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Lebanon Chemical v. United Farmers Plant, 98-1426 (1999)

Court: Court of Appeals for the Eighth Circuit Number: 98-1426 Visitors: 58
Filed: Jun. 16, 1999
Latest Update: Mar. 02, 2020
Summary: United States Court of Appeals FOR THE EIGHTH CIRCUIT _ Nos. 98-1426, 98-3187, 98-3340 _ Lebanon Chemical Corporation, * doing business as Lebanon * Seaboard Corporation, * * Appellee/Cross-Appellant, * * v. * Appeals from the United States * District Court for the Western United Farmers Plant Food, Inc., * District of Missouri. doing business as Farmers AG Center, * Inc., * * Appellant/Cross-Appellee. * * _ Submitted: April 19, 1999 Filed: June 16, 1999 _ Before BEAM and HANSEN, Circuit Judges,
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                   United States Court of Appeals
                         FOR THE EIGHTH CIRCUIT
                                 ___________

                        Nos. 98-1426, 98-3187, 98-3340
                                 ___________

Lebanon Chemical Corporation,         *
doing business as Lebanon             *
Seaboard Corporation,                 *
                                      *
            Appellee/Cross-Appellant, *
                                      *
      v.                              * Appeals from the United States
                                      * District Court for the Western
United Farmers Plant Food, Inc.,      * District of Missouri.
doing business as Farmers AG Center, *
Inc.,                                 *
                                      *
            Appellant/Cross-Appellee. *
                                      *
                                 ___________

                            Submitted: April 19, 1999

                                Filed: June 16, 1999
                                 ___________

Before BEAM and HANSEN, Circuit Judges, and KOPF,1 District Judge.
                            ___________

BEAM, Circuit Judge.




      1
        The Honorable Richard G. Kopf, United States District Court Judge for the
District of Nebraska, sitting by designation.
      A seed processor refused to release a customer's seed until a dispute over
invoices unrelated to the seed in question was resolved. The district court2 issued a
preliminary injunction compelling the processor to release the seed, and granted in part
and denied in part a motion by the seed processor to compel arbitration over the
disputed invoices. We affirm.

I.    BACKGROUND

       United Farmers Plant Food, Inc., (United) buys seed from growers, then stores,
processes, and sells that seed to seed wholesalers. Lebanon Chemical Corporation
(Lebanon) is such a wholesaler. It purchased Kentucky 31 tall fescue grass seed (seed,
or Kentucky 31) from United. Normally, the parties would enter into a large contract
for a specific amount of seed. United would buy the seed, then clean, sort, blend, bag,
and label the seed3 and ship it to Lebanon or directly to Lebanon's customer as United
received an order.

       Both United and Lebanon belong to the American Seed Trade Association
(ASTA). The ASTA rules provide for arbitration of any disputes arising from contracts
between members before resort to a court of law to settle the argument. All
arbitrations are submitted to the American Arbitration Association (AAA) and
determined under AAA Commercial Arbitration Rules.

       The 1996 harvest of Kentucky 31 was poor, thus seed prices in spring 1997 were
much higher than normal. As a result, Lebanon wanted to purchase just enough seed
to cover its obligations and have no carryover of the more expensive seed past the
spring 1997 selling season. On March 5, 1997, Lebanon entered into contract M-2020

      2
      The Honorable Russell G. Clark, United States District Court Judge for the
Western District of Missouri.
      3
          Different customers have different packaging or purity requirements.

                                           -2-
with United for 1.25 million pounds of seed for delivery in March and April 1997. It
is undisputed that these 1.25 million pounds were delivered to and paid for in full by
Lebanon.

       Lebanon's customers continued to demand more seed after all of the seed
covered by contract M-2020 was shipped or committed to orders received. Rather than
enter into another large contract, Lebanon directed United to fill the additional orders
from existing Lebanon inventory if possible, then to go to the market on an as-needed
basis to purchase, process, and ship the necessary seed to Lebanon's customers.
Lebanon would then pay on invoice with a bill of lading indicating shipment to the
customer.

        Beginning in May 1997, Lebanon received some invoices from United without
bills of lading. There are a total of twenty-nine of these disputed invoices. United and
Lebanon communicated back and forth the remainder of 1997 in an effort to resolve
these disputed invoices. At one point, Lebanon made a partial payment on some of the
invoices.

       Meanwhile, K-Mart stores, one of Lebanon's customers in 1997, canceled its
remaining orders in May and returned approximately 1.25 million pounds of seed to
United, who stored the seed for Lebanon. At the end of the 1997 season, the K-Mart
seed, together with seed carried over from the previous season, totaled approximately
2.377 million pounds. Additionally, in July 1997, Lebanon entered into another
contract (M-2021) with United for two million pounds of seed for delivery in spring
1998. Lebanon paid in full for contract M-2021. Thus at the end of 1997, these two
quantities of seed (the contract M-2021 seed and the K-Mart/carry-over seed)
comprised approximately 4.3 million pounds of Kentucky 31 held by United for
Lebanon. There is no dispute that Lebanon paid in full for this seed.




                                          -3-
        In January 1998, United refused to release any of the 4.3 million pounds of seed
to fill current orders from Lebanon's customers, until Lebanon paid the disputed
invoices, essentially holding the paid-for seed hostage. Lebanon then filed suit in
district court seeking a preliminary injunction to compel United to release the paid-for
seed. United, in return, then filed a demand for arbitration with the AAA, and a motion
with the district court to compel arbitration. On January 30, 1998, finding that the
disputed invoices did not touch or concern the paid-for seed, the district court issued
a preliminary injunction ordering United to turn over the 4.3 million pounds of seed
"within ten days of request by plaintiff in such units as are commercially reasonable and
practicable and in such condition as is customary or as agreed upon between the parties
previously." The court also denied United's motion to compel arbitration. United
appeals this order.

       United later filed a counterclaim and second motion to compel arbitration. In
July 1998, after a two-day hearing, the court ordered arbitration only for those invoices
on which Lebanon had made partial payment, but denied the motion with regard to the
remainder of the invoices. United appeals the district court's denial of arbitration on
the remaining invoices and Lebanon cross-appeals the court's order compelling
arbitration concerning the partially paid invoices. The arbitration appeals from the July
order were consolidated with United's appeal of the January order granting the
preliminary injunction.

II.   DISCUSSION

      A.     Preliminary Injunction

      Initially we note that we have jurisdiction under 28 U.S.C. § 1292(a)(1) to
consider this interlocutory appeal of an order granting an injunction.




                                          -4-
       United asserts that the district court abused its discretion by issuing the
preliminary injunction compelling United to release 4.3 million pounds of seed to
Lebanon. United relies on Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hovey, 
726 F.2d 1286
(8th Cir. 1984), for the proposition that once an effective arbitration
agreement is found to exist, any injunctive relief would be an improper intrusion into
the arbitration process and the independence of the arbitrator. See 
id. at 1292.
We
need not explore the scope of Hovey, nor decide the propriety of the district court's
preliminary injunction because the issue is moot. "Through the passage of time and the
occurrence of irrevocable events, disputes may disappear so that federal courts no
longer can grant effective relief." McFarlin v. Newport Special Sch. Dist., 980 F.2d
1208,1210 (8th Cir. 1992). When this happens, the issue is moot and a federal court
has no power to decide the issue. See Beck v. Missouri State High School Activities
Ass'n, 
18 F.3d 604
, 605 (8th Cir. 1994). The seed, which Lebanon had already paid
for, has long since been delivered to Lebanon, shipped to Lebanon's customers for
resale, and is presumably now growing in various fields and yards across the country.
There is nothing that this court could now do to remedy the effects of the injunction
even if it were improvidently granted.

       United contends that even if the question of the injunction is moot, the appeal is
not moot because it may be able to recover on the injunction bond posted by Lebanon
if we should determine that the district court erred in granting the injunction.
Any right to recover under the injunction bond is not now before this court as the
district court retained jurisdiction pending final resolution of all issues. See Olin Water
Servs. v. Midland Research Labs., Inc., 
774 F.2d 303
, 307 (8th Cir. 1985). Any claim
by United that it should recover on the injunction bond must first be tried before the
district court. See 
id. at 308.



                                           -5-
      B.     Orders Denying and Granting Arbitration

       United first appeals the district court’s January order denying United’s motion
to compel arbitration regarding the 4.3 million pounds of paid-for seed. For the reasons
stated above, that issue is moot.4

       We now reach the substance of the dispute. The district court conducted a two-
day hearing on the arbitrability of the twenty-nine disputed invoices. The court then
ordered the parties to proceed to arbitration on twelve invoices on which Lebanon had
made partial payment, and denied arbitration for the remaining seventeen invoices.
United appeals that portion of the order denying arbitration, and Lebanon cross-appeals
that portion ordering arbitration.

       We have jurisdiction under 9 U.S.C. § 16(a)(1)(b) for an appeal of an
interlocutory order denying arbitration. We review de novo the district court's decision
to grant or deny arbitration. See Nordin v. Nutri/System, Inc., 
897 F.2d 339
, 344 (8th
Cir. 1990). The factual findings of the district court are reviewed for clear error. See
id. Arbitration is
a creature of contract. See First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938
, 943 (1995). Without a clear and unmistakable delegation of the question
of arbitrability to an arbitrator, the arbitrability of a dispute must be decided by the
courts. See 
id. at 944.
The relevant language from Rule XVI(1) of the ASTA Rules
states: "[A]ll differences which cannot be amicably resolved . . . arising from a
contract started or concluded under these Rules, shall first be decided by arbitration
before it can be submitted to a court of law." The general phrase "any controversy" in
an arbitration agreement does not satisfy the express delegation required by Kaplan.


      4
        United claimed that the term "spring 1998" in contract M-2021 allowed it to
deliver the seed any time it chose between January 1, 1998, and June 1, 1998. The
seed has been shipped and June 1, 1998, is long past. Any determination of the issue
would be merely academic.

                                          -6-
See McLaughlin Gormley King Co. v. Terminix Int’l Co., L.P., 
105 F.3d 1192
, 1194
(8th Cir. 1997). We find that the phrase "all differences" in the arbitration clause at
issue here is similarly too general to amount to an express delegation of the issue of
arbitrability. Thus it was for the district court to determine arbitrability of this dispute.



       Under the language of the arbitration agreement, the parties have a right to
arbitration only as to disputes "arising from a contract started or concluded under [the
ASTA rules]." The contracts between United and Lebanon contain the language: "This
memo is subject to the trade rules of the American Seed Trade Association," thus
effectively incorporating the ASTA arbitration provision into contracts between
Lebanon and United. The district court properly concluded that there must first be a
contract between the parties that is in dispute before any right to arbitration can arise.5

        To prove a contract, United offered sales memoranda in the form of contracts
that it sent to Lebanon, and accompanying invoices. None of these are signed by
Lebanon. United first argues that the disputed invoices and memoranda are addenda,
or supplemental contracts to contract M-2020, and thus the arbitration clause in M-
2020 gives it the right to present all the disputed invoices to an arbitrator. In the
alternative, United argues that each memoranda is a separate, valid, and enforceable
contract, each providing for arbitration.

      Contract M-2020 was for 1.25 million pounds of Kentucky 31. There is no
dispute that all of this seed was shipped and paid for. The district court found that
contract M-2020 was unambiguous as to the amount of seed it covered and that the
contract "in no way suggests that additional seed sales are contemplated under contract
M-2020." United cannot create a relationship between contract M-2020 and the


       5
       The district court found contracts existed with regard to the partially paid
invoices because, by making payment, Lebanon had acknowledged an agreement.

                                            -7-
disputed invoices out of whole cloth simply by claiming that a relationship exists.6
Thus the district court denied arbitration based on the arbitration agreement contained
in contract M-2020.

       United argues that once the court found that M-2020 was a valid contract with
an arbitration clause, its inquiry should have ended with all issues being sent to
arbitration. We disagree. The arbitration agreement provides relief for disputes arising
from a contract started under the ASTA rules. Finding a valid contract under the ASTA
rules is only the first step of the district court's inquiry. The court must also make sure
that the dispute arises from that contract. When a court determines arbitrability of a
dispute, it looks to more than the mere existence of a valid arbitration agreement. It
also measures the scope of that agreement and determines whether the present dispute
is included within its reach. See First 
Options, 514 U.S. at 944-45
; Houlihan v.
Offerman & Co., Inc., 
31 F.3d 692
, 694-95 (8th Cir. 1994).
       United asserts that under Fleet Tire Service of North Little Rock v. Oliver
Rubber Co., 
118 F.3d 619
(8th Cir. 1997), the arbitration clause at issue is broad rather
than narrow, and as a result, the question of whether the claim relates to the contract
with the arbitration clause is for the arbitrator to decide. United misconstrues the
holding of Fleet Tire. In Fleet Tire, this court followed Prudential Lines, Inc. v. Exxon
Corp., 
704 F.2d 59
(2d Cir. 1983), in recognizing a distinction between "narrow" and
"broad" arbitration agreements. See Fleet 
Tire, 118 F.3d at 621
. A court deciding
arbitrability under a broad agreement leaves for the arbitrator the issue of whether the
controversy in question relates to the agreement containing the arbitration clause, i.e.,
the scope of the clause. See 
id. However, there
are significant differences between the
arbitration clause in Fleet Tire and that contained in the ASTA Rules. The agreement
in Fleet Tire read in pertinent part: "Any controversy or claim arising out of or relating


      6
        None of the disputed invoices reference contract M-2020, and in fact refer to
other "contract," numbers, and those "contracts" contained terms different from those
in M-2020.

                                           -8-
to this Agreement . . . shall be settled by arbitration . . . . The arbitration provided for
. . . shall be the exclusive remedy for any dispute between [the parties], as a substitute
for any and all legal remedies and proceedings that would otherwise be available to
them." 
Id. at 620.
Contrary to United's argument, it is not the phrase "any controversy
or claim" which places the Fleet Tire clause in the broad category. The Fleet Tire court
expressly relied on the additional and more general phrase "relating to" to find that the
arbitration clause was broad. See 
id. at 621.
The arbitration agreement in this case has
none of the mentioned distinguishing language and is therefore not a broad arbitration
clause. Thus we find the district court properly determined whether the disputed
invoices arose from contract M-2020.

       Since United cannot compel arbitration of the disputed invoices on the basis of
contract M-2020, it can do so only if the individual invoices and sales memoranda
amount to valid contracts between the parties. From the evidence presented, the district
court found that the parties changed their method of entering into a contract because
of the volatility of the seed market. The new method provided for a series of smaller
contracts. Lebanon would pay United for seed that United procured in the
marketplace, processed and shipped to Lebanon's customer to fill an order. The parties
did not intend to consummate a contract until United provided Lebanon with a bill of
lading showing that seed had been delivered to Lebanon's customer. The disputed
invoices were for seed that United purchased, processed, and placed in inventory for
Lebanon. The disputed invoices did not have bills of lading showing shipment to a
customer, and the seed was in fact not shipped to Lebanon's customers. Thus, the
unpaid invoices and accompanying memoranda are not contracts between the parties.
Without a contract from which the dispute arises, there can be no applicable arbitration
clause.

       United asserts that the invoices and sales memoranda it sent to Lebanon are
sufficient to create valid contracts under Missouri law. United relies on that portion of
the Uniform Commercial Code that allows a confirmation sent from one merchant to

                                            -9-
another to satisfy the writing requirement of the statute of frauds.7 United argues that,
by operation of the statute, Lebanon is bound by the "contracts" because it did not
object to them within ten days. This argument must fail. The only impact of the statute
is to eliminate the statute of frauds as an affirmative defense, a defense Lebanon did not
raise. Without more, a binding contract cannot be created by simply sending
documents to a party who then does not respond. The burden remains on United to
establish the existence of the underlying contract evidenced by the writing, and the
terms of that agreement. See Mo. Rev. Stat. § 400.2-201, comment 3. We agree with
the district court that United has not established the existence of a contract from which
the unpaid disputed invoices arise.

       Lebanon cross-appeals that portion of the district court's order directing
arbitration to proceed on the partially-paid invoices. Lebanon’s sole argument is that
United’s demand for arbitration over the disputed invoices was untimely. We have no
jurisdiction to entertain this appeal. This court has previously recognized the strong
pro-arbitration tilt of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16. See
Gammaro v. Thorp Consumer Discount Co., 
15 F.3d 93
, 96 (8th Cir. 1994). Although
interlocutory orders denying arbitration are appealable, interlocutory orders directing
arbitration to proceed are not. See 9 U.S.C. § 16(a)(1), (b)(2); In re Pisgah
Contractors, Inc., 
117 F.3d 133
, 135-36 (4th Cir. 1997). An order granting arbitration
may be appealed if it is a final order or certified by the district court under 28 U.S.C.
§ 1292(b). The issue of arbitrability in this case is not independent, but rather
embedded in the larger action concerning the final disposition of the preliminary


      7
          Mo. Rev. Stat. § 400.2-201(2) provides:

      Between merchants if within a reasonable time a writing in confirmation
      of the contract and sufficient against the sender is received and the party
      receiving it has reason to know its contents, it satisfies the [statute of
      frauds requirement of a writing] against such party unless written notice
      of objection to its contents is given within ten days after it is received.

                                          -10-
injunction and United's remaining counterclaims–issues yet to be resolved by the
district court. In Gammaro we adopted a bright line rule "that an embedded
proceeding cannot give rise to a final decision subject to section 16(a)(3) review."
Gammaro, 15 F.3d at 96
. Lebanon's appeal is neither certified by the district court, nor
final, thus the order is interlocutory and not appealable for that portion granting
arbitration. See id.; Pisgah 
Contractors, 117 F.3d at 135-36
; McDermott Int'l, Inc. v.
Underwriters at Lloyds, 
981 F.2d 744
, 748 (5th Cir. 1993).

III.   CONCLUSION

      For the above reasons, United's appeal of the district court's January order is
dismissed as moot, Lebanon's appeal is dismissed for lack of jurisdiction, and the
orders of the district court are affirmed.

       A true copy.

             Attest:

                CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                         -11-

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