Bartlett Grain Company, LP v. Steven Carl Sheeder and Maureen Jeanette Pace

IN THE SUPREME COURT OF IOWA
No. 12–0790
Filed April 5, 2013
BARTLETT GRAIN COMPANY, LP,
Appellant,
vs.
STEVEN CARL SHEEDER
and MAUREEN JEANETTE PACE,
Appellees.
Appeal from the Iowa District Court for Montgomery County,
Kathleen A. Kilnoski, Judge.
A buyer of grain appeals a district court order denying its
application for confirmation of an arbitration award against a grain
seller. REVERSED AND REMANDED WITH DIRECTIONS.
Erin C. Herbold, Mark C. Feldmann, and Eldon L. McAfee of
Beving, Swanson & Forrest, P.C., Des Moines, for appellant.
David L. Leitner of Leitner Law Office, West Des Moines, for
appellees.
Douglas E. Gross, Adam C. Gregg, and Jonathan M. Gallagher of
Brown, Winick, Graves, Gross and Schoenebaum, P.L.C., Des Moines, for
amicus curiae Agribusiness Association of Iowa.
2
Judd N. Kruse of Kruse & Dakin, L.L.P., Des Moines, and Marc L.
Fleischaker, Donald C. McLean, and Jennifer S. Allen of Arent Fox LLP,
Washington, D.C., for amicus curiae National Grain and Feed
Association.
3
MANSFIELD, Justice.
Is there an enforceable agreement to arbitrate if two parties agree
over the phone to a sale of grain and later confirm that agreement with a
signed, written document containing an arbitration clause that was not
part of the phone conversation? That is the question we must answer in
this case. Bartlett Grain Co. (Bartlett) appeals the district court’s denial
of its application to confirm an arbitration award against Steven Sheeder.
Because the parties signed final, written documents that included
arbitration clauses, we conclude valid agreements to arbitrate existed.
Accordingly, we reverse the district court’s order with directions to
confirm the arbitration award in favor of the grain buyer.
I. Facts and Procedural Background.
In 2010, Steven Sheeder entered into eight oral agreements with
Bartlett for the sale of a total of 155,000 bushels of corn to be delivered
at various future dates. Sheeder stated in an affidavit that “[t]he only
terms of the oral contract were price and quantity and anticipated
delivery date. No other terms were discussed or agreed upon.”
Following each of the oral agreements, Bartlett sent to Sheeder a
two-page “Purchase Confirmation” for both parties to sign. It is
undisputed that both Sheeder and Bartlett signed the confirmations. All
were identical, except for variations in price, quantity, and delivery dates.
The quantity ranged from 10,000 to 45,000 bushels; the price from $3.77
to $4.26 per bushel. The delivery dates were in 2011, generally after the
2011 harvest. Each of these two-page documents contained the
following statement on the first page:
THE LAW RECOGNIZES TELEPHONE TRANSACTIONS TO
BE LEGALLY BINDING. CONTRACTS ARE SENT TO
CONFIRM PHONE CONVERSATIONS, ENSURING THAT
BOTH PARTIES UNDERSTAND THE TERMS, AND AS A
4
MATTER OF RECORD. PLEASE REVIEW THIS
CONFIRMATION AND NOTIFY BARTLETT IF THERE ARE
ANY TERMS YOU DO NOT UNDERSTAND OR THAT MAY BE
IN ERROR.
. . . PLEASE SIGN AND RETURN ONE COPY IMMEDIATELY
UPON RECEIPT.
Just below that appeared the signatures of Sheeder and a Bartlett
representative.
Page two began with an introductory paragraph:
Bartlett is sending you this document to confirm its Contract
to purchase grain, feed or feed ingredients according to the
terms set forth on both sides of this document. Failure to
advise Bartlett immediately of any discrepancies, objections
to or disagreement with this confirmation of the terms
constitutes acceptance of those terms.
There then followed various terms, numbered 1 through 16, relating to
the sale of grain. The first term—the subject of this appeal—read as
follows:
1. NGFA Trade and Arbitration Rules. Unless otherwise
provided herein, this Contract is subject to the Trade Rules
of the National Grain Feed Association (NGFA) current on the
date of this Contract, which rules are incorporated here in by
reference. All disputes RELATING to Contract creation,
performance and liability will be arbitrated according to the
Arbitration Rules of the NGFA. The decision and award of
the NGFA arbitrators will be final and binding on both
parties. Judgment upon an NGFA arbitration award may be
entered and enforced in any court of competent jurisdiction.
Copies of the NGFA Trade and Arbitration Rules are available
from Buyer or from www.ngfa.org.
The next term contained an integration clause that stated: “2. Final and
Complete Agreement. This contract represents the final, complete and
exclusive statement of agreement between the parties.”
On or about April 19, 2011, Bartlett maintains that it discovered
“reasonable grounds for insecurity” as to whether Sheeder was going to
perform the contracts by delivering grain at the contracted prices. See
5
Iowa Code § 554.2609(1) (2011); Top of Iowa Coop. v. Sime Farms, Inc.,
608 N.W.2d 454, 466–68 (Iowa 2000) (discussing a grain buyer’s
reasonable grounds for insecurity). Accordingly, Bartlett requested
adequate assurance of performance. See Iowa Code § 554.2609(1).
Allegedly, Sheeder did not provide such assurance and thereby
repudiated the contracts. See id. § 554.2609(4). Bartlett thereafter
initiated an NGFA arbitration to recover damages from Sheeder for
breach of the contracts.
Pursuant to NGFA arbitration rules, Bartlett filed a complaint with
the NGFA against Steven Sheeder on May 19.1 The NGFA responded by
sending Bartlett an arbitration services contract, which Bartlett executed
and returned with the required arbitration fee. Meanwhile, the NGFA
sent by certified mail a notice letter to Sheeder that included copies of
Bartlett’s complaint and attachments, the NGFA trade rules, and the
NGFA arbitration rules. Sheeder signed for this mailing on June 20.
After receiving the signed arbitration services contract and fee from
Bartlett, the NGFA sent the same contract by FedEx to Sheeder asking
him to execute it and pay his fee within fifteen days as required by NGFA
arbitration rules. Sheeder failed to respond to this letter. A follow-up
FedEx mailing by the NGFA to Sheeder in July also drew no response.
Finally, on August 4, the NGFA sent Sheeder yet another FedEx letter
asking him once more to sign the arbitration contract and pay the
required fee within fifteen days. This letter warned,
Based upon the lack of any response from you thus far, we
must anticipate that you do not intend to respond. This is
1Bartlett
also named Maureen Pace as a defendant in the arbitration proceeding
and obtained an award against her. Pace is Sheeder’s ex-wife. However, Pace did not
sign the purchase confirmations, and Bartlett has abandoned further proceedings
against her. To simplify matters, we will only discuss Bartlett’s efforts to recover from
Sheeder.
6
our last attempt to elicit a response from you. A
default judgment may be entered against you at any
time, which the Plaintiff may enforce in a court of law.
When Sheeder failed to respond to this letter, the NGFA, on
October 5, entered a default judgment for Bartlett in the amount of
$406,475, the sum calculated by Bartlett as due for breach of the eight
contracts.2
On November 15, 2011, Bartlett filed an application with the
Montgomery County District Court for confirmation of the arbitration
award. Sheeder filed a resistance to the application on January 23,
2012. He argued there were no written agreements to arbitrate, and,
alternatively, the purported agreements to arbitrate were
unconscionable.
In reply, Bartlett stated that Sheeder had consented to arbitration
by his “signing of the written confirmation on each of the eight grain
sales contracts.” It also disputed Sheeder’s claims that the written
agreements to submit to arbitration were unenforceable.
Following a hearing, the district court ordered on March 23, 2012,
that Bartlett’s application for confirmation of the award be denied. The
court concluded there was no enforceable agreement between the parties
to arbitrate.
Bartlett now appeals. It contends that Sheeder agreed to arbitrate
when he executed the confirmations and that his agreements to arbitrate
are not unconscionable.
2Section 5(e) of the NGFA Arbitration Rules states, in relevant part:
Where a party fails to pay the arbitration service fee and/or fails
to execute the contract for arbitration, the National Secretary may
without further submissions by the parties enter a default judgment or
such other relief as the National Secretary deems appropriate.
NGFA Trade Rules & Arbitration Rules, Arbitration Rule § 5(e) (2011).
7
II. Scope of Review.
This is an appeal from an order denying confirmation of an
arbitration award. Iowa Code section 679A.17(2) provides that such an
“appeal shall be taken in the manner and to the same extent as from
orders or judgments in a civil action.” Accordingly, we review the district
court’s judgment here for errors at law. See $99 Down Payment, Inc. v.
Garard, 592 N.W.2d 691, 693 (Iowa 1999).
III. Legal Analysis.
A. Was There an Agreement to Arbitrate? Iowa law favors
arbitration. $99 Down Payment, 592 N.W.2d at 694. “Arbitration avoids
the expense and delay generally associated with traditional civil
litigation, and draws on experts in the specific area of the dispute to
resolve the matter.” Id. Hence, “every reasonable presumption will be
indulged in favor of the legality of an arbitration award.” Humphreys v.
Joe Johnston Law Firm, P.C., 491 N.W.2d 513, 514 (Iowa 1992).
Nonetheless, the court must make two threshold determinations
before enforcing an arbitration award: “whether there is a valid
agreement to arbitrate and . . . whether the controversy alleged is
embraced by that agreement.” Lewis Cent. Educ. Ass’n v. Lewis Cent.
Cmty. Sch. Dist., 559 N.W.2d 19, 21 (Iowa 1997). Here, the dispute
centers on the former determination.
Unless there is some ground “at law or in equity for the revocation
of the written agreement,” a written agreement to arbitrate is enforceable.
Iowa Code § 679A.1(1). Following arbitration, a party may apply for
confirmation of the award to the district court, which “shall confirm an
award” unless certain grounds exist to vacate the award. See id.
§§ 679A.11–.13. One such ground is if “[t]here was no arbitration
agreement, the issue was not adversely determined in proceedings [to
8
compel or stay arbitration], and the party did not participate in the
arbitration hearing without raising the objection.” Id. § 679A.12(1)(e).3
Sheeder argued below that there was no written arbitration
agreement, and the district court agreed, based on “ordinary contract
principles.” We must determine whether the district court erred in
determining that “there is simply not adequate evidence that Steven
Sheeder and Bartlett entered a written arbitration agreement.”
This case involved the sale of grain, which is a good. Accordingly,
the UCC governs. See St. Ansgar Mills, Inc. v. Streit, 613 N.W.2d 289,
293–94 (Iowa 2000) (applying the UCC statute of frauds in a dispute
regarding the sale of corn). Iowa Code section 554.2204(1) states, “A
contract for sale of goods may be made in any manner sufficient to show
agreement . . . .”
“Article 2 does not, of course, entirely eliminate the common law of
contracts.” Flanagan v. Consol. Nutrition, L.C., 627 N.W.2d 573, 578
(Iowa Ct. App. 2001) (citing Iowa Code § 554.1103). “[A] valid contract
must consist of an offer, acceptance, and consideration.” Margeson v.
Artis, 776 N.W.2d 652, 655 (Iowa 2009). These elements are present in
the written confirmations that contained the arbitration clauses. Both
parties signed the confirmations, and they imposed reciprocal obligations
on both parties. Hence, the basic prerequisites for an enforceable written
agreement have been met.
Sheeder argues that the original oral agreements were the only
binding contracts and that the documents later signed by both parties
3Our decision solely involves Iowa law. Neither party has argued that the
Federal Arbitration Act applies here or preempts Iowa law. See 9 U.S.C. §§ 1–16; see
also Heaberlin Farms, Inc. v. IGF Ins. Co., 641 N.W.2d 816, 823 (Iowa 2002) (finding that
Iowa Code section 679A.1(2)(a) was preempted by the FAA to the extent it does not
enforce arbitration agreements in “adhesion contracts”).
9
were merely “confirmations” without legal effect.4 Yet, he has the law
backwards. Iowa Code section 554.2202 states, in relevant part:
Terms with respect to which the confirmatory
memoranda of the parties agree or which are otherwise set
forth in a writing intended by the parties as a final
expression of their agreement with respect to such terms as
are included therein may not be contradicted by evidence of
any prior agreement or of a contemporaneous oral agreement
....
Thus, section 554.2202 indicates that a prior oral agreement cannot be
used to contradict terms “set forth in a writing intended by the parties as
a final expression of their agreement with respect to such terms as are
included therein.”
On this record, there is no doubt that the confirmations signed by
both parties were “intended by the parties as a final expression of their
agreement with respect to such terms as are included therein.” Iowa
Code § 554.2202. Each of these documents contained an integration
clause, which we have said is “one factor we take into account in
determining whether an agreement is fully integrated.” C & J Vantage
Leasing Co. v. Wolfe, 795 N.W.2d 65, 85 (Iowa 2011).
4Sheeder argues Bartlett did not preserve error on any argument relating to “the
doctrine of merger and the other issues arising from the Uniform Commercial Code”
because it did not raise them before the district court. We disagree.
Apart from unconscionability, Sheeder’s argument below was that he had only
entered into oral agreements and that the subsequent written confirmations did not
amount to contracts in and of themselves. Bartlett disagreed and insisted the written
confirmations were valid written agreements to arbitrate. Both parties presented their
written positions in a fairly conclusory fashion, and neither cited to specific provisions
of the Uniform Commercial Code. Yet, it was not necessary for Bartlett to do so to alert
the court of its essential claim that there was an enforceable written agreement to
arbitrate. See Collister v. City of Council Bluffs, 534 N.W.2d 453, 454–55 (Iowa 1995)
(holding that the city preserved error on a statutory immunity argument by claiming at
trial, without citing the statute, that there was no duty to warn the plaintiffs). On
appeal, both parties have elaborated their positions with UCC and additional case law
citations. We can resolve the parties’ dispute as framed below with the benefit of the
additional legal briefing they have provided in this court.
10
For present purposes, though, we need not determine whether the
confirmations were “fully integrated.” Because Sheeder is trying to
contradict a term of the written confirmations (i.e., the arbitration
clause), not merely supplement that term, we need only decide whether
the confirmations were “partially integrated,” that is, whether they were
intended as a final expression “with respect to such terms as are
included therein.” Cf. Iowa Code § 554.2202(2) (excluding even
“consistent additional terms” when the writing was “intended also as a
complete and exclusive statement of the terms of the agreement”—i.e., a
full integration). See also 1 James J. White, et al., Uniform Commercial
Code § 3:14 (6th ed. 2012) (stating that “even if the judge decides that
the writing is not complete and exclusive, yet decides that it is a final
written expression as to some terms, evidence of contradictory prior or
contemporaneous terms may not be admitted”).
We have no doubt on this record that the confirmations were
intended as a final expression of at least the terms contained therein.
The second page began, “Bartlett is sending you this document to
confirm its Contract to purchase grain, feed or feed ingredients according
to the terms set forth on both sides of this document. Failure to advise
Bartlett immediately of any discrepancies, objections to or disagreement
with this confirmation of the terms constitutes acceptance of those
terms.” The first page also advised the seller to “REVIEW THIS
CONFIRMATION AND NOTIFY BARTLETT IF THERE ARE ANY TERMS
YOU DO NOT UNDERSTAND OR THAT MAY BE IN ERROR.” Although
Sheeder contends the written confirmations “contained clauses and
provisos not included within the [oral] contract,” he did not object to any
of those clauses and provisos, but instead signed and returned each
written confirmation.
11
Sheeder is not trying to “supplement” the written confirmations.
See C-Thru Container Corp. v. Midland Mfg. Co., 533 N.W.2d 542, 544
(Iowa 1995) (holding that even a fully integrated agreement may be
supplemented by usage of trade). Rather, Sheeder is trying to replace
the arbitration clause with its polar opposite—the lack of an arbitration
clause. The parol evidence rule exists to prevent this result. See id.
(citing Iowa Code § 554.2202). Accordingly, we reject Sheeder’s
contention that there was no written arbitration agreement between the
parties.
We also find persuasive similar cases that have declined to give
effect to a prior telephonic agreement lacking an arbitration clause when
a later written one including an arbitration clause exists. In T & R
Enterprises, Inc. v. Continental Grain Co., a buyer placed feed corn orders
over the telephone with the seller. 613 F.2d 1272, 1273–74 (5th Cir.
1980). Later, the seller sent confirmation slips, which the buyer signed
and returned to the seller. As here, “arbitration was not mentioned in
any of the telephone conversations.” Id. And as here, the confirmations
“contained a provision for the settlement of any dispute arising under the
contracts by arbitration” by the NGFA. Id. at 1274. When a dispute
arose, the seller moved to stay court proceedings, and the district court
granted its motion. Id. Arbitration “resulted in an award adverse to [the
buyer],” which challenged the seller’s motion to confirm the arbitration
award. Id. at 1275.
On the question of whether an agreement to arbitrate existed, the
court found the buyer’s signature on the written confirmations
dispositive:
The only item in the record approaching “an unequivocal
denial that the agreement to arbitrate was made” is T & R’s
assertion that it believed the telephone conversations with
12
Continental’s agent constituted the real contracts and that
the subsequently exchanged signed confirmation slips
cannot modify or add essential terms. This argument is
contrary to the universally prevailing rule that, absent
allegations of misrepresentation, fraud, or deceit, one who
executes a written contract is bound by its terms. This court
has expressly held that this principle applies to prevent a
party from avoiding the effect of his written acceptance of a
contract which expressly, above his signature, on the face of
the contract, incorporates the provisions on the reverse side
including promises to arbitrate.
Id. at 1278 (emphasis added). Accordingly, the Fifth Circuit held, as a
matter of law, that an enforceable agreement to participate in NGFA
arbitration existed. Id.
In another instructive case, a farmer agreed to sales of corn over
the phone while later signing purchase and confirmation forms that
included NGFA arbitration clauses. Andersons, Inc. v. Horton Farms,
Inc., 166 F.3d 308, 313 (6th Cir. 1998). When the farmer later sought to
avoid arbitration, the Sixth Circuit rejected the farmer’s argument that
this was a “Battle of the Forms” issue. Id. at 326. Instead, it found that
by signing each and every written “Purchase Contract and
Confirmation,” Horton Farms expressly assented to the
additional terms, material or not. . . . . Mr. Horton received
the document, supposedly read it, and signed it on behalf of
Horton Farms, thereby affirmatively agreeing to the terms
contained therein.
Id. The Sixth Circuit also rejected the argument that the farmer could
avoid the effect of the arbitration clause because it “did not read it or
thought that its terms were different.” Id. at 326–27; see also Peak v.
Adams, 799 N.W.2d 535, 543 (Iowa 2011) (noting that “[it] is well-settled
that failure to read a contract before signing it will not invalidate the
contract” (citation and internal quotation marks omitted)).
Citing McCubbin Seed Farm, Inc. v. Tri-Mor Sales, Inc., 257 N.W.2d
55 (Iowa 1977), Sheeder argues that written confirmations are meant to
13
satisfy the UCC statute of frauds and do not by themselves prove the
existence of a contract. However, McCubbin is inapposite here. It
involved a confirmatory memorandum sent by one party, and never
answered by the other. See McCubbin, 257 N.W.2d at 56, 59. That
scenario, we pointed out in McCubbin, is recognized in Iowa Code section
554.2201 as a potential exception to the statute of frauds. Id. at 58. Yet
we noted, “Nothing in the section makes a written confirmation binding
on either party, simply because it is not responded to.” Id. We
elaborated, “To be sure, the writing may be very useful evidence against
its author, or against its recipient under the merchant rule; but the
contract must nonetheless be proved by the one alleging it.” Id.
McCubbin is simply not on point. This is not a case where a
merchant sent a written confirmation and heard nothing back. Both
parties signed the confirmation. The writing signed by both parties itself
establishes the existence of a contract.
Finally, the UCC rule on modifications leads us to the same
conclusion that Bartlett and Sheeder entered into written agreements to
arbitrate. Assuming that the parties initially entered into binding oral
agreements that did not include arbitration clauses, those agreements
were modified by the later signed writings. See Iowa Code § 554.2209(1)
(recognizing contract modifications and stating that “[a]n agreement
modifying a contract within this Article needs no consideration to be
binding”). The Sixth Circuit addressed this issue on nearly identical
facts in Andersons.
As an initial matter, we note that under Michigan law,
a sales contract may be modified without additional
consideration. Thus, Horton Farms’ contention that the
preexisting oral contracts did not include an agreement to
arbitrate does not resolve this matter.
14
Andersons, 166 F.3d at 326 (internal citation omitted).
B. Is the Agreement to Arbitrate Unconscionable? Sheeder has
also urged that even if an agreement to arbitrate existed, it was
nonetheless unenforceable on account of its unconscionability. See Iowa
Code § 679A.1(1) (stating that a written agreement to arbitrate shall not
be enforced when “grounds exist at law or in equity for the revocation of
the written agreement”); see also id. § 554.2302(1) (“If the court as a
matter of law finds the contract or any clause of the contract to have
been unconscionable at the time it was made the court may refuse to
enforce the contract, or it may enforce the remainder of the contract
without the unconscionable clause, or it may so limit the application of
any unconscionable clause as to avoid any unconscionable result.”).
“A contract is unconscionable where no person in his or her right
senses would make it on the one hand, and no honest and fair person
would accept it on the other hand.” C & J Vantage, 795 N.W.2d at 80.
In determining whether a contract is unconscionable, we examine factors
of “assent, unfair surprise, notice, disparity of bargaining power, and
substantive unfairness.” Id. (quoting C & J Fertilizer, Inc. v. Allied Mut.
Ins. Co., 227 N.W.2d 169, 181 (Iowa 1975)). “However, the doctrine of
unconscionability does not exist to rescue parties from bad bargains.”
Id.; see also Home Fed. Sav. & Loan Ass’n of Algona, 357 N.W.2d 613,
619 (1984) (quoting comment 1 to this section of the UCC, which
provides that “[t]he principle is one of the prevention of oppression and
unfair surprise . . . and not . . . disturbance of allocation of risks because
of superior bargaining power”).
There are two generally recognized components of
unconscionability: procedural and substantive. The former includes the
existence of factors such as “sharp practices[,] the use of fine print and
15
convoluted language, as well as a lack of understanding and an
inequality of bargaining power.” In re Marriage of Shanks, 758 N.W.2d
506, 515 (Iowa 2008) (citation and internal quotation marks omitted).
The latter includes “harsh, oppressive, and one-sided terms.” Id.
(internal quotation marks and citation omitted). Whether an agreement
is unconscionable must be determined at the time it was made. See Iowa
Code § 554.2302(1); see also C & J Vantage, 795 N.W.2d at 81.
Sheeder argued below, without any specific support, that he had
no bargaining power compared to the “corporate giant” Bartlett.5 But
Sheeder did not deny he could have sought out other buyers. Grain is a
commodity. See C & J Vantage, 795 N.W.2d at 81 (rejecting an
unconscionability claim where “[t]here is no evidence of unequal
bargaining power between the parties or a lack of understanding on the
part of Lake MacBride.”); see also Andersons, 166 F.3d at 324 (rejecting a
procedural unconscionability argument, in part, because “Horton Farms
has failed to present evidence that it searched for other alternatives and
that there were none”). Sheeder further insisted, without evidentiary
support, that “no negotiation was allowed.” Still, the confirmations
invited Sheeder to notify Bartlett if he disagreed with any terms, did not
understand any of them, or believed any of them were in error. See
Andersons, 166 F.3d at 325 (noting a similar warning as support for its
holding that there was no procedural unconscionability). Despite these
invitations to alert Bartlett of any disagreement, no indication exists that
Sheeder made any attempt to negotiate.
5The record suggests that Sheeder’s farming operation is substantial, since he
contracted to sell 155,000 bushels of corn, all but 10,000 of which was to be delivered
at the conclusion of the 2011 crop year.
16
Sheeder also argued the NGFA arbitration fee was unfair. The
NGFA Arbitration Rules provide that “each disputant must pay an
arbitration service fee” of $900, plus one-half percent of the claim. NGFA
Trade Rules & Arbitration Rules, Arbitration Rule § 5(c). In this case,
that would amount to a $2932.38 fee, on a claim of $406,475. We
cannot conclude that this level of fee would preclude access to justice in
a commercial case where 155,000 bushels of corn and over $400,000 are
at issue. See Andersons, 166 F.3d at 314 (rejecting unconscionability
arguments in a NGFA arbitration clause case in which the grain seller’s
fee was $1500 and the award was $271,030.44). Sheeder does not
contend he could not afford the fee and has not provided any evidence,
beyond the amount of the fee itself, to establish it was unconscionable.
See Faber v. Menard, Inc., 367 F.3d 1048, 1053 (8th Cir. 2004) (noting in
an employment case that “[a] fee-splitting arrangement may be
unconscionable if information specific to the circumstances indicates
that fees are cost-prohibitive and preclude the vindication of statutory
rights in an arbitral forum,” but “[t]he burden of showing that arbitrators’
fees will be cost-prohibitive falls on the party seeking to avoid
arbitration” and must be “more than just a hypothetical inability to pay”);
Harrington v. Pulte Home Corp., 119 P.3d 1044, 1056 (Ariz. Ct. App.
2005) (rejecting an argument that fees were prohibitive and
unconscionable, despite plaintiffs’ claim that they could not afford
arbitration, because “[t]he affidavits offer no specific facts regarding
appellees’ financial situations, only conclusory statements”); Shamrock
Foods Co. v. Munn & Assocs., Ltd., ___ S.W.3d ___, ___, No. 06–12–00081–
CV, 2013 WL 150810, at *6–7 (Tex. App. Jan. 15, 2013) (rejecting a fee-
based unconscionability claim because “arbitration agreements are
17
enforceable in the absence of individualized evidence to establish that the
costs of arbitration are prohibitive”).
Sheeder also insisted that Bartlett “sprang” the arbitration clauses
upon him after the parties had entered into their oral agreements.
However, Sheeder does not say in his affidavit that he failed to read the
clause; after all, he had eight opportunities to do so. In any event, “a
failure to fully read and consider the contract cannot relieve him of its
provisions.” Bryant v. Am. Express Fin. Advisors, Inc., 595 N.W.2d 482,
486 (Iowa 1999). Furthermore, the arbitration provision was not hidden
or obscured. Each confirmation was only two pages long, with a clear
indication that the first page (the signature page) was “Page # 1 of 2.”
The arbitration clause appeared as term number one at the top of the
second page and stated directly that disputes would be “arbitrated
according to the Arbitration Rules of the NGFA” and “[t]he decision and
award of the NGFA arbitrators will be final and binding on both parties.”
Cf. Timmerman v. Grain Exch., LLC, 915 N.E.2d 113, 120–21 (Ill. App. Ct.
2009) (holding that the party “cannot fairly be said to have been aware”
of an agreement to arbitrate where “[t]he contracts in the case at bar did
not themselves mention arbitration, and the Rules, which contained the
arbitration provision, had not been provided to or made available to the
plaintiffs before they signed the contracts”). But see Bryant, 595 N.W.2d
at 486–87 (holding that an employee was bound to arbitrate a claim
against his employer even though the arbitration provision was not found
in the document he signed and noting he could have read the NASD
Code of Arbitration, which was incorporated into his application).
Finally, Sheeder argued that the NGFA arbitration process itself
was biased because the NGFA is Bartlett’s “surrogate” and Bartlett is a
member of the NGFA whereas Sheeder is not. The NGFA’s rules appear
18
to militate against the possibility of direct bias against Sheeder, and he
has not provided any evidence that such bias existed. The NGFA
Arbitration Rules state that arbitrators
should be commercially disinterested with respect to the
particular dispute intended to be presented to him for
judgment. If an individual arbitrator changes employment or
affiliation as an active partner, principal, officer or director
from one member firm to another member firm, the
individual must continue to be commercially disinterested or
be replaced.
NGFA Trade Rules & Arbitration Rules, Arbitration Rule § 4(b)(2).
Sheeder has not pointed to any evidence that suggests such direct
bias slipped through the cracks here. Instead, he appears to advance an
argument of systemic bias, stemming from Bartlett’s membership in the
NGFA. A federal district court rejected a similar argument in a case
concerning the issue of bias under the Federal Arbitration Act:
[The Plaintiffs] do not mean by this that any of the
arbitrators is biased in the sense that he has a stake in the
outcome. The argument, rather, is that approximately half
of the [NGFA]’s members use [similar] contracts, and the
Association has filed amicus briefs arguing that these
contracts comply with federal law. It follows, plaintiffs insist,
that the Association cannot conduct arbitration impartially.
This is functionally the same as arguing that because the
United States depends on tax revenues, and has a mammoth
bureaucracy (the IRS) devoted to collecting hundreds of
billions of dollars annually, federal judges cannot be
impartial in tax cases. No sensible person uses this
definition of partiality, however.
Nagel v. ADM Investor Servs. Inc., 65 F. Supp. 2d 740, 745 (N.D. Ill.
1999), aff’d, 217 F.3d 436 (7th Cir. 2000). We agree with this
observation and note that Sheeder’s argument, if accepted, would call
into question other alternative dispute resolution forums such as the
Financial Industry Regulatory Authority.
19
We are not able to conclude that the arbitration clause was even a
“bad bargain” for Sheeder. See C & J Vantage, 795 N.W.2d at 81 (finding
an agreement not unconscionable even though it “ultimately amounted
to a bad bargain”). For all we know, Sheeder had no viable defense on
the merits and would have had the same final judgment entered against
him—earlier—if sued in district court.
Sheeder’s arguments are not new. In a number of cases from other
jurisdictions, courts have declined to vacate NGFA arbitration awards
based on assertions that the process is unconscionable, biased, or
otherwise unfair. See Hoffman v. Cargill Inc., 236 F.3d 458, 463 (8th Cir.
2001) (reversing district court’s order vacating an NGFA arbitration
award and noting that “[n]othing compels us to conclude that this
process was fundamentally unfair”); Harter v. Iowa Grain Co., 220 F.3d
544, 557 (7th Cir. 2000) (rejecting Federal Arbitration Act-based
assertion that NGFA arbitration involved bias against farmers);
Andersons, 166 F.3d at 323–26 (rejecting procedural and substantive
unconscionability arguments against a contract calling for NGFA
arbitration, and noting “the NGFA rules provide that the arbitrators may
not themselves have a commercial interest in a particular dispute”);
Nagel, 65 F. Supp. 2d at 744–46 (upholding NGFA arbitration
agreements under the Federal Arbitration Act and overruling the
argument that NGFA arbitration would be biased because the arbitrators
were grain merchants); In re Robinson, 256 B.R. 482, 487 (Bankr. S.D.
Ohio 2000) (rejecting a debtor’s objection to an NGFA arbitration award
based on concerns of systemic bias), aff’d, 265 B.R. 722 (B.A.P. 6th Cir.
2001), aff’d on other grounds, 326 F.3d 767 (6th Cir. 2003); Andersons,
Inc. v. Crotser, 7 F. Supp. 2d 931, 933 (W.D. Mich. 1998) (holding that a
contract is arbitrable, despite unconscionability concerns, because “[t]he
20
record shows that Crotser makes these allegations with regard to the
entirety of the contracts at issue, rather than only with regard to the
arbitration clauses contained in those contracts”); Bunge Corp. v.
Williams, 359 N.E.2d 844, 847 (Ill. App. Ct. 1977) (rejecting farmers’
argument that an NGFA arbitration clause was unconscionable because
it was on the back and they did not consent to it); Cargill, Inc. v.
Poeppelmeyer, 328 S.W.3d 774, 775–76 (Mo. Ct. App. 2010) (rejecting a
wheat seller’s adhesion argument regarding a NGFA arbitration clause
because the seller failed to meet his burden to produce evidence that the
agreement was invalid).
Accordingly, after careful consideration of procedural and
substantive factors, we conclude that the written agreements between
Sheeder and Bartlett were not unconscionable.
IV. Conclusion.
For the foregoing reasons, we reverse the order below and remand
this case to the district court with directions to confirm the arbitration
award against Sheeder.6
REVERSED AND REMANDED WITH DIRECTIONS.
6As noted above, Bartlett has abandoned its appeal as to Pace and we leave that
part of the court’s order undisturbed.