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A Mississippi federal court rejected an array of challenges to the validity of an arbitration agreement contained in a chicken grower contract and granted a motion to compel arbitration.
In Steed v. Sanderson Farms, Inc., No. 2:05cv02146-KS-MTP, 2006 WL 2844546 (S.D. Miss. Sept. 29, 2006), Elizabeth and Don Steed entered into a contract with Sanderson to become contract broiler chicken growers. The contract included an arbitration agreement requiring “[a]ny controversy or claim arising between the parties…including…the arbitrability of any dispute relating to this Agreement” to be settled by binding arbitration.
The Steeds sued Sanderson for fraudulently inducing them to sign the contract and for misrepresenting the chicken house requirements, causing them additional expenditures. Sanderson Farms then filed a motion to compel arbitration. In response, the Steeds challenged the validity of the arbitration agreement from several angles.
First, Don Steed argued that he was not bound to arbitrate because only his wife had signed the contract. The Court applied the doctrine of equitable estoppel, “which precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes.” Because many of the claims Mr. Steed asserted arose from contract, or his wife’s dealings with the contract, the Court held that he was equitably estopped from arguing that the contract’s arbitration provision did not apply to him.
Second, the Steeds argued that their claim of fraudulent inducement, because it occurred prior to signing the agreement, was not covered by the arbitration clause. The Court held that the broad language of the arbitration agreement, which included disputes over “arbitrability,” extended to claims of fraudulent inducement.
Next, the Court rejected the Steeds’ argument that the contract was unconscionable. The Court held that the contract was not procedurally unconscionable because the Steeds had a choice as to whether or not to contract with Sanderson as broiler growers and were given time to read the agreement and ask related questions.
The Court also found that the contract was not substantively unconscionable, even though it acknowledged that the arbitration agreement was one-sided, permitting Sanderson to terminate the contract without resorting to arbitration, but requiring the Steeds to arbitrate all disputes. “One-sidedness is simply one factor a court may consider in determining whether an arbitration clause is substantively unconscionable.” The Court held that it was not enough to void the contract between the Steeds and Sanderson Farms.
Finally, the Steeds argued that cost of arbitration was prohibitive. However, the Court rejected this claim because the Steeds did not apply for diminution or waiver of fees as allowed by the arbitration administrator. Additionally, Sanderson offered to pay all the costs of arbitration.
After rejecting each of the Steeds’ arguments, the Court concluded that the arbitration agreement was valid and granted Sanderson Farm’s motion to compel arbitration.
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