Hoffman v. Cargill, Inc.
| Decision Date | 02 July 1997 |
| Docket Number | No. C 97-3015-MWB.,C 97-3015-MWB. |
| Citation | 968 F.Supp. 465 |
| Parties | Mark HOFFMAN, Plaintiff, v. CARGILL, INCORPORATED, Defendant. |
| Court | U.S. District Court — Northern District of Iowa |
John C. Werden, Jr., Van Dyke & Werden, P.C., Carroll, IA, for Plaintiff.
Robert D. Houghton, Shuttleworth & Ingersoll, P.C., Cedar Rapids, IA, for Defendant.
An ounce of prevention, administered by way of a pre-dispute arbitration clause, has not fulfilled the aphorism's promise to be worth a pound of cure to the parties in this breach of contract lawsuit. Here, the plaintiff grain distributor and the defendant milling facility entered into a series of contracts for the sale and delivery of grain. Each of these contracts contained a provision directing the parties to binding arbitration in the event disputes related to their "transactions" arose. Disputes did arise, and, although the parties took preliminary steps toward arbitration, the plaintiff has renounced his intention to arbitrate and has instead filed this breach of contract lawsuit. Presently before the court is the defendant's motion to compel arbitration and stay proceedings pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. Alternatively, the defendant moves the court to dismiss plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6). The court must determine whether this action falls within the scope of the FAA, and if so, what course of action the parties must now follow to resolve their disputes.
At the heart of the present controversy between the parties is a series of contracts gone sour. The plaintiff, Mark J. Hoffman, is a farmer who resides in Carroll County, Iowa. In addition to farming, Hoffman sells and transports grain. He asserts that he has "been in business many years and [has] sold over a million dollars of grain." Pl.'s Aff. in Supp. of Resistance to Def.'s Mot. ¶ 8. The defendant, Cargill, Incorporated, is a Delaware corporation maintaining its principal place of business in Minneapolis, Minnesota. Cargill owns and operates a wet corn milling facility in Blair, Nebraska. Between September of 1995 and March of 1996, Hoffman and Cargill entered into a series of ten grain purchase contracts1 whereby Hoffman agreed to sell and deliver certain amounts of corn to Cargill's Blair facility. Cargill, in return, agreed to compensate Hoffman on a per bushel basis.
Although the contracts' specific terms varied, each contained the following clause, directly above the signature line:
PLEASE NOTE: Unless otherwise specified or modified herein, the rules of the appropriate association listed above shall govern this contract. All disputes relating to this transaction shall be resolved by binding arbitration in accordance with the rules of such associations. The parties agree to arbitrate, to be bound by the arbitration award, and agree that judgment upon the award may be entered in any Court having jurisdiction.
Def.'s Exhibit A (emphasis in original). Additionally, each contract identified the National Grain and Feed Association ("NGFA") as the association providing the rules to govern arbitration proceedings.2
A variety of performance disputes erupted between the parties in 1996. Hoffman alleges that in January he "first became concerned about the scale procedures of Cargill Corn Milling." Pl.'s Compl. ¶ 18. Hoffman contends that Cargill's scales repeatedly provided inaccurate weights and measures, and that Cargill personnel improperly operated scale equipment. Hoffman states that his agents and employees questioned Cargill about the allegedly faulty scales and procedures, however Cargill failed to correct these problems. Hoffman also complains that Cargill failed to make timely payments under the contracts. For its part, Cargill denies that its scales and measuring procedures were inaccurate. Cargill attributes the parties' performance disputes to Hoffman's alleged failure to make deliveries as promised under the contracts. Cargill claims that despite "numerous attempts to accommodate Hoffman and facilitate his deliveries," Hoffman failed to perform. Def.'s Br. in Supp. of Mot. to Compel Arbitration and Stay Proceedings at 3. Cargill states that it subsequently "canceled" the contracts.
In December of 1996, Cargill initiated arbitration proceedings for five of the ten contracts. On December 3, 1996, Cargill and Hoffman executed a Contract for Arbitration as required by NGFA Rules. This contract provided that both parties agreed to submit disputes relating to contracts numbered 10306, 10307, 10320, 10388 and 12795 to arbitration by the NGFA. Cargill filed its First Argument with the NGFA on January 3, 1997. Hoffman submitted his combined Notice of Revocation of Agreement to Arbitrate and Answer on February 11, 1997. Hoffman's stated that he "revoke[d] the agreement to arbitrate this dispute and further [gave] notice of his intention to refuse to continue these arbitration proceedings." Hoffman asserted that the arbitration clauses were not enforceable under either Iowa or Nebraska law. He also argued that the NGFA arbitration rules were inadequate to resolve the disputes between the parties, because they did not provide any discovery procedures.
On February 21, 1997, Hoffman filed this diversity lawsuit based on 28 U.S.C. § 1332. In Count I of his complaint, Hoffman seeks declaratory judgment that the arbitration clauses are invalid and thus unenforceable. In Count II, Hoffman seeks reformation of the contracts. In Counts III-VII, Hoffman seeks specific performance of the contracts as well as damages for breach of contract, misrepresentation, negligence, and conversion.
On March 17, 1997, in lieu of answering Hoffman's complaint, Cargill moved to compel arbitration and stay proceedings. Cargill contends that each of the grain contracts executed by the parties contains a valid, enforceable, and irrevocable agreement to arbitrate. Cargill asserts that these arbitration provisions are within the scope of the FAA, 9 U.S.C. § 1-16, and urges the court to compel arbitration and stay proceedings pursuant to 9 U.S.C. §§ 3-4. Alternatively, Cargill moves to dismiss Hoffman's complaint pursuant to Fed.R.Civ.P. 12(b)(6). Cargill contends that Hoffman's complaint "demonstrates that the dispute is subject to arbitration" and therefore fails to state a claim upon which relief may be granted. Def.'s Mot. to Compel Arbitration and Stay Proceedings ¶ 12.
Hoffman filed his resistance to Cargill's motion on May 15, 1997. Hoffman advances several arguments in support of his resistance.3 First, he asserts that arbitration before the NGFA does not constitute "arbitration" as contemplated by the FAA or by the contracts. Essentially, Hoffman challenges the general validity of NGFA arbitration procedures. Second, Hoffman argues that, although his complaint seeks relief on all ten contracts executed by the parties, only five of these contracts are subject to the arbitration proceeding pending before the NGFA. Accordingly, Hoffman maintains that, even if the court stays proceedings relating to the five contracts pending before the NGFA, his claims as to the other five contracts should proceed in this forum. Third, Hoffman argues that his claims for misrepresentation and negligence are not arbitrable.
On May 27, 1997, Cargill filed its reply to Hoffman's resistance. Cargill maintains that all of Hoffman's disputes fall within the purview of the arbitration clause, and even if some claims are not arbitrable, they should be stayed pending arbitration of the remaining claims. Finally, Cargill argues that if Hoffman wishes to pursue claims relating to the five contracts not currently pending before the NGFA, he must do so via arbitration.
The court heard telephonic oral arguments on Cargill's motion on June 23, 1997. Cargill was represented by Robert D. Houghton, of Shuttleworth & Ingersoll, P.C., Cedar Rapids, Iowa. Hoffman was represented by John C. Werden, Jr., of Van Dyke & Werden, P.C., Carroll, Iowa. Having reviewed the relevant procedural history, the court now turns to the merits of the present motions.
Congress enacted the FAA4 to abolish "the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts...." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114...
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