Tyson Foods, Inc. v. Archer

• Decision Date: 19 February 2004
• Docket Number: No. 03-649.,03-649.
• Citation: 147 S.W.3d 681,356 Ark. 136
• Parties: TYSON FOODS, INC., and The Pork Group, Inc. v. Michael R. ARCHER, et al.
• Court: Arkansas Supreme Court

147 S.W.3d 681

356 Ark. 136

TYSON FOODS, INC., and The Pork Group, Inc. v. Michael R. ARCHER, et al.

No. 03-649.

Supreme Court of Arkansas.

February 19, 2004.

Bassett Law Firm, by: Gary V. Weeks, Vincent O. Chadick, and James M. Graves, Fayetteville; and Friday, Eldredge & Clark, LLP, by: Kevin A. Crass, R. Christopher Lawson and Clifford W. Plunkett, Little Rock, for appellants.

Hare, Wynn, Newell & Newton, LLP, by: Clark W. Mason, Little Rock, James J. Thompson, Jr. and Nolan E. Awbrey, Birmingham, for appellees.

DONALD L. CORBIN, Justice.

Appellants Tyson Foods, Inc., and The Pork Group, Inc., which is a wholly-owned subsidiary of Tyson, appeal the order of the Pope County Circuit Court finding that an arbitration agreement in contracts they executed with Appellees, who are hog farmers, lacks mutuality of obligation and, thus, is unenforceable. This case was certified to this court as involving an issue requiring clarification or development of the law; hence, our jurisdiction is pursuant to Ark. Sup.Ct. R. 1-2(b)(5). We find no error and affirm.

During a period from 1988 through 1991, Appellants actively recruited potential hog farmers. Appellees, the majority of whom are Arkansas farmers, entered into contracts, agreeing to raise live hogs for the exclusive benefit of Appellants. Pursuant to these "swine" contracts, Appellants provided swine, feed, medication, and other services to the Appellee farmers. In exchange, Appellees agreed to properly house and nourish the swine until such time that they were ready to be shipped to "finishing" plants, which were located outside the State. Appellants, however, retained title to the swine at all times.

Due to a decrease in profitability in the pork market in this area, Appellants decided to cease their operations and, thus, cancel their contracts with Appellees. Appellees were informed of this decision on or about August 18, 2002. As a result, Appellees filed suit in circuit court for fraud, deceit, and promissory estoppel on September 12, 2002. They sought both compensatory and punitive damages, alleging that they incurred substantial debt to build commercial hog farms that had now been rendered useless for any other purpose. According to their complaint, Appellees claimed that they were induced into incurring this debt by Appellants' false misrepresentations that they were "in the hog growing business to stay" and "in it for the long term."

On October 11, 2002, Appellants filed a motion to stay litigation and to compel arbitration. Therein, Appellants alleged that each Appellee operated a facility pursuant to a "swine" contract and that these contracts contained mandatory arbitration clauses. Appellants further alleged that the claims asserted by Appellees arose out of and were related to the "swine" contracts and, therefore, were subject to arbitration.

A hearing on Appellants' motion was held on January 23, 2003. No witnesses testified at this hearing, but each side presented arguments regarding whether the arbitration agreement was enforceable. The trial court issued a written order, denying Appellants' motion on February 21, 2003. As an initial matter, the trial court stated that the issue of whether the agreement was enforceable was to be decided under Arkansas contract law. In support of this finding, the trial court relied on this court's decisions in The Money Place, LLC v. Barnes, 349 Ark. 411, 78 S.W.3d 714 (2002), and Showmethemoney Check Cashers, Inc. v. Williams, 342 Ark. 112, 27 S.W.3d 361 (2000). The court then went on to find that the arbitration agreement was not enforceable, because it lacked mutuality of obligation, one of the elements required to establish a binding contract. From that order, comes the instant appeal.

Pursuant to Ark. R.App. P.-Civ. 2(a)(12), an order denying a motion to compel arbitration is an immediately appealable order. See also E-Z Cash Advance, Inc. v. Harris, 347 Ark. 132, 60 S.W.3d 436 (2001). This court reviews a trial court's order denying a motion to compel arbitration de novo on the record. Barnes, 349 Ark. 411, 78 S.W.3d 714.

The sole issue presented in this appeal is whether the arbitration agreement found in the "swine" contracts is a valid and enforceable arbitration agreement. Appellants argue that the trial court erred in ruling that it was not enforceable because it lacked mutuality. According to Appellants, the arbitration agreement is mutual, as both parties are required to submit to arbitration. Appellees counter that the trial court correctly determined that there was a lack of mutuality, because in a preceding paragraph of the "swine" contracts, Appellants, in the event of Appellees' default, retain the right to "pursue any other remedies at law or equity." We agree with Appellees that there is a lack of mutual obligation in the arbitration agreement, thus, rendering it unenforceable.

This court has held that arbitration is simply a matter of contract between the parties. Showmethemoney, 342 Ark. 112, 27 S.W.3d 361. Stated differently, the question of whether a dispute should be submitted to arbitration is a matter of contract construction. Id. (citing International Union, United Auto., Aerospace, & Agri. Implement Workers of Am. v. General Elec. Co., 714 F.2d 830 (8th Cir.1983)). In Harris, 347 Ark. 132, 60 S.W.3d 436 (2001), this court explained:

The same rules of construction and interpretation apply to arbitration agreements as apply to agreements generally, thus we will seek to give effect to the intent of the parties as evidenced by the arbitration agreement itself. 5 Am.Jur.2d § 14; and see Prepakt Concrete Co. v. Whitehurst Bros., 261 Ark. 814, 552 S.W.2d 212 (1977). It is generally held that arbitration agreements will not be construed within the strict letter of the agreement but will include subjects within the spirit of the agreement. Doubts and ambiguities of coverage should be resolved in favor of arbitration. 5 Am.Jur.2d § 14; Uniform Laws Annotated, Vol. 7, Uniform Arbitration Act, § 1, Note 53 (and cases cited therein).

Id. at 138, 60 S.W.3d at 440 (quoting May Constr. Co. v. Benton Sch. Dist. No. 8, 320 Ark. 147, 149, 895 S.W.2d 521, 523 (1995) (quoting Wessell Bros. Foundation Drilling Co. v. Crossett Pub. Sch. Dist. No. 52, 287 Ark. 415, 418, 701 S.W.2d 99, 101 (1985))). This court further stated in Harris, 347 Ark. 132, 60 S.W.3d 436, that the construction and legal effect of an agreement to arbitrate are to be determined by this court as a matter of law. See also Hart v. McChristian, 344 Ark. 656, 42 S.W.3d 552 (2001).

Thus, we must apply our rules of contract construction to determine whether the language of the present arbitration agreement constitutes a valid contract to arbitrate. The essential elements of a contract are (1) competent parties, (2) subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. Barnes, 349 Ark. 411, 78 S.W.3d 714; Showmethemoney, 342 Ark. 112, 27 S.W.3d 361; Foundation Telecom., Inc. v. Moe Studio, Inc., 341 Ark. 231, 16 S.W.3d 531 (2000). The only element at issue in the present case is that of mutual obligations. This court has recognized that mutuality of contract means that an obligation must rest on each party to do or permit to be done something in consideration of the act or promise of the other; thus, neither party is bound unless both are bound. Barnes, 349 Ark. 411, 78 S.W.3d 714; Showmethemoney, 342 Ark. 112, 27 S.W.3d 361. A contract, therefore, that leaves it entirely optional with one of the parties as to whether or not he will perform his promise would not be binding on the other. Id.; see also Townsend v. Standard Indus., Inc., 235 Ark. 951, 363 S.W.2d 535 (1962).

Before discussing the issue of mutuality as it applies to this case, we must note that our determination of whether an arbitration agreement is enforceable is a threshold issue to be determined under Arkansas law. See Barnes, 349 Ark. 411, 78 S.W.3d 714; Showmethemoney, 342 Ark. 112, 27 S.W.3d 361. Appellants' contention that this case is governed by the Federal Arbitration Act is nothing more than a red herring. The applicability of the FAA only becomes an issue if this court determines that the arbitration agreement is valid and enforceable. In other words, this court is not restricted by the confines of the FAA in determining the validity of the arbitration agreement. With that said, we now turn to the issue of whether the arbitration agreement lacks the essential contract element of mutuality of obligation.

A review of the "swine" contracts reveals that there is indeed a lack of mutuality, as Appellees agreed to forgo their rights to pursue judicial actions, while Appellants retained their ability to pursue an action through the judicial process. The contracts provided in relevant part:

16. Arbitration. Any dispute or controversy between the parties hereto arising out of or relating to this Contract, including without limitation, a dispute or controversy relating to the construction of any provision or the validity or enforceability of any term or condition (including this paragraph) or of the entire Contract, or any claim that all or any part of this Contract (including this provision) is void or voidable, shall be submitted to arbitration in accordance with the Commercial Rules of Arbitration of the American Arbitration Association then in effect at an office of the American Arbitration Association. In any such arbitration proceeding, each party shall pay for its own costs and expenses of the arbitration, including its attorneys' fees. The decision of the arbitrators shall be final and binding upon the parties and may be enforced in any court of competent jurisdiction.

Prior to this arbitration clause, however, is a provision detailing Appellants' remedies in the event that a producer defaults on the contract. It states:

11. Remedies of Company on Default of Producer. Upon default of breach of any of the...