Berger Farms v. First Interstate BankBerger Farms v. First Interstate Bank
Defendant, a national bank, appeals from two trial court orders that denied two motions it made pursuant to section 3 of the Federal Arbitration Act (
The arbitration agreements at issue are contained in two loan agreements and three continuing unconditional guarantees between defendant First Interstate Bank of Oregon and plaintiffs Berger Farms, a general partnership, and Keith, Kenneth, Rebecca and Steven Berger, its general partners. The first loan agreement, between Berger Farms' and defendant, was executed on June 19, 1992, to provide funds for the continuing operations of plaintiffs’ seed growing business. 1 The second loan agreement, between Berger Farms and defendant, was executed on March 11, 1994, to provide funds for the refinancing of previous farm production loans and for continuing operations. The three continuing unconditional guarantees, between Kenneth Berger and defendant, Keith and Rebecca Berger and defendant, and Steven Berger and defendant, also were executed on March 11,1994, “in consideration of the granting of credit to [plaintiffs] by [defendant].” (Emphasis omitted.) The loan agreements and the guarantees contain mandatory arbitration agreements, which provide, in part:
“[ ] MANDATORY ARBITRATION OF ALL DISPUTES
“[ ] Binding Arbitration. All disputes arising out of or in connection with or related to this Agreement [/Guaranty] or any related agreements or instruments or any transaction of which this Agreement [/Guaranty] is a part shall be resolved by binding arbitration in accordance with Title 9 of the United States Code and the then effective Commercial Arbitration Rules of the American Arbitration Association.
*36 “[ ] ‘Dispute’ is defined to mean any action, demand, dispute, claim, counterclaim or controversy between [the parties] whether in contract, tort, arising out of statute, or otherwise.” (Emphasis altered.)
In September 1995, plaintiffs sued defendant for “forging and filing financing statements and * * * making misrepresentations regarding a loan never entered into by the parties.” Pursuant to the arbitration agreements, defendant moved to stay the action pending arbitration, as provided by section 3 of the Federal Arbitration Act (FAA):
“If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.”9 USC § 3 .
While defendant’s motion was pending, plaintiffs filed a first amended complaint. Shortly thereafter, the trial court issued an order denying defendant’s motion to stay the action pending arbitration. After the court issued that order, and in response to the first amended complaint, defendant made a second motion pursuant to section 3 of the FAA to stay the action pending arbitration. Defendant then filed a notice of appeal from the trial court’s order. Subsequently, the trial court issued a second order, denying defendant’s second motion to stay. Defendant amended its notice of appeal to include that second order.
Defendant assigns error to both trial court orders. Before we can address those assignments of error, however, we must consider whether we have jurisdiction.
2
See Emmert
*37
Industrial Corp. v. Douglass,
When federal claims are brought in state courts, “state courts are bound to follow federal substantive law but are free to follow their own practices as to matters which are strictly procedural.”
Geris v. Burlington Northern, Inc.,
Arbitration under the FAA is a special statutory proceeding.
See Peter Kiewit v. Port of Portland,
“[a]n appeal may be taken from the circuit court in any special statutory proceeding under the same conditions, in the same manner and with like effect as from a judgment, decree or order entered in an action or suit, unless such appeal is expressly prohibited by the law authorizing such special statutory proceeding.”
The Supreme Court has ruled that “
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The basic objective of the FAA is to ensure that commercial arbitration agreements are enforced according to their terms.
First Options of Chicago, Inc. v. Kaplan,
Conversely, Oregon procedural law prohibits such appeals.
“is inconsistent in both purpose and effect with the * * * objectives of the federal * * * law, * * * [principles of federalism, as well as the Supremacy Clause, dictate that such a state law must give way to vindication of the federal right when that right is asserted in state court.” Felder,487 US at 153 .
Consequently, the FAA controls our jurisdiction. Section 16 of that act provides that the trial court’s orders are appealable.
Although the trial court’s orders are appealable, we must answer one additional question: whether the stay provision of section 3 of the FAA, pursuant to which defendant made its motions, applies in Oregon courts. When construing federal statutes, we start with the language of the statute
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and its placement and purpose in the statutory scheme.
Bailey v. United States,
516 US_,_,
Furthermore, the United States Supreme Court has recognized that “state courts, as much as federal courts, are obliged to grant stays of litigation under § 3 of the Arbitration Act,” because “Congress can hardly have meant that an agreement to arbitrate can be enforced against a party who attempts to litigate an arbitrable dispute in federal court, but not against one who sues on the same dispute in state court.”
Moses H. Cone Hospital v. Mercury Constr.,
Defendant assigns error to the two trial court orders denying a stay of plaintiffs’ action pending arbitration. We address the second order first. Defendant argues that the trial court’s second order is void, because when defendant filed the notice of appeal from the first order, the trial court lost jurisdiction to issue the second order. Plaintiffs concede
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that the trial court was without jurisdiction to issue the second order. We accept that concession, because “once a notice of appeal has been filed, the appellate court has jurisdiction and the trial court does not, until there is a final determination on the merits or a determination that the appellate court lacks jurisdiction.” Murray
Well-Drilling v. Deisch,
We turn to the first order, which we review for errors of law.
See Dean Witter Reynolds, Inc. v. Byrd,
“[a] written provision in * * * a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
The parties do not dispute the validity or enforceability of either of the loan agreements or any of the continuing unconditional guarantees that contain the arbitration agreements. 3 According to defendant, the trial court erred in issuing the first order, because all of plaintiffs’ claims fall within the scope of the arbitration agreements: *42 Plaintiffs respond that their claims fall outside the scope of the arbitration agreements and that the trial court therefore properly denied defendant’s first motion to stay:
*41 “Each of plaintiffs’ claims presents a dispute related to the 1992 or 1994 loan agreements, an agreement or instrument related to at least one of those agreements, or a transaction of which at least one of those agreements is a part.”
*42 “The two separate aspects of plaintiffs’ involvement with the defendant can be characterized as follows: 1) a lending relationship between plaintiff Berger Farms and defendant involving consummated loan agreements and related documents signed by one or more of the plaintiffs; and 2) loan agreements that were never consummated and documents that were never authorized or signed by the plaintiffs, but rather forged by the defendant. Plaintiffs’ claims in this lawsuit are based on this second aspect, relating not to plaintiffs’ banking relationship with defendant, but to forgeries and misrepresentations which were unauthorized and wholly outside of the scope of such relationship.” (Footnote omitted.)
Plaintiffs also respond that even if Berger Farms’ claims fall within the scope of the arbitration agreements, the individual partners’ claims do not.
In defining the scope of an arbitration agreement, the rule under the FAA is that
“ ‘questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. * * * The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration * * *.’ ” Mitsubishi Motors v. Soler Chrysler-Plymouth,473 US 614 , 626,105 S Ct 3346 ,87 L Ed 2d 444 (1985) (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp.,460 US 1 , 24-25,103 S Ct 927 ,74 L Ed 2d 765 (1983)) (emphasis supplied).
See, e.g., United Steelworkers v. Warrior & Gulf Navigation Co.,
Plaintiffs make seven claims for relief in their first amended complaint. In determining whether those claims fall within the scope of the arbitration agreements, we look only at plaintiffs’ first amended complaint,
see Klemgard et al v. Wade Seed Co.,
Plaintiffs’ first claim is for breach of fiduciary duty. They allege that defendant made the June 19,1992, loan “on an unsecured basis” accompanied by an “oral contract that it would not seek a security interest in plaintiffs’ real property, products or proceeds.” Nevertheless, plaintiffs allege, without authorization and by forging Kenneth Berger’s signature, defendant filed several UCC-1 and UCC-1A financing statements in an “attempt! ] to gain a security interest in plaintiffs’ property, products or proceeds.” Plaintiffs further allege that defendant breached its fiduciary duty by “its denial, in bad faith, of the fact that Kenneth Berger did not sign the UCC financing statements.”
The UCC financing statements covered the following collateral and the products and proceeds therefrom:
“[Plaintiffs], as borrower[s], do[ ] hereby agree and pledge not to encumber or mortgage (other than to [defendant]), sell, transfer or trade real property, now owned, during the time which [plaintiffs are] indebted to [defendant] * * * *44 without prior written consent from [defendant]. This agreement and pledge cover[ ] all real property with improvements thereon owned by ¡plaintiffs] wherever situated. Dated June 19, 1992.” 4 (Emphasis altered.)
The June 19, 1992, loan agreement contained the following “Negative Agreements” provision:
“4. NEGATIVE AGREEMENTS. [Plaintiffs] agree[ ] that while this Agreement is in effect, [Plaintiffs] shall not, without the prior written consent of [Defendant]: (a) Dispose of any of [Plaintiffs’] assets except in the regular course of business; (b) Incur indebtedness for borrowed money or mortgage or encumber any of [Plaintiffs’] assets or sell with recourse any of [Plaintiffs’] receivables, except to [Defendant], or execute any financing statement in which anyone other than [Defendant] is named as the secured party; * * * (g) Other: See negative pledges dated June 19,1992.” (Emphasis altered.)
Plaintiffs’ allegation that defendant made the June 19, 1992, loan on an unsecured basis and promised not to seek a security interest in plaintiffs’ real property, products or proceeds clearly relates to plaintiffs’ allegation that defendant attempted to perfect just such a security interest byway of the UCC financing statements. The UCC financing statements, in turn, describe as collateral an agreement and pledge dated June 19, 1992, and the June 19, 1992, loan agreement expressly refers to negative pledges that also are dated June 19, 1992. Plaintiffs concede on appeal that the “negative pledge, which was part of the June 19, 1992, loan agreement, was attached to or made part of the forged financing statements.” 5 We therefore cannot say with positive assurance that plaintiffs’ claim for breach of fiduciary duty *45 based on the UCC financing statements does not “aris[e] out of or in connection with or relate[ ] to [the June 19, 1992, loan] [a]greement * * * or any transaction of which [that loan] [a]greement is a part.” Consequently, the trial court erred in ruling that plaintiffs’ breach of fiduciary duty claim based on the theory that defendant forged and filed the UCC financing statements falls outside the scope of the arbitration agreement contained in the June 19,1992, loan agreement.
Plaintiffs also claim, however, that defendant breached its fiduciary duty by misrepresenting to them that it would make a construction loan for a new seed plant. Plaintiffs allege that in March 1993 they started looking for construction financing for a new seed plant and that defendant “told [plaintiffs] to discontinue talks with other lenders, because [defendant] wanted to do all of [plaintiffs’] financing and take care of all of [plaintiffs’] credit needs” and that defendant “would do the construction loan financing.” Defendant never made a seed plant construction loan to plaintiffs. The June 1992 and March 1994 loan agreements, and the March 1994 continuing unconditional guarantees, make no reference to construction financing. Neither does any related agreement, instrument or transaction. Based on the limited trial court record on review, we can say positively that plaintiffs’ claim for breach of fiduciary duty based on misrepresentations concerning a construction loan falls outside the scope of the arbitration agreements. Consequently, the trial court did not err in denying defendant’s motion to stay with respect to the misrepresentation theory of plaintiffs’ first claim for relief.
Plaintiffs’ second claim for relief is that defendant negligently misrepresented that it would provide the construction financing for the seed plant. Defendant argues that the misrepresentation claim must be arbitrated, because it
“relies on an alleged ‘special relationship’ between plaintiffs and defendant, one created by and based on the parties’ banking relationship. That banking relationship is founded on the borrowing and lending of money through lines of credit. As such, any claim based on that relationship is related to the contracts establishing the lines of credit, including the June 1992 and the March 1994 loan agreements.” (Citations omitted.)
*46 As noted above, the June 1992 and March 1994 loan agreements and the March 1994 continuing unconditional guarantees make no reference to construction financing. Based again on the limited trial court record on review, plaintiffs’ second claim for relief falls outside the scope of the arbitration agreements, and the trial court did not err in denying defendant’s motion to stay with respect to that claim.
Plaintiffs’ five remaining claims all relate to defendant’s alleged oral contract not to seek a security interest in plaintiffs’ real property, products or proceeds, and to the UCC financing statements. The UCC financing statements and the alleged oral contract all relate to the June 19, 1992, loan agreement. Consequently, all of those claims fall within the scope of the arbitration agreements, and the trial court erred in denying defendant’s motion to stay with respect to those claims.
Finally, we consider plaintiffs’ contention regarding all seven claims that “[o]nly plaintiff Berger Farms is a party to the two loan agreements and accordingly only plaintiff Berger Farms is subject to the arbitration clauses contained within those agreements” and that “[t]he individual plaintiffs cannot be compelled to arbitrate any of the disputes.” Plaintiffs are mistaken in both law and fact. By law “all partners are liable * * * [Jointly for all * * * debts and obligations of the partnership.”
Furthermore, by executing the March 11,1994, guarantees, all of the individual general partners “unconditionally guarantee [d] to [defendant] * * * payment * * * of any and all Indebtedness of [plaintiff Berger Farms] to [defendant].” Those guarantees use the term “Indebtedness” “in its most comprehensive sense” to mean “any and all indebtedness of every kind and nature for which [plaintiff Berger Farms] may now be indebted or may in the future become indebted to [defendant].” Accordingly, those guarantees, *47 which contain arbitration agreements, necessarily relate to both the June 19, 1992, loan agreement, a preexisting debt, and the March 11, 1994, loan agreement, a concurrent debt. Factually, therefore, all of the individual partners’ claims relating to either loan agreement or to the continuing unconditional guarantees fall within the scope of the arbitration agreements.
Second order vacated; first order affirmed in part and reversed in part. Remanded to trial court to rule on defendant’s second motion to stay under
Notes
The parties executed an amended loan agreement on September 1,1993. The amended loan agreement is identical in all relevant respects to the June 19,1992, loan agreement.
After the trial court denied defendant’s motions to stay litigation pending arbitration, defendant, pursuant to
Relying solely on state law, however, plaintiffs argue that the arbitration agreements are “overbroad and void because [they are] against public policy.” That argument is without merit, because the validity and scope of the arbitration agreements in this case are matters of federal law. Federal law preempts any conflicting state law.
Southland Corp. v. Keating,
The precise description of the covered collateral varies slightly among the financing statements, depending on whether the particular financing statement names Berger Farms, the partnership or one of the individual general partners. We do not address what, if any, security interest may have been perfected by defendant’s filing.
Because the trial court record relating to defendant’s first motion to stay does not contain any copies of the June 19, 1992, negative pledges, we cannot consider those pledges in reviewing the trial court’s order denying defendant’s first motion to stay. We have vacated the trial court’s second order for lack of jurisdiction. Consequently, with respect to that order, we need not consider the negative pledges and note only that they are in the trial court record relating to defendant’s second motion to stay.