Hogan v. BeefTek, Inc.

Filing 10

OPINION AND ORDER TO SHOW CAUSE: READ ORDER FOR DETAILS Show Cause Response due by 8/15/2015. Signed by Judge Susan P. Watters on 7/21/2015. (ACL, ) Modified on 7/21/2015 to change to opinion (ACL, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION

THOMAS M. HOGAN,
CV 15-27-BLG-SPW
Plaintiff,
OPINION and ORDER

vs.
BEEFTEK, INC.,
Defendant.

This matter comes before the Court on defendant Beeffek, Inc.'s Motion to
Compel Arbitration and Dismiss Plaintiff's Complaint for Declaratory Judgment.
(Doc. 5). Having read and considered the briefing, the parties are ordered to show
cause why this matter should not be transferred to the United States District Court
for the Northern District of Texas.

I.

Factual and Procedural Background
Beeffek is a company that identifies, acquires, and manages commercial

feeder cattle for growth and sale. (Doc. 5-1at1). In June 2010, Thomas Hogan
and Beeffek entered into an Employment Agreement ("Agreement") under which
Hogan served as the Chief Operating Officer ofBeeffek. (Id. at 2); (Doc. 1-1).
The Agreement provides that "any controversy ... or dispute ... relating to this
agreement ... or relating to the employment of the executive, or to the termination

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thereof ... shall be resolved by arbitration in the state of Texas in accordance with
the employment dispute resolution rules of JAMS/ENDISPUTE .... " (Doc. 1-1 at
9). The parties dispute when Hogan's employment ended with BeefTek. (Doc. 5
at 8; doc. 8 at 2).
Hogan filed his Complaint (doc. 1) requesting this Court declare the
Agreement expired and Hogan's duties under the Agreement extinguished as of
June 25, 2010, or in the alternative, that the Non-Competition and Non-Solicitation
provisions in the Agreement are void and unenforceable. (Id. at 6-7). BeefTek
argues that the Court should dismiss Hogan's action and compel arbitration. (Doc.
6).

II.

Legal Standard
The Federal Arbitration Act ("FAA") provides that arbitration agreements

governed by the FAA "shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. §
2; Circuit City Stores v. Adams, 279 F.3d 889, 892 (9th Cir. 2002). The statute
reflects a "liberal policy favoring arbitration agreements." Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991).
The FAA allows "a party aggrieved by the alleged failure, neglect, or refusal
of another to arbitrate under a written agreement for arbitration [to] petition any
United States District Court ... for an order directing that ... arbitration proceed in
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the manner provided for in [the arbitration] agreement." 9 U.S.C. § 4; Chiron

Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The
role of a district court in determining whether to compel arbitration is limited. The
FAA limits courts' involvement to determining (1) whether a valid agreement to
arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute
at issue." Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008)
(internal quotation marks, emphasis, and brackets omitted). If the parties are
bound and the arbitration clause is implicated, the court must direct the parties to
arbitration. Dean Witter Reynolds Inc. v. Byrd, 410 U.S. 213, 217 (1985).
Arbitration is, however, "a matter of contract and a party cannot be required
to submit any dispute which he has not agreed to submit." AT & T Technologies,

Inc. v. Communications Workers, 415 U.S. 643, 648, (1986); Ingle v. Circuit City
Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2004). So, courts may only compel
parties to arbitrate disputes that fall within the scope of their agreed-upon
arbitration clause. That said, the presence of an arbitration clause gives rise to a
strong "presumption of arbitrability." Id. Thus, a motion to compel arbitration of
a "particular grievance should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that
covers the asserted dispute." Warrior & Gulf, 363 U.S. at 582-583; see also AT &

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T Techs., Inc., 475 U.S. at 650. Any "[d]oubts should be resolved in favor of
coverage." Warrior & Gulf, 363 U.S. at 583.
Before considering the merits of a defense raised to avoid arbitration, the
court must determine whether the issue is one for the court or an arbitrator to
resolve. Specifically, where a dispute exists over whether a contract with an
arbitration clause has expired or been terminated, the proper initial inquiry for the
court is whether the arbitration clause covers such disputes, not whether the
termination clause means what the defendant or the plaintiff says it means.
Brotherhood of Teamsters and Auto Truck Drivers Local No. 70 v. Interstate
Distributor Co., 832 F.2d 507, 511 (9th Cir.1987). If the arbitration clause is
broad, the question whether a particular act or failure to act effectively serves to
terminate the agreement should be resolved by an arbitrator. Id.
In Brotherhood of Teamsters, the Union and Interstate entered into a
collective bargaining agreement ("CBA"). The CBA contained a broad arbitration
clause which provided that "[a]ny grievance or controversy affecting the mutual
relations of the Employer and the Union was to be resolved by an arbitrator" and
"shall be binding." Id. at 508. The CBA also contained a termination clause that
stated the agreement "shall remain in force and effect [until] the thirty-first of
March, 1985, and shall automatically be renewed thereafter from year to year
unless [either] party [gives] written notice of its desire to change or modify the
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Agreement." Id. On January 23, 1985, Interstate wrote the union stating it desired
to "change or modify the agreement between the parties." The union responded a
week later that it was willing to "open" the Agreement. Id. Nothing occurred until
the parties accused each other of breaching the agreement in June. Id. at 509.
Interstate refused to arbitrate because it believed the contract had been terminated
three months earlier along with the obligation to arbitrate. The union brought suit
to compel arbitration. Id.
Reversing the district court, the Ninth Circuit held that the question of
whether the agreement - and thus the arbitration provision - is in effect at a
particular time may be answered in two ways. Id. at 510. If the parties dispute
whether they ever entered into any arbitration agreement at all, the court must
resolve the dispute. Id. On the other hand, where the parties agree they entered
into an agreement containing an arbitration clause but disagree about whether the
contract has expired or been terminated, the question is for the arbitrator. Id.
Specifically, the Court explained, "[t]he reason that arbitrators rather than
courts generally decide whether [agreements] containing broad arbitration clauses
have expired or been terminated is readily apparent. The issue involves the
interpretation of the expiration or termination provision of the agreement, and
standard arbitration clauses ordinarily provide that such interpretations, like all
others necessary to the resolution of disputes over the meaning of the contract,

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shall be made by an arbitrator." Id. In other words, the issue is "an ordinary
dispute over the meaning of a contract clause - the expiration or termination
provision." Id. at 511.
Usually, labor arbitration clauses are broad enough to cover disputes over
termination. Camping Const. Co. v. Dist. Council of Iron Workers, 915 F.2d 1333,
1338 (9th Cir. 1990) (citing Brotherhood of Teamsters, 832 F.2d at 511; George
Day Constr. Co., Inc. v. United Bhd. of Carpenters & Joiners, Local 354, 722 F.2d

14 71 (9th Cir.1984) ). An agreement to arbitrate "any grievance or controversy
affecting the mutual relations of the [parties]," an agreement to arbitrate "any
differences that may arise regarding the meaning and enforcement of this
Agreement," or any other broad arbitration clause, such as "any dispute arising out
of this Agreement," ordinarily requires us to hold that the parties have provided for
arbitration of disputes regarding termination and repudiation[.]" Id. (internal
citations omitted).

III.

Discussion
A.

Whether the Parties' Agreement Expired is a Question of
Contract Interpretation for the Arbitrator to Decide

Hogan argues that because he is asking the Court to declare that the
Agreement is expired, the arbitration provision contained in the Agreement is
irrelevant and invalid and he is not required to submit to arbitration. (Doc. 8 at 4).
Hogan's argument is exactly the same argument that was asserted by Interstate and
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rejected in Brotherhood of Teamsters. There, the Court held that when the parties'
only dispute is over whether the contract has expired or terminated, and the
arbitration clause broadly covers "any grievance or controversy," the dispute must
be submitted to arbitration. Id. at 510-11.
It is undisputed that Hogan entered into the Agreement (which contained the

arbitration provision) with BeeITek. (Doc. 1-1). Hogan has not suggested that any
grounds exist to revoke the Agreement and he has not contested the scope of the
arbitration provision contained therein. Rather, he argues that since "[t]he question
[for the Court] is whether the []Agreement expired," the language of the
Agreement (including the arbitration provision) matters not. (Id.). He's wrong.
Because the arbitration clause in this case broadly states that "any
controversy, claim or dispute arising out of or relating to [the] agreement . . . or
relating to the employment of the executive, or the termination thereof ... shall be
resolved by arbitration," (doc. 1-1 at 9), the question of when and whether the
Agreement was terminated, which may or may not have been triggered by Hogan's
termination, is encompassed by the Agreement's arbitration provision. And
because the parties agreed to a broad arbitration clause that included Hogan's
termination and the Agreement's termination, the Court will presume that the
parties intended disputes over Hogan's termination or expiration of the contract
should be submitted to arbitration. Id. at 511.
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Hogan's argument that the presumption favoring arbitrability is negated
because his Complaint arose after the Agreement terminated suffers from several
fatal flaws. First, Hogan's argument begs the question. The parties' fundamental
dispute is about when the Agreement terminated. For Hogan's argument to have
merit, he presupposes the answer. That is, he predicates his argument on the
assumption that he is correct that the Agreement expired on June 25, 2013 - a fact
that has not yet been found by either a court or an arbitrator. Second, once it has
arisen, "the presumption in favor of arbitrating disputes over contract duration can
only be overcome by a clear showing that the parties intended for the underlying
contract to expire, or separately agreed to terminate it, before the relevant dispute
arose." Nat'! R.R. Passenger Corp. v. Bos. & Me. Corp., 850 F.2d 756, 763 (D. C.
Cir. 1988). This presumption may be overcome "either (1) by demonstrating that
the original contract contains an unambiguous expiration date; or (2) by making a
clear showing that the contract was properly terminated before this dispute arose."
Id. Hogan fails to make either showing.
Hogan has not pointed to an unambiguous expiration date. The Agreement's
duration provision states that the parties' agreement shall "continue thereafter until
terminated by either party pursuant to the terms of this Agreement." (Doc. 1-1 at
3). It also states that the agreement shall "continue until terminated upon the
earlier to occur of the following events: (i) the close of business on the third

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anniversary of this Agreement ... or (ii) the Executive becomes permanently
disabled [ ] or dies ... or at any time for any reason by giving the Company
written notice at least ninety (90) days prior to the effective date of termination ...

." (Id.). The expiration dates rely upon various activities that may or may not
occur, so they are not unambiguous. In fact, ambiguity about the critical dates is at
the heart of the dispute set out in Hogan's Complaint. Hogan thus has not shown
that "the original contract contains an unambiguous expiration date." Id. at 763.
Hogan has also failed to make "a clear showing that the contract was
properly terminated before" his grievance arose. Id. There is no question the
contract was in place on June 25, 2010, when Hogan signed it. (See gen. Doc.1-1 ).
Under Section 5(a), the Agreement commenced on June 25, 2010, and continued
thereafter until terminated by either party pursuant to the terms of the Agreement.
So, Hogan's employment continued indefinitely until either party terminated it.
But under Section 5(b), the Employment Period terminated after three years from
the date of the Agreement, or disability, or death. (Id. at 3). So, under that
provision, Hogan's Employment Period ended June 25, 2013. (Id. at 3; see also
Doc. 1). Based on those contradictory provisions, it is plausible that the parties'
contract was in effect and Hogan was still employed after June 25, 2013, despite
5(b)'s three year limitation. Beeffek's letter confirming Hogan's March 14, 2014,
termination certainly seems to indicate that Hogan had been employed from June
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10, 2013 to March 14, 2014, notwithstanding provision 5(b). (Doc. 1-3). Further,
Hogan apparently refutes Beeffek's assertion that he quit his employment with
Beeffek in his April 2015 email where he states he is not quitting. (Doc. 5-lA)
("You were also misinformed as to my resigning from [ ] employment with
Beeffek.... I am not going to quit Beeffek and abandon my many hours of
work[.]") That email also seems to indicate that he remained employed past June
2013, despite 5(b). Without deciding any facts, it is far from clear that the parties'
contract terminated before Hogan's grievance arose. Consequently, Hogan fails to
rebut the presumption that the parties' dispute should be referred to arbitration.
Finally, Hogan asserts that the arbitration provision is unconscionable and
lacks mutuality. (Doc. 8 at 7-8). There are simply no facts supporting that
argument. The arbitration agreement does not lack mutuality; it reserves to both
parties a limited right to seek injunctive relief from the court and mutually
obligates both parties to arbitrate claims. (See Doc. 1-1 at 9-10). Similarly, there
is no evidence before the Court that the arbitration provision is unconscionable,
procedurally or otherwise. Arbitration is appropriate.

B.

This Court Cannot Order Arbitration in Texas.

Finally, Hogan asserts this Court does not have jurisdiction to order the
parties to arbitrate the dispute in Texas. (Doc. 8 at 9). There is no dispute that the
arbitration agreement provides that arbitration occur in Texas, and the purpose of
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the FAA is to enforce arbitration agreements according to their terms. StoltNielsen S.A. v. AnimalFeeds Intl Corp., 559 U.S. 662, 665 (2010). However, the

court agrees with Hogan that at least in this Circuit, the court is precluded from
ordering the parties to arbitrate outside of this judicial district.
The FAA imposes certain fundamental rules on arbitration procedures. Id.
With regard to the location of a compelled arbitration, the language of 9 U.S.C. § 4
of the FAA is clear. On proper motion, the court is authorized to "make an order
directing the parties to proceed to arbitration in accordance with the terms of the
agreement. The hearing and proceedings, under such agreement, shall be within
the district in which the petition for an order directing such arbitration is filed." 9

U.S.C. § 4 (emphasis added). The Ninth Circuit has interpreted Section 4 of the
FAA as limiting courts to ordering arbitration within the district in which the suit
was filed.

Continental Grain Co. v. Dant & Russell, 118 F .2d 967, 968 (9th Cir.

1941).
Beeffek points to Dupuy-Busching General Agency, Inc. v. Ambassador
Insurance Co., 524 F.2d 1275 (5th Cir. 1975), for the proposition that this Court

has the authority to compel arbitration in a district outside its own when the party
seeking to avoid arbitration files suit in a district other than that provided for in the
arbitration agreement. Fifth Circuit law is not Ninth Circuit law, however.

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In Textile Unlimited, Inc. v. A .. BMH & Co., 240 F.3d 781, 784-85 (9th Cir.
2000), the Ninth Circuit stated that "by its terms, § 4 confines the arbitration to the
district in which the petition to compel is filed." See also Bauhinia Corp. v. China
Nat. Mach. & Equip. Imp. & Exp. Corp., 819 F.2d 247, 250 (9th Cir.1987)
(prohibiting district court from ordering parties to arbitrate outside of district when
arbitration agreement was silent as to venue). District courts have struggled with
the issue but come to the same conclusion. See Homestake Lead Co. of Missouri v.
Doe Run Resources Corp., 282 F. Supp. 2d 1131, 1144 (N.D. Cal. 2003)
(expressing concern that a party to an arbitration agreement may avoid its
contractual obligation to arbitrate in an agreed-upon forum merely by filing suit in
a different district, but holding that "[a]bsent new guidance from the Ninth Circuit .
. . the court is precluded from ordering arbitration in the contractually designated
forum."); see also Lexington Ins. Co. v. Centex Homes, 795 F. Supp. 2d 1084,
1092 (D. Haw. 2011) (where arbitration agreement specified venue outside district
where petition was filed, court acknowledged that it could order arbitration only
within its own district, so transferred case instead). Accordingly, § 4 and
Continental Grain preclude this Court from ordering the arbitration take place in
Texas.

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C.

Transfer to Texas is Appropriate

In this court's view, entering an order compelling the parties to arbitrate in
Montana would be contrary to the FAA because such an order would contradict the
terms of a valid arbitration agreement. The Supreme Court has "said on numerous
occasions that the central or 'primary' purpose of the FAA is to ensure that 'private
agreements to arbitrate are enforced according to their terms.' " Stolt-Nielsen S.A.,
559 U.S. 662, 682. "[P]assage of the Act was motivated, first and foremost, by a
congressional desire to enforce agreements into which parties had entered." Dean
Witter Reynolds, Inc. 470 U.S. at 220. If the court determines that a valid

arbitration agreement encompasses the parties' dispute, the court must enforce the
arbitration agreement according to its terms. Id. Indeed, § 4 confers upon parties
the right to obtain arbitration on the terms provided for in the parties' agreement.
The parties' Agreement unequivocally states that arbitration shall occur in
Texas in accordance with the employment dispute resolution rules of JAMS. (Doc.
1-1at9). JAMS is located in Dallas, Texas. (Doc. 6-1). This forum selection
demonstrates to this Court that Texas, not Montana, is the proper forum for
arbitration. Dallas, Texas is located in the Northern District of Texas. The
Northern District of Texas, therefore, would have the power to grant or deny
Beeffek's motion to compel arbitration in accordance with the parties' agreement.

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IV.

Conclusion
For the foregoing reasons, the Court orders the parties, to SHOW CAUSE, if

any, in writing, on or before August 15, 2015, why this case should not be
transferred to the United States District Court for the Northern District of Texas.

DATED

this~ of July, 2015.. If

~/'.w~
SUSANP. WATTERS
United States District Judge

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