Chippewa Valley Bean Company, Respondent, vs. Green Meadow Bean Company, Appellant.

Chippewa Valley Bean Company, Respondent, vs. Green Meadow Bean Company, Appellant. A06-2223, Court of Appeals Unpublished Decision, November 27, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-2223

 

Chippewa Valley Bean Company,
Respondent,
 
vs.
 
Green Meadow Bean Company,
Appellant.

Filed November 27, 2007

Affirmed

Hudson, Judge

 

Hennepin County District Court

File No. 27-CV-06-11077

 

Robert A. Judd, Jeffrey S. Nicolet, Wagner, Falconer & Judd, Ltd., 1700 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota 55402-2113; and

 

Webster A. Hart, Herrick & Hart, S.C., 116 West Grand Avenue, P.O. Box 167, Eau Claire, Wisconsin 54702 (for respondent)

 

Jerold O. Nelson, 510 Grain Exchange Building, 400 South Fourth Street, Minneapolis, Minnesota 55415 (for appellant)

 

            Considered and decided by Hudson, Presiding Judge; Willis, Judge; and Minge, Judge.

U N P U B L I S H E D   O P I N I O N

HUDSON, Judge

On appeal from confirmation of an arbitration award, appellant Green Meadow Bean Company argues that the district court erred in confirming the arbitration award because the arbitrator did not have the power to arbitrate a quality dispute and the arbitration award did not draw its essence from the arbitration agreement.  Because the arbitrator did not exceed his power in arbitrating the parties' dispute and the award draws its essence from the arbitration agreement, we affirm. 

FACTS

On April 24, 2003, appellant Green Meadow Bean Company and respondent Chippewa Valley Bean Company entered into two largely identical futures contracts for appellant to sell to respondent 20,000 hundredweight of dark red kidney beans.  The contracts were governed by the National Pulse Trade Rules (NPTR) and the customs and usages of the dry-bean trade industry.  The contracts included a quality requirement of "U.S. No. 1 Canning Quality, 5% or less cracked seed coat" and shipping dates of October through December 2003 at buyer's option with a two-week notice to seller.  The contracts also required appellant to provide appropriate documentation with shipment, including official inspection or grade certificates. 

Per instructions from respondent, in September 2003, appellant sent the first sample of the beans to be shipped to respondent.  Respondent deemed the first sample to be of the quality contracted for; respondent sent shipping instructions to appellant and appellant shipped the beans accordingly.  Thereafter, from September to December 2003, appellant sent three bean samples to respondent.  Respondent determined the bean samples were not of the quality contracted for, rejected the samples, and did not provide any shipping instructions to appellant.

            On January 13, 2004, appellant issued a notice of breach of contract to respondent concerning the 2003 bean contracts.  The parties' sales broker responded to appellant's notice of breach and informed appellant that respondent was not in breach and that respondent wanted the promised beans.  After receiving the letter from the broker, appellant continued to send samples of beans to respondent.  On September 8, 2004, appellant informed the broker that it would not deliver the balance of the beans under the 2003 contracts.  On November 2, 2004, respondent filed a petition for arbitration on the 2003 contracts.

            Following an arbitration hearing, the arbitrator concluded that appellant breached the 2003 contracts without cause and awarded respondent damages.  Thereafter, respondent moved the district court for confirmation of the arbitrator's award, and appellant moved for vacation of the arbitrator's award.  Appellant argued that the arbitrator's award should be vacated because the arbitrator exceeded his authority by arbitrating a quality dispute that was not arbitrable under the parties' arbitration agreement.  The district court concluded that there was not a quality dispute between the parties and entered judgment confirming the arbitration award.  This appeal follows.

D E C I S I O N

Appellant argues that the district court erred in confirming the arbitrator's award because the arbitrator exceeded his power under the arbitration agreement and the arbitrator's award does not draw its essence from the arbitration agreement.  Appellant makes essentially two related arguments as to how the arbitrator exceeded his power: (1) the arbitrator disregarded the language in the parties' contract when finding that the parties' dispute did not concern bean quality; and (2) the arbitration agreement excludes from arbitration all disputes related to quality.

Under Minn. Stat. § 572.19, subd. 1(3) (2006), "the court shall vacate" an arbitration award when the "arbitrators exceeded their powers."  This court reviews determinations of arbitrability de novo.  Indep. Sch. Dist. No. 88 v. Sch. Serv. Employees Union Local 284, 503 N.W.2d 104, 106 (Minn. 1993).  To vacate an arbitration award, the objecting party must show "that the arbitrators have clearly exceeded the powers granted to them in the arbitration agreement."  State, Office of State Auditor v. Minn. Ass'n of Prof'l Employees, 504 N.W.2d 751, 755 (Minn. 1993) (quotation omitted).  To determine whether a dispute was arbitrable, this court disregards an arbitrator's decision on the merits of the dispute.  State v. Berthiaume, 259 N.W.2d 904, 910 (Minn. 1977).  But unless the arbitration agreement limits the arbitrator's authority, he "is the final judge of both law and fact, including the interpretation of the terms of any contract."  Cournoyer v. Am. Television & Radio Co., 249 Minn. 577, 580, 83 N.W.2d 409, 411 (1957).  A reviewing court must exercise "[e]very reasonable presumption" in favor of the finality and validity of the arbitration award.  Office of State Auditor, 504 N.W.2d at 754.

In determining the issue of arbitrability, the court must ascertain the intention of the parties by examining the arbitration agreement.  Berthiaume, 259 N.W.2d at 909.  But "[i]n the final analysis, it is the arbitrator's construction of the parties' agreement that is bargained for, not the court's interpretation."  Mandich v. N. Star P'ship, 450 N.W.2d 173, 177 (Minn. App. 1990), review denied (Minn. Mar. 16, 1990).  As a result, arbitrators have authority when faced with ambiguous terms in an arbitration agreement to "look to many sources."  Office of State Auditor, 504 N.W.2d at 75556 (concluding that the arbitrator may define ambiguous terms in the arbitration agreement even when the definition of the term determines whether the dispute is arbitrable). 

Here, the arbitrator found that claims arising from a breach of contract are governed by the National Pulse Trade Rules (NPTR) and the "customs and usages of the dry bean trade."  The NPTR state that unless otherwise provided, "all disputes arising under this agreement" are to be resolved by mediation or arbitration.  Section seven of the NPTR specifically excludes from arbitration sales sold "against sample" when there is a quality dispute, but the phrase "against sample" is not defined.  In addition, respondent concedes that the parties' 2003 contracts did not require appellant to send acceptable samples before receiving shipping instructions; the contracts only required that appellant supply official grade certificates upon shipment.  Nevertheless, respondent requested samples, and appellant provided samples before receiving shipping instructions in 2003 and continued to send samples thereafter. 

Based on his power to resolve all disputes arising under the NPTR, the arbitrator had the authority to resolve these factual and contractual interpretation disputes by applying the parties' course of conduct and the customs of the dry-bean industry.  In so doing, the arbitrator determined that it is customary in the dry-bean industry for sellers to provide to buyers samples meeting contractual quality standards before buyers issue shipping instructions.  The arbitrator found that the parties followed this custom with the delivery of the first shipment under the 2003 contracts and that appellant continued to send samples thereafter.  Significantly, the arbitrator also found that the sales under the 2003 contracts were not sales "against sample" as that phrase is used and understood in the dry-bean industry.  Relying heavily on testimony from an NPTR executive, the arbitrator found that the sale "against sample" provision is not employed in futures contracts such as those governing the parties here.[1]  Rather, the sale "against sample" provision is typically utilized in contracts for the sale of products already in existence.  We conclude that the arbitrator did not exceed his authority in so interpreting the terms of the parties' contracts.

Appellant also contends that the arbitrator clearly exceeded his authority because the NPTR exclude from arbitration issues relating to quality.  But the NPTR do not exclude from arbitration all disputes relating to quality.  Section seven, titled "Quality Determination," of the NPTR states:

Unless otherwise specified, quality as determined by an official inspection certificate(s) shall be final.  Beans sold shall conform to the existing standards established at the time of sale.  Unless otherwise agreed, the beans at the time of shipment must be sound, unadulterated[,] . . . marketable, and without bad odor.  In cases of a quality dispute, any products sold "against sample" or without an official inspection certificate(s) will not be subject to the arbitration process. . . .

 

Based on this provision, the only quality disputes expressly exempted from arbitration concern quality that is determined by an official inspection certificate, products sold against sample, and products sold without official inspection certificates.  Here, the parties disputed whether the samples were of the quality contracted for, not the quality of a product determined by official inspection certificates.  The arbitrator also found that because the parties entered into futures contracts, there was not a sale against sample.  Based on these findings, the dispute presented here is not expressly excluded from arbitration under section seven of the NPTR.  Instead, this dispute concerns the language in section seven that requires that all beans "shall conform" to the stated contractual standards, a clause that is not expressly excluded from arbitration.  Therefore, based on the arbitrator's interpretation of the contracts and the parties' course of conduct, we conclude that the arbitrator did not clearly exceed his powers in arbitrating the parties' dispute. 

Appellant further contends that the arbitration award did not draw its essence from the arbitration agreement because the arbitrator disregarded the contractual language and instead "unilaterally added his own belief" in interpreting the parties' contracts.  An arbitrator's decision "must be upheld if the award draws its essence" from the arbitration agreement.  Mandich, 450 N.W.2d at 176; see Wolfer, 654 N.W.2d at 366 (holding that an arbitration award should be upheld so long as it "is rationally derived from an agreement viewed in the light of the agreement's language, content, and indicia of intent").  Arbitration awards will not be "reviewed or set aside for mistake of either law or fact in the absence of fraud, mistake in applying his own theory, misconduct, or other disregard of duty."  Cournoyer, 249 Minn. at 580, 83 N.W.2d at 411. 

Here, the arbitrator resolved factual and contractual interpretation disputes based on the parties' contracts, the parties' course of conduct, and industry standards, and rendered an award accordingly.  Appellant does not explain how the arbitrator's interpretation that the sale involved here was not "against sample" conflicts with the arbitration agreement, a term that was not otherwise defined by the parties.  Likewise, appellant does not explain how the arbitrator's interpretation of the parties' course of conduct and industry standards conflicts with appellant's contractual obligation to provide official grade certificates upon shipment of the beans.  In addition, appellant does not contend that the arbitrator's findings of fact or conclusions of law in interpreting the contract were based on fraud, mistake in applying his own theory, or other misconduct.  Therefore, because the arbitrator had the authority to interpret the terms of the contract and his award was rationally based on his interpretation of the parties' contracts, the parties' course of conduct, and industry custom, the arbitrator's award draws its essence from the arbitration agreement. 

Because the arbitrator did not clearly exceed his power under the arbitration agreement in arbitrating the parties' dispute and the arbitrator's award draws its essence from the arbitration agreement, the district court did not err in its confirmation of the arbitration award.

Affirmed.

 

[1]The arbitrator defined a "futures contract" as "one in which the buyer agrees to buy a quantity of product not yet in existence, of a specific quality, at an agreed upon price, for future delivery at agreed upon times."