Hoffman v. Cargill, Inc.

Decision Date02 August 1999
Docket NumberNo. C 97-3015-MWB.,C 97-3015-MWB.
Citation59 F.Supp.2d 861
PartiesMark J. HOFFMAN, Plaintiff, v. CARGILL, INCORPORATED, Defendant.
CourtU.S. District Court — Northern District of Iowa

John Werden of Van Dyke & Werden, Carroll, Iowa, for Plaintiff Mark J. Hoffman.

Robert D. Houghton of Shuttleworth & Ingersoll, Cedar Rapids, Iowa, for Defendant Cargill, Inc.

Marc L. Fleischaker and Nancy S. Appel of Arent Fox Kintner Plotkin & Kahn, P.C., submitted a brief, for Amicus National Grain and Feed Association.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT'S MOTION TO CONFIRM ARBITRATION AWARD

BENNETT, District Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION ..............................................................864
                     A. Background Findings of Fact ............................................864
                     B. Procedural Background ..................................................867
                 II. LEGAL ANALYSIS ............................................................870
                     A. Subject Matter Jurisdiction ............................................870
                     B. Confirmation Or Vacation Of The Arbitration Award ......................873
                        1. Applicable standards ................................................873
                           a. Statutory standards ..............................................873
                           b. Extra-statutory standards ........................................874
                               i. "Irrationality" and "manifest disregard of the law." .........875
                              ii. Arbitrariness and contravention of public policy .............877
                             iii. Fundamental unfairness .......................................878
                        2. Application of the standards ........................................880
                           a. Hoffman's challenges .............................................880
                           b. Hoffman's statutory challenges ...................................883
                               i. Section 10(a)(2) "partiality" challenges .....................883
                              ii. Section 10(a)(3) "misconduct" challenges .....................887
                           c. Hoffman's extra-statutory challenges .............................889
                               i. "Irrationality" challenge ....................................889
                              ii. "Manifest disregard of the law" challenges ...................891
                             iii. "Fundamental unfairness" challenges ..........................891
                III. CONCLUSION ................................................................895
                

Shortcuts may lead to long delays. Certainly, the hope that arbitration would prove to be "a less costly and less complicated alternative to litigation," see, e.g., Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163, 1165 (8th Cir.1984), has been disappointed in this case. Instead, this dispute over grain contracts between a grain producer and an owner of a grain milling facility has pursued a three-year odyssey through arbitration and litigation. The case has finally returned to federal court on the grain miller's motion to confirm an arbitration award in its favor on its claims of breach of contract against the grain producer. The grain producer, however, now challenges this court's subject matter jurisdiction to confirm the arbitration award, and further resists confirmation of the award on numerous grounds.

I. INTRODUCTION

This lawsuit between plaintiff Mark J. Hoffman, a grain producer, and defendant Cargill, Inc., the owner of a milling facility in Blair, Nebraska, involves disputes over ten contracts for the sale and delivery of almost half a million bushels of corn. The contracts were to be performed in 1996 and 1997, but performance of the contracts fell apart during the summer of 1996 when Hoffman questioned whether Cargill's scales at its Blair facility, or the people operating those scales, were obtaining fair and accurate weights of corn upon delivery. Now before the court is Cargill's motion to confirm the arbitration award of $408,262.50 plus interest in Cargill's favor on its breach-of-contract claims rendered by an arbitration panel of the National Grain and Feed Association (NGFA). Hoffman resists confirmation of the award.

A. Background Findings of Fact

In the fall of 1995 and winter of 1996, Hoffman, a farmer in Carroll County, Iowa, and Cargill, a Delaware corporation with its principal place of business in Minneapolis, Minnesota, entered into five contracts for the sale and purchase of corn from the last harvest, the so-called "old crop" contracts. Under those contracts, Hoffman was to deliver a total of 350,000 bushels of corn to Cargill's milling facility at Blair, Nebraska, during the spring of 1996.1 During the winter of 1995 and early spring of 1996, Hoffman and Cargill also entered into five contracts for delivery of corn from the next harvest, the so-called "new crop" contracts, under which Hoffman was to deliver another 125,000 bushels of corn to Cargill's milling facility at Blair, Nebraska, during late 1996 and early 1997.2

Although the specific terms of the ten contracts varied, each contract 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 judg- ment upon the award may be entered in any Court having jurisdiction.

Defendant's Motion to Compel Arbitration, 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.

According to the contracts, the "weights to govern" were "destination" weights, i.e., weights determined at Cargill's Blair facility. The weighing procedure at Cargill's Blair facility required drivers to drive their trucks loaded with corn onto either of two Mettler-Toledo scales, signal the weigher to obtain a gross weight, dump the grain through the scale into a hopper — from which grain was conveyed to the milling facility by a conveyor belt — then signal the weigher to obtain a "tare" weight for the empty truck. Comparison of the gross and tare weights determined the net weight of grain delivered. A computer recorded the gross and tare weights and printed a ticket showing these weights as well as the net weight. This system, while efficient, did not provide any opportunity to reweigh a load if there was a dispute between the driver and weigher over the weight of the load. At the time the contracts in question were to be performed, Hoffman did not have his own scale available for weighing loads of grain. However, he has since put in a scale at his farm for determining "origin weights" on loads of corn he ships elsewhere.

Hoffman trucked his own corn to the Blair facility, as well as contracting with several of his neighbors to deliver their corn to the Blair facility. The parties agree that at the time of contracting, the contract prices for future delivery at the Blair facility were at a significant premium over prices in the region generally for such contracts, making it attractive to bear the additional transportation costs to deliver at Blair, approximately 100 miles from Carroll, Iowa. However, owing to an unprecedented rise in corn prices during 1996, by the time delivery was due on Hoffman's contracts, the contract prices were well below the prevailing "cash" market prices.

Hoffman delivered 27,928 bushels of corn to Cargill's Blair facility between March of 1996 and April 12, 1996, on his "old crop" contracts. However, beginning in about January of 1996, he had concerns that Cargill's scales were inaccurate, or that Cargill's weighers were obtaining weights at the wrong times, systematically shorting him by showing higher tare weights. In March and April, these concerns ripened into repeated complaints to Cargill officials and agents, to the point that Hoffman eventually refused to deliver any more grain until the problems were corrected.

In an effort to resolve the dispute, the parties, through counsel, considered various solutions. Among the proposed solutions were that Hoffman's loads should be weighed at the scales at another facility adjacent to Cargill's Blair facility, but owned by Terra International, with weighing charges to be paid by Cargill. Another proposed solution was that delivery on Hoffman's contracts with Cargill would be accepted at the AGRI Grain Marketing elevator in Council Bluffs, which was affiliated with Cargill, with Cargill offering to pay Hoffman an extra 2 cents per bushel to cover Hoffman's additional transportation costs to Council Bluffs. On July 8, 1996, in what he described as a "test," Hoffman delivered two loads of corn, approximately 900 bushels net each, first weighing the loads at the Terra facility, then reweighing them at Cargill's Blair facility for comparison. Payment was made according to the more favorable weights. Although one load showed nearly identical weights at the two facilities, the weights for the second load differed by a few hundred pounds. Hoffman believed that the difference proved that Cargill's Blair scales or weighers were systematically shorting him, or at least were obtaining unreliable weights. Although the Blair scales "failed the test," according to Hoffman, he nonetheless rejected all proposals to weigh or deliver corn anywhere other than at Cargill's Blair facility, and reiterated his refusal to deliver at Blair until the weighing problems were corrected.

Hoffman next complained to the Nebraska Department of Agriculture, Weights and Measures Division. Steve Malone, Director of the Nebraska Weights and Measures Division, reviewed Hoffman's records from the "test" on July 8, 1996. Malone found that...

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