Summary: Enforcing a mandatory arbitration agreement between third-party plaintiff and third-party defendant, the Court granted a motion to dismiss the third-party complaint.
Case Number: A2-01-138
Docket Number: 11
Date Filed: 8/1/02
Nature of Suit: 190
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION
Falcon for Import and Trade Company,
North Central Commodities, Inc.,
Maple River Bean Company, Third-Party Defendant. |
) ) ) ) ) ) ) A2-01-138 ) ) ) ) ) ) ) ) ) ) |
MEMORANDUM AND ORDER
I. Introduction
Before the Court is third-party defendant’s motion to dismiss the above case for failure to state a claim upon which relief can be granted, lack of subject matter jurisdiction, and failure to implead necessary parties (doc. # 5). Third-party plaintiff resists the motion (doc. # 7). Upon consideration of the record, the motion to dismiss is GRANTED (doc. # 5).
II. Background
On or around March 22, 2000, North Central Commodities, Inc. (“NCC”), a North Dakota corporation, contracted with Gedco, a Canadian company, to sell Great Northern Beans. Gedco was purchasing the beans for resale to Falcon for Import and Trade Company (“Falcon”), an Egyptian company and the plaintiff in this case. The contract between NCC and Gedco required the beans to be of United States Department of Agriculture (“USDA”) Grade No. 1 and/or Grade No. 2. Camex, Inc., a Colorado company, acted as a broker for the transaction between NCC and Gedco.
Seemingly in order to fulfill its existing contract with Gedco, NCC contracted with Maple River Bean Company (“Maple River”) on April 3, 2000 to purchase Great Northern Beans. The contract was for USDA Grade No. 2 and/or USDA Grade 1 beans. The Trade Rules of North Central Bean Dealers Association govern the contract, and these rules contain an agreement to arbitrate any disputes.
Upon receiving the shipment from Maple River, the USDA tested the beans in a Grand Forks, North Dakota field office. The beans were certified as being of USDA Grade No. 1 and/or Grade No. 2 quality. The USDA presented NCC with Commodity Inspection Certificates to verify the quality before shipping.
When Falcon received the shipment of beans in June of 2000 it was suspicious of the quality of the product. Falcon arranged for the USDA to retest the beans, and Camex informed NCC of this arrangement. Gedco later informed NCC that Falcon had rejected the shipment due to its perceived low quality. Upon reviewing the shipment, the USDA Board of Appeals and Review found a substantial portion of the shipment to be of Grade No. 3, a lower grade than that required by the contract. At that point Gedco informed NCC that it was in default of its contract.
Falcon has since brought suit against NCC for breach of express warranty and breach of contract. As part of its answer, NCC filed a third-party complaint against Maple River. NCC contends that it has a right to contribution and/or indemnity from Maple River if Falcon is able to recover against it. In which case, NCC contends that if this occurred, it would be able to recover any or all damages that would be demanded of it from Maple River.
The propriety of the third-party complaint is the subject of the present motion before the Court. Maple River moves for a dismissal of the third-party complaint for a failure to state a claim upon which relief can be granted, lack of subject matter jurisdiction, and failure to join necessary parties. As a basis for dismissal, Maple River focuses on the fact that the contract between it and NCC is governed by a mandatory arbitration clause. The Court will also focus on this issue.
III.Analysis
The Federal Arbitration Act (“FAA”) was enacted in order to "reverse the longstanding judicial hostility to arbitration agreements ... and to place [these] agreements on the same footing as other contracts." Equal Employment Opportunity Comm'n v. Waffle House, Inc., 534 U.S. 279, 122 S. Ct. 754, 761 (2002). Thus, the language in the FAA mandating arbitration is authoritative and unyielding: “a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable . . . .” 9 U.S.C. § 2. Reflecting upon this strong legislative endorsement of arbitration, the Supreme Court has mandated that “questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).
By governing any contract “evidencing a transaction involving commerce,” the reach of the FAA is very broad, especially considering that the term “commerce” is “coextensive with the reach of Congress’s Commerce clause power.” Bercovitch v. Baldwin Sch. Inc., 133 F.3d 141, 148 (1st Cir. 1998). Clearly, then, an arbitration provision contained in a contract for the sale of beans, a commodity nationally traded and federally regulated, falls within the expansive purview of the FAA. Neither Maple River nor NCC contend that the FAA is inapplicable.
Disputes arising out of a contract containing an arbitration agreement governed by the FAA must be submitted to arbitration if two requirements are met. First, there must be a valid agreement to arbitrate, and second, the dispute must fall within the scope of the arbitration agreement. Lyster v. Ryan’s Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir. 2001). NCC does not dispute the validity of the arbitration agreement. Rather, it asserts that the arbitration agreement does not cover the dispute in question.
Rule 12 of the Trade Rules of the North Central Bean Dealers Association, which was incorporated by reference into the contract between NCC and Maple River, provides: “disputes arising out of or under the NCBDA TRADE RULES or any contract, terms or conditions made thereunder, shall be referred to arbitration at offices of the ASSOCIATION.” NCC contends that this mandatory arbitration provision only deals with controversies relating to the contract between it and Maple River and not to indemnity or contribution claims.
The Court disagrees with NCC’s contention. The language used in the arbitration agreement - “disputes arising out of . . . any contract” - is particularly broad. Maple River’s liability, if any, arises because it entered into a contract with NCC. Absent this contract, NCC would have no basis for its third-party claim. Thus, it is clear to this Court that a claim for indemnification and/or contribution arises out of the contract between NCC and Maple River. The broad language of the arbitration clause, coupled with the healthy presumption in favor of arbitrability, mandates arbitration in this case. See Moses, 460 U.S. at 24-25 (“The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.”); see also West Fargo Pub. Sch. Dist. No. 6 of Cass County v. West Fargo Educ. Ass'n, 259 N.W.2d 612 (N.D. 1977) (“[W]here there is a broad arbitration clause and no exclusion clause, doubt should be resolved in favor of arbitration.”)
NCC also asserts that even if the arbitration provision mandates arbitration, this Court should stay the action while arbitration is pending. It would be unfair to Falcon, however, to stay the entire action when Falcon was not a party to the arbitration agreement. Courts generally agree that dismissal is the more appropriate action when all of the issues before the court are arbitrable. Bercovitch, 133 F.3d at 156 n.21 (citing cases). As explained above, NCC’s entire complaint against Maple River is subject to arbitration. Accordingly, Maple River’s motion to dismiss is GRANTED (doc. # 5), and NCC’s third-party complaint and cause of action against Maple River is DISMISSED WITHOUT PREJUDICE.
The Court understands that the enforcement of the arbitration agreement puts NCC in an awkward position, since it will have to defend its action against Falcon in this Court while at the same time attempting to seek indemnity and/or contribution through arbitration. Unfortunately, though, that is the effect of an arbitration agreement in a multi-leveled transaction.
IT IS SO ORDERED.
Dated this ____ day of August, 2002.
____________________________
RODNEY S. WEBB, CHIEF JUDGE
UNITED STATES DISTRICT COURT