FILED
No. 18-0605 – TD Auto Finance LLC, Focus Receivables Management, April 10, 2020
and Northstar Location Services, LLC, v. Freddie Reynolds released at 3:00 p.m.
and Shelby Reynolds EDYTHE NASH GAISER, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
Hutchison, J., concurring:
I write separately to emphasize what this case is and what it is not about. I
also write to point out that the position propounded by petitioner TD Auto Finance would
create chaos in the law of contracts.
First, and foremost, this case is not about arbitration. Admittedly, the
contract provision the parties are dickering over concerns arbitration. Additionally, in its
brief, TD Auto Finance cites a string of federal arbitration cases, insists that this Court’s
authority is “extremely limited,” and argues that federal law emphatically mandates that
we send this case to arbitration. This argument ignores, however, the fundamental rule that
arbitration contracts are subject to interpretation using general principles of state contract
law, not federal law. See, e.g., Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987) (“[S]tate
law, whether of legislative or judicial origin, is applicable if that law arose to govern issues
concerning the validity, revocability, and enforceability of contracts generally.”);
Chesapeake Appalachia, L.L.C. v. Hickman, 236 W. Va. 421, 435, 781 S.E.2d 198, 212
(2015) (“[A]n agreement to arbitrate is a contract. The rights and liabilities of the parties
are controlled by the state law of contracts.”). Moreover, the federal law cited by TD Auto
Finance is largely irrelevant because, at its heart, this case has absolutely nothing to do
with arbitration.
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This case is a dull, run-of-the-mill, state-law contract interpretation case.
Every first-year law student knows that a contract is defined as one party’s acceptance of
another’s offer of specific terms (along with an exchange of consideration). Dan Ryan
Builders, Inc. v. Nelson, 230 W. Va. 281, 287, 737 S.E.2d 550, 556 (2012)
(“The elements of a contract are an offer and an acceptance supported by consideration.”).
If any one of the three elements (offer, acceptance, or consideration) is missing, then no
contract is formed. Logically, an offer – with all of its terms – must precede the opposite
party’s acceptance of those very same terms. “As a general principle, an offeree cannot
actually assent to an offer unless the offeree knows of its existence.” Schnabel v. Trilegiant
Corp., 697 F.3d 110, 121 (2d Cir. 2012). Accordingly (and this shouldn’t have to be said),
an offeree cannot “know” about an offer and assent to it before it even exists. See Taubman
Cherry Creek Shopping Ctr., LLC v. Neiman-Marcus Grp., Inc., 251 P.3d 1091, 1095
(Colo. App. 2010) (“[W]e are aware of no precedent holding that parties can clearly know
of and assent to contract terms that do not yet exist[.]”).
This case is about a sub-doctrine of contract law, the doctrine of
“incorporation by reference.” The long-standing rules of contracts recognize that parties
can make a new contract, and in that new contract refer to other, existing documents or
contracts. Stated another way, a party can offer to form a contract using terms written in
other documents; the opposing party may then accept those terms. Those other materials
must be clearly identified so there is no doubt by both parties as to what they are agreeing
to. As noted above, an offeree cannot assent to something that does not exist.
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This Court summarized the doctrine of incorporation in this way:
In the law of contracts, parties may incorporate by
reference separate writings together into one agreement.
However, a general reference in one writing to another
document is not sufficient to incorporate that other document
into a final agreement. To uphold the validity of terms in a
document incorporated by reference, (1) the writing must make
a clear reference to the other document so that the parties’
assent to the reference is unmistakable; (2) the writing must
describe the other document in such terms that its identity may
be ascertained beyond doubt; and (3) it must be certain that the
parties to the agreement had knowledge of and assented to the
incorporated document so that the incorporation will not result
in surprise or hardship.
Syllabus Point 2, State ex rel. U-Haul Co. of W.Va. v. Zakaib, 232 W. Va. 432, 752 S.E.2d
586 (2013) (emphasis added).
The key term throughout the U-Haul Court’s discussion of the incorporation
doctrine is the word “assent.” When a court weighs the validity of a provision incorporated
into a contract by reference, the court’s focus is whether the contracting parties knew of
and assented to the incorporated provision. A meeting of the minds and mutuality of assent
are the most basic ingredients of a contract.
Central to the notion of “assent” is that the parties must know, at the moment
they form their contract, what they are agreeing to: if a term in the new, incorporating
contract is buried in an older, existing document, then the reference in the new contract has
to be clear “so that the parties’ assent to the reference is unmistakeable.” Id. In most
instances, to incorporate by reference some collateral document, the new, incorporating
contract must expressly and sufficiently describe another document that exists. As one
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court said, “what is being incorporated must actually exist at the time of the incorporation,
so the parties can know exactly what they are incorporating.” Gilbert St. Developers, LLC
v. La Quinta Homes, LLC, 174 Cal. App. 4th 1185, 1194 (2009). See also In re Plumel’s
Estate, 90 P. 192, 193 (Cal. 1907) (“in order to make out a case for the application of the
doctrine of incorporation by reference, the paper referred to must not only be in existence
at the time of the execution of the attested or properly executed paper, but that it must be
referred to in the latter as an existent paper, so as to be capable of identification.”). Where
the term referred to in a new contract is not in existence at the time the parties form the
principal contract, the enforceability of the term is in jeopardy. 1
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As a general principle, incorporating nonexistent, future terms into a present
contract usually imperils the enforceability of those terms:
Where the document referred to is not in existence at the
time the principal contract is made, the enforceability of the
incorporated terms may be jeopardized. Where the principal
agreement contains the essential elements of a valid contract,
and further binds the parties to terms to be established by one
party in futuro, the danger exists that the critical elements of
knowledge of, and assent to, the additional terms will be
missing. If the provisions to be incorporated will only explain
or particularize the obligations of the parties under the
principal contract, there is no obstacle to the enforcement of
those supplemental provisions. But where the added terms,
established by one of the parties, modify or contradict a
material term of the original valid contract, the incorporated
terms must fall.
Hous. Auth. of City of Hartford v. McKenzie, 36 Conn. Supp. 515, 519, 412 A.2d 1143,
1145-46 (Super. Ct. 1979). Accord Lamb v. Emhart Corp., 47 F.3d 551, 559 (2d Cir.
1995). See also Taubman Cherry Creek Shopping Ctr., LLC v. Neiman-Marcus Grp., Inc.,
251 P.3d 1091, 1095 (Colo. App. 2010) (finding parties did not agree to incorporate into
their contract amendments to American Arbitration Association rules made after adoption
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That brings me to the problem in the instant case: the one of temporality.
Time goes forward; as much as we would like, we cannot roll back the clock. Likewise,
incorporation by reference is unidirectional, that is, it “occurs in one direction: it pulls
material into the incorporating contract.” Care Grp. Heart Hosp., LLC v. Sawyer, 93
N.E.3d 745, 755 (Ind. 2018). When parties make a new contract, they can agree to
of the contract. “Indeed, we are aware of no precedent holding that parties can clearly
know of and assent to contract terms that do not yet exist when, as here, the term is in
abrogation of statutorily expressed public policy, the parties do not expressly agree to be
bound by future amendments, neither party has any control over subsequent amendments,
and there is no ascertainable standard for the promulgation of amendments or new rules.”);
Gilbert St. Developers, LLC v. La Quinta Homes, LLC, 174 Cal. App. 4th 1185, 1194, 94
Cal. Rptr. 3d 918, 924 (2009) (Same. “Incorporating the possibility of a future rule by
reference simply doesn’t even meet the basic requirements for a valid incorporation by
reference under simple state contract law. . . . A rule that does not exist at the time of
incorporation by reference fails the elementary test of being known or easily available at
the time of incorporation.”).
Likewise, parties cannot agree today to make a future contract, unless the
parties have assented to all the material terms of the future contract.
[U]nless an agreement to make a future contract is definite and
certain upon all the subjects to be embraced, it is nugatory.
To be enforceable, a contract to enter into a future contract
must specify all its material and essential terms and leave none
to be agreed upon as the result of future negotiations. Where a
final contract fails to express some matter, as, for instance, a
time of payment, the law may imply the intention of the parties;
but where a preliminary contract leaves certain terms to be
agreed upon for the purpose of a final contract, there can be no
implication of what the parties will agree upon. If any essential
term is left open to future consideration, there is no binding
contract, and an agreement to reach an agreement imposes no
obligation on the parties thereto.
Gulf Coast Hospice LLC v. LHC Grp. Inc., 273 So. 3d 721, 735 (Miss. 2019).
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incorporate into the contract terms from another document that already exists. Parties
cannot agree to the opposite: they generally cannot insist that a term in a present contract
automatically incorporate itself into a new, future agreement that does not exist. One
cannot assent to something that does not exist. Incorporation by reference pulls existing
material into the new, incorporating contract; it does not push material terms into non-
existent, as-yet-unassented-to future contracts.
The petitioners are arguing to subvert this basic rule of contract law and are
essentially making an argument for “reverse incorporation.” Let me explain, in the context
of the sparse record from the circuit court.
Freddie and Shelby Reynolds signed a “retail installment sales contract”
(“RISC”) with Crossroads Chevrolet to buy a pickup truck. The RISC contained a zipper
clause 2 which plainly says that the RISC “contains the entire agreement between”
Crossroads and the Reynoldses. The clause says that the RISC is the complete and final
agreement, and it says the terms of the RISC supersede any other understandings or oral
2
A “zipper clause” is defined as a “contractual provision that operates as
both an integration clause and as a no-oral-modification clause.” Black’s Law Dictionary
1855 (10th Ed. 2009). See Pace v. Honolulu Disposal Serv., Inc., 227 F.3d 1150, 1159 (9th
Cir. 2000) (“Notable in this case is the inclusion of a ‘zipper clause’ . . . so called because
the combination of the integration and no-oral-modification clauses is intended to foreclose
claims of any representations outside the written contract aside from those made in another
written document executed by the parties.”). Synonymously, an “integration clause” is a
“contractual provision stating that the contract represents the parties’ complete and final
agreement and supersedes all informal understandings and oral agreements relating to the
subject matter of the contract.” Black’s Law Dictionary at 929. Other synonyms include
“merger clause” and an “entire-agreement” or “entire-contract” clause.
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agreements regarding the Reynoldses’ decision to buy a pickup truck from Crossroads.
There is no agreement to arbitrate anywhere in the RISC. TD Auto Finance is nowhere
mentioned in the terms of the RISC. Moreover, there is no language suggesting, in any
way, that the RISC incorporates by reference some pre-existing document.
Put simply and logically, neither the Reynoldses nor Crossroads Chevrolet
assented to arbitrate disputes regarding the RISC.
Without any input by, or apparently any knowledge to, the Reynoldses,
Crossroads Chevrolet assigned the RISC to TD Auto Finance. TD Auto Finance now
claims that Mr. and Mrs. Reynolds have defaulted on the RISC, have forfeited the pickup
truck purchased in the RISC, and that the Reynoldses owe additional damages under the
terms of the RISC. TD Auto Finance has persistently, and possibly in violation of West
Virginia’s credit protection laws, been pursuing repayment of monies due under the RISC.
Despite having built their entire substantive case on the RISC, TD Auto
Finance focuses this appeal on a wholly separate, preexisting document: the credit
application. The credit application in this case is a form prepared by “RouteOne” (and we
know this because at the top of each page, in bold text, is the heading “RouteOne®.”).
RouteOne bills itself as a company that “provides automobile financing system solutions,
which include credit applications . . . to provide a single portal to accommodate the entire
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credit application process for [automobile] dealers and finance sources.” 3 An auto dealer
like Crossroads Chevrolet can use a RouteOne credit application, and the RouteOne
computer system, to access “a network of 1,500+ finance sources” to help customers
finance their vehicle purchases. 4
At some point – we don’t know when because there is no record – Mr. and
Mrs. Reynolds signed a credit application permitting Crossroads Chevrolet to do a credit
check through RouteOne. The first six substantive paragraphs of the application are written
in terms of the Reynoldses “authorizing” a credit check. The first six paragraphs identify
two parties: “I” and “You.” “I” is obviously Mr. and Mrs. Reynolds, as in “I authorize.”
3
“RouteOne Overview,” https://www.routeone.com/about-us/media-room
(last accessed March 26, 2020). RouteOne represents that it was “created in 2002 by Ally
Financial, Ford Motor Credit, TD Auto Finance, and Toyota Financial Services to offer
automotive dealerships an alternative to existing systems.” Id.
4
“Credit Application System,” https://www.routeone.com/dealers/credit-
application (last accessed March 26, 2020). At another point on its internet web site,
RouteOne claims to have an even larger number of finance sources, saying: “The RouteOne
system streamlines the credit application process with a single point of entry, providing
you [auto dealers] access to a network of 1,700+ finance sources, and 200+ Dealership
Service Providers.” https://www.routeone.com/dealers/products-and-services (last
accessed March 26, 2020). We note, however, that elsewhere on its site RouteOne
identifies only 89 “eContracting Finance Sources.” “RouteOne Finance Sources,”
https://www.routeone.com/financesources (last accessed March 26, 2020). Whatever the
number, RouteOne represents that its credit application system was designed by dealers for
dealers, and that “[w]ith RouteOne’s credit application platform, [auto dealers will] get
access to a large network of finance sources to give you and your customers a wide range
of vehicle financing options.” https://www.routeone.com/dealers/credit-application.
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The term “You” is defined in the application as the “dealer and any finance company, bank
or other financial institution to which the Dealer submits my application[.]”
Any reasonable, prudent reading of the first six paragraphs would have lead
the Reynoldses to think they were allowing Crossroads Chevrolet and whatever “finance
company, bank or other financial institution” to which Crossroads Chevrolet submitted the
application to search their credit.
TD Auto Finance bases its whole theory on the seventh paragraph, buried at
the bottom of page 3, which explicitly says it “applies to applications submitted to TD
AUTO Finance LLC Only[.]” Remember, RouteOne’s webpage says it has credit
arrangements with over a thousand finance companies, banks, and institutions. There is
nothing in the record saying Mr. or Mrs. Reynolds knew that Crossroads Chevrolet was
submitting their credit application to TD Auto Finance, so it takes a leap of legal faith to
say the Reynoldses “assented” to anything in the seventh paragraph.
Still, that seventh paragraph says that if Crossroads Chevrolet submits the
application to TD Auto Finance, then an arbitration agreement exists between “YOU AND
TD AUTO FINANCE LLC.” The arbitration language does not apply to any other
financier, only TD Auto Finance. However, it bears noting that, in this paragraph, the
drafter of the RouteOne credit application has changed the meaning of “You.” In the prior
six paragraphs, “You” meant the dealership and the “finance company, bank or other
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financial institution.” In paragraph seven, “you” suddenly has to be interpreted as Mr. and
Mrs. Reynolds.
Basic rules of English and clarity of meaning aside, and despite the fact that
the credit application is missing an entire page, counsel for Mr. and Mrs. Reynolds
concedes that an arbitration agreement exists between the Reynoldses and TD Auto
Finance, at least regarding the credit application. 5
The problem in this case is that TD Auto Finance wants to contort the
arbitration clause to apply beyond the credit application – namely, it wants the Court to
incorporate the clause into the agreement reached later (the RISC). To support this stretch,
TD Auto Finance makes its plea for the Court to create a “reverse incorporation” rule.
Buried on page six of the credit application is language claiming to extend the credit
application’s arbitration agreement to “any installment sale contract . . . or any resulting
transaction or relationship[.]” In other words, TD Auto Finance claims that when the
Reynoldses signed the credit application, they were assenting to incorporate some of the
terms of the application into a future contract that may, or may not, ever exist. As the
5
I have read the arbitration language relied upon by TD Auto Finance and
find it to be somewhat garbled, at least when read by someone who isn’t a lawyer. As it is
written, the language requires the arbitration of “any claim or dispute . . . between our
employees, parents, subsidiaries, affiliate companies, agents, successors or assignees[.]”
Non-lawyers would read that language as requiring arbitration of any dispute between TD
Auto Finance and its own employees, parents, subsidiaries, etc. It is only when you realize
that the document elsewhere defines “our” as including “the Applicant, Co-Applicant, . . .
and Dealer, and TD Auto Finance” that lawyers can find the meaning relied upon by TD
Auto Finance.
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majority opinion makes clear, that argument rubs completely against the grain of contract
law.
Incorporation by reference is a one-way street, where a new contract pulls in
existing documents that are unmistakably identified in the new contract so that the
knowledge and assent of the parties to the incorporation of the documents is clear. Parties
cannot draft a contract that injects terms into future, non-existent contracts. TD Auto
Finance’s reverse-incorporation argument is especially offensive when you consider that
the future contract at issue here has completely different parties. Remember, TD Auto
Finance was not a party to the RISC; it only became a “party” when Crossroads Chevrolet
assigned the RISC, sometime after Mr. and Mrs. Reynolds had assented to the terms of the
RISC. In other words, TD Auto Financing is arguing that a few paragraphs of the
application signed by the Reynoldses should be incorporated into the Reynoldses’ contract
with Crossroads Chevrolet.
If arbitration of the RISC was a provision that was material and important to
TD Auto Finance, then it should have refused to accept Crossroad Chevrolet’s assignment
of the RISC that did not contain an arbitration provision. Alternatively, it could have
insisted that Crossroads Chevrolet place an arbitration provision into its RISC form before
Crossroads Chevrolet offered it to Mr. and Mrs. Reynolds. TD Auto Finance did none of
these things.
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The arguments proffered by TD Auto Finance would, if adopted by this
Court, have brought havoc to the law of contracts. In the business context, it is routine for
companies to sign a series of contracts over many months or years. Under TD Auto
Finance’s theory, one party could slip a term into an early contract that “self-incorporates”
years later into a subsequent contract. Worse, those terms could be in conflict. I could
foresee an early contract requiring arbitration of “this and any other” dispute, and a later
contract giving the parties the right to seek a courtroom resolution of disputes. Which
provision controls? As I said, TD Auto Finance’s position is contrary to the law of
contracts and a recipe for chaos.
When Crossroads Chevrolet offered a pickup truck for sale according to the
terms in the RISC, Crossroads Chevrolet’s offer did not contain an arbitration provision.
When Mr. and Mrs. Reynolds accepted the offer, they did not assent to arbitrate any
disputes with Crossroads Chevrolet. Accordingly, under basic, run-of-the-mill rules of
contract interpretation, the Reynoldses are not bound to arbitrate their dispute with TD
Auto Finance regarding the RISC.
I otherwise respectfully concur with the majority’s opinion.
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