Summary of a Recent
Judicial
Development in
Production Contracts
Sleeper Farms Must Abide by Arbitration Award
John PesekNational AgLaw Center Research Associate
Summary of Decision
In Sleeper Farms v. Agway, Inc., 460 F. Supp. 2d 184 (D. Me. 2006), the United States District Court for the District of Maine denied the plaintiffs' motion to vacate an arbitration decision awarding them damages, and granted the defendants' motion to confirm the arbitration award. Id.
Background
The court, in an earlier decision, found that the parties entered into a contract containing a valid arbitration agreement. Id. at 186 (citing Sleeper Farms v. Agway, Inc., 211 F. Supp. 2d 197, 198-200 (D. Me. 2002)). Prior to the arbitration, defendant Agway, Inc., filed a Notice of Bankruptcy, and Sleeper filed a proof of claim against Agway. Id. The bankruptcy court entered a consent order that allowed the automatic stay to be lifted with respect to Sleeper Farms for the limited purpose of allowing the arbitration to proceed. Id. In August 2006, the arbitration took place and the arbitrator entered an award for Sleeper Farms in the amount of $82,459 in damages and $20,040 in administrative fees. Id. The parties then returned to bankruptcy court following the arbitrator's decision, and the trustee of Agway sought to approve the arbitration award; however, Sleeper Farms sought leave to challenge the award. Id. The bankruptcy court found that the district court had retained jurisdiction over the original claim and had the authority to determine whether the arbitrator had complied with its order, and the bankruptcy court granted nunc pro tunc relief to Sleeper Farms from the injunction imposed upon the confirmation of the Agway's confirmed plan and denied the trustee's motion seeking approval of the arbitrator's award. Id. at 186-87.
Arguments
Sleeper Farms asserted three challenges to the arbitrator's award. Id. at 187. First, it claimed that it found new evidence in the form of a letter from March 2000, and that the withholding of the letter in arbitration amounted to fraud by the arbitrator. Id. Second, it argued that the arbitrator exhibited manifest disregard for the law by failing to follow the factual findings contained in the court's July 2002 order. Id. at 187. Third, the plaintiffs argued that the decision regarding the Maine Potato Licensing Act (MPLA) reflected manifest disregard for the law. Id.
Analysis and Holdings
Regarding the plaintiffs' first claim concerning the letter that was allegedly withheld, the court found that the plaintiffs lacked the necessary showing of clear and convincing evidence of fraud. Id. at 187. The plaintiffs simply failed to recognize the significance of the letter until after the arbitration award; therefore, they did not meet the standard necessary to find that the arbitration award was procured by fraud. Id. As to their argument that the arbitrator did not follow the 2002 order, the court held that the arbitrator's factual findings were consistent with its 2002 order, and it found no basis for concluding that the differences in findings of facts by the arbitrator amounted to manifest disregard for the law. Id.
With respect to the MPLA provision, the court agreed with the arbitrator that the plaintiffs failed to show that Agway did not purchase everything it committed to purchase, and that there was a market for Sleeper Farms' seed potatoes, as was shown by the plaintiffs themselves when they sold to buyers other than Agway. Id.
Regarding the defendant's motion to compel the arbitration agreement, the court explained that it retained continuing jurisdiction, even though the award would still require action by the bankruptcy court; therefore, the court granted the motion because the defendants met all necessary requirements under 9 U.S.C. § 9 (2000). Id. at 188.
The case was decided on November 1, 2006.