LAGB, LLC. v. Total Merchant Services, Inc., 284 So.3d 720

Background

LAGB, LLC formed to buy, renovate, and lease a building to Mama Kio’s Grill; the parties executed a commercial lease.
Mama Kio’s entered a Merchant Credit Card Processing Application and Agreement with Total Merchant Services (TMS); the application incorporated a longer Merchant Agreement available by URL that included an arbitration clause.
A software error at TMS failed to collect tips, then reprocessing double- and triple-billed ~3,000 customers, resulting in >$400,000 in improper charges and temporary restaurant closure.
LAGB sued Mama Kio’s for breach of the lease and sued the payment processors in the alternative for negligence and tortious interference; Mama Kio’s asserted cross-claims (misrepresentation, breach of fiduciary duty, tortious interference) against processors.
The processors moved to compel arbitration of both LAGB’s claims and Mama Kio’s cross-claims based on the Merchant Agreement; the trial court compelled arbitration for both LAGB and Mama Kio’s.
On appeal, the Mississippi Supreme Court affirmed arbitration for Mama Kio’s cross-claims but reversed as to LAGB, holding LAGB—a nonsignatory—was not bound by the arbitration clause.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
1. Is there a valid arbitration agreement?	Mama Kio’s: Garcia signed the Merchant Application which incorporated the Merchant Agreement, so arbitration is binding.	Processors: Merchant Application and Merchant Agreement form an enforceable contract including arbitration.	Yes as to Mama Kio’s; Merchant Agreement was valid and incorporated.
2. Does the dispute fall within the scope of the arbitration clause?	Mama Kio’s: cross-claims arise out of the processors’ breach of the Merchant Agreement.	Processors: claims relate to the Agreement and fit §1.50’s broad "arising out of or relating to" language.	Yes; Mama Kio’s claims fall within the arbitration scope.
3. Do external legal constraints (e.g., unconscionability) prevent arbitration?	Mama Kio’s: clause is procedurally and substantively unconscionable (inconspicuous, one-sided, unequal bargaining power).	Processors: clause was conspicuous, negotiable (could decline), and mutual; not oppressive.	No; court found no procedural or substantive unconscionability; arbitration enforceable against Mama Kio’s.
4. Is LAGB bound by the arbitration clause as a nonsignatory/third-party beneficiary?	LAGB: never contracted with processors, no mutual assent or consideration, not a third-party beneficiary, so cannot be compelled.	Processors: LAGB’s tort claims arise from breaches of the Merchant Agreement and thus fall within arbitration.	No; LAGB is not bound. Compelling arbitration as to LAGB was error; that portion reversed and remanded.

Key Cases Cited

Tupelo Auto Sales, Ltd. v. Scott, 844 So. 2d 1167 (Miss. 2003) (standard of review for arbitration orders).
Smith ex rel. Smith v. Captain D’s, LLC, 963 So. 2d 1116 (Miss. 2007) (two-prong test for arbitrability: agreement and external constraints).
Woodruff v. Thames, 143 So. 3d 546 (Miss. 2014) (requirements for effective incorporation by reference).
Terminix Int’l, Inc. v. Rice, 904 So. 2d 1051 (Miss. 2004) (presumption that a signer knows the contract terms).
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (U.S. 1996) (contract defenses may bar arbitration clauses).
Qualcomm, Inc. v. Am. Wireless License Grp., 980 So. 2d 261 (Miss. 2007) (nonsignatory enforcement of arbitration by ordinary contract/agency principles).
Adams v. Greenpoint Credit, LLC, 943 So. 2d 703 (Miss. 2006) (a party cannot be compelled to arbitrate disputes it did not agree to submit).
Miss. Care Ctr. of Greenville, LLC v. Hinyub, 975 So. 2d 211 (Miss. 2008) (nonsignatory may be bound under contract/agency principles).