Gilkison Farms, LLC v. The Andersons, Inc.

Filing 14

MEMORANDUM OPINION & ORDER: 1. The Andersons, Inc.'s motion to compel arbitration [Record No. 4 ] is GRANTED. 2. Gilkison Farms, LLC's motion to stay arbitration [Record No. 6 ] is DENIED. 3. Subject to intervening orders, this matter is STAYED pending the completion of arbitration in accordance with the terms of the parties' agreement. 4. The parties are directed to file a joint status report every 60 days, commencing 60 days from this date. Signed by Judge Danny C. Reeves on 11/17/22.(JLM)cc: COR

Case: 5:22-cv-00229-DCR Doc #: 14 Filed: 11/17/22 Page: 1 of 9 - Page ID#: 374

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
GILKINSON FARMS, LLC,

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Plaintiff,
V.
THE ANDERSONS, INC.,
Defendant.
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Civil Action No. 5: 22-229-DCR

MEMORANDUM OPINION
AND ORDER
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The Andersons, Inc. (“The Andersons”) instituted arbitration proceedings with the
National Grain and Feed Association (“NGFA”) on March 31, 2022, following its allegation
that Gilkison Farms, LLC (“Gilkison”) defaulted on its contractual obligations to deliver grain.
Gilkison then filed suit in the Clark Circuit Court, alleging that The Andersons had
fraudulently induced it to enter contracts for the sale of grain and that it was not obligated to
arbitrate the contract disputes. The Andersons removed the case to this Court on September
7, 2022, and filed a motion to compel arbitration and stay or dismiss the case.
Because the parties’ Customer Flex Agreement includes a broad arbitration provision
that applies to the contract disputes at issue, The Andersons’ motion to compel arbitration and
stay the case will be granted.
I.
The Andersons is a grain merchandising company that operates multiple grain elevators
throughout the United States. Gilkison is a farm located in Winchester, Kentucky that raises
and sells grain crops to third-party buyers. Non-party Boyd Brooks is a cash grain broker and
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advisor who assists farmers with marketing and selling their crops. 1 Gilkison (through an
unnamed agent) met Brooks at the Kentucky Commodity Conference in 2017. Sometime
thereafter, it learned that Brooks was an agent of The Andersons. Brooks advised Gilkison
that he could coordinate the sale of grain from Gilkison to The Andersons and, by 2019, The
Andersons was purchasing corn and soybeans from Gilkison through Brooks. [Record No. 12 ¶ 11] Gilkison did not receive any documentation at the time of the transactions and
shipments, but created a spreadsheet in an attempt to keep track of outgoing shipments and
their delivery destinations.
Gilkison contacted Brooks in December 2019 concerning shipments that The
Andersons had picked up but for which Gilkison had not been paid.

The Andersons

subsequently sent Gilkison a December 23, 2019, customer status report showing the
questioned payments as “unpaid” or “on hold.” The Andersons provided Gilkison an updated
list in January 2020. This list included some handwritten notes but did not reflect any
additional payments to Gilkison. Gilkison asked Brooks in the fall of 2020 about the status of
the contracts. But Brooks advised that “no outstanding contracts existed” and Gilkison “had
no future contracts out and was not subject to future financial exposure related to contracts
with The Andersons.” Id. ¶ 17.
Brooks presented Gilkison with a contract styled “Customer Flex Agreement” on
September 23, 2020. [Record No. 1-1, pp. 13-15] When Gilkison asked Brooks the purpose
of the Customer Flex Agreement, Brooks “advised that it was to clean up past grain

1

Gilkison Farms, LLC and others filed a related lawsuit against Brooks and his company,
Aletheia Risk Management, LLC, which was dismissed on August 2, 2022. See Alford, et al. v.
Brooks, et al., Lexington Civil Action No. 22-063.

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transactions that had not been timely memorialized.” [Record No. 1-2 at p. 5] The Customer
Flex Agreement provides, in relevant part:
1.
Customer and The Andersons, Inc. (“Andersons”) warrant and agree that
all contracts and their amendments (collectively, “Contracts”) are cash contracts
for the delivery of agricultural products. All Contracts will be governed by the
Standard Purchase Contract Terms on the reverse side of each Purchase Contract
and Confirmation, along with applicable Grain Trade Rules of the National
Grain and Feed Association, as amended from time to time (“NGFA Grain
Trade Rules”), and this Customer Flex Agreement (“Agreement”).
2.
Both parties agree: (A) CONTRACTS ARE MADE IN
ACCORDANCE WITH THE APPLICABLE NGFA GRAIN TRADE
RULES (A COPY WILL BE SUPPLIED UPON REQUEST) EXCEPT AS
MODIFIED BY IN THE CONTRACTS, AND (B) ANY DISPUTES OR
CONTROVERSIES ARISING OUT OF CONTRACTS SHALL BE
ARBITRATED BY THE NATIONAL GRAIN AND FEED
ASSOCIATION, PURSUANT TO ITS ARBITRATION RULES. THE
DECISION AND AWARD DETERMINED THROUGH SUCH
ARBITRATION SHALL BE FINAL AND BINDING UPON THE BUYER
AND SELLER. JUDGMENT UPON THE ARBITRATION AWARD
MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING
JURISDICTION THEREOF.
Gilkison representative Brennan Gilkison signed the Customer Flex Agreement on September
23, 2020.
The Andersons asked Gilkison to sign 20 individual grain sales contracts on January
12, 2021. The contracts were sent as a single email attachment. With a few exceptions, each
contract consisted of a single page, the bottom of which read “page 1 of 2.”

2

Gilkison’s

representative signed the bottom of page one, just below a provision stating: “PARTIES
ACCEPT ADDITIONAL TERMS ATTACHED.”

3

According to The Andersons, the

2

A handful of the contracts read “page 1 of 4,” but the second page purportedly was missing.
[Record No. 7, p. 11]

3

Gilkison disputes that it signed at least one of the contracts, numbered QX30095.

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additional terms on the second page included an arbitration agreement. [See Record No. 1-2,
p. 53 ¶ 2.] However, Gilkison contends it did not receive a second page to any of the contracts
until after they were executed. According to Gilkison, Brooks advised it that the 20 contracts
were not “new,” but were intended to “clean up the previous transactions which had not been
executed and had already been delivered.” The Andersons agrees that the contracts were
intended to memorialize prior agreements that had not been committed to writing, but maintain
that they pertained to future deliveries of corn, soybeans, and wheat.
In February 2022, The Andersons became concerned that Gilkison would not fulfill its
purported delivery obligations under the January 12 contracts. And The Andersons contends
that Gilkison subsequently failed to provide adequate assurances when it asked for them,
thereby repudiating the contracts. The Andersons canceled the contracts at market value and
invoiced Gilkison for the resulting damages. It then initiated arbitration with the NGFA on or
around April 14, 2022, following Gilkison’s refusal to pay. [See Record No. 4-4, p. 4.]
Gilkison filed suit in the Clark Circuit Court on August 22, 2022, seeking a declaratory
judgment that the contracts are unenforceable based on fraudulent inducement and
incompleteness. Gilkison also seeks to stay the arbitration proceeding, arguing that there is no
valid agreement to arbitrate the contract dispute. The Andersons removed the action to this
Court and filed a motion to compel arbitration.
II.
Under the Federal Arbitration Act (“FAA”), a written agreement to arbitrate disputes
arising out of a contract involving interstate commerce “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist in law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. If a party who signed an arbitration contract refuses to arbitrate, the
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aggrieved party may file a motion with the Court to compel arbitration. 9 U.S.C. § 4. When
considering a motion to compel arbitration under the Act, a court has four tasks: it must
determine whether the parties agreed to arbitrate; it must determine the scope of the agreement;
if federal statutory claims are asserted, it must consider whether Congress intended those
claims to be non-arbitrable; and, if the court concludes that some, but not all, of the claims are
subject to arbitration, it must determine whether to stay the remainder of the proceedings
pending arbitration. Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000).
In determining whether the parties agreed to arbitrate, the Court examines arbitration
language in a contract in light of the strong federal policy in favor of arbitration and resolves
any doubts about the parties’ intentions in favor of arbitration. Albert M. Higley Co. v. N/S
Corp., 445 F.3d 861, 863 (6th Cir. 2006). But despite the strong policy in its favor, arbitration
under the FAA is “a matter of consent, not coercion.” Volt Info. Scis., Inc.. v. Bd. of Trs. Of
Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). Although ambiguities in the language
of the agreement will be resolved in favor of arbitration, the clear intent of the parties will not
be overridden simply because the policy favoring arbitration is implicated. E.E.O.C. v. Waffle
House, Inc., 534 U.S. 279, 294 (2002).
When determining whether parties have agreed to arbitrate a certain matter, courts
generally apply ordinary state-law principles that govern the formation of contracts. First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). However, courts apply the
summary judgment standard under Rule 56 of the Federal Rules of Civil Procedure when
ruling on a motion to compel arbitration. See Great Earth Cos. v. Simons, 288 F.3d 878, 889
(6th Cir. 2002) (stating “the party opposing arbitration must show a genuine issue of material
fact as to the validity of the agreement to arbitrate, a showing that mirrors the summary
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judgment standard”). If the district court is satisfied that the agreement to arbitrate is not “in
issue,” it must compel arbitration. Conversely, if the court finds that the validity of the
arbitration agreement is “ in issue,” the matter must proceed to trial to resolve the question.
Id.
While a claim of fraudulent inducement will allow a party to avoid an arbitration clause
if the fraud claim goes to the arbitration clause itself, a fraudulent inducement claim relating
to the entire agreement will be sent to the arbitrator if the arbitration clause encompasses
claims of fraud. Prima Paint Corp. v. Flood & Conklin Mfg., 388 U.S. 395, 403-04 (1967);
Saneii v. Robards, 187 F. Supp. 2d 710, 713 (W.D. Ky. 2001);
III.
Gilkison focuses on the allegedly incomplete agreements it signed on January 12, 2021,
in insisting that no agreement to arbitrate exists. Specifically, it maintains that it could not
have agreed to the “additional term” requiring arbitration when it was not provided that term
at the time of contract formation. But Gilkison fails to account for the significance of the
arbitration clause included in the Customer Flex Agreement. As this Court recently observed
in Furnwood Farm, LLC v. The Andersons, Inc., 5: 22-CV-227, 2022 WL 16703133, at *4
(E.D. Ky. Nov. 3, 2022), the Flex Agreement’s arbitration provision is broadly drafted to
include “all [cash] contracts and their amendments … for the delivery of agricultural
products.”
It is undisputed that the Customer Flex Agreement predates each of the individual
written contracts at issue, as it was executed on September 23, 2020. Gilkison suggests that
the Flex Agreement does not cover these contracts because they are based on oral agreements
that occurred in 2019. However, the Flex Agreement’s broad language supports a finding that
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the parties intended to arbitrate disputes arising out of contracts predating the Flex Agreement.
See id. (citing Orvil Nelson & Co., Inc. v. All Am. Homes of Tenn., 2008 WL 11347938 (E.D.
Ky. Apr. 3, 2008)). Further, like the plaintiff in Furnwood, Gilkison understood that the
purpose of the Flex Agreement was to “clean up” past transactions that had not been
memorialized. Thus, it would make little sense to conclude that the Flex Agreement’s
arbitration clause does not apply to those same transactions.
Having concluded that the parties agreed to arbitrate, the Court must examine the scope
of the arbitration agreement. The Flex Agreement provides that the parties will arbitrate “any
disputes or controversies” arising out of the parties’ cash contracts for the delivery of
agricultural products. Gilkison’s claims easily fall within the scope of the agreement, as it
alleges that Brooks, acting as The Andersons’ agent, fraudulently induced it to enter into
contracts for the sale of grain. Gilkison also contends that, after creating the contracts, The
Andersons unilaterally formed agreements “to roll [the] contracts for delivery and pricing
periods in the future” without Gilkison’s consent. Finally, Gilkison alleges that The Andersons
breached its duty of good faith and fair dealing with respect to its conduct surrounding the
contracts. Gilkison also seeks a declaratory judgment that the contracts are unenforceable.
Finally, the Court must decide whether to stay or dismiss the action. 4 The FAA
provides that, after determining that a case is referrable to arbitration, a court “shall on
application of one of the parties stay the trial of the action until such arbitration has been had
in accordance with the terms of the agreement.” 9 U.S.C. § 3. Since The Andersons has
requested a stay, the Court will stay and not dismiss the matter pending arbitration.
4

Gilkison has not asserted any federal statutory claims; therefore, the Court need not
consider the third step under Stout, 228 F.3d at 714.

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IV.
Based on the foregoing analysis and discussion, it is hereby
ORDERED as follows:
1.

The Andersons, Inc.’s motion to compel arbitration [Record No. 4] is

GRANTED.
2.

Gilkison Farms, LLC’s motion to stay arbitration [Record No. 6] is DENIED.

3.

Subject to intervening orders, this matter is STAYED pending the completion

of arbitration in accordance with the terms of the parties’ agreement.
4.

The parties are directed to file a joint status report every 60 days, commencing

60 days from this date.
Dated: November 17, 2022.

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