ABSORPTION CORPORATION v. ROGER WILDER, INDIVIDUALLY AND D/B/A ROGER SALES; AND DENNIS W. KELLEY, INDIVIDUALLY; AND ROGER WILDER AND DENNIS W. KELLEY D/B/A R & D MIDWEST PET SUPPLY
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RENDERED: October 29, 1999; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-001358-MR
ABSORPTION CORPORATION
APPELLANT
APPEAL FROM BOONE CIRCUIT COURT
HONORABLE JOSEPH F. BAMBERGER, JUDGE
ACTION NO. 1995-CI-00547
v.
ROGER WILDER, INDIVIDUALLY
AND D/B/A ROGER SALES;
AND DENNIS W. KELLEY, INDIVIDUALLY;
AND ROGER WILDER AND DENNIS W. KELLEY
D/B/A R & D MIDWEST PET SUPPLY
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUDGEL, CHIEF JUDGE; HUDDLESTON, AND KNOPF, JUDGES.
KNOPF, JUDGE:
This is an interlocutory appeal from a circuit
court order holding invalid an arbitration provision in a
contract.
Finding that the trial court applied the incorrect
test to determine the enforceability of the arbitration clause,
we reverse and remand for further proceedings.
The appellant, Absorption Corporation (Absorption), is
a corporation organized under the laws of the state of Nevada,
with its principal place of business located in Bellingham,
Washington.
Absorption operates throughout the country selling
several lines of consumer products.
Among other things,
Absorption produces and sells a line of specialty pet care
products including several types of cat litter.
In July 1993,
Absorption entered into a “Sales Representative Agreement” with
the appellees, Roger Wilder, individually and d/b/a R. Wilder
Sales, and Dennis W. Kelley, individually and d/b/a
Midwest Pet Supply (collectively “Wilder”).1
R & D
Pursuant to the
Agreement, Wilder was to sell Absorption’s products to pet supply
stores in Michigan, Indiana, Ohio, and Kentucky.
Wilder and
Kelley operated their businesses from their homes in Boone
County, Kentucky.
Paragraph 14 of the Agreement provides that the parties
will submit all disputes arising from or connected with the
Agreement to arbitration in Bellingham, Washington.
In addition,
Paragraph 15B requires all litigation arising out the Agreement
to be brought in the courts of the County of Whatcom, State of
Washington.
The Agreement further specifies that the law of the
state of Washington shall be applied to any disputes between the
parties.
On June 22, 1995, Wilder filed an action against
Absorption in Boone Circuit Court.
He set out four (4) causes of
action: (1) breach of oral contracts; (2) breach of the
Agreement; (3) fraud and misrepresentation; and (4) unfair trade
practices.
In response, Absorption filed an answer and a motion
1
Neither Kelly nor R & D Midwest Pet Supply are named as
parties to the Sales Representative Agreement. It appears from
the record that Wilder and Kelley are partners in the operation
of both R. Wilder Sales and R & D Midwest Pet Supply. For
purposes of this appeal only, we presume that their interests
under the Agreement are identical.
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to dismiss pursuant to CR 12.02, arguing that Wilder was bound by
the mandatory arbitration and choice of forum provisions in the
Agreement.
The trial court denied Absorption’s motion to dismiss
in an order dated November 27, 1995.
Both parties proceeded to conduct discovery on the
underlying claims.
In early 1998, Absorption filed motions to
compel arbitration and to stay the proceedings in Boone Circuit
Court pending arbitration.
By an order entered on April 30,
1998, the trial court denied the motions and found the
arbitration and choice of forum provisions in the Agreement to be
unreasonable and unenforceable as a matter of law.
Absorption filed an interlocutory appeal from that
order.
We begin by noting that an appeal may be taken from an
order denying an application to compel arbitration.
9 U.S.C. §
16; KRS 417.220(1)(a); Valley Construction Co. v. Perry Host
Management Co., Inc., Ky. App., 796 S.W.2d 365, 366 (1990).
Wilder argues that Absorption waived its right to enforce the
arbitration clause because it failed to appeal from the denial of
the motion to dismiss.
We disagree.
As a general rule, an appeal may be taken to the Court
of Appeals only from a final order or judgment.
KRS 22A.020(1).
This Court has jurisdiction to review interlocutory orders of the
circuit court, but only in specified circumstances.
22A.020(2).
KRS
Ordinarily, a denial of a motion to dismiss is not a
final and appealable order.
In contrast, KRS 417.220
specifically authorizes an interlocutory appeal from a denial of
a motion to compel arbitration.
Until the trial court denied
Absorption’s motion to compel arbitration, this Court lacked
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jurisdiction to consider any appeal on the matter.
Therefore, we
cannot agree with Wilder that Absorption waived its right to
enforce the arbitration clause.
This Court must first determine the applicable law.
Absorption contends that this matter is governed by the Federal
Arbitration Act, 9 U.S.C. §1 et seq.
preempts all contrary state laws.
The Federal Arbitration Act
9 U.S.C. § 2.
Wilder disputes
the applicability of the federal act, stating that this action
involves a contract of employment.
The Federal Arbitration Act
does not apply to contracts of employment of workers engaged in
foreign or interstate commerce.
9 U.S.C. § 1.2
However, a majority of Federal Circuit courts have
interpreted the exclusion language in the Federal Arbitration Act
narrowly.
All but one circuit to address the issue have held
that § 1's exemption of "contracts of employment of seamen,
railroad employees, or any other class of workers engaged in
foreign or interstate commerce", includes only employees actually
engaged in transportation of goods in commerce.3
The Agreement
2
The Federal Arbitration Act defines “commerce”, to mean,
“commerce among the several States or with foreign nations, or in
any Territory of the United States or in the District of
Columbia, or between any such Territory and another, or between
any such Territory and any State or foreign nation, or between
the District of Columbia and any State or Territory or foreign
nation, but nothing herein contained shall apply to contracts of
employment of seamen, railroad employees, or any other class of
workers engaged in foreign or interstate commerce”. 9 U.S.C. § 1
3
See, Paladino v. Avnet Computer Technologies, Inc., 134
F.3d 1054 (11th Cir., 1998); Cole v. Burns International
Security Services, 105 F.3d 1465, 1470 (D.C. Cir.1997); Rojas v.
TK Communications, Inc., 87 F.3d 745, 748 (5th Cir.1996);
Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 598 (6th
Cir.1995); Dickstein v. duPont, 443 F.2d 783, 785 (1st
(continued...)
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provided that Wilder would serve as a sales representative for
Absorption’s products.
Although Wilder solicited sales for
Absorption, all orders were filled by Absorption. Regardless of
whether Wilder was an employee of Absorption or merely an
independent contractor, the Agreement did not involve
transportation of goods in interstate commerce.
Therefore, we
find that the Federal Arbitration Act remains applicable to this
dispute.
The trial court found both the arbitration clause and
the choice of forum clause in the Agreement to be unreasonable.
Arbitration clauses are a sub-category of choice of forum
agreements, and are subject to the same standards for determining
reasonableness.
Prudential Resources Corp. v. Plunkett, Ky.
App., 583 S.W.2d 97, 99 (1979).
Where the parties have by
contract selected a forum, it is incumbent upon the party
resisting to establish that the choice was unreasonable, unfair,
or unjust.
The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10,
32 L. Ed. 2d 513, 520, 92 S. Ct. 1907 (1972).
In Prudential Resources Corp. v. Plunkett, supra, this
Court applied the following four (4) factors in determining
whether or not to enforce a forum selection clause: (1) Whether
the clause was freely negotiated; (2) Whether the specified forum
3
(...continued)
Cir.1971); Pietro Scalzitti Co. v. International Union of
Operating Engineers, 351 F.2d 576, 579-80 (7th Cir.1965);
Signal-Stat Corp. v. Local 475, United Elec. Radio & Machine
Workers, 235 F.2d 298, 302-03 (2d Cir., 1956); Tenney
Engineering, Inc. v. United Elec. Radio & Machine Workers, Local
437, 207 F.2d 450, 453 (3d Cir., 1953) (en banc). Contra, Craft
v. Campbell Soup Company, 161 F.3d 1199 (9th Cir., 1998).
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is a seriously inconvenient place for trial; (3) Whether
enforcement would contravene a strong public policy of the forum
in which suit is brought; and (4) Whether Kentucky has more than
a minimal interest in the lawsuit.
583 S.W.2d at 99-100.
See
Gilbert, Choice of Forum Clauses in International and Interstate
Contracts, 65 Ky.L.J. 1, 32-42 (1976).
See also, Horning v.
Syscom, 556 F. Supp. 819 (E.D. Ky., 1983).
In determining that the arbitration clause was
unreasonable, the trial court primarily found that Kentucky “has
a substantial interest to protect because [it has] the most
significant relationship to the transaction and the parties.”
Quoting Prudential Resources Corp v. Plunkett, 583 S.W.2d at 100.
Wilder points out that he and Kelley worked out of their homes in
Boone County.
The record shows that most of Wilder’s accounts
were in Kentucky and Ohio, with several additional accounts in
Michigan and Indiana.
While these connections are significant,
we do not agree with the trial court that Kentucky’s interest in
the transactions was so overwhelming, standing alone, as to
invalidate the arbitration and forum selection clauses agreed to
by the parties.
The trial court also expressed a concern that one or
several issues raised by Wilder may not be subject to the
arbitration clause.
However, the court did not determine whether
those issues were arbitrable.
When deciding whether the parties
have agreed to arbitrate a certain matter, courts generally
should apply ordinary state law principles that govern the
formation of contracts.
First Options of Chicago v. Kaplan, 514
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U.S. 938, 944, 131 L. Ed. 2d 985, 993, 115 S. Ct. 1920 (1995).
In the present case, the Agreement specifies that “any
disagreement or differences between the parties arising out of or
in connection with this Agreement, . . .” shall be referred to
arbitration.
This language is broadly inclusive of all
transactions arising out of the Agreement.
Furthermore, Wilder
has not alleged fraud in the inducement of the Agreement.
American Advertising Distributors, Inc. v. American Cooperative
Advertising, Inc., Ky., 639 S.W.2d 775 (1982).
Therefore, we
must conclude that the Agreement contemplates arbitration of
Wilder’s claims.
Lastly, Wilder contends that Washington state is a
seriously inconvenient forum to litigate his claims against
Absorption.
In evaluating the convenience of the parties and
witnesses, the court should consider:
(1) the plaintiff's choice
of forum; (2) the situs of material events; (3) the relative ease
of access to sources of proof; (4) the convenience of the
witnesses; and (5) the convenience to the parties of litigating
in the respective forums.
829, 832 (N.D. Ill, 1999).4
Bryant v. ITT Corp., 48 F. Supp.2d
The trial court focused only upon
Wilder’s residency and the comparative sizes of his business and
Absorption.
We conclude that this was an insufficient basis to
invalidate the arbitration and forum selection clauses in the
Agreement.
4
Although this test was developed by the Federal Courts to
evaluate motions for change in venue under 28 U.S.C. § 1404(a),
we find that the test is appropriate in this case to determine
whether the specified forum is a seriously inconvenient for
arbitration or trial.
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Nonetheless, we are not convinced that Absorption is
automatically entitled to enforcement of the arbitration clause.
The trial court did not address all of the factors listed in
Prudential Resources Corp. v. Plunkett.
Most notably, there are
no findings concerning the circumstances surrounding the
negotiation of the Agreement.
In addition, the trial court did
not fully consider whether Washington state is a seriously
inconvenient forum in which to conduct the arbitration.
The
record does not disclose where the material events took place, or
where the witnesses and proof are located.
Likewise, there are
no findings regarding whether arbitration in Washington state
would seriously hamper the development of this evidence.
These
issues are uniquely fact-bound questions which are beyond the
ability of this Court to determine.
Under the circumstances, we
must remand these issues to the trial court to make findings of
fact and conclusions of law, and to decide the ultimate issue of
whether enforcement of the arbitration provision would result in
manifest injustice to Wilder.
The Court must balance these
considerations against the parties’ agreement to accept
arbitration in Washington state.
Accordingly, the interlocutory order of the Boone
Circuit Court is reversed, and this matter is remanded for
further proceedings as set out in this opinion.
HUDDLESTON, JUDGE, CONCURS.
GUDGEL, CHIEF JUDGE, CONCURS IN RESULT.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Joseph E. Conley, Jr.
Beuchel, Conley & Schutzman
Crestview Hills, Kentucky
Dennis R. Williams
Marc D. Dietz
Adams, Brooking, Stepner,
Wolterman & Dusing, PLLC
Covington, Kentucky
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