Reicks v. Farmers Commodities Corp., 90-691

• Decision Date: 18 September 1991
• Docket Number: No. 90-691,90-691
• Citation: 474 N.W.2d 809
• Parties: Dale REICKS and Ardwin Reicks, Appellees, v. FARMERS COMMODITIES CORP., John L. Brannaman, Jack Figley, and Harold Richard, Appellants. FARMERS COMMODITIES CORP., John Brannaman, Harold Richard, and Jack Figley, Appellants, v. Dale REICKS and Ardwin Reicks, Appellees.
• Court: Iowa Supreme Court

Page 809

474 N.W.2d 809

Dale REICKS and Ardwin Reicks, Appellees, v. FARMERS COMMODITIES CORP., John L. Brannaman, Jack Figley, and Harold Richard, Appellants.

FARMERS COMMODITIES CORP., John Brannaman, Harold Richard, and Jack Figley, Appellants, v. Dale REICKS and Ardwin Reicks, Appellees.

No. 90-691.

Supreme Court of Iowa.

Sept. 18, 1991.

Mark E. Schantz of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, for appellants.

Christopher F. O'Donohoe and Richard D. Stochl of O'Donohoe, O'Connor & O'Donohoe, New Hampton, for appellees.

Considered en banc.

HARRIS, Justice.

This appeal is from the district court's denial of an application to vacate arbitration awards against commodity brokers, and entry of judgments on those awards. The brokers contend they were denied due process because the arbitration decision did not state the reasons for the award, the hearing was procedurally unfair and there was misconduct prejudicing its rights, and the awards were in manifest disregard of the law and unsupported by substantial evidence. We affirm.

Ardwin and Dale Reicks, father and son, conduct extensive hog operations. Though the operations are separate, the Reicks work together in managing them.

Farmers Commodities Corporation (FCC) is a Des Moines commodities brokerage firm. Its customers are primarily grain operators who use the commodities futures market to "hedge" their position in the cash market for grain. FCC began offering a program of marketing advice for grain and livestock farmers. This program made some of the marketing techniques for its usual customers available to farmers. The program was called "Farmers Marketing Resources."

John Brannaman is an FCC employee. Jack Figley is vice president of administration. Figley and Harold Richard are supervisors of John Brannaman.

"Hedging," as the term is used in this litigation, refers to a procedure whereby, when buyers purchase a commodity--such as grain--they also sell on the board of trade for future delivery (at the same time set for delivery of the grain) a sufficient quantity to cover the purchase. This way, whether price increases or decreases, the gain on one transaction offsets the loss on the other. In other words the participant takes equal and opposite positions in the cash and futures market. The practice is not new. See Bolfing v. Schoener, 144 Minn. 425, 426-29, 175 N.W. 901, 901-02 (1920).

"Rolling hedges" refers to a practice of placing a futures position in a contract month which matures before the product is expected to be marketed. Later in the year the position is lifted and shifted to a later contract. A rolling hedge involves more risk. Hedges can also be rolled backward.

At the suggestion of the Reicks' banker, they met with Brannaman to discuss hedging and the rolling hedge technique, a matter concerning which the Reicks had, at most, decidedly limited knowledge. The Reicks thereafter proceeded with numerous investments in the commodities market under the guidance of FCC--with disastrous results. Both Ardwin and Dale had to pay vast sums representing money borrowed to offset margin calls. They allege this was necessitated by FCC's mishandling of funds and bad advice.

Federal law requires a brokerage firm such as FCC to register as a "futures commission merchant." If a customer has a claim against a futures commission merchant, and if a customer chooses to submit to arbitration of the claim under the auspices of the National Futures Association rather than proceeding with court litigation, the futures commission merchant is compelled to submit to arbitration. See 17 C.F.R. §§ 170.8, 170.15, 180.3.

The Reicks each did demand arbitration. FCC places strong emphasis on the fact that, when the Reicks did so, it had no choice but to submit. The proceedings culminated in an award of $104,332.80 for Dale and an award of $129,446.49 in favor of Ardwin. FCC challenged the proceedings in this action. It raises a number of complaints which are discussed in the following divisions.

I. Contracts have often provided a fertile field for tort claims. See W. Prosser & W.P. Keeton, Law of Torts § 92, at 663-64 (5th ed. 1984). This is such a case. Because a tort claim is involved, although the parties assume otherwise, Iowa Code chapter 679A (arbitration) is not involved. This renders moot a number of contentions of the parties, both of whom rely on chapter 679A to support their arguments. The chapter addresses only written contracts for arbitration, and specifically exempts "any claim sounding in tort whether or not involving a breach of contract." Iowa Code § 679A.1(2)(c). This dispute must be resolved under arbitration principles established by our common law. See Jefferson County v. Barton-Douglas Constr., 282 N.W.2d 155, 157 (Iowa 1979) (arbitration agreements outside statutory framework governed by common-law principles). Under those principles judicial review is severely limited.

II. FCC first argues its

forced submission to binding arbitration in this case violated FCC's right to access to the courts, its right to a jury trial on legal claims (including a claim for fraud), its due process rights, and its right to equal protection of the laws.

We pass our grave doubts on whether error was preserved on this claim and reject it on its merits. As a commodities broker FCC may have been compelled to submit to binding arbitration, but no one compelled FCC to become a commodities broker. Cf. Bastone v. Dial-A-Home, 100 Misc.2d 1026, 1027-28, 420 N.Y.S.2d 467, 467-68 (1979). Because FCC did consent to become a commodities broker, subject to the federal rule mandating binding arbitration, the case is not controlled by the rule that a party cannot, without agreeing, be required to submit to arbitration. Hawkins/Korshoj v. State Bd. of Regents, 255 N.W.2d 124, 127 (Iowa 1977).

In Geldermann, Inc. v. Commodities Future Trading Commission, 836 F.2d 310, 324 (8th Cir.), cert. denied, 488 U.S. 816, 109 S.Ct. 54, 102 L.Ed.2d 33 (1987), the court found no constitutional infirmity in the federal requirement that commodities brokers must submit to arbitration. Authorities to the contrary can be found, but in general they reflect a discredited view from former years when the courts cast a wary, and perhaps jealous, eye on what was then suspected of being an affront to judicial authority. See, e.g., Dorchy v. Kansas, 264 U.S. 286, 44 S.Ct. 323, 68 L.Ed. 686 (1923). The rule in more recent cases, the one which we strongly prefer and adopt, is that constitutionality of an arbitration is not compromised by the fact that one party is required to submit to it as a condition for entering a specific activity. Country-Wide Ins. Co. v. Harnett, 426 F.Supp. 1030 (S.D.N.Y.1977); Firelock, Inc. v. District Court, 776 P.2d 1090 (Colo.1989); see generally 5 Am.Jur.2d Arbitration and Award § 9, at 526 (1962); Annotation Constitutionality of Arbitration Statutes, 55 A.L.R.2d 432 (1957).

III. For a combination of reasons FCC contends the award was unfair, abusive, and contrary to law. Judged under the standards by which we review appeals from court proceedings, FCC might be said to have been treated unfairly, at least under its version of the facts. This is however no review of a court proceeding, or even of a decision on judicial review of administrative action.

On judicial review of administrative decisions (which is of course decidedly more narrow than our review of routine court actions), it is a ground for interference when the challenged action is unreasonable or arbitrary. Iowa Code § 17A.19(8)(g). But arbitration decisions are not so closely...