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A Better Partnership
April 04, 2016

MSC: Arbitration clause included in invoice for art purchased on a cruise ship does not apply retroactively to previous purchases

An arbitration clause contained in an invoice for a later-executed artwork purchase cannot be applied to disputes arising under invoices from prior sales that did not contain the clause, held the Michigan Supreme Court in Beck et al. v. Park West Galleries, Inc. et al., No. 151687.  The Court further held that a party cannot be required to arbitrate a dispute to which he has not agreed to arbitrate.
 
The plaintiffs in this case purchased artwork from the defendant on various occasions spanning 2003 to 2009 while on a cruise ship.  The invoices from 2003 and 2004 for two of the plaintiffs (the “Oppenheims”) did not contain an arbitration clause that defendant started to include on invoices beginning in 2007.  Years after purchase, the plaintiffs discovered that their artwork was not worth the represented value and some was forged.  They filed suit against defendant.  Defendant filed a motion for summary judgment, but the trial court declined to dismiss the claims brought by the Oppenheims because their invoices from 2003 and 2004 did not contain the arbitration clause.  The trial court also determined that the arbitration clause in the later invoices did not extend to the 2003 and 2004 purchases.  On appeal, the Court of Appeals reversed the trial court in part and concluded that the arbitration clause in invoices for the later-executed purchases applied retroactively to the prior purchases for which the invoices did not contain the clause.  The plaintiffs filed an application for leave to appeal to the Supreme Court.
 
The Supreme Court concluded that the Court of Appeals erred because “‘a party cannot be required to arbitrate an issue which he has not agreed to submit to arbitration,’ and there is no evidence from which this Court can conclude that the parties’ intended to subject the earlier transactions to arbitration.”  According to the Court, Michigan law requires that separate contracts be treated as such, and therefore, each invoice, in this case, constituted a separate contract capable of independent enforcement.  Significant,  was the fact that the plain language of the arbitration clause in the later invoices did not contain language that referred to previous transactions between the parties.  The Court dismissed the Court of Appeals reliance on a general policy of Michigan courts to resolve all conflicts in favor of arbitration and held that this general policy cannot trump the actual intent and the agreement of the two parties. 
 
Accordingly, the Supreme Court reversed the part of the Court of Appeals decision that applied the arbitration clause to the parties’ prior transactions and remanded the case for consideration of issues raised on appeal that the Court of Appeals did not address.

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