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Andersons, Inc. v. Walker

March 26, 2010

THE ANDERSONS, INC., PLAINTIFF,
v.
JERRY G. WALKER, ELLEN M. WALKER, STEPHANIE WALKER SPIROS, JEREMY WALKER, AND FALL GRAIN, INC., DEFENDANTS.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

This case is before the court for ruling on the Motion to Confirm Arbitration Award (#43) and Motion for Summary Judgment (#45) filed by Plaintiff, The Andersons, Inc. (The Andersons). This court has carefully considered the arguments of the parties and the documents submitted by the parties. Following this careful and thorough review, The Andersons' Motion to Confirm Arbitration Award (#43) is GRANTED and the Motion for Summary Judgment (#45) is DENIED. This case remains scheduled for a final pretrial conference on April 1, 2010, at 1:30 p.m. and a jury trial on April 12, 2010 at 9:00 a.m.

FACTS

The Andersons is a grain dealer which had purchased grain, including wheat and corn, from Defendant Fall Grain, Inc. (Fall Grain) for many years. The Andersons, through its wholly owned subsidiary, The Andersons Agriservices, Inc. (Agriservices) and Fall Grain entered into a series of cash forward grain contracts for the 2006, 2007, and 2008 crop years. During the summer of 2007, Fall Grain informed The Andersons that its supply of grain was not sufficient to meet its obligations to The Andersons under the grain contracts for the 2006 crop year. A meeting was held on August 14, 2007. The following persons attended the meeting: Jerry Walker, who owns all of the stock in Fall Grain; Stephanie Walker Spiros, who is Jerry Walker's daughter and is authorized to act on behalf of Fall Grain; Larry Wood, who was The Andersons' location manager at its Champaign facility; and Matt Anderson, who testified that he has had credit management responsibilities for the past 18 years for The Andersons and is also a member of the Anderson family.

Following the meeting, on August 20, 2007, Defendants Jerry Walker, Ellen Walker, Stephanie Walker Spiros, and Jeremy Walker (collectively, the Walkers) each signed a personal guarantee agreement. Each agreement stated, in pertinent part, that "for and in consideration of $1 and other consideration, delivery and adequacy of which is hereby acknowledged hereby unconditionally guarantee payment of current and future obligations owed to The Andersons, Inc., its successors and assigns and its and their affiliated businesses (hereafter "Andersons"), by Fall Grain, Inc."

According to the Walkers, they signed the personal guarantee agreements so that Fall Grain's obligation to provide grain to The Andersons could be rolled over into future crop years and to assure timely payment from The Andersons for grain deliveries made by Fall Grain. Stephanie Spiros testified that "[w]e told them we would sign a personal guarantee for the right to roll and they told me that if I signed the personal guarantee that I would have the right to roll and I would have my money for deliveries in a timely fashion." Jerry Walker testified that he and Stephanie talked to Wood and Matt Anderson "about having the flexibility" to roll the obligation to provide grain into future years, if needed, and stated that Wood and Matt Anderson assured them that would happen if they signed the personal guarantees. He testified "[s]o that was the reason why we signed the personal guarantee[s]." Both Jerry Walker and Stephanie Spiros testified that The Andersons had allowed them to roll Fall Grain's obligation to provide grain on prior occasions. Wood agreed at his deposition that, at the meeting on August 14, 2007, they discussed allowing "greater flexibility" in future dealings. Matt Anderson testified that, at the August 14, 2007, meeting, he raised the prospect of signing personal guarantees to provide "more flexibility, so to speak, to continue working with a large and valued account." In fact, The Andersons did roll 200,000 bushels of wheat contracts into corn in the fall of 2007. After the August 14, 2007, meeting, Fall Grain did not originate any new grain contract obligations to The Andersons.

PROCEDURAL HISTORY

On April 4, 2008, in Case No. 08-2083, The Andersons filed a Complaint (#1) against the Walkers, with attached exhibits.*fn1 The Andersons alleged that it entered into contracts to purchase corn and wheat from Fall Grain for the periodic shipments of corn and wheat during the course of the 2007 crop year. The Andersons further alleged that the Walkers, for valuable consideration, agreed to guarantee "payment of current and future obligations owed to [The Andersons] by Fall Grain, Inc." The Andersons alleged that Fall Grain failed to deliver corn to The Andersons or provide adequate assurance of delivery as it was obligated to do under the Fall Grain corn contracts with The Andersons. The Andersons alleged that, on December 31, 2007, it notified Fall Grain and the Walkers that the 2007 Fall Grain corn contracts had been cancelled pursuant to their terms. The Andersons alleged that it exercised its right under the Fall Grain corn contracts to cancel those contracts, establishing a total amount of $3,683,573 due from Fall Grain as a result of its breach. The Andersons alleged that the amount due is the difference between the Fall Grain corn contracts price and the replacement costs of corn at the time of cancellation, in addition to cancellation charges and other fees as provided by the Fall Grain corn contracts. The Andersons similarly alleged that Fall Grain failed to deliver wheat to The Andersons or provide adequate assurance of delivery as it was obligated to do under the Fall Grain wheat contracts with the Andersons, resulting in a total amount of $1,836,750 due from Fall Grain as a result of its breach. The Andersons alleged that the guarantees obligated each of the Walkers, jointly and severally, to pay the amounts owed by Fall Grain to The Andersons. The Andersons therefore sought judgment against the Walkers in the total amount of $5,520,323.

On April 21, 2008, in Case No. 08-2098, Fall Grain and the Walkers filed a Complaint for Injunctive and Declaratory Relief and Damages (#1) against The Andersons, with attached exhibits.*fn2 Fall Grain and the Walkers alleged that Fall Grain entered into a series of hedge-to-arrive contracts which provided for the sale of grain to Agriservices. Fall Grain and the Walkers alleged that Agriservices breached the contracts with Fall Grain by refusing to roll them forward and by canceling them instead. Fall Grain and the Walkers alleged that The Andersons commenced an arbitration proceeding against Fall Grain before the National Grain and Feed Association (NGFA) seeking to recover what it claimed were its damages arising out of the corn contracts with Fall Grain which had been cancelled. Fall Grain did not submit to arbitration and the NGFA issued a default award in favor of The Andersons and against Fall Grain for $3,683,573 plus interest. Fall Grain and the Walkers alleged that the NGFA Arbitration System lacked jurisdiction to hear the dispute because the contracts were between Fall Grain and Agriservices, neither of which was a member of the NGFA. Fall Grain and the Walkers also alleged that The Andersons sought to commence an arbitration proceeding against Fall Grain regarding the wheat contracts with Fall Grain. In addition, Fall Grain and the Walkers alleged that The Andersons fraudulently procured the guarantees from the Walkers.

The Complaint filed by Fall Grain and the Walkers included four separate counts. In Count I, they sought a preliminary and permanent injunction enjoining The Andersons from attempting to enforce the default arbitration award regarding the corn contracts or commencing arbitration regarding the wheat contracts. In Count II, they sought a declaration that the NGFA lacked jurisdiction over the corn contracts arbitration, so that the default award is not valid and enforceable, a declaration that the NGFA lacks jurisdiction over disputes arising out of the wheat contracts, and a declaration that the guarantees executed by the Walkers are void and unenforceable because of fraud in their procurement. In Count III, the Walkers sought damages for fraud. In Count IV, the Walkers sought damages for breach of contract.

On May 14, 2008, in Case No. 08-2098, The Andersons filed a Motion to Compel Arbitration of the Dispute Related to Fall Grain's Obligations Under the Wheat Contracts (#6) and a Memorandum in Support (#7). In its Motion to Compel, The Andersons argued that this court should compel arbitration before the NGFA on disputes related to the wheat contracts entered into between Fall Grain and Agriservices. The Andersons argued that, on or about December 26, 2006, Agriservices merged with The Andersons, after which point Agriservices ceased to exist as a separate entity. The Andersons argued that it was a party to the wheat contracts and sought to compel arbitration of the dispute between the parties based upon the arbitration clause in the agreements.

Also on May 14, 2008, The Andersons filed its First Amended Complaint (#4) in Case No. 08-2083, with attached exhibits. In the Amended Complaint, The Andersons added Fall Grain as a Defendant and added Count II, a claim seeking confirmation of the arbitrator's award regarding the Fall Grain corn contracts. The Andersons stated that, on April 2, 2008, the arbitrator issued a default judgment against Fall Grain in the amount of $3,683,573, which became final on April 18, 2008. The Andersons attached copies of the corn contracts between Agriservices and Fall Grain and also attached a copy of the arbitration award. The award stated that the "NGFA established jurisdiction over this matter pursuant to the express terms of contracts and by way of The Andersons' status as a NGFA active member." The Andersons also filed a Motion for Consolidation (#5). The Andersons stated that the actions in Case No. 08-2083 and Case No. 08-2098 share the same subject matter. The Andersons stated that consolidation of the cases would reduce the burden on the parties of maintaining two overlapping lawsuits and would avoid the waste of judicial time and resources.

On May 23, 2008, in Case No. 08-2098, Fall Grain filed a Memorandum in Opposition to Motion to Compel Arbitration (#8). Fall Grain argued that the arbitration clause in the wheat contracts suffered from a jurisdictional defect that rendered the provision unenforceable because neither Agriservices nor Fall Grain were members of the NGFA at the time the contracts were formed, putting both parties outside the NGFA's jurisdiction. Fall Grain thus contended that The Andersons did not have the right to enforce the arbitration provisions because at the time of contract formation the arbitration clause was unenforceable due to the NGFA's lack of jurisdiction, meaning that Agriservices did not retain any enforcement rights that it could assign to The Andersons in the merger.

On June 30, 2008, this court entered an Order (#15) which granted the Motion for Consolidation and ordered that Case No. 08-2098 was consolidated with Case No. 08-2083 and assigned to this court. On August 13, 2008, a Rule 16 scheduling conference was held before Magistrate Judge David G. Bernthal and, on August 19, 2008, a Discovery Order (#19) was entered. This case was set for a final ...


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