In the recent decision of O’Shaughnessy v. Young Living Essential Oils, the United States Court of Appeals for the Fifth Circuit was presented with a classic contract-law conundrum of an agreement contained in more than one document, which, in this case, related to the oft-cited, but rarely used, Racketeer Influenced Corrupt Organizations Act (“RICO”).
In 2015, Julie O’Shaughnessy joined Young Living (“YL” or “Young Living”) after attending a party hosted by a friend. Julie joined the company as a member by signing an online document titled the Young Living Member Agreement (“Agreement”). The Agreement contains a “Jurisdiction and Choice of Law” clause that provides:
The Agreement will be interpreted and construed in accordance with the laws of the State of Utah applicable to contracts to be performed therein. Any legal action concerning the Agreement will be brought in the state and federal courts located in Salt Lake City, Utah.
The Agreement also contains what is commonly known as a “merger clause” or “integration clause” that reads:
The Agreement constitutes the entire agreement between you and Young Living and supersedes all prior agreements; and no other promises, representations, guarantees, or agreements of any kind will be valid unless in writing and signed by both parties.
In addition, the Agreement incorporates by reference the Policies and Procedures (“Policies”). Julie was not required to the Policies. However, the Policies contained an arbitration clause that states:
If mediation is unsuccessful, any controversy or claim arising out of or relating to the Agreement, or the breach thereof, will be settled by arbitration. The parties waive all rights to trial by jury or to any court. The arbitration will be filed with, and administered by, the American Arbitration Association (“AAA”) or Judicial Arbitration and Mediation Services (JAMS) under their respective rules and procedures. . . .
The Policies do not contain any language to the effect that they supersede or trump in the event of a conflict with another document.
On April 12, 2019, Julie, filed a class action suit in Texas against Young Living for damages and other relief under RICO. She alleged that “Young Living operates an illegal pyramid scheme created under the guise of selling essential oils for quasi-medicinal purposes.” She argued that hundreds of thousands of class members just like her, paid and lost hundreds (and in some cases thousands) of dollars to become Young Living Essential Rewards enrollees based on the promise of financial and physical health, through its brand of essential oils. She contended that Young Living falsely represents to its members that joining the company—which requires regular monthly payments—will result in wealth as long as they continue to solicit additional recruits to become members of the company. In reality, she asserted, Young Living has “created nothing more than an unlawful pyramid scheme—the cornerstone of which is Young Living’s emphasis on new member recruitment over the sale of products.” According to O’Shaughnessy, Young Living’s activities violate RICO.
Young Living subsequently filed motions to compel arbitration arguing that the arbitration provision in the Policies required the parties to arbitrate their dispute. O’Shaughnessy responded that an irreconcilable conflict existed between the Jurisdiction and Choice of Law clause in the Agreement and the arbitration clause in the Policies. On this basis she argued that there was no “meeting of the minds” between the parties with regard to arbitration. As a general rule of law, to form “an enforceable contract, there must be a meeting of the minds on the essential terms of the agreement.
The district court sided with Julie and denied YL’s request to compel arbitration. Young Living appealed. On review, the Fifth Circuit agreed with the district court that there was no “meeting of the minds” between Young Living and O’Shaughnessy with respect to arbitration.
In reaching this decision, the Fifth Circuit reasoned that the Policies, which were incorporated by reference into the Agreement, contained the following pertinent language: “If mediation is unsuccessful, any controversy or claim arising out of or relating to the Agreement, or the breach thereof, will be settled by arbitration.” (emphasis added). The court found that this language was in direct conflict with the Jurisdiction and Choice of Law clause in the Agreement that read: “Any legal action concerning the Agreement will be brought in the state and federal courts located in Salt Lake City, Utah.” (emphasis added). Additionally, the court found that there was no limiting language in the Jurisdiction and Choice of Law paragraph, or anywhere else in the Agreement, suggesting that it only applies to disputes not subject to arbitration. As a result, the courts reading of these two conflicting provisions reveals that they cannot be harmonized.
Because of that, the Fifth Circuit concluded that the two provisions irreconcilably conflicted and for this reason, found that there was no “meeting of the minds” with respect to arbitration in this case. The Supreme Court has previously ruled that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.
This case, although probably not the most existing reading, serves as a good example of how important it is to have a holistic understanding of how all of your company’s documentation and agreements fit together. One simple oversight, such as a merger clause, can negate hours of work and expose a company to unneeded additional liability.
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About Harrison Oldham
Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.
Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://