Opinion
NO. 2014-C-1228 C/W NO. 2014-CA-1393
06-24-2015
STAR TRANSPORT, INC. v. PILOT CORPORATION, ET AL.
LOVE, J., CONCURS IN PART AND DISSENTS IN PART
I respectfully concur in part and dissent in part. I agree with the majority in so far as it consolidates the appeal with the writ application and dismisses the appeal. Additionally, I agree with the majority's finding that the trial court did not abuse its discretion in denying Pilot's motion to dismiss for forum non conveniens. I disagree, however, with the majority's denial of Pilot's writ application seeking review of the trial court's denial of its exception of prematurity and its motion to stay pending arbitration. I also disagree with the majority's decision to remand the matter for an evidentiary hearing on Star's motion in limine.
I write separately to express my views as it relates to the promissory note ("Note") and allegations of fraud in light of our holdings in Saavedra v. Dealmaker Developments, LLC, 08-1239 (La. App. 4 Cir. 3/18/09), 8 So.3d 758, and Rain CII Carbon LLC v. ConocoPhilips Co., 12-0203 (La. App. 4 Cir. 10/24/12), 105 So.3d 757.
I begin by addressing the relevant facts in this case, as my review of the record differs from that of the majority. Star's petition states that the parties entered an agreement for the purchase of fuel to begin in 2005. The Direct Bill Agreement executed on November 4, 2004, has at all times reflected the billing and payment arrangements between the parties. Star alleged that throughout their business relationship Pilot agreed to provide fuel at discounted rates. In January 2009, the parties entered into an agreement which set out the pricing structure for fuel purchases, which was memorialized in a letter from Pilot's vice president. The petition further states that the "pricing structure agreement was confirmed...in statements to Star employees and in writing." Notably, nowhere in Star's petition does it make the distinction between the oral and written agreements that established the contractual relationship between the parties.
Subsequent to the parties agreeing to a pricing structure, Star fell behind in its payments to Pilot. To account for Star's debt, Star executed the Note which was signed by Star's president and notarized on April 9, 2012. The Note, which Pilot attached as an exhibit to its exception, makes express reference to the Direct Bill Agreement and includes a plainly marked arbitration provision. Pilot argued at the hearing that the Note served as "an amendment or modification" to the Direct Bill Agreement. The executed Note reflected a modification to the existing agreement to account for any future default in payment on the part of Star and served as an "accounting exercise" for the debt Star had already accrued during the course of its contractual relationship and dealings with Pilot. Although the Note is signed and notarized, establishing Star's knowledge of its existence, Star's petition does not reference the Note.
Star alleges in its petition that Pilot committed fraud by overcharging and wrongfully withholding rebates owed for fuel purchases. Star attaches as proof an affidavit filed in support of a search warrant as part of the FBI's investigation of fraudulent conduct relating to Pilot's discounted rates program. In its opposition to Pilot's exception, Star attached as supporting evidence the same affidavit in support of the FBI search warrant, a former Pilot employee's plea agreement, evidence of the class action lawsuit and settlement, and the criminal enforcement agreement. In its separately filed motion in limine, Star attached the criminal enforcement agreement. Motion in Limine
At the hearing, the trial court admitted Star's evidence over Pilot's objection on hearsay grounds, finding the evidence was not offered for the truth of the matter asserted but as supporting evidence of Star's allegations of fraud.
I disagree with the majority's finding that the trial court abused its discretion when it granted Star's motion in limine without an evidentiary hearing or taking evidence on Star's motion. The record indicates that the trial court had before it the exceptions and motions filed by both parties, including their attached exhibits, when it heard arguments from counsel on both sides. Similarly, evidence was presented and accepted at the hearing. Pilot offered in support of its exception of prematurity and motion to stay pending arbitration, Star's petition, the Direct Bill Agreement, and the Note. As outlined above, Star offered documentary evidence in opposition to Pilot's exception of prematurity and in support of its motion in limine, including evidence that Pilot engaged in misconduct adversely affecting its customers. Moreover, neither party has assigned as error the trial court's failure to consider or accept evidence.
The transcript reflects that Pilot's evidence was admitted over Star's objection on authenticity grounds, noting that prior to the hearing the parties filed a joint motion to supplement the record with the exhibits attesting to their authenticity.
Further, because the Note represents sums allegedly owed Pilot, any dispute over amounts owed will necessarily take into account the Note. Thus, as a practical matter, whether the issues are before the arbitrator or the trial court, I find the Note relevant. Therefore, I do not find the record supports the majority's view that the trial court failed to accept evidence on the pleadings.
In this case, any consideration of Pilot's exception of prematurity and Star's allegations of fraudulent inducement of the arbitration clause requires consideration of the Note. As my analysis will explain in greater detail, I find merit to Pilot's exception; and consequently, I find the Note relevant and should not be excluded from evidence. Accordingly, I find the trial court abused its discretion by granting Star's motion in limine.
Exception of Prematurity
Whether to stay or compel arbitration is a question of law. Saavedra, 08-1239, p. 6, 8 So.3d 758, 761. Therefore, an appellate court reviews questions of law to determine whether the trial court was legally correct or incorrect. Id. This Court "'should consider de novo issues of law concerning whether the dispute was within the scope of the arbitration agreement, unless the parties also clearly agreed the issue of whether a dispute was arbitrable was subject to arbitration.'" Id. (quoting Collins v. Prudential Ins. Co. of Am., 99-1423, p. 7 n. 11 (La. 1/19/00), 752 So.2d 825, 830); See also Hoffman, Siegel, Seydel, Bievenu & Centola, APLC v. Lee, 05-1491, p. 4-5 (La. App. 4 Cir. 7/12/06), 936 So.2d 853, 856 (recognizing that "'[i]f the trial court's decision was based on an erroneous interpretation or application of law, rather than a valid exercise of discretion, such [an] incorrect decision is not entitled to deference by the reviewing court'") (quoting Dufrene v. HBO Mfg., LP, 03-2201, p. 2 (La. App. 4 Cir. 4/7/04), 872 So.2d 1206, 1209).
The trial court did not offer a basis for its ruling at the hearing, nor did the trial court offer written reasons. Consequently, this Court need only determine from a review of the record whether the trial court was legally correct or incorrect.
In this case, Pilot filed an exception of prematurity and a motion to stay proceedings pending arbitration. "The party pleading the exception of prematurity has the initial burden of showing the existence of a valid contract to arbitrate." Saavedra, 08-1239, p. 6, 8 So.3d at 762 (emphasis added). The exceptor must also "prove that the dispute falls within the scope of the arbitration provision." Rain, 12-0203, p. 8, 105 So.3d at 762. However, the burden of proof does not always remain with the party pleading the exception as the burden shifts to the party opposing the exception "to show its claims [fall] outside the arbitration clause." Id.
I find this Court's previous holdings in Saavedra and Rain controlling in our review of the trial court's denial of Pilot's exception of prematurity and motion to stay pending arbitration. To support its exception of prematurity and motion to stay, Pilot offered the Direct Bill Agreement, the Note incorporating by specific reference the Direct Bill Agreement, and Star's petition. The majority concludes that the Note is a completely separate agreement from Pilot's agreement to sell fuel to Star because it was executed in a separate document years after the parties began their contractual relationship. I disagree.
We have previously recognized that jurisprudence "allow[s] an arbitration agreement to apply if 'an arbitration clause is incorporated by reference to another written contract.'" Dufrene, 03-2201, p. 5-6, 872 So.2d at 1211(quoting Woodson Const. Co. v. R.L. Abshire Const. Co., 459 So.2d 566, 569 (La. App. 3rd Cir. 1984)). The Note incorporates by specific reference the Direct Bill Agreement, which memorialized the contractual agreement between the parties for the purchase and sale of fuel through Pilot's discounted rates program. Furthermore, the record shows that Star's president signed and notarized the Note evidencing Star's awareness of its existence and the arbitration provision. Id., 03-2201, p. 8, 872 So.2d at 1213 (recognizing that "a party who signs a written instrument is presumed to know its contents").
The fact that the Note was signed after the contractual relationship began is of no moment. The parties have shown a pattern of entering oral and written agreements since their contractual relationship began in 2005. Particularly, Star relies on this type of post-original agreement in its petition to support its claim that it entered an agreement with Pilot in January 2009, outlining the discounted pricing structure. However, Star also alleges in its petition that Pilot always agreed to sell fuel to Star at discounted rates. Thus, Star suggests that the 2009 "agreement" modified the parties' contractual relationship established in November 2004 in the Direct Bill Agreement. In the same way that Star relies on the 2009 pricing structure agreement to establish its breach of contract claims, Pilot relies on the Note to establish Star's agreement to arbitration of any claims arising from or relating to their contractual relationship. Consequently, I disagree with the majority's finding that the Note is a completely separate agreement. Thus, as a matter of law, I find a valid arbitration agreement existed between the parties.
The arbitration provision at issue here can only be characterized as broad. The arbitration provision at issue covers "any claim or controversy between the parties, whether arising in contract or tort or by statute, including but not limited to, claims resulting from or relating to this agreement" as well as "any dispute [concerning] whether a claim is arbitrable." All of Star's allegations fall within the scope of the arbitration provision. In Pennzoil Exploration & Prod. Co. v. Ramco Energy, Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998), it was recognized that "when parties agree to an arbitration clause governing '[a]ny dispute...arising out of or in connection with or relating to this Agreement,' they 'intend the clause to reach all aspects of the relationship.'" Id. (quoting Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164-65 (5th Cir. 1998). I find the same holds true in this case.
While this Court is not bound by the holdings in federal cases, there is considerable jurisprudence from federal courts interpreting arbitration provisions. Therefore, in this instance I find Pennzoil offers guidance.
Further, it is without question that the parties involved are sophisticated businesses. Therefore, both parties were more than capable of protecting themselves in negotiations that involve a binding arbitration agreement in a multi-million dollar deal. In that the Note is a modification of Pilot and Star's contractual relationship, I find the parties intended the arbitration provision to reach all aspects of the relationship. Thus, Pilot met its initial burden as the party pleading the exception as set forth in Saavedra and Rain.
Consequently, the burden shifts to Star to prove that its claims fall outside the scope of the arbitration provision. First, Star avers that its claims arise out of a separate agreement with no connection to the Note. For the reasons outlined above, I find no merit to this argument.
Second, in its motion in limine, Star claimed that the Note in its entirety was induced by fraud and was void ab initio. However, counsel for Star argued at the hearing that its fraudulent inducement claim and the evidence it offered in support is directed to the arbitration provision itself; and therefore, the making of the agreement to arbitrate may proceed in the trial court. Star's counsel offered into evidence several documents to "show the Court that substantial allegations have been made regarding fraud." Counsel for Star stated that the evidence was offered to assist the trial court in determining "whether or not [he] made an attack on the arbitration clause."
This Court has recognized that an arbitration provision is "severable from the remainder of the contract, and.unless the challenge is to the arbitration clause itself, the issue of the contract's validity is decided by the arbitrator." Rain, 12-0203, p. 9, 105 So.3d at 763 (quoting Saavedra, 08-1239, p. 9, 8 So.3d at 764).
Because Star makes allegations of fraudulent inducement of the arbitration clause itself, this Court must first consider the allegations made in Star's petition. In Long v. Jeb Breithaupt Design Build Inc., 44,002, p. 14 (La. App. 2 Cir. 2/25/09), 4 So.3d 930, 939, the court stated that "one of the primary concerns of courts is that a party seeking to avoid arbitration will simply allege fraudulent inducement in order to get the case into the district court. For this reason, allegations of fraud in a petition are closely scrutinized by the court." Additionally, La. C.C.P. art. 856 requires that "[i]n pleading fraud or mistake, the circumstances constituting fraud or mistake shall be alleged with particularity."
In French's Welding & Maintenance Serv., L.L.C. v. Harris Builders, L.L.C., et al., 10-0089 (La. App. 4 Cir. 8/11/10), 45 So.3d 1148, plaintiff sought a preliminary injunction prohibiting arbitration of the parties' disputes claiming the arbitration clause was unenforceable because defendant never signed the contract containing the arbitration provision and defendant misrepresented the necessity of the arbitration provision's inclusion. Id., 10-0089, p. 2, 45 So.3d 1148, 1149. During negotiations, plaintiff's attorney advised his client that the arbitration clause should be deleted. Id., 10-0089, p. 1, 45 So.3d 1148, 1149. However, defendant insisted that the arbitration clause was required under state law and could not be deleted. Id. In light of defendant's representation of the law, plaintiff signed the contract. Id. Only in preparation for arbitration, did plaintiff learn that the state removed the arbitration clause from the contract and that defendant had not executed the contract. Id. Based on the evidence presented, this Court affirmed the trial court's finding that plaintiff was misled and coerced into agreeing to arbitration because defendant falsely claimed that arbitration was required under the contract. Id.
I find that in pleading fraud Star alleged with particularity that Pilot engaged in "misconduct" relative to its discounted rates program. Specifically, Star offered sufficient evidence to support its claim that Pilot's misconduct involved overcharging and withholding rebates from its customers. However, these allegations of fraud speak to the "agreement" between Pilot and Star in general. Whether the facts and circumstances alleged and evidence submitted supports the claim of fraudulent inducement of the arbitration provision is an entirely separate inquiry.
Star's petition makes no mention of the Note or the arbitration provision. Nor does the petition make a specific allegation of fraudulent inducement of the arbitration provision itself. The petition states that Pilot "intentionally engaged in fraudulent conduct to artificially inflate the costs basis and conceal the actual value of the rebate due Star with the intentional purpose of breaching Pilot's contract with Star." Star also directs the court to the attached copy of the affidavit filed in support of the FBI investigation for specific facts regarding Pilot's fraudulent conduct. However, the affidavit makes no mention of Star, the Note, or the arbitration clause.
In contrast to its allegations of fraud of the "agreement," Star's allegations of fraudulent inducement of the arbitration provision are conclusory allegations. Star alleges that because of Pilot's fraudulent misconduct and a desire to protect itself against future claims, Pilot used Star's indebtedness to coerce Star into agreeing to arbitration. Nevertheless, Star only points to facts and circumstances that Pilot engaged in misconduct relating to the discounted rates program in general.
Additionally, the fact Pilot entered into a criminal enforcement agreement for conduct relating to its rebate program does not by itself support the allegation that Pilot constructed a plan to coerce Star into agreeing to arbitration. Thus, the facts and circumstances presented at the hearing, in the petition, and in the motion in limine do not address Star's claim that it was deceived into agreeing to arbitration. Star merely suggests a hypothetical scenario to suggest possible misconduct relative to the Note. Unlike the plaintiff in French's Welding, Star failed to plead with particularity its allegations of fraud of the arbitration provision as required under La. C.C.P. art. 856.
The majority also finds that the allegations of fraud of the arbitration provision and those of the agreement are not "so factually intertwined," that the matter must be referred to arbitration. Unlike this Court's comparative analysis in Rain, the majority does not establish how the allegations of fraud are factually distinct. Instead, it considers whether the Note and the "agreement sued upon" are separate distinguishable agreements.
Applying the principles set forth in Saavedra, this Court is called to examine the allegations of fraud of the arbitration provision itself and those of the "agreement sued upon." A review of the record demonstrates that "the allegations of fraud are substantially identical." Rain, 12-0203, p. 10, 105 So.3d at 763 (emphasis added). The allegations of fraudulent inducement of the arbitration provision and the allegations of fraud as to the validity of the parties' agreement arise out of the same set of facts and circumstances. Star even used the same evidence in support of its allegations of fraud of the "agreement sued upon" to attack the arbitration provision.
Outside of relying on evidence of Pilot's general misconduct, Star fails to plead independent facts or circumstances specific to Pilot's allegedly coercive actions to procure Star's agreement to arbitration. Consequently, Star's allegations of fraudulent inducement of the arbitration provision are simply conclusory allegations that cannot stand on their own. Therefore, Star's fraud claims do not attack the arbitration provision itself and only challenge the agreement as a whole.
Star's opportunity to present evidence to support its allegations of fraudulent inducement of the arbitration provision was at the hearing on the exception and motion in limine. --------
Finally, jurisprudence is clear that arbitration is favored. Aguillard v. Auction Mgmt. Corp., 04-2804, p. 6-8 (La. 6/29/05), 908 So.2d 1, 7-8. Thus, "any doubt concerning the scope of which disputes are arbitrable should be resolved in favor of arbitration." Saavedra, 08-1239, p. 7, 8 So.3d at 763 (citing Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Based on my de novo review, the issue of whether the parties' agreement is invalid because it was induced by fraud must be referred to arbitration. Therefore, I find the trial court erred in denying Pilot's exception of prematurity and motion to stay pending arbitration.
For the foregoing reasons, I agree with the majority's ruling in so far as it consolidates the appeal with the writ application and dismisses the appeal in addition to affirming the trial court's denial of Pilot's motion to dismiss for forum non conveniens. However, I would grant Pilot's writ application reversing: (1) the trial court's denial of the exception of prematurity and motion to stay pending arbitration; and (2) the trial court's granting of Star's motion in limine. Accordingly, I concur in part and dissent in part.