S Farms et al v. United Grain Corporation of Oregon

Filing 11

ORDER denying 2 Motion to Stay and Compel Arbitration. Signed by Magistrate Judge Timothy J. Cavan on 12/18/2018. (JDR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
S FARMS and SINGLETON FARMS,

CV 18-51-BLG- TJC

Plaintiffs,
ORDER
vs.
UNITED GRAIN CORPORATION OF
OREGON, an Oregon Domestic
Business Corporation,
Defendant.
Plaintiffs S Farms and Singleton Farms (“Singleton”) bring this action
against Defendant United Grain Corporation of Oregon (“United”). In their
complaint, Singleton sets forth nine counts against United relating to the parties’
agreements for the delivery and sale of wheat. (Doc. 1-2.)
Presently before the Court is United’s Motion to Stay and Compel
Arbitration. (Doc. 2.) The motion is fully briefed and ripe for the Court’s review.
(Docs. 3, 5, 6.) The Court held a hearing on the motion on November 14, 2018.
Having considered the parties’ submissions, and the parties’ oral arguments, the
Court ORDERS that United’s Motion to Stay and Compel Arbitration is
DENIED.
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I.

BACKGROUND
This dispute arises from multiple transactions between the parties involving

the delivery and sale of grain. (Doc. 3 at 2; Doc. 5-1 at 3.) Singleton is a spring
and winter wheat producer in Custer County, Montana. Between 2007 and 2017
Singleton delivered over one million bushels of wheat to United at one of its grain
elevators in Pompeys Pillar, Montana. (Doc. 5-1 at 3.) The grain was delivered
under delayed pricing agreements, whereby title to the grain would pass to United
upon delivery, but the purchase price would be determined according to future
market rates. (Doc. 6-3 at 2-3.) The present dispute involves grain deliveries
between 2007 and December 13, 2015. (Doc. 1-2 at 7.)
The parties disagree as to how the terms of their transactions were
established. According to United, it has a regular procedure for the development
of delayed pricing agreements. After a producer delivers grain to one of its
facilities, the elevator generates a contract that records the terms of the pricing
agreement for that transaction. (Doc. 6-1 at 2.) United’s policy is to then send two
copies of the agreement to the producer, one for the producer’s records and a
second to be signed and returned to United. (Doc. 6-1 at 2-3.)
Prior to 2015, United’s written pricing agreements were created by hand on
preprinted, fill-in-the-blank forms. (Doc. 6-1 at 3.) The pre-2015 agreements
made no mention of arbitration, or the application of National Grain and Feed
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Association (“N.G.F.A.”) rules. In 2015, United began using a new computergenerated contract. (Doc. 6-1 at 3.) The new contracts contained a notation on the
front of the agreement which stated: “RULES TO GOVERN: N.G.F.A. Trade &
Arbitration.” (See e.g., Doc. 3-3 at 1.) United filed several post-2015 agreements
with Singleton as an exhibit to its opening brief. (Doc. 3-3.) Four of the contracts
are dated prior to December 13, 2015; two appear to be signed by a representative
of Singleton (doc. 3-3 at 2, 3), and two are unsigned (doc. 3-3 at 1, 10).
Singleton disputes that United’s written contracts control the parties’
agreements. According to Singleton, the terms of the transactions were set
according to oral agreements entered into by the parties at the time Singleton
delivered its grain to the Pompeys Pillar facility. (Doc. 1-2 at 3.) Singleton
acknowledges that United sent written documents to Singleton after the delivery of
grain. (Doc. 1-2 at 5; 5-1 at 4.) But Singleton contends United represented that the
documents were solely for auditing purposes with the state, and United assured
Singleton that their oral agreements would control their course of dealing. (Doc. 12 at 5; 5-1 at 4.)
It appears a dispute arose between the parties regarding the pricing
agreements in 2017. In August 2017 and February 2018, United “priced” all the
bushels of grain delivered by Singleton on or before December 13, 2015, and sent
Singleton proceeds from the transactions. (Doc. 1-2 at 7; Doc. 3 at 3.) Singleton
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contends United priced the grain contrary to its instructions, and improperly
calculated the sales price and fees under the parties’ agreements. Id.
Singleton initiated this action in Montana state court on December 28, 2017.
(Doc. 1-2.) Singleton asserts nine causes of action: (1) reformation of contract; (2)
declaratory judgment; (3) breach of contract; (4) fraud; (5) constructive fraud; (6)
negligent misrepresentation; (7) breach of covenant of good faith and fair dealing;
(8) unjust enrichment; and (9) violation of the Commodity Dealer Act. Id. On
March 12, 2018, United timely removed, alleging this Court has diversity
jurisdiction under 28 U.S.C. §1332(a). (Doc. 1.) United now moves the Court to
stay the pending action and compel arbitration of the parties’ dispute. (Docs. 2, 3.)
II.

DISCUSSION
A.

Legal Standard
a. Federal Arbitration Act

The Federal Arbitration Act (“FAA”) governs the enforceability of
arbitration agreements in contracts involving interstate commerce. The FAA
provides that “[a] written provision in any . . . contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter arising out of
such contract or transaction . . . shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any contract.”

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9 U.S.C. § 2. Because the pricing agreements here were made between Montana
and Oregon entities and involve interstate commerce, the FAA governs.
The FAA declares a national policy favoring arbitration. Southland Corp. v.
Keating, 465 U.S. 1, 10 (1984); Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 443 (2006). It places arbitration agreements on an equal footing with
other contracts and requires courts to enforce them according to their terms. RentA-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). Nevertheless,
“[a]rbitration is a matter of contract and a party cannot be required to submit any
dispute which he has not agreed so to submit.” AT&T Tech., Inc. v.
Communications Workers of Am., 475 U.S. 643, 648 (1986). Therefore, when one
party disputes “the making of the arbitration agreement,” the FAA requires the
court to hear and decide the issue before compelling arbitration. 9 U.S.C. § 4;
Sanford v. MemberWorks, Inc., 483 F.3d 956, 962 (9th Cir. 2007) (“Issues
regarding the validity or enforcement of a putative contract mandating arbitration
should be referred to an arbitrator, but challenges to the existence of a contract as a
whole must be determined by the court prior to ordering arbitration.” (Emphasis in
original).
When considering whether to compel arbitration, courts are “limited to
determining (1) whether a valid agreement to arbitrate exists and, if it does, (2)
whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho
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Diagnostic Systems, Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The party seeking
to compel arbitration bears “the burden of proving the existence of an agreement to
arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio, Inc.,
771 F.3d 559, 565 (9th Cir. 2014).
b. Summary Judgment Standard
A court reviews a motion to compel by applying the summary judgment
standard of Federal Rule of Civil Procedure 56(a). Bazemore v. Jefferson Capital
Sys., LLC, 827 F.3d 1325, 1333 (11th Cir. 2016); Coup v. Scottsdale Plaza Resort,
LLC, 823 F.Supp.2d 931, 939 (D. Ariz. 2011). “Only when there are no genuine
issues of material fact concerning the formation of an arbitration agreement should
a court decide as a matter of law that the parties did or did not enter into such an
agreement.” Concat LP v. Unilever, PLC, 350 F.Supp.2d 796, 804 (N.D. Cal.
2004) (citing Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136,
1141 (9th Cir. 1991). “If there is doubt as to whether such an agreement exists, the
matter . . . should be submitted to a jury.” Three Valleys Mun. Water Dist., 925
F.2d at 1141 (quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51,
54 (3rd Cir. 1980). See also, Great Earth Companies, Inc. v. Simmons, 288 F.3d
878, 889 (6th Cir. 2002) (“If the validity of the agreement to arbitrate is ‘in issue,’
the court must proceed to trial to resolve the question.”); Howard v. Ferrellgas
Partners, 748 F.3d 975, 978 (10th Cir. 2014) (court should proceed expeditiously
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to a summary trial unless “it’s apparent from a quick look at the case that no
material disputes of fact exist”). In addition, the “party opposing arbitration is
given the benefit of all reasonable doubts and inferences that may arise. Kaneff v.
Del.Title Loans, 587 F.3d 616, 620 (3d Cir. 2009).
B.

United’s Motion to Compel

In determining whether a valid arbitration agreement exists, courts “should
apply ordinary state-law principles that govern the formation of contracts.” Circuit
City Stores, Inc., v. Adams, 279 F.3d 889, 892 (9th Cir. 2002.) In Montana, the
essential elements of a contract are (1) identifiable parties capable of contracting;
(2) consent of the parties; (3) a lawful object; and (4) consideration. Tedesco v.
Home Savings Bancorp, Inc., 398 Mont. 468, 475 (2017); Mont. Code Ann. § 282-102. The party attempting to prove the existence of a contract must establish
each of the essential elements. Chipman v. Northwest Healthcare Corp., 317 P.3d
182, 185 (Mont. 2014.) If the parties did not mutually assent to the terms of a
contract, those terms are invalid and unenforceable against the non-assenting party.
Lenz v. FSC Securities Corp., 414 P.3d 1262, 1271 (Mont. 2018.)
United advances two arguments to establish the existence of an agreement to
arbitrate. United first argues that all post-2015 agreements which contain the
reference to N.G.F.A. rules and arbitration are subject to arbitration. It further

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maintains, however, that all of the parties’ transactions between 2007 and 2017 are
subject to arbitration based on trade usage and the parties’ course of dealing.
With respect to the post-2015 transactions, United did submit several of its
post-2015 agreements as an exhibit to its opening brief in support of its motion.
(Doc. 3-3.) Some of those agreements are referred to as delayed pricing contracts
(see e.g. doc. 3-3 at 6), while others purport to confirm United’s previous purchase
of grain from Singleton (see e.g., doc. 3-3 at 1). Nevertheless, a proper foundation
has not been established for the consideration of any of these agreements under a
summary judgment standard.
The Court may only consider admissible evidence in ruling on a motion for
summary judgment. Fed. R. Civ. P. 56(e). Accordingly, the Ninth Circuit has
repeatedly held that a court may not consider unauthenticated documents in a
motion for summary judgment. Orr v. Bank of America, NT & SA, 285 F.3d 764
(9th Cir. 2002). Authentication is satisfied by “evidence sufficient to support a
finding that the matter in question is what its proponent claims.” Id. (quoting Fed.
R. Evid. 901(a).) Therefore, to support summary judgment, documents
authenticated through personal knowledge must be “attached to an affidavit that
meets the requirements of [Fed.R.Civ.P.] 56(e) and the affiant must be a person
through whom the exhibits could be admitted into evidence.” Id (quoting Canada
v. Blains’s Helicopters, Inc., 831 F.2d 920, 925 (9th Cir. 1987).
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In its motion and supporting pleadings, United did not establish the
authenticity and admissibility of any of the post-2015 agreements by a declaration
from anyone with personal knowledge. It simply attached a stack of purported
agreements as an exhibit to its brief. Some of the agreements appear to be signed
by a representative of Singleton, and some are not. There is no verification as to
when and where the agreements were entered into and by whom. There is no
confirmation these agreements were presented to Singleton. There is also no
foundation to establish whether the terms of the post-2015 agreements, including
any arbitration provision, were bargained for by the parties, or were entered into
with the mutual assent of both parties.
It should be noted that United attempted to remedy this deficiency by
attaching the affidavits of United representatives Brian Wixom and James Wu to
its reply brief. (Docs. 6-1, 6-3.) Nevertheless, neither affidavit establishes the
authenticity or validity of the agreements. The affidavit of Brian Wixom purports
to authenticate a number of Singleton/United agreements between 2008 and 2017.
(See Docs. 6-1, 6-2.) But Mr. Wixom is not the custodian of those documents; he
did not author the documents; he did not witness the execution of the documents;
and he does not attest to have any personal knowledge concerning any of United’s
transactions with Singleton. Aside from a recitation of United’s general policies
and procedures, Mr. Wixom’s affidavit states nothing more than he reviewed the
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documents, and “[to] the best of [his] knowledge,” they are true and correct copies
of United documents, and “appear to be true and correct copies” of delayed pricing
contracts between Singleton and United. (Doc. 6-1 at 4.) Therefore, Mr.
Wixom’s affidavit fails to authenticate the documents purporting to establish the
existence of an arbitration agreement between the parties. See Orr, 285 F.3d at
777 (finding an individual that did not write, sign, or witness the signing of a
document was unable to authenticate it for the court’s consideration on a motion
for summary judgment.)
United also submitted the affidavit of James Wu with its reply. The affidavit
generally explains the operation of United’s delayed pricing programs. While Mr.
Wu’s affidavit provides context regarding pricing agreements in the grain industry,
it does not authenticate any of the documents submitted in support of United’s
motion. It also does nothing to establish the essential elements of a valid
arbitration agreement.
United also maintains, however, that all of its transactions with Singleton are
subject to arbitration under N.G.F.A. rules, regardless of whether the rules are
noted on the agreements. United asserts the N.G.F.A. rules are so well established
that they constitute the “usage of trade” in the grain industry, and reflect the course
of dealing between the parties. (Doc. 3 at 9.)

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Leaving aside the issue of whether an arbitration agreement can be
established in these circumstances by usage of trade or course of dealing, United
again fails to provide any factual support for its argument. United merely quotes
provisions of the N.G.F.A. rules, and states that since it is a member of the
N.G.F.A., Singleton had notice N.G.F.A. arbitration applied to its transactions.
The same is true regarding United’s course of dealing argument. Apart from
quoting Montana’s course of dealing statute, United’s course of dealing argument
is devoid of factual support.
United has also ignored Singleton’s principal claim in this case. Singleton
brings this action based upon the breach of alleged oral agreements it had with
United. Singleton maintains that the terms of its pricing agreements with United
were set according to oral contracts established at the time it delivered grain to the
Pompeys Pillar facility. It alleges that United represented that the written
documents generated after the deliveries were only for auditing purposes, and
assured Singleton that their oral agreements would control. In its response to
United’s motion, Singleton supported this contention with the affidavit of Jerry
Singleton, who is “the owner of various interests in S Farms and Singleton Farms.”
(Doc. 5-1.) In his affidavit, Jerry Singleton attests that the parties entered into oral
agreements at the time the grain was delivered. He further states that the parties
never discussed arbitration of disputes, and that Singleton did not object to any of
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the written documents sent to them, because of “reliance upon representations from
[United] that the oral agreements and course of dealing would control.” (Doc. 5-1
at ¶¶ 11, 13, 14.) United has not addressed Singleton’s claims with anyone with
personal knowledge of the parties’ transactions.
Therefore, viewing the evidence in the light most favorable to Singleton,
United has failed to meet its burden to establish the absence of any issue of
material fact. The Court is therefore unable to determine as a matter of law
whether a valid agreement to arbitrate exists; and if so, whether the agreement
encompasses the dispute at issue.
If upon review of a motion to compel a court concludes an issue of material
fact exists, “the FAA maintains that the court move summarily to trial.” Nebraska
Machinery Co. v. Cargotec Solutions, LLC, 762 F.3d 737, 743 (8th Cir. 2014.) “If
no jury trial be demanded by the party [opposing arbitration] . . . the court shall
hear and determine such issue.” 9 U.S.C. § 4. Singleton has requested a jury trial
on this issue. Therefore, the factual findings regarding any whether there is an
agreement to arbitrate the parties’ dispute will be made by a jury.
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III.

CONCLUSION
Based on the foregoing, IT IS ORDERED Defendant’s Motion to Stay and

Compel Arbitration is DENIED.
IT IS ORDERED.
DATED this 18th day of December, 2018.
_______________________________
TIMOTHY J. CAVAN
United States Magistrate Judge

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