Logan & Kanawha Coal Co. v. Detherage Coal Sales, LLC

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1128
LOGAN & KANAWHA COAL CO., LLC, a West Virginia limited
liability company,
Plaintiff – Appellant,
v.
DETHERAGE COAL SALES, LLC, a Kentucky limited liability
company,
Defendant – Appellee.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. Joseph R. Goodwin,
District Judge. (2:11-cv-00342)
Argued: February 1, 2013 Decided: March 21, 2013
Before NIEMEYER, DUNCAN, and DIAZ, Circuit Judges.
Reversed and remanded by unpublished opinion. Judge Diaz wrote
the opinion, in which Judge Niemeyer and Judge Duncan joined.
ARGUED: Rodney Arthur Smith, BAILEY & GLASSER, LLP, Charleston,
West Virginia, for Appellant. D. Duane Cook, DUANE COOK &
ASSOCIATES, PLC, Georgetown, Kentucky, for Appellee. ON BRIEF:
Brian A. Glasser, BAILEY & GLASSER, LLP, Charleston, West
Virginia, for Appellant. Edward E. Bagnell, Jr., SPOTTS FAIN,
PC, Richmond, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
DIAZ, Circuit Judge:
Logan & Kanawha Coal Co., LLC (“L&K”) appeals a district
court order vacating an arbitration award entered in its favor.
The district court vacated the award after concluding that the
parties had not agreed to arbitrate their dispute. Because we
conclude that the parties’ contract incorporated an arbitration
clause by reference, we reverse and remand with instructions to
confirm the arbitration panel’s award.
I.
On March 9, 2010, L&K faxed a purchase order draft to Bill
Detherage, the sole member and operator of Detherage Coal Sales,
LLC (“DCS”), proposing to purchase 10,000 tons per month of Alma
Seam coal from DCS over the six months from April to September
2010. The fax cover sheet stated in handwriting that the fax
consisted of two pages and included with the cover sheet a one-
page purchase order, which stated that “ALL TERMS & CONDITIONS
ON THE FOLLOWING PAGES ARE INTO [sic] AND MADE A PART OF THIS
CONTRACT.” J.A. 24. In fact, no “following pages” were
attached to the fax. That same day, DCS lined out the quantity
term, changing 10,000 tons per month to 7,000 tons per month,
signed the purchase order, and sent it back to L&K. On March
15, 2010, L&K returned the signed purchase order (“the
Contract”) to DCS, writing “we have a deal.” J.A. 78. The
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Contract retained the above-quoted notice, but again included no
“following pages” containing the referenced terms and
conditions.
DCS never informed L&K that it had not received the terms
and conditions referenced on the purchase order and made no
inquiry about them. Detherage, however, had previously
conducted business with L&K through other entities he owned
and/or operated, and had personally received L&K’s terms and
conditions on at least four occasions prior to DCS entering the
Contract. Each of these sets of previously received terms and
conditions, despite some minor variations--including the label
change from “General” terms and conditions to “Standard”--
contained an identical arbitration provision directing that
contract disputes be resolved pursuant to the rules and
practices of the American Arbitration Association (“AAA”).
No coal was delivered in April, as DCS informed L&K that it
was having production difficulties. Concerned at this news, an
L&K representative visited DCS’s mine in late April and found
that there was indeed coal being mined and shipped, but that it
was all going to another customer. On May 11, 2010, L&K sent a
letter demanding assurance of performance. The letter included
a copy of the Contract as well as a copy of L&K’s “Standard”
terms and conditions, which contained the arbitration clause.
DCS (through its attorney) responded in writing that it had
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thirty days to address L&K’s demand, but it did not object to
the applicability of L&K’s Standard terms and conditions. DCS
thereafter delivered only a small fraction of the promised coal
by the date of performance.
On December 21, 2010, L&K filed a demand for arbitration
with the AAA, claiming that DCS had breached the Contract and
that the applicable “Standard” terms and conditions included a
requirement that the dispute be arbitrated. DCS subsequently
designated an arbitrator while reserving its right to contest
arbitrability.
The AAA held an arbitration hearing to address whether the
dispute was arbitrable, whether DCS had breached the Contract,
and whether L&K had suffered damages resulting from that breach.
DCS did not appear at that hearing but filed a motion to
dismiss, arguing that it had never agreed to the arbitration.
The arbitration panel, over the dissent of DCS’s designated
arbitrator, found that DCS had agreed to arbitrate the dispute
and issued an award in L&K’s favor of approximately $2.7
million.
L&K subsequently filed in federal court a “Motion to
Confirm Arbitration Award”; DCS filed a “Motion to Vacate
Arbitration Award.” The district court held in favor of DCS and
vacated the arbitration award. This appeal followed.
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II.
The issues before us are (1) whether L&K’s arbitration
clause was a term of the Contract; and (2) whether, if we find
that the clause was a term of the Contract, the arbitrators’
award should be affirmed. We review legal rulings made by the
district court de novo and its factual findings for clear error.
See Raymond James Fin. Servs., Inc. v. Bishop, 596 F.3d 183, 190
(4th Cir. 2010).
A.
We first consider whether, under West Virginia law, 1 the
Contract incorporated by reference the arbitration clause in
L&K’s “Standard” terms and conditions. Although this coal
contract is governed by the Uniform Commercial Code (“UCC”), W.
Va. Code § 46-1-101 et seq., the UCC contains no provision that
speaks squarely to whether a secondary document referenced in a
contract is incorporated by that reference. Generally, if the
UCC is silent on a particular question, the common law controls.
See W. Va. Code § 46-1-103(b). The Supreme Court of Appeals of
West Virginia has recognized that separate writings may be
incorporated by reference into a contract, see Art’s Flower
Shop, Inc. v. Chesapeake & Potomac Tel. Co. of W. Va., Inc., 413
1
The parties do not dispute that the substantive law of
West Virginia applies.
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S.E.2d 670, 673-74 (W. Va. 1991), but has not, as far as we can
tell, articulated the requirements for effective incorporation
by reference. Accordingly, we must attempt to discern how that
court would rule on the question, minding not to “create or
expand [the] State’s public policy.” Talkington v. Atria
Reclamelucifers Fabrieken BV, 152 F.3d 254, 260 (4th Cir. 1998)
(quoting St. Paul Fire & Marine Ins. Co. v. Jacobson, 48 F.3d
778, 783 (4th Cir. 1995)). We therefore consider general
principles of common law incorporation by reference.
“Incorporation by reference is proper where the underlying
contract makes clear reference to a separate document, the
identity of the separate document may be ascertained, and
incorporation of the document will not result in surprise or
hardship.” Standard Bent Glass Corp. v. Glassrobots Oy, 333
F.3d 440, 447 (3d Cir. 2003); see also 11 Williston on Contracts
§ 30:25 (4th ed. 2011). Although it must be clear that the
parties to the agreement had knowledge of and assented to the
incorporated terms, Williston on Contracts § 30:25, the party
challenging incorporation need not have actually received the
incorporated terms in order to be bound by them, especially when
both parties are sophisticated business entities. See Standard
Bent Glass, 333 F.3d at 447 n.10.
By the same token, “[i]t is appropriate to require a
merchant to exercise a level of diligence that might not be
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appropriate to expect of a non-merchant.” Id.; see also id. at
448 (“Standard Bent Glass should have advised Glassrobots it had
not received [the referenced document], if that were the case.
Its failure to object to the arbitration terms of [the
referenced document], absent surprise or hardship, makes those
terms part of the contractual agreement.”). And where the
parties are familiar with the secondary document at issue due to
an ongoing business relationship or course of dealing,
incorporation may be easier. See Stedor Enters., Ltd. v.
Armatex, Inc., 947 F.2d 727, 733 (4th Cir. 1991) (“Where, as
here, a manufacturer has a well established custom of sending
purchase order confirmations containing an arbitration clause, a
buyer who has made numerous purchases over a period of time,
receiving in each instance a standard confirmation form which it
either signed and returned or retained without objection, is
bound by the arbitration provision.” (internal quotations
omitted)).
The district court held that L&K’s arbitration clause was
not incorporated into the Contract by reference because it had
not been “clearly referenced” and “identified in such terms that
its identity may be ascertained beyond doubt.” Logan & Kanawha
Coal Co. v. Detherage Coal Sales, LLC, 841 F. Supp. 2d 955, 961
(S.D. W. Va. 2012) (internal quotations omitted). This was
because L&K used two sets of terms and conditions--“Standard”
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and “General”--neither of which was specifically referenced by
the notice in the purchase order, which referred only to “ALL
TERMS & CONDITIONS ON THE FOLLOWING PAGES.” “Because the
statement does not distinguish between [L&K’s] general and
standard terms and conditions,” the district court explained,
“it is not clear which document the statement seeks to
incorporate.” Id. The court thus determined that the Contract,
lacking sufficiently clear reference to either specific set of
terms and conditions, did not incorporate the arbitration
clause.
DCS echoes this reasoning, acknowledging that only two
versions of L&K’s terms and conditions existed, Appellee’s Br.
at 8-9, while maintaining that it was impossible to determine
which of those two versions the Contract referenced. DCS
further explains that because the Contract contained no
“following pages,” it understood the reference to governing
“terms and conditions” to be mere “boilerplate . . . which had
no effect on the transaction.” Id. at 8. Finally, DCS
maintains that a course of dealings analysis is inappropriate
since Bill Detherage’s personal knowledge of the arbitration
clause, derived from his prior dealings with L&K, should not be
imputed to DCS. Id. (citing Phoenix Sav. & Loan, Inc. v. Aetna
Cas. & Sur. Co., 381 F.2d 245, 250 (4th Cir. 1967) (“The general
rule is that the knowledge of an officer of the corporation
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obtained while acting outside the scope of his official
duties . . . is not, merely because of his office, to be imputed
to the corporation.”)).
We disagree with DCS and the district court, and hold that
the requirements of incorporation by reference are satisfied.
First, by referring to “ALL TERMS & CONDITIONS ON THE
FOLLOWING PAGES,” the Contract makes clear reference to a second
document: the terms and conditions on the following pages. The
fact that the Contract actually appended no following pages is
of little moment since the party challenging incorporation need
not have actually received the incorporated terms in order to be
bound by them, especially where, as here, it is a sophisticated
business entity. Standard Bent Glass, 333 F.3d at 447 n.10.
Second, we conclude that the identity of the secondary
document was sufficiently ascertainable despite the existence of
two slightly different sets of terms and conditions, neither of
which the Contract explicitly referenced. Even if the two
different versions of L&K’s terms and conditions could have
created some uncertainty about which set applied, DCS can hardly
claim to have been legitimately confused about the applicability
of the arbitration clause, since both versions contained the
same arbitration provision. Consequently, the arbitration
clause was entirely ascertainable to DCS, notwithstanding other
minor and immaterial differences between the two sets of terms
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and conditions. In any case, if DCS was truly confused about
which set of terms and conditions applied, it had a duty as a
seasoned merchant to affirmatively seek clarification on that
point rather than blindly assume the language to be ineffectual
boilerplate.
Third, the parties’ course of dealings allays any concern
that incorporation will result in surprise or hardship to DCS.
Although DCS has not itself previously done business with L&K,
its sole owner and member, through negotiations for his other
entities, has personally received L&K’s terms and conditions--
always containing the same arbitration provision--on at least
four prior occasions. DCS is correct that in Phoenix Savings
and Loan, we set forth a general rule that the knowledge of
corporate officers should not be imputed to their corporations.
381 F.2d at 250. However, DCS’s brief misleadingly omits the
clear limiting principle articulated in that same case: that
where, as here, an officer has “substantial control of all
activities of a corporation,” his outside knowledge
“ordinarily . . . is imputed to the corporation.” Id. (emphasis
added). Once we impute Detherage’s familiarity with L&K’s
arbitration clause to DCS, there is no viable claim of hardship
or surprise. See Stedor Enters., 947 F.2d at 733. Moreover,
even if we put aside Detherage’s imputed knowledge, DCS’s claim
of surprise is undercut by the fact that when L&K appended its
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“Standard” terms and conditions to its May 2010 demand for
assurances, DCS raised no objection to their applicability
before beginning performance.
Since we find that the requirements of incorporation by
reference are satisfied, we hold that the arbitration panel
correctly found the dispute to be arbitrable and that the
district court reversibly erred in concluding otherwise.
B.
Having found the dispute arbitrable, we next consider DCS’s
argument that we should nevertheless vacate the arbitration
award and return the parties to arbitration rather than order
the district court to reinstate the award on remand. DCS urges
that this result is necessary because a judicial determination
regarding arbitrability needed to occur before the arbitration
proceeded to the merits.
Not so. Contrary to DCS’s thinly supported assertion that
a “majority of courts” require a judicial determination of
arbitrability before arbitration can take place, Appellee’s Br.
at 21, our review of the case law reveals no such prevailing
requirement. As one of our sister circuits put it, “[w]e see no
reason why arbitrability must be decided by a court before an
arbitration award can be made.” Nat’l Ass’n of Broad. Emps. &
Technicians v. Am. Broad. Co., 140 F.3d 459, 462 (2d Cir. 1998).
Of course, “[i]f the party opposing arbitration desires that
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order of proceedings, it can ask a court to enjoin arbitration
on the ground that the underlying dispute is not arbitrable.”
Id. As DCS did here, the party can also challenge arbitrability
after the award has been entered. “If arbitrability is rejected
after the award, the party opposing arbitration will have
obtained the relief sought. If arbitrability is upheld after
the award, there is no reason for a court not to confirm the
arbitrator’s award.” Id.Here, despite having had the right to seek an injunction
and request a prior judicial determination of arbitrability, DCS
chose not to take that step. Instead, it submitted the issue to
the arbitration panel, resolved to challenge a potentially
adverse arbitrability determination collaterally in court, and
failed to advance any arguments on the merits of the contract
dispute. Now, having affirmed the panel’s arbitrability
determination, we see no reason not to confirm its award.
Indeed, to rule otherwise would give DCS a second and undeserved
bite at the arbitration apple.
III.
For the foregoing reasons, we reverse the judgment of the
district court and remand with instructions to confirm L&K’s
arbitration award.
REVERSED AND REMANDED
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