’s: EBF’s reservation of judicial/self-help remedies (confession of judgment, suit in NY, etc.) makes arbitration one-sided and destroys mutuality | EBF: Arbitration is mutual because either party may invoke it; seller could opt out within 14 days, and judicial remedies apply only when arbitration is not invoked | Reversed: mutuality satisfied. Jorja Trading and FAA principles prohibit invalidating arbitration clauses solely because some non-arbitration remedies are reserved; mutuality is assessed under general contract law |
Key Cases Cited
- Jorja Trading, Inc. v. Willis, 2020 Ark. 133, 598 S.W.3d 1 (Ark. 2020) (mutuality of arbitration clause assessed under ordinary contract principles; reservation of self-help does not automatically destroy mutuality and FAA preempts special rules targeting arbitration)
- Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (U.S. 2017) (FAA preemption limits state rules that single out arbitration agreements for disfavored treatment)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (state-law defenses that conflict with FAA objectives are preempted; class-waiver enforceable)
- The Money Place, LLC v. Barnes, 349 Ark. 411, 78 S.W.3d 714 (Ark. 2002) (Arkansas mutuality-of-obligation requirement for contracts)
- Lindner v. Mid-Continent Petroleum Corp., 221 Ark. 241, 252 S.W.2d 631 (Ark. 1952) (mutuality does not require identical obligations; consideration is sufficient if duties are reciprocally undertaken)
- Johnson v. Johnson, 188 Ark. 992, 68 S.W.2d 465 (Ark. 1934) (same principle regarding sufficiency of mutual obligations)
- Robinson Nursing & Rehab. Ctr., LLC v. Phillips, 2019 Ark. 305, 586 S.W.3d 624 (Ark. 2019) (framework for determining existence/scope of arbitration agreement and applying state contract law)