Howard v. Ferrellgas Partners, L.P.

• Citation: 748 F.3d 975
• Decision Date: 08 April 2014
• Docket Number: No. 13–3061.,13–3061.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Parties: Randy HOWARD, individually and on behalf of all others similarly situated, Plaintiff–Appellee, v. FERRELLGAS PARTNERS, L.P.; Ferrellgas, L.P.; Ferrellgas, Inc., Defendants–Appellants, and Does 1 Through 25, Defendants.

748 F.3d 975

Randy HOWARD, individually and on behalf of all others similarly situated, Plaintiff–Appellee,

v.FERRELLGAS PARTNERS, L.P.; Ferrellgas, L.P.; Ferrellgas, Inc., Defendants–Appellants,andDoes 1 Through 25, Defendants.

No. 13–3061.

United States Court of Appeals,Tenth Circuit.

April 8, 2014.

Peter W. Herzog III of Bryan Cave LLP, St. Louis, MO (Kathryn R. DeBord of Bryan Cave LLP, Denver, CO, with him on the briefs), for Defendants–Appellants.

Charles Slidders of Milberg LLP, New York, NY (R. Frederick Walters of Walters Bender Strohbehn & Vaughan, P.C., Kansas City, MO, and Peggy Wedgworth of Milberg LLP, New York, NY, with him on the brief), for Plaintiff–Appellee.

Before KELLY, GORSUCH, and HOLMES, Circuit Judges.

GORSUCH, Circuit Judge.

Everyone knows the Federal Arbitration Act favors arbitration. But before the Act's heavy hand in favor of arbitration swings into play, the parties themselves must agree to have their disputes arbitrated. While Congress has chosen to preempt state laws that aim to channel disputes into litigation rather than arbitration, even under the FAA it remains a “fundamental principle” that “arbitration is a matter of contract,” not something to be foisted on the parties at all costs. AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1745, 179 L.Ed.2d 742 (2011).

What happens when it's just not clear whether the parties opted for or against arbitration? The FAA tells district courts to “proceed summarily to the trial” of the relevant facts. 9 U.S.C. § 4. Once the facts are clear, courts must then apply state contract formation principles and decide whether or not the parties agreed to arbitrate. Hardin v. First Cash Fin. Servs., Inc., 465 F.3d 470, 475 (10th Cir.2006). The object is always to decide quickly—summarily—the proper venue for the case, whether it be the courtroom or the conference room, so the parties can get on with the merits of their dispute.

That much didn't happen here. After Randy Howard sought to bring a class action against Ferrellgas in federal court for allegedly overcharging him and other customers on a massive scale, Ferrellgas moved to force Mr. Howard to pursue his individual claim alone in arbitration, arguing that's the procedure the parties had agreed to. Unsure whether Ferrellgas had shown an agreement to arbitrate in its initial motion, the district court entertained discovery and further motions practice. After that process exhausted itself, the court found too many unresolved factual questions remained and proceeded to invite yet more discovery followed by yet more motions practice. Finally, almost a year and half after Ferrellgas filed its motion to compel arbitration, the court issued an order in which it found that material disputes of fact still prevented it from saying for certain whether or not the parties had agreed to arbitrate. But rather than proceeding to resolve the conflicting factual accounts through trial as the Act requires, the court entered an order denying arbitration outright.

That was error. When it's apparent from a quick look at the case that no material disputes of fact exist it may be permissible and efficient for a district court to decide the arbitration question as a matter of law through motions practice and viewing the facts in the light most favorable to the party opposing arbitration. See, e.g., Hancock v. Am. Tel. & Tel. Co., 701 F.3d 1248, 1261 (10th Cir.2012). In these circumstances, the Act's summary trial can look a lot like summary judgment. But when, as in this case, a quick look at the case suggests material disputes of fact do exist on the question whether the parties agreed to arbitrate, round after round of discovery and motions practice isn't the answer. Parties should not have to endure years of waiting and exhaust legions of photocopiers in discovery and motions practice merely to learn where their dispute will be heard. The Act requires courts process the venue question quickly so the parties can get on with the merits of their dispute in the right forum. It calls for a summary trial—not death by discovery. See Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 22, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (FAA requires “an expeditious and summary hearing, with only restricted inquiry into factual issues”).

Of course, the parties here didn't exactly help themselves. They were anything but quick to seek the trial promised by the Act. In fact, they seemed content enough to haggle along together in the usual way of contemporary civil litigation, all about discovery disputes and motions practice and with only the most glancing consideration given to the possibility of trial. But even if today some may prefer the familiarity of lingering discovery to the conclusiveness of trial, that's simply not the process specified by the Act. See ISC Holding AG v. Nobel Biocare Fin. AG, 688 F.3d 98, 113 (2d Cir.2012) (distinguishing between the Act's “simple, flexible framework” and “the intricate requirements of” pretrial civil litigation practice).

Not only did the proceedings here veer badly off course, they ended in an impermissible place. One thing the district court may never do is find a material dispute of fact does exist and then proceed to deny any trial to resolve that dispute of fact. That's like mixing apples and oranges, like saying someone who fails to win a summary judgment motion must necessarily lose after trial. It confuses the very different roles summary judgment and trial serve in our legal order. Having found unresolved questions of material fact precluded it from deciding definitively whether the parties agreed to arbitrate, the district court was in no position to deny a motion to arbitrate. It had to move promptly to trial of the unresolved factual questions surrounding the parties' claimed agreement to arbitrate.

Neither is there any question that, even after all the parties' discovery machinations, critical questions of fact still remain on the threshold question whether they agreed to arbitrate. We know Mr. Howard called Ferrellgas to order propane to heat his home. We know Ferrellgas agreed to sell him some. But much more than that remains unclear even now. Did the parties form a final and complete oral contract in that initial phone call governing all their propane dealings over the next few years? Or did their agreement cover only Mr. Howard's propane tank rental and its initial fill, in this way perhaps leaving room for Ferrellgas's later-delivered, arbitration-clause-containing form contract to govern the parties' subsequent dealings, including the later propane purchases at issue in this case?

Whether this case belongs in arbitration or litigation hinges on the answers to factual questions like these. It is possible that the parties reached an agreement requiring Ferrellgas to refill Mr. Howard's propane tank at market prices whenever it verged on empty, without a single mention of Ferrellgas's forthcoming written terms. If that's the case, then under Kansas law (which the district court applied here) Ferrellgas's arbitration clause could modify the parties' preexisting oral agreement only with Mr. Howard's express consent, something he contends he never gave. Klocek v. Gateway, Inc., 104 F.Supp.2d 1332, 1341 & n. 13 (D.Kan.2000); see also Wachter Mgmt. Co. v. Dexter & Chaney, Inc., 282 Kan. 365, 144 P.3d 747, 752, 755 (2006) (expressing agreement with Klocek). But it also remains possible that the parties agreed only to an initial fill during that phone call. And if that's the case, then under Kansas law Ferrellgas's arbitration clause and other written terms may well govern the parties' later dealings because they amounted to an offer to provide future service that Mr. Howard accepted when he chose to keep the propane Ferrellgas went on to deliver. See Crouch v. Marrs, 199 Kan. 387, 430 P.2d 204, 209 (1967) (an offeree normally manifests acceptance when he “exercise[s] dominion over the thing offered him”); Restatement (Second) of Contracts § 69(2) (1981). Simply put, without knowing definitively what happened in the parties' initial encounter—without factual findings about what was said and whose story to credit—we don't know whether Ferrellgas's introduction of the written contract amounted to an (unsuccessful) attempted modification of an existing agreement or an (accepted) new offer that governed not the first fill but later ones. And without knowing that, we don't know whether the parties agreed to arbitrate a dispute like this one.

*

Mr. Howard resists the idea that a trial is needed. In fact, he argues that the FAA's trial guarantee doesn't apply unless and until the party moving for arbitration has first proven the existence of an agreement to arbitrate. In support of his view, he quotes this bit from Avedon Engineering, Inc. v. Seatex: “The existence of an agreement to arbitrate is a threshold matter which must be established before the FAA can be invoked.” 126 F.3d 1279, 1287 (10th Cir.1997). But the point of this passage is entirely different and much more prosaic than Mr. Howard seems to think: it merely points out that the FAA doesn't compel arbitration until it's proven the parties agreed to arbitrate—and that the existence (or nonexistence) of an agreement to arbitrate is judged by normal state law contract formation principles. Id. at 1286–87. Indeed, Mr. Howard's contrary interpretation fails to take account of the express acknowledgment in Avedon Engineering that “[w]hen parties dispute the making of an agreement to arbitrate,” the district court should hold a trial on the subject “unless there are no genuine issues of material fact regarding the parties' agreement.” Id. at 1283. Neither is Mr. Howard's interpretation of Avedon Engineering just inconsistent with its plain language; it would also invite a nonsense. What end might be served by a trial on the question whether the parties agreed to arbitrate once the...