McMillan v. Gold Kist, Inc.

• Decision Date: 27 January 2003
• Docket Number: No. 3593.,3593.
• Citation: 353 S.C. 353,577 S.E.2d 482
• Court: South Carolina Court of Appeals
• Parties: Jimmie D. McMILLAN, Respondent, v. GOLD KIST, INC., Appellant.

353 S.C. 353

577 S.E.2d 482

Jimmie D. McMILLAN, Respondent, v. GOLD KIST, INC., Appellant.

No. 3593.

Court of Appeals of South Carolina.

Heard December 11, 2002.

Decided January 27, 2003.

Rehearing Denied March 20, 2003.

Joseph Gregory Studemeyer, of Columbia; for Appellant.

Clyde A. Eltzroth, Jr., and John E. Parker, of Hampton; for Respondent.

HEARN, C.J.:

Gold Kist, Inc. appeals from two circuit court orders finding it was prohibited from enforcing an arbitration agreement adopted by an amendment to its bylaws. Gold Kist argues that by signing a membership agreement, McMillan was bound by Gold Kist's subsequently adopted arbitration policy. We agree and reverse.

FACTS

Gold Kist is an agricultural cooperative organized under and governed by the Georgia Cooperative Marketing Act and the Georgia Non-Profit Code. Gold Kist's membership consists of farmers, and the members elect the Board of Directors, which governs the cooperative. Gold Kist maintained a retail facility in Allendale, South Carolina, which sold farming supplies until October 13, 1998. The stock of the retail facility was delivered from out of state.

McMillan, a farmer, applied for membership with Gold Kist on January 24, 1986, by signing a "Membership, Marketing, And/Or Purchasing Agreement of Gold Kist." The Agreement provided that by signing up for a membership, new members agreed to abide by the bylaws of Gold Kist then in effect as well as any bylaws the board of directors adopted in the future.

On April 4, 1991, McMillan signed an acknowledgment that he received a copy of his membership agreement with Gold Kist. The agreement provided, among other things, that by signing a membership agreement:

[t]he member will be eligible for the benefits of membership and also that the member will honor and abide by the rules of membership as contained in the cooperative's Articles of Incorporation, By-Laws, and Board of Directors' policies, all of which may be changed from time to time.

(emphasis added).

Although no arbitration policy had previously existed, Gold Kist's Board of Directors adopted an arbitration policy on October 28, 1993. The policy stated that any disputes between Gold Kist and its members were subject to arbitration governed by the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association. The policy also provided that it did not apply to "any purchases or sales between Gold Kist and members, or any contracts for such purchases or sales, if the transactions were completed or the contracts executed prior to the effective date of this policy." The policy became effective January 1, 1994. On the same date, Gold Kist amended its bylaws to reflect the new arbitration policy. The amendment to the bylaws provided:

Section 7.Disputes Between Gold Kist and Members: Remedies.

a) Arbitration. Gold Kist and members will submit to binding arbitration all disputes between the parties, whether governed by federal, state, or international contract law, tort law, statute or treaty, and irrespective of the form of relief sought, relating to or arising out of matters of a type declared by Gold Kist's Board of Directors before the dispute arises to be of a type covered by Gold Kist's arbitration policy. All such arbitrations shall be according to rules and procedures adopted from time to time by Gold Kist's Board of Directors.

The board of directors amended the bylaws again on October 25, 1996, and the arbitration section included in the 1993 amendment was also included in the 1996 amendment.

McMillan purchased lime for use on his farm from Gold Kist's Allendale, South Carolina, store in 1996 and 1997. The lime originated in Tennessee. McMillan apparently failed to pay for the products purchased from Gold Kist.

On November 27, 2000, Gold Kist sent McMillan a demand for arbitration, alleging that McMillan owed it $57,337.40. On January 30, 2001, McMillan filed two actions in circuit court against Gold Kist: (1) an action seeking damages for $75,000 in losses allegedly caused by defective lime sold by Gold Kist or negligently applied by Gold Kist, resulting in damage to his farm and decreased crop yield; and (2) an action seeking a declaratory judgment that McMillan was not required to arbitrate his dispute with Gold Kist. He also sought a restraining order prohibiting Gold Kist from proceeding with the arbitration. Gold Kist denied McMillan's allegations and filed motions to stay McMillan's action for damages and to compel arbitration.

Following a hearing, the circuit court issued two orders. Regarding Gold Kist's motion to stay McMillan's action for damages and to compel arbitration, the circuit court found that Gold Kist had failed to prove McMillan was aware of the arbitration policy in the bylaws or that he had agreed to be subject to the amendment. Looking to the section of the Georgia Code of Laws governing agricultural cooperatives, the circuit court noted that section 2-10-86 did not authorize bylaws mandating arbitration. The circuit court determined that because Gold Kist failed to show McMillan consented to change the terms of the original membership agreement to include a mandatory arbitration clause, the arbitration policy did not apply to McMillan. The court denied Gold Kist's motion to stay damages and to compel arbitration.

On May 24, 2001, the circuit court issued an order ruling on McMillan's declaratory judgment action. Relying on the same considerations from the previous order, the circuit court determined the arbitration policy was not binding upon McMillan. Gold Kist appeals from both orders.

STANDARD OF REVIEW

Where, as here, the existence of a membership agreement is not in question, the construction of the agreement is a matter of law. See Watts v. Monarch Builders, Inc., 272 S.C. 517, 252 S.E.2d 889 (1979)

(holding that in the absence of fraud, the construction of a clear and unambiguous contract is a matter of law). If the membership agreement is construed to contain an arbitration clause, whether McMillan's claims are subject to arbitration is an "issue for judicial determination, unless the parties provide otherwise." Zabinski v. Bright Acres Assocs., 346 S.C. 580, 596, 553 S.E.2d 110, 118 (2001). "Determinations of arbitrability are subject to de novo review." Stokes v. Metropolitan Life Ins. Co., 351 S.C. 606, 609, 571 S.E.2d 711, 713 (Ct.App.2002) (citing U.S. v. Bankers Ins. Co., 245 F.3d 315, 319 (4th Cir.2001)); see also General Equip. & Supp. Co. v. Keller Rigging & Constr., SC, Inc., 344 S.C. 553, 556, 544 S.E.2d 643, 645 (Ct.App.2001) ("[T]he determination of whether a party waived its right to arbitrate is a legal conclusion subject to de novo review."). Nevertheless, a circuit court's factual findings will not be reversed on appeal if there is any evidence reasonably supporting the findings. Liberty Builders, Inc. v. Horton, 336 S.C. 658, 664-65, 521 S.E.2d 749, 753 (Ct.App.1999).

LAW/ANALYSIS

Gold Kist argues the circuit court erred in finding McMillan was not bound by the amendment of the bylaws, and thereby finding the arbitration clause inapplicable to McMillan. We agree and reverse.

I. Validity of Gold Kist's Arbitration Policy

Initially, we note that South Carolina law generally favors arbitration. See Cox v. Woodmen of World Ins. Co., 347 S.C. 460, 464, 556 S.E.2d 397, 399 (Ct.App.2001)

(citing Heffner v. Destiny, Inc., 321 S.C. 536, 537, 471 S.E.2d 135, 136 (1995)). "There is a strong presumption in favor of the validity of arbitration agreements because of the strong policy favoring arbitration." Towles v. United Healthcare Corp., 338 S.C. 29, 37, 524 S.E.2d 839, 843-44 (Ct.App.1999).

A. Amending Bylaws To Include an Arbitration Clause

First, we consider whether Gold Kist could amend its bylaws to include an arbitration policy. Because Gold Kist is an agricultural cooperative formed in Georgia, actions it may take are governed by the Georgia Cooperative Marketing Act. Section 2-10-86 of the Act requires a cooperative to adopt bylaws within thirty days of incorporation. Ga.Code Ann. § 2-10-86(a) (Supp.2001). However, the section does not specifically list arbitration clauses. Georgia law also provides that "[i]t is a general rule that a corporation may enact any bylaw for its internal management so long as such bylaws are not contrary to its charter, a controlling statute, its articles of incorporation, or violative of any general law or public policy." Booker v. First Federal Sav. and Loan Ass'n, 215 Ga. 277, 110 S.E.2d 360, 362 (1959).

The Georgia Court of Appeals recently addressed issues very similar to the present action in Rushing v. Gold Kist, Inc., 256 Ga.App. 115, 567 S.E.2d 384 (2002). There, Gold Kist and a collection company filed a motion to compel Rushing, a farming cooperative member, to arbitrate based on his default on a note. As in the present case, the membership agreement provided that Rushing agreed to be bound by future amendments to the bylaws, and it was signed by Rushing several years before Gold Kist adopted the amendment to the bylaws mandating arbitration. Although Rushing argued the arbitration clause was not binding upon him because he did not agree to it, the court held Rushing agreed to be bound by future amendments to the bylaws when he signed the membership agreement, thus agreeing to bind himself to arbitration. Id. at 387-88.

We agree with this result¹ and find the circuit court erred in determining that Gold Kist's arbitration clause was not validly adopted into its bylaws. In making its determination, the circuit court relied heavily on the fact that arbitration clauses are not specifically listed under section 2-10-86(a) of the Georgia Code, which addresses cooperatives' bylaws. However, this silence also indicates that Georgia law does not specifically forbid agricultural cooperatives from having arbitration clauses in their bylaws or from amending their bylaws to include such clauses....