Reis v. Peabody Coal Co.
| Decision Date | 08 October 1996 |
| Docket Number | No. 70003,70003 |
| Citation | 935 S.W.2d 625 |
| Parties | Carl T. REIS, et al., Respondent, v. PEABODY COAL COMPANY, et al., Appellant. |
| Court | Missouri Court of Appeals |
W. Stanley Walch, Michael D. O'Keefe, Lawrence C. Friedman, St. Louis, for appellant.
George Allen Barton, Scott K. Martinson, Kansas City, Robert F. Ritter, St. Louis, for respondent.
Before SIMON and KAROHL, JJ.
RHODES RUSSELL, Presiding Judge.
Appellant, Peabody Coal Company ("Peabody"), appeals the trial court's order denying its motion to compel arbitration and stay litigation under a 1963 lease agreement with respondent, Green River Mine Trust ("GRMT"). Peabody also appeals the trial court's denial of its dismissal and summary judgment motions, and an order requiring production of an alleged privileged document.
GRMT claims that this court does not have jurisdiction to hear Peabody's appeals, or alternatively, Peabody waived its right to arbitration. We find that we have jurisdiction over the appeal of the denial of the motion to compel arbitration. We further find that Peabody waived its right to arbitrate, and therefore, affirm the trial court's order denying arbitration. Peabody's other appeals are dismissed for lack of appellate jurisdiction.
In November 1963, C.A. Reis and Annie Reis (Reis) entered into a lease agreement with Sentry Royalty Company (Sentry). Under the terms of the lease agreement, Sentry agreed to pay royalties to Reis for coal mining rights located in Kentucky. In exchange for the right to mine the coal, Sentry agreed to pay Reis "four percent on the monthly gross sales realization." Sentry also agreed to pay Reis a higher royalty rate if Sentry paid any coal owners of adjoining lands a higher rate. Any question under the lease agreement was to be resolved by arbitration. 1
In January 1966, Reis assigned their rights under the lease agreement to GRMT. Sentry's rights and obligations under the lease agreement were eventually assumed by Peabody. Between 1979 and 1990, Peabody mined and sold coal from the leased premises. During this period, GRMT alleged that Peabody underpaid the mining royalties by fraudulently excluding certain taxes from the calculation of the gross sales realization. GRMT also alleged that Peabody failed to increase GRMT's royalty rate when Peabody paid adjoining land owners a higher rate for their coal.
In an effort to resolve the dispute, GRMT invoked the lease agreement's arbitration clause. Before an appointed arbitration panel, GRMT pled breach of contract and fraud. GRMT sought punitive damages for Peabody's alleged fraudulent conduct. Peabody objected to GRMT's request for punitive damages on the ground that the lease agreement did not authorize punitive damages. The arbitration panel later determined that it lacked authority to hear GRMT's fraud and punitive damage claims.
After the arbitration panel dismissed GRMT's fraud and punitive damage claims, the panel found that Peabody breached the lease by deducting taxes from the gross realization figures and by failing to pay GRMT royalties at the same rate Peabody had agreed to pay another royalty holder. The arbitration panel awarded GRMT $708,721.32 in damages. GRMT filed a confirmation proceeding in the District Court for the Eastern District of Missouri and a judgment was entered on the arbitration award.
Following the confirmation of its arbitration award, GRMT filed suit in the Circuit Court of the City of St. Louis against Peabody on the fraud and punitive damage claims. Peabody responded to GRMT's petition by moving to dismiss or, in the alternative, for summary judgment. Peabody argued that since GRMT arbitrated its contract claims, GRMT was barred by the doctrine of res judicata from litigating the fraud claims. The trial court denied Peabody's motions and Peabody appealed. In April 1994, this court by order, dismissed the appeal for lack of appellate jurisdiction.
During the course of discovery, GRMT moved to compel the production of certain documents from Peabody. The trial court sustained GRMT's motion to compel certain documents over Peabody's objection that the documents were protected by the attorney-client privilege. Following the trial court's order to compel production of documents, Peabody renewed its motion for summary judgment. The trial court again denied Peabody's renewed motion for summary judgment.
Peabody next filed a motion to compel arbitration and stay litigation pursuant to the Federal Arbitration Act ("FAA") and the Missouri Arbitration Act (Missouri Act). In January 1996, the trial court denied Peabody's motion to compel arbitration.
In the appeal before us, Peabody contends that the trial court erred by: (1) denying its application to compel arbitration; (2) denying its motion for summary judgment; (3) denying its motion to dismiss; and (4) compelling production of an alleged privileged document. By a separate motion to dismiss, GRMT contends that we lack jurisdiction to hear this appeal.
In its motion to dismiss Peabody's appeal, GRMT contends that this court lacks jurisdiction to hear an appeal from a trial court's order denying a motion to compel arbitration and stay litigation. GRMT argues that although § 435.440.1(1) RSMo 1994 2, provides for an interlocutory appeal from a trial court's order denying an application to compel arbitration, § 435.445 prohibits an appeal for agreements entered into before the statute's enactment date of 1980.
Peabody appeals under both the FAA and the Missouri Act. When a party has the right to appeal a trial court's order denying its motion to compel arbitration under either the FAA or the Missouri Act, it may do so if either statute applies to the circumstances of its case. Duggan v. Zip Mail Servs., 920 S.W.2d 200, 202 (Mo.App.1996).
The FAA permits an appeal from an order refusing a stay of litigation or an order denying a petition to order arbitration. 9 U.S.C. § 16(a)(1)(A) and (B) (Supp.1995). Likewise, the Missouri Act provides for an appeal from an order denying an application to compel arbitration, but it does not provide for an appeal from an order refusing to stay litigation. § 435.440.
Since both statutes permit an appeal, we must determine if either statute applies to the 1963 lease agreement. The FAA applies to contracts evidencing transactions "involving commerce." 9 U.S.C. § 2 (1970). The United States Supreme Court has held that the term "involving commerce" is the functional equivalent of "affecting commerce." Allied-Bruce Terminix Cos. v. Dobson, --- U.S. ----, ----, 115 S.Ct. 834, 839, 130 L.Ed.2d 753 (1995). The Court held that Congress intended the FAA to reach the full breadth of the Commerce Clause. Id.
Interstate commerce is involved where the U.S. Postal System is used, the parties are from different states, or where materials are transported across state lines. Woermann Constr. Co. v. Southwestern Bell Tel. Co., 846 S.W.2d 790, 792-93 (Mo.App.1993).
GRMT's lease agreement with Peabody involved interstate commerce in that the coal mined by Peabody crossed state lines. The arbitration panel concluded that the coal mining lease agreement affected commerce and it was subject to the FAA. We agree.
By applying the Missouri Act, the 1963 arbitration agreement would be unenforceable because the Missouri Act applies to agreements entered into after the statute's effective date of August 13, 1980. § 435.445; Hefele v. Catanzaro, 727 S.W.2d 475, 476 (Mo.App.1987). Prior to the enactment of the Missouri Act, Missouri courts did not enforce agreements to arbitrate. Id. 727 S.W.2d at 477. Today, however, arbitration agreements are valid and enforceable. § 435.350. In fact, arbitration is encouraged under Missouri law. Greenwood v. Sherfield, 895 S.W.2d 169, 173 (Mo.App.1995).
In Bunge Corp. v. Perryville Feed & Produce, Inc., 685 S.W.2d 837, 839 (Mo. banc 1985), it was held that under the supremacy clause, Missouri courts are obliged to apply federal law and may not apply substantive or procedural state law which is in derogation of federal law.
The FAA preempts any state act when both acts are applicable. Southland Corp. v. Keating, 465 U.S. 1, 15-16, 104 S.Ct. 852, 860-61, 79 L.Ed.2d 1 (1984). Although the FAA creates substantive rights to be enforced in state courts, Missouri courts are not bound by the procedural provisions of the FAA, provided Missouri's procedures do not defeat the rights granted by Congress. McClellan v. Barrath Constr. Co., 725 S.W.2d 656, 658 (Mo.App.1987).
The Missouri Act imposes an additional burden on a party seeking arbitration that the FAA does not. An arbitration agreement involving commerce entered into before August 13, 1980, would be enforceable under the FAA, while it would not under the Missouri Act. § 435.445. Applying § 435.445 to defeat arbitration where the FAA allows it would violate the supremacy clause of the United States Constitution. Duggan, 920 S.W.2d at 203. We may not use the Missouri Act to defeat a contract's arbitration clause which is covered by the FAA. Bunge, 685 S.W.2d at 839.
Applying § 435.445 in this case would not only deny Peabody's right to appeal, but would also defeat the enforceability of the arbitration agreement itself. If, however, this case had been filed in federal district court pursuant to the FAA, the arbitration agreement undoubtedly would have been enforceable. Thus, applying the Missouri Act would defeat the substantive rights of Peabody.
We find that the application of the Missouri Act is preempted by the FAA and find we have jurisdiction over Peabody's appeal. GRMT's motion to dismiss this appeal is denied.
In its second point on appeal, Peabody contends that the trial court erred in denying its motion to compel arbitration on...
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