Court Opinion

ID: 855843
Source: CourtListenerOpinion
Date Created: 2013-03-21 18:53:57.436093+00
Date Added: 2024-06-11T09:02:13.741269
License: Public Domain

UNPUBLISHED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Reversed and remanded by unpublished opinion.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Unpublished opinions are not binding precedent in this circuit.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

                                          2
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

                                           3
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.

                                             4
                                            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.

                                                5
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

                                          6
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”

                                              7
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

                                             8
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

                                           9
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

                                            10
“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

                                          11
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

                                          12