Good Samaritan Coffee v. Larue Distributing

• Decision Date: 09 May 2008
• Docket Number: No. S-07-300.,S-07-300.
• Citation: 748 N.W.2d 367,275 Neb. 674
• Parties: GOOD SAMARITAN COFFEE COMPANY, a Nebraska Corporation, Appellee, v. LaRUE DISTRIBUTING, INC., a Nebraska Corporation, Doing Business as LaRue Coffee, et al., Appellants.
• Court: Nebraska Supreme Court

748 N.W.2d 367

275 Neb. 674

GOOD SAMARITAN COFFEE COMPANY, a Nebraska Corporation, Appellee, v.LaRUE DISTRIBUTING, INC., a Nebraska Corporation, Doing Business as LaRue Coffee, et al., Appellants.

No. S-07-300.

Supreme Court of Nebraska.

May 9, 2008.

John C. Nimmer, Omaha, and Michael T. Levy for appellants.

Mark A. Weber and Kylie A. Wolf, of Walentine, O'Toole, McQuillan & Gordon, Omaha, for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

GERRARD, J.

Good Samaritan Coffee Company(Good Samaritan) filed a complaint against the defendants, alleging breach of contract and tortious interference with a business relationship.The contract at issue contained an arbitration clause.More than 3 years after Good Samaritan filed its original complaint, the defendants filed a motion to stay the case and compel arbitration.The district court denied the defendants' motion, finding that the defendants had waived their right to arbitration by actively litigating the present case.The primary issue presented in this appeal is whether the question of waiver based on litigation activity should be decided by a court or an arbitrator.Because the district court correctly determined that this particular waiver question should be decided by a court rather than an arbitrator, we affirm.

FACTS

Good Samaritan is located in Omaha and Fremont, Nebraska, and is involved in the distribution of "green" or unprocessed coffee beans.Good Samaritan entered into several "`Green Coffee Contracts'" with LaRue Distributing, Inc., doing business as LaRue Coffee, wherein Good Samaritan agreed to provide coffee beans to LaRue Distributing.

The record reflects that in order for Good Samaritan to meet the requirements of these contracts, it must "purchase ... green, raw, unprocessed coffee beans from sources outside of the continental United States" and have the beans shipped to Nebraska.Once Good Samaritan receives the beans, the beans are "roasted, blended[,] processed[,] and packaged and sold to LaRue Coffee," which in turn sells the products to various customers in other states.

Each of the "`Green Coffee Contracts'" contained a provision incorporating the terms and conditions of a separate contract entitled "Green Coffee Association Contract Terms and Conditions."This latter contract contains a section relating to the arbitration of disputes.The section provides in relevant part:

All controversies relating to, in connection with, or arising out of this contract ... shall be settled by arbitration in accordance with the "Rules of Arbitration" of the Green Coffee Association. ...Arbitration is the sole remedy hereunder, and it shall be held in accordance with the law of New York State, and judgment of any award may be entered in the courts of that State, or in any other court of competent jurisdiction.

With regard to "Time Limits for Arbitration" the contract provides that "[a]ll technical arbitrations must be filed within one (1) year of the date that the controversy arose."

In a letter dated May 28, 2002, LaRue Distributing terminated its relationship with Good Samaritan.On December 16, 2003, Good Samaritan filed a complaint against LaRue Distributing; Midwest Custom Roasting, Inc.; and Veriyn L'Heureux and Mark Wunderlich, individuals who are principals in LaRue Distributing and Midwest Custom Roasting (collectively LaRue).In its complaint, Good Samaritan alleged breach of contract and tortious interference with a business relationship.On April 7, 2004, Good Samaritan filed an amended complaint, attaching the terms-and-conditions contract.

LaRue filed an answer and counterclaim on May 10, 2004, and filed an amended answer and counterclaim on March 6, 2006.LaRue did not assert the right to compel arbitration as an affirmative defense in either of its answers.In its counterclaim, LaRue sought a judgment against Good Samaritan for $19,000 that Good Samaritan allegedly owed LaRue.On January 5, 2007, nearly 3 years after Good Samaritan filed its original complaint, LaRue filed a motion to stay trial and compel arbitration.

At the hearing on LaRue's motion to stay trial and compel arbitration, counsel for LaRue asked the court"to take judicial notice of the pleadings in this matter" and of the exhibits attached to the pleadings.In response, the judge stated that

the [c]ourt will also note that at a motion for partial summary judgment[hearing,] the [c]ourt took judicial notice of the [c]ourt file at that time, including the pleadings; and therefore, to the extent ... a record is being made, the [c]ourt will again take judicial notice of the [c]ourt file.

Following the hearing, the district court entered an order denying LaRue's motion to stay trial and compel arbitration.

In so doing, the court found that a court, rather than an arbitrator, had authority to determine whether a party has waived its right to arbitration.The court then determined that under the facts of this case LaRue had waived its right to arbitration.The court noted that since the time Good Samaritan filed its complaint, LaRue had exchanged pleadings, filed a counterclaim, engaged in years of discovery, and filed and received a ruling on its own motion for partial summary judgment.The court explained that LaRue's conduct in this case evidenced LaRue's "intent to litigate this matter before the [c]ourt in lieu of arbitration."LaRue appealed.

ASSIGNMENT OF ERROR

LaRue's sole assignment of error is that the district court erred in denying its motion to stay trial and compel arbitration.

STANDARD OF REVIEW

Whether a stay of proceedings should be granted and arbitration required is a question of law.¹When reviewing questions of law, this court has an obligation to resolve the questions independently of the conclusion reached by the trial court.²

The legal determination of waiver of arbitration is reviewed de novo, and the factual findings underlying that ruling are reviewed for clear error.³

ANALYSIS

Federal Arbitration Act Applies to Contracts at Issue.

We must first address whether the Federal Arbitration Act⁴(FAA) applies to this case.The FAA created a body of federal substantive law that applies to certain arbitration agreements.⁵The FAA applies to a contract "evidencing a transaction involving commerce."⁶"Commerce" as defined in the FAA includes "commerce among the several States."⁷The U.S. Supreme Court has given the FAA an expansive scope by broadly construing the phrase "`a contract evidencing a transaction involving commerce.'"⁸

The Court has held that the phrase "`involving commerce'" requires a broad interpretation in order to give effect to the FAA's basic purpose, which is to put arbitration provisions on the same footing as a contract's other terms.<sup>9</sup>The Court has further explained that "the word `involving,' like `affecting,' signals an intent to exercise Congress' commerce power to the full."<sup>10</sup>The statutory phrase "`evidencing a transaction'" has been construed by the Court to include transactions involving interstate commerce even where the parties did not contemplate an interstate commerce connection.¹¹

Given this broad interpretation of the phrase "involving commerce" in 9 U.S.C. § 2, it is clear that the contracts at issue in this case come within the scope of the FAA.The undisputed evidence in the record reflects that in order for Good Samaritan to meet its contractual obligations to LaRue, Good Samaritan had to purchase coffee beans from sources outside of the continental United States.And once the coffee beans were purchased, the beans were shipped to Good Samaritan in Nebraska, where Good Samaritan processed and sold the beans to LaRue.Thus, the FAA applies and questions relating to LaRue's motion to compel arbitration implicate federal law.

Court Shall Decide Issue of Waiver Based on Litigation-Related Conduct.

Next, we address whether a court or an arbitrator should decide if a party has waived its right to arbitrate when the waiver allegation is based on that party's litigation-related activity.The U.S. Supreme Court, in Howsam v. Dean Witter Reynolds, Inc.,¹² has set forth the rules that govern the allocation of functions between a court and an arbitrator.In that case, the Court held that the question whether an arbitration claim was barred by a 6-year limitations period embedded in the arbitration rules under which the parties had agreed to arbitrate was an issue for the arbitrator and not for the court.¹³The Court acknowledged that "[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the `question of arbitrability' is `an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'"¹⁴

The Court began its analysis by discussing the role of judges in resolving issues related to arbitration.The Court stated that "`question[s] of arbitrability,'" which are presumptively for the court to decide, are limited to gateway disputes that the

contracting parties would likely have expected a court to have decided ..., where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.¹⁵

The Court noted that at least two types of question were presumptively for a court to decide: first, "whether the parties are bound by a given arbitration clause" and second, "whether an arbitration clause in a concededly binding contract applies to a particular type of controversy."¹⁶

On the other hand, "`"procedural" questions which grow out of the dispute and bear on its final disposition' are presumptively not for the judge, but for an arbitrator, to decide."<sup>17</sup>"So, too,"the Court continued, "the presumption is that the arbitrator should decide `allegation[s] of waiver, delay, or a like...