Summary of a Recent
Judicial Development in
Production Contracts

Eighth Circuit Denies Motion to Compel Arbitration

John Pesek
National AgLaw Center Research Associate

Summary of Decision

The Eighth Circuit Court of Appeals denied a motion to compel arbitration under the parties' breeder agreements in Wiser v. Wayne Farms, 411 F.3d 923 (8th Cir. 2005). The court held that the supplier waived its argument that Georgia law should apply rather than Arkansas law when determining the enforceability of the arbitration agreements. The court also held that the district court's use of Arkansas law could not be reviewed for plain error and that it would not decide whether Georgia law should apply. Id.

Background

In 1997, Wayne Farms and Wanda Wiser signed two Breeder Flock Agreements, which contemplated a five-year agreement that Wanda would care for chickens supplied by Wayne Farms and harvest their eggs in exchange for money. Id. at 924-25. The two parties kept this agreement primarily intact until 1999, when Wiser located a potential lessee who wanted to run the farm, and also wanted an option to purchase the farm. Id. at 925. The potential lessee wanted to keep the contract with Wayne Farms, and offered Wiser a percentage of the income derived. Id. Wiser then alleged that she contacted Wayne Farms about the potential lessee and that they agreed to permit the lessee to continue the contract on the grounds that certain improvements were to be made to the farm. Id.

The Wisers needed to obtain loans to make these improvements, so they contacted Wayne Farms and apparently received an assurance from Wayne Farms that if the lessee should stop and cancel the contract, then the Wisers would be able to take over and raise the chickens. Id. The Wisers borrowed $54,000 to make improvements to the farm and proceeded to lease the farm in 2000. Id. The lessee did not perform to Wayne Farms' satisfaction, resulting in the removal of the hens from the farm in 2002. Id. The Wisers requested that they be allowed to raise the hens, but Wayne Farms denied their requests. Id. The Wisers then brought this action against Wayne Farms seeking $500,000 in damages. Id.

Arguments

In their complaint, the Wisers alleged fraud, fraudulent inducement, and promissory estoppel. Id. Wayne Farms, in its answer, argued that the district court should compel arbitration pursuant to the arbitration clauses contained in the Breeder Flock Agreements. Id. The district court denied Wayne Farms' motion to compel arbitration, holding that the Wisers were not bound to the arbitration clauses in the agreements. Id. In its holding, the district court did not specifically address the choice of law problem, but did cite to relevant Arkansas Supreme Court decisions. Id. Wayne Farms argued that the court erred in applying Arkansas law because the agreement, which Wayne Farms argued should govern, stated that Georgia law would govern any resulting disputes. Id.

Analysis and Holdings

The district court had held that the arbitration clauses contained in the agreements were unenforceable because they lacked mutuality. Id. The Eighth Circuit Court of Appeals stated that usually the arguments that were not first raised on appeal are not given weight. Id. at 926. Because Wayne Farms did not raise the issue concerning Georgia law before the district court, the Eighth Circuit refused to allow that issue to be raised on appeal. Id. For the court to hear an issue on appeal that was not first raised before the district court, the Eighth Circuit explained that the party raising the issue must show that its substantial rights were affected and that the mistake would have a serious effect on the integrity and public reputation of judicial proceedings. Id. at 927 (citing United States v. Olano, 507 U.S. 725, 736-37 (1993)). The Eighth Circuit held that applying Arkansas law did not injure Wayne Farms' substantial rights; therefore, it failed to meet the burden established under Olano. Id. at 928.

The case was decided on June 17, 2005.