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Eickhoff Corp. v. Warrior Met Coal, LLC

Supreme Court of Alabama

May 4, 2018

Eickhoff Corporation
v.
Warrior Met Coal, LLC

          Appeal from Tuscaloosa Circuit Court (CV-17-900361)

          STUART, Chief Justice.

         Warrior Met Coal, LLC ("Warrior Coal"), sued Eickhoff Corporation in the Tuscaloosa Circuit Court asserting that certain pieces of heavy mining equipment Eickhoff had manufactured and sold to Warrior Coal were defective. Eickhoff subsequently moved the trial court to compel Warrior Coal to arbitrate its claims pursuant to an arbitration provision in contracts executed after the sale of the equipment, not the original purchase-order contracts associated with the allegedly defective equipment. The trial court denied the motion to compel arbitration and Eickhoff appeals. We reverse and remand.

         I.

         In January 2014, Warrior Coal's predecessor in interest, Jim Walter Resources, Inc. ("JWR"), contracted to purchase two Eickhoff SL 750 longwall shearers -- heavy equipment used in underground coal mining to separate slabs of coal from the coal seam or "longwall panel" -- direct from Eickhoff at a price of $3.2 million each. The terms and conditions of the purchase-order contract provided JWR with certain warranty protection; the contract contained no arbitration provision, providing only that "venue for any legal proceeding will be in Birmingham, Alabama."

         In November 2014, before either of the two ordered longwall shearers were delivered, JWR and Eickhoff executed another contract, referred to as "the SL750 shearer rebuild and life cycle service agreement, " or, more simply, "the master service agreement, "[1] which provided that, after the mining of a longwall panel was finished, JWR would deliver the used longwall shearer back to Eickhoff, and Eickhoff would rebuild it at an approximate cost to JWR of $880, 000. Pursuant to the master service agreement, Eickhoff also agreed to provide JWR with an Eickhoff employee who would serve as a "life cycle manager" and work on-site at the JWR mines at least 40 hours a week and assist with the longwall shearers and otherwise generally "support longwall operations" by providing training on maintenance and repairs and responding to all requests "for advice, instruction and troubleshooting." The master service agreement further provided that it constituted

"the entire agreement between the parties in respect of its subject matter and supersedes all prior agreements, quotation requests, understandings, representations, warranties, promises, statements, negotiations, letters and documents in respect of its subject matter (if any) made or given prior to the commencement of the term."

         Finally, the master service agreement contained an arbitration provision requiring the parties to submit "any dispute, controversy or claim arising out of or in connection with the agreement" to the American Arbitration Association ("the AAA") for binding arbitration conducted in accordance with the AAA's commercial arbitration rules if the parties were not otherwise able to resolve the dispute using all reasonable efforts.

         The first of the longwall shearers ordered by JWR was put into service in May 2015. At approximately the same time, JWR and Eickhoff executed yet another contract, the consignment-parts agreement, pursuant to which Eickhoff agreed to provide a supply of spare parts for the longwall shearers, which JWR would store on-site and then pay for on a weekly basis as the parts were needed. The consignment-parts agreement did not contain an arbitration provision; rather, like the purchase-order contract, it provided only that venue for any legal proceeding would be in Birmingham. It also provided that it "constitute[d] the entire agreement between the parties, supersedes any previous agreements and may be amended or modified only by a writing signed by each of the parties."

         The second longwall shearer was put into service by JWR in October 2015. That same month, JWR agreed to purchase yet a third SL 750 longwall shearer from Eickhoff for $3, 295, 000. The purchase-order contract for this transaction explicitly incorporated the terms and conditions of the January 2014 purchase-order contract; accordingly, there was no arbitration provision, and Birmingham was designated as the appropriate venue for any legal proceedings. The October 2015 purchase-order contract also had the same integration provision as did the January 2014 purchase-order contract, providing that "the [purchase order] comprises the entire agreement between [Eickhoff] and [JWR] and supersedes all other previous statements, representations, or agreements, whether written or oral."

         During this period, JWR's parent company, Walter Energy, Inc., was involved in bankruptcy proceedings, and, in November 2015, Warrior Coal agreed to acquire substantially all of Walter Energy's and JWR's Alabama assets. Warrior Coal also ultimately agreed to assume various JWR contracts, including the November 2014 master service agreement. As a result of market conditions and the bankruptcy proceedings, mine no. 4 -- the mine where the two longwall shearers ordered from Eickhoff in January 2014 had been put into operation -- was shut down from approximately January 2016 to August 2016. During this shutdown, the longwall shearers were idle.

         In March 2016, Warrior Coal completed its purchase of Walter Energy's and JWR's assets. In May 2016, Eickhoff delivered the third longwall shearer to Warrior Coal, and, in June 2016, Warrior Coal's subsidiary executed another master service agreement with Eickhoff for this piece of equipment. This master service agreement was substantially similar to the November 2014 master service agreement and contained an identical arbitration provision. This third longwall shearer was placed into operation in Warrior Coal's mine no. 7 in October 2016.

         On February 17, 2017, Warrior Coal notified Eickhoff that it was revoking its acceptance of all three longwall shearers, asserting that it had experienced continual problems with the equipment and that Eickhoff had been unable to satisfactorily remedy those problems. On March 9, 2017, Eickhoff formally notified Warrior Coal that it disputed the claim that the three longwall shearers were defective, set forth the remaining sums owed by Warrior Coal in connection with the purchase of the longwall shearers, and requested a meeting with Warrior Coal's designated dispute representative so that they could attempt to resolve the dispute. This final request was presumably made in accordance with the arbitration provision in the master service agreements, which required that such a step be taken before arbitration could be initiated.

         On March 24, 2017, Warrior Coal sued Eickhoff, asserting breach-of-warranty, breach-of-contract, and products-liability claims. Warrior Coal specifically alleged that both the first and third longwall shearers delivered by Eickhoff had failed multiple times, that Eickhoff had been unable to repair them, that the failure of the two longwall shearers had impaired Warrior Coal's ability to produce and sell coal, leaving Warrior Coal no option but to remove the Eickhoff longwall shearers from its mines and to purchase replacement equipment from other sources. In total, Warrior Coal claimed damages in excess of $10 million. On April 2, 2017, Eickhoff filed a demand for arbitration with the AAA pursuant to the arbitration provision in the master service agreements, arguing that the longwall shearers delivered to Warrior Coal had performed in an exemplary fashion and that any problems Warrior Coal now claimed to have experienced with them were the result of insufficient maintenance, exacerbated by the time the machines were idle, as well as unique geological conditions at the Warrior Coal mines. Eickhoff also claimed that its own damages were in excess of $1, 032, 328. On May 2, 2017, Eickhoff followed up its demand for arbitration by moving the trial court to stay all proceedings related to the lawsuit filed by Warrior Coal and to compel arbitration pursuant to the arbitration provision in the master service agreements.

         Warrior Coal thereafter opposed Eickhoff's motion to compel arbitration, arguing that the claims it had asserted against Eickhoff were based on the purchase of the three longwall shearers and were subject to the terms and conditions of the purchase-order contracts, which did not contain an arbitration provision and, in fact, provided that venue for any "legal proceedings" should be in Birmingham.[2] Both parties thereafter filed additional materials concerning the question of whether their dispute fell within the scope of the arbitration provision in the master service agreements, with Eickhoff additionally arguing that, regardless of the ultimate answer, that question should be decided by the arbitrator, inasmuch as the identified arbitration provision dictated that the AAA's commercial arbitration rules would govern arbitration proceedings and those rules provide that the arbitrator is empowered to decide the threshold issue of arbitrability. See Federal Ins. Co. v. Reedstrom, 197 So.3d 971, 976 (Ala. 2015) ("[T]he arbitration provision in this case provides that any arbitration proceedings will be conducted 'pursuant to the then-prevailing commercial arbitration rules of the [AAA].' The relevant commercial arbitration rule, Rule 7(a), expressly provides, in its current form, that '[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including ...


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