State, ex rel. St. Joseph Light & Power Co. v. Donelson

• Decision Date: 23 February 1982
• Docket Number: No. WD,WD
• Citation: State, ex rel. St. Joseph Light & Power Co. v. Donelson, 631 S.W.2d 887 (Mo. App. 1982)
• Parties: STATE of Missouri, ex rel. ST. JOSEPH LIGHT & POWER COMPANY, Relator, v. The Honorable J. Morgan DONELSON, Judge of the Circuit Court of Putnam County, at Unionville, Missouri, Respondent. 33181.
• Court: Missouri Court of Appeals

Page 887

631 S.W.2d 887

STATE of Missouri, ex rel. ST. JOSEPH LIGHT & POWER COMPANY, Relator, v. The Honorable J. Morgan DONELSON, Judge of the Circuit Court of Putnam County, at Unionville, Missouri, Respondent.

No. WD 33181.

Missouri Court of Appeals, Western District.

Feb. 23, 1982.

Motion for Rehearing and/or Transfer to Supreme Court

Overruled and Denied March 30, 1982.

Joseph K. Houts, St. Joseph, for relator St. Joseph Light & Power Co.

N. William Phillips, Milan, for respondent.

Before SOMERVILLE, C.J., and SHANGLER, PRITCHARD, WASSERSTROM, TURNAGE, CLARK and KENNEDY, JJ.

ORIGINAL PROCEEDING IN PROHIBITION

KENNEDY, Judge.

Missouri Mining, Inc., a Missouri corporation with offices at Unionville, Missouri, in Putnam County, filed suit in the Putnam County Circuit Court against relator St. Joseph Light & Power Company for damages for breach of a contract for the sale and purchase of coal. St. Joseph Light & Power filed its "motion to dismiss or in the alternative to compel arbitration". The motion was based upon a provision in the contract which required arbitration of any disputes arising under the contract. The motion alleged in effect that Light & Power was invoking the arbitration provision, but that Missouri Mining had (wrongfully) withdrawn from the arbitration proceeding. The motion requested that the petition be dismissed or that plaintiff be ordered to proceed with arbitration. Respondent Judge Donelson after a hearing overruled the motion and directed Light & Power to file an answer to the merits within 30 days. He indicated an intention to proceed with the case upon the merits.

At the relation of Light & Power, we issued our preliminary writ of prohibition.

The issue before Judge Donelson on Light & Power's motion to dismiss or to compel arbitration, and the issue before us on this writ proceeding, is whether the Federal Arbitration Act, 9 U.S.C.A., § 1, et seq. (1970), makes the arbitration provision contained in the parties' contract valid and enforceable in a state court proceeding. If, as we hold, the answer is in the affirmative, then the writ must be made permanent. Respondent argues that the Federal Arbitration Act is not applicable and that Missouri law must be applied to the contract. Missouri law would make the arbitration agreement unenforceable and would allow Missouri Mining to proceed with its damage action upon the contract, bypassing the arbitration proceeding, § 435.010, RSMo 1978. ¹

The contract between the parties consists of 32 pages including cover, index and a map exhibit. Basically it calls for the sale and delivery by Missouri Mining to St. Joseph Light & Power Company, of large quantities of coal over a term beginning November 1, 1975, and ending March 23, 1992, with a right of termination effective March 23, 1985, in case the parties are unable to agree on an "adjusted base price". The two provisions of the contract which are central to the present controversy are § 13, Arbitration, and § 21, Construction of Agreement. These paragraphs are copied into the margin. ²

9 U.S.C.A. § 2 (1970), upon which St. Joseph Light & Power relies, reads as follows:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The preceding section, 9 U.S.C.A. § 1, defines "commerce" as "commerce among the several States or with foreign nations..."

1. Whether contract involved interstate commerce.

First, respondent rather mildly protests that the determination whether the contract "evidenced a transaction involving interstate commerce" was a factual determination and that no such factual determination has been made by the trial court. While the trial court made no finding upon that factual issue, it is plain enough from the record before respondent and from the briefs and oral arguments before us, that the contract involved interstate commerce. It involved shipments of coal from Centerville, Iowa, where Missouri Mining's tipple was located, to St. Joseph, Missouri. Payment for the coal was made to Missouri Mining's broker and agent in Des Moines, Iowa.

2. Whether Federal Arbitration Act applicable in state court proceedings.

Respondent next contends that the Federal Arbitration Act is not applicable to state courts. Respondent would not challenge the proposition that, if the litigation pending before him were pending instead in a United States District Court under its diversity jurisdiction, that court would be obliged to recognize and hold valid the arbitration provision of the contract between the parties. He argues, however, that where the action is brought in a state court in Missouri, that the state court, applying Missouri law, may disregard the agreement of the parties for arbitration and may proceed to determine the issues upon the merits.

We reject respondent's position and hold that Section 2 of the Federal Arbitration Act, which we have quoted above, is substantive law to be given effect in Missouri state courts, not a mere matter of federal court procedure. In explaining our reasons for that holding, we cannot improve upon language lifted from the perspicacious and satisfying opinion of Judge Medina in Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 407 (2d Cir. 1959), cert. granted 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed per stipulation, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960).

Thus we think the text of the Act and the legislative history demonstrate that the Congress based the Arbitration Act in part on its undisputed substantive powers over commerce and maritime matters. To be sure much of the Act is purely procedural in character and is intended to be applicable only in the federal courts. But Section 2 declaring that arbitration agreements affecting commerce or maritime affairs are "valid, irrevocable, and enforceable" goes beyond this point and must mean that arbitration agreements of this character, previously held by state law to be invalid, revocable or unenforceable are now made "valid, irrevocable, and enforceable." This is a declaration of national law equally applicable in state or federal courts. See Kochery, The Enforcement of Arbitration Agreements in the Federal Courts; Erie v. Tompkins, 39 Corn.L.Q. 74, 78 (1953). This conclusion flows directly from the realization by the Congress that nothing of significance would have been accomplished without tapping these substantive sources of power. It is these that put teeth into the statute and make it accomplish the salutary and beneficial ends the Congress had in mind.

State court decisions are not in agreement among themselves, but the great weight of authority agrees with Robert Lawrence Company v. Devonshire Fabrics, Inc., supra. Representing the majority view is A/S J. Ludwig Mowinckels Rederi v. Dow Chemical Company, 25 N.Y.2d 516, 307 N.Y.S.2d 660, 255 N.E.2d 774 (N.Y.1970). Cert. denied 398 U.S. 939, 90 S.Ct. 1844, 26 L.Ed.2d 272 (1970). Chief Judge Fuld writing for the court stressed the desirability of having the same rule (with respect to validity and enforceability of arbitration agreements involving interstate commerce) in state courts and federal courts. The opinion quotes as "most enlightening" the following language from Bernhardt v. Polygraphic Company of America, Inc., 350 U.S. 198, 203-204, 76 S.Ct. 273, 276, 100 L.Ed. 199 (1956):

If the federal court allows arbitration where the state court would disallow it, the outcome of litigation might depend on the courthouse where suit is brought... There would in our judgment be a resultant discrimination if the parties suing on a Vermont cause of action in the federal court were remitted to arbitration, while those suing in the Vermont court could not be. 255 N.E.2d at 778.

To the same effect are a number of other state decisions, including West Point-Pepperell, Inc., v. Multi-Line Indus., Inc., 231 Ga. 329, 201 S.E.2d 452 (1973); Mamlin v. Susan Thomas, Inc., 490 S.W.2d 634 (Tex.Civ.App.1973); and other cases collected in an annotation entitled "Conflict of Laws as to Validity and Effect of Arbitration Provision in Contract for Purchase or Sale of Goods, Products, or Services, Annot., 95 A.L.R.3d, 1145, 1159 (1979).

Respondent urges us to follow Pullman, Incorporated, v. Phoenix Steel Corporation, 304 A.2d 334 (Super.Ct.Del.1973), which applied Delaware law and held an arbitration provision unenforceable, though dealing with a contract involving interstate commerce. The Delaware case represents a small minority of cases taking a similar position. They are noted in the above annotation at 1160-1161. We believe the majority view is better supported, and we join with them in holding the Federal Arbitration Act applicable in the present proceeding.

We have examined the Missouri cases cited by both parties and find that none of them really give any help on the question we are dealing with.

3. Whether choice of law agreement has effect of adopting Missouri law to allow unilateral bypassing of arbitration agreement.

Respondent then argues that § 21 of the contract, quoted in footnote 2 above, providing that the contract should be "governed by, and construed according to the laws of the State of Missouri", has the effect of adopting § 435.010, RSMo 1978, in preference to the federal statute. The argument is that the parties in Sec. 13 of the contract agreed upon mandatory arbitration, then in Sec. 21, by making Missouri law applicable, allowed either party to bypass the arbitration provision and pitch his controversy in court. We reject...