IN COURT OF APPEALS
Willmar Poultry Company, Inc.,
Reuben A. Mjaanes, Richard Ihrig, Lindquist & Vennum, P.L.L.P., 4200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402, Lynn J. Hummel, Hummel Law Firm, P.A., P.O. Box 1409, 211 West Holmes Street, Norwest Bank Building, Suite 20, Detroit Lakes, MN 56502 (for respondent)
Steven C. Wang, Schneider Law Firm, P.O. Box 776, Willmar, MN 56201 (for appellant)
Considered and decided by Crippen, Presiding Judge, Amundson, Judge, and Schultz, Judge.*
Appellant contests the district court's order denying its motion to compel arbitration. We affirm.
In 1994, appellant Willmar Poultry Company, Inc., and respondent Anderson Turkey Farms, Inc., signed a document entitled "Agreement and Policies for Breedermen" (1994 agreement). Under the agreement, appellant reserved the right to: (1) purchase the eggs produced by turkey breeding flocks it sold to respondent; (2) sell the poults hatched from these eggs; (3) deduct certain fees and charges; and (4) remit the remainder to respondent. The agreement contained an arbitration clause:
Except as to any claims which are subject to conciliation court jurisdiction in Minnesota, any claim, dispute, or misunderstanding arising out of or in connection with this agreement or the interpretation or meaning of any part thereof shall be arbitrated by the parties before an arbitrator mutually agreeable to both parties.
The agreement stated that it "shall govern the parties" with respect to all present and future flocks purchased by respondent from appellant.
In 1996, appellant sold respondent more than 9,000 breeding turkeys pursuant to an oral contract (1996 contract). Many of the turkeys were infected with fowl cholera, a fatal lung disease, and died before they could breed. After appellant refused to compensate respondent for its losses, respondent filed suit seeking: (1) rescission of the 1994 agreement because of fraud in the inducement, unconscionability, and lack of consideration; (2) damages in excess of $250,000 for breach of implied warranties; and (3) unspecified damages for consumer fraud. The district court denied appellant's subsequent motion to compel arbitration of respondent's claims under the arbitration clause of the 1994 agreement. This appeal followed.
Minnesota law clearly favors arbitration of disputes. Ehlert v. Western Nat'l Mut. Ins. Co., 296 Minn. 195, 199, 207 N.W.2d 334, 336 (Minn. 1973); see also Brothers Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422, 427 (Minn. 1980) (arbitration accorded "preferred status"). If it is "reasonably debatable" whether an arbitration clause includes a particular dispute, a court may compel arbitration of that dispute. Myers v. State Farm Mut. Auto. Ins. Co., 336 N.W.2d 288, 290-91 (Minn. 1983).
But courts will not compel arbitration of a dispute in the absence of any evidence that the parties intended to submit that dispute to arbitration. See Michael-Curry Cos., Inc. v. Knutson Shareholders Liquidating Trust, 449 N.W.2d 139, 141 (Minn. 1989) (compelling arbitration of claim only where arbitration clause specifically includes, or is broad enough to comprehend, arbitration of that claim); Heyer v. Moldenhauer, 538 N.W.2d 714, 716 (Minn. App. 1995) (claim of fraud in inducement not arbitrable absent evidence of parties' intent to arbitrate that specific claim).
We review district court decisions concerning the arbitrability of disputes de novo. Amdahl v. Green Giant Co., 497 N.W.2d 319, 322 (Minn. App. 1993). When considering a motion to compel arbitration, we ask "(1) whether a valid arbitration agreement exists, and (2) whether the dispute falls within the scope of the arbitration agreement." Id.
Appellant, citing Knut Co. v. Knutson Constr. Co., 433 N.W.2d 149, 151 (Minn. App. 1988), aff'd, 449 N.W.2d 143 (Minn. 1989), argues that the 1994 agreement and 1996 contract should be construed together, so the arbitration clause of the former would apply to disputes arising under the latter. In Knut Co., the parties simultaneously executed a purchase agreement, guarantee note, and promissory note. 433 N.W.2d. at 150. Only the purchase agreement contained an arbitration clause. Id. The district court refused to compel arbitration of a dispute regarding the promissory note under the arbitration clause of the purchase agreement. Id. at 151. We reversed, holding that the note and agreement should be construed together because they related to the same transaction, referred to one another, and were executed simultaneously. Id.
Appellant's reliance on Knut Co. is misplaced. In this case, the 1994 agreement and the 1996 contract were not executed at the same time, do not refer to one another, and do not relate to the same transaction. The arbitration clause of the 1994 agreement governs the parties only with respect to matters addressed within that agreement, and cannot be extended to govern unrelated disputes arising under the 1996 contract.
Appellant argues that, by seeking damages, respondent has affirmed the 1994 agreement and is thus bound to arbitrate its claims. See Atcas v. Credit Clearing Corp. of Am., 292 Minn. 334, 349, 197 N.W.2d 448, 456 (1972) (to avoid arbitration, party must seek rescission of entire contract but cannot seek damages). But respondent's damage claims arise from the 1996 contract, not the 1994 agreement. Because these damages arise from a totally separate transaction, respondent has not affirmed the 1994 agreement and is not bound by its arbitration clause.
Appellant claims that respondent failed to rescind the 1994 agreement in its entirety, and therefore remains bound by the arbitration clause. But courts cannot compel arbitration where one party seeks to rescind a contract containing an arbitration clause, effectively denying the validity of that clause. See Minn. Stat. § 572.09 (a) (1996) (court should "proceed summarily to the determination of the issue" if one party denies existence of agreement to arbitrate); Atcas, 292 Minn. at 349, 197 N.W.2d at 457 (issues regarding formation of agreement, including claims of fraud in inducement, are best determined by the courts). By claiming fraud in the inducement, unconscionability, and lack of consideration, respondent clearly sought to rescind the entire 1994 agreement, including the arbitration clause.
Appellant also argues that the arbitration clause is broad enough to include respondent's present claims. But the arbitration clause governs "any claim, dispute, or misunderstanding arising out of or in connection with this agreement or the interpretation or meaning of any part thereof." (Emphasis added.) The arbitration clause is plainly limited to disputes regarding the terms of the 1994 agreement. Because there is no evidence that the parties intended to arbitrate disputes arising from subsequent transactions, the district court did not err in refusing to compel their arbitration. See Heyer, 538 N.W.2d at 716 (court should compel arbitration only upon evidence that parties intended to arbitrate specific dispute).
*Retired judge of the district court, serving as judge on the Minnesota Court of Appeals by appointment pursuant to Minn. Const. Art. VI, § 10.