Summary of a Recent
Judicial Development in
Production Contracts

Court Upholds Decision to Compel Arbitration of Tort Claims
and Application of Res Judicata

John Pesek
National AgLaw Center Research Associate

Summary of Decision

In Hudson v. ConAgra Poultry Co., 484 F.3d 496 (8th Cir. 2007), the Eighth Circuit Court of Appeals upheld the district court's ruling that the arbitration of the plaintiff's tort claims was just and that it should not have been modified, vacated, or corrected because there was no finding of manifest disregard for the law by the arbitrators.

Background

The plaintiffs, David and Donna Hudson, entered into a Broiler Grower Agreement (BGA) with ConAgra Poultry Company to raise chickens. Id. at 498. As part of the BGA, ConAgra agreed to deliver chickens to the Hudsons, who would then feed and raise them, and ConAgra would later return to collect the mature chickens. Id. The Hudsons constructed chicken houses to raise the chickens according to their agreement with ConAgra. Id. Prior to the BGA, the Hudsons and ConAgra used "flock-to-flock" contracts that lasted only from the time of delivery of the chicks until the collection of the mature chickens. Id.

The BGA contained an arbitration provision that would govern all claims arising out of or relating in anyway to the "negotiation, execution, interpretation, and performance" of the contract. Id. The arbitration provision also contained a choice of law provision providing that Arkansas law would apply in disputes. Id. In the BGA, ConAgra set up four different rates of pay that the Hudsons could receive, depending on whether they chose to retrofit their chicken houses to meet new ConAgra specifications. Id. This provision had not been in the previously executed "flock-to-flock" contracts, but ConAgra stated that it was a normal provision in its contracts with other growers. Id. 498-99.

The Hudsons were dissatisfied with the retrofitting provision because they were receiving lower compensation for the chickens raised in houses that had not been retrofitted. Id. at 499. The Hudsons also complained that ConAgra's collection of mature chickens was late, and ConAgra alleged that Mr. Hudson had brandished a firearm during one of the pickups. Id. ConAgra terminated the BGA on January 17, 2000. Id. The Hudsons demanded arbitration pursuant to the BGA, and the arbitration panel later ruled in favor of ConAgra on all grounds. Id. The Hudsons did not appeal the decision of the arbitrators, but instead filed a tort claim in Arkansas state court against ConAgra, accusing ConAgra of violations of the Arkansas Deceptive Trade Practices Act (ADTPA). Id. The case was removed to the United States District Court for the Western District of Arkansas by ConAgra, which later moved to enforce the arbitration provision of the BGA. Id. The district court granted ConAgra's motion for arbitration. Id.

The second arbitration panel granted ConAgra's motion for summary disposition on the basis of res judicata. Id. The Hudsons then filed a motion for the district court to correct the second arbitration award for failure to hear evidence on the tort claim, and alleged that the claims should not have been subject to arbitration, and that the arbitrators erred in applying res judicata. Id. The district court denied the Hudsons' motion, and they appealed. Id.

Arguments

The Hudsons raised two issues on appeal. Id. First, the Hudsons argued that the district court erred when it compelled arbitration because, under the Arkansas Uniform Arbitration Act, parties may not have a written agreement to arbitrate torts. Id. Second, the Hudsons argued that the district court should have modified the second arbitration award because res judicata did not bar their tort claims. Id.

Analysis and Holdings

The court first stated that the Federal Arbitration Act (FAA) governs contracts involving interstate commerce. Id. (citing Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 273 (1995)). As a general rule, under the FAA, courts construe broad language in arbitration provisions as encompassing tort claims. See id. (citing CD Partners v. Grizzle, 424 F.3d 795, 800 (8th Cir. 2005)). The court held that a party may not force another party into arbitration if they had not contractually agreed to arbitrate, and state law controls with respect to whether a contract existed. Id. at 500. The court concluded that there was no doubt that a valid contract existed and contained a valid arbitration agreement, so it was therefore subject to the FAA. Id. The BGA provided that all claims would be subject to arbitration, so the Hudsons would have had to produce evidence that both parties intended to limit arbitration in some way. Id. The court held that there was no language in the BGA that excluded torts from arbitration. Id.

The court distinguished two prior cases from the situation in this case. First, the court cited Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior University, 489 U.S. 468 (1989), which held that the interpretation of private contracts is usually left to state law and that no violation of the FAA occurred when the parties intended to arbitrate their disputes according to state rules and procedures. Id. at 501. The court then cited Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), which was decided a few years after the Volt decision. Id. at 501-02. In Volt, the United States Supreme Court held that a mere provision in a contract that designated state law that would not allow arbitrators to award punitive damages did not adequately show the intent of the parties relating to punitive damages. Id.

The Eighth Circuit held that the present case was more similar to Mastrobuono than Volt. Id. at 502. The court noted that of the three cases, Volt was the only case in which state law was designed to encourage arbitration. Id. In the present case and Mastrobuono, if the courts resolved the ambiguity in favor of applying state law, then the ruling would have had the opposite effect of the parties' intent because it would require the parties to seek remedies in court instead of through the arbitration process. Id. at 502-03. The court also ruled that because the parties, in their arbitration agreement, chose to include the phrase "all claims arising from the contract," not requiring arbitration of any tort claims would go against the very essence of the contract. Id.

As to the Hudsons' second argument that the court should modify, vacate, or correct the decision of the arbitrators, the court ruled against the Hudsons. Id. at 504. The court explained, "such claims could have been litigated in the first arbitration, and therefore the application of res judicata by the second arbitration panel did not amount to a "manifest disregard" for the law." Id.

The case was decided on April 4, 2007.