Arbitrability issues to be determined by arbitrator, not courts, appeals court rules

By Sam Knef | Jan 20, 2018

The Missouri Court of Appeals, Western District has affirmed in part and reversed in part an order denying a motion to stay and compel arbitration in a breach of promissory note dispute among businesses involved with the pet and livestock food industry.

KANSAS CITY - The Missouri Court of Appeals, Western District has affirmed in part and reversed in part an order denying a motion to stay and compel arbitration in a breach of promissory note dispute among businesses involved with the pet and livestock food industry. 

The case brought by NutraPet Systems LLC against Probiotic Holdings LLC and Proviera Biotech LLC has been remanded to Jackson County Circuit Judge Sandra Midkiff for further proceedings. 

According to background information in the Dec. 26 ruling, Probitotics Holdings is the parent company of Proviera Biotech, which in 2012 formed Sustainable Community Development (SCD). 

The ruling also states that in 2009, SCD primarily manufactured and distributed probiotic products that could be consumed by livestock such as cattle. That same year, SCD entered into an independent contractor agreement with NutraPet, which would provide strategic business consulting.

NutraPet is solely owned by Gerhard Poppel, who became an employee of pet food maker Kelly Foods - a relationship that was known to Probiotics and SCD, according to the ruling. 

The ruling indicates that in October 2011, Probiotics and Proviera learned that Poppel and NutraPet had joined Kelly Foods in filing a provisional patent application, which Probiotics and Proviera believed relied on and incorporated their intellectual property. 

It goes on to state that in 2012, Proviera was formed to raise funds and commercialize the leather tanning probiotics and biochemical technology developed by SCD, while Poppel was still on Probiotics board. 

In May 2013, NutraPet loaned Proviera $500,000, but it stopped making payments in November 2015, the ruling states. NutraPet sued in November 2015. 

Probiotics and Proviera counterclaimed, alleging that NutraPet breached the confidentiality and non-compete provisions contained in the Independent Contractor Agreement and that NutraPet misappropriated trade secrets, the ruling states. Probiotics and Proviera also sought to compel arbitration pursuant to a provision in the independent contractor agreement between NutraPet and SCD. 

The appeals court found that issues of arbitrability relating to the counterclaims are to be determined by the arbitrator - not the courts. 

"While we find that the trial court should have granted the Motion to Stay and Compel Arbitration as it pertained to the counterclaims, such an order would seem unnecessary, as there appears to have been nothing precluding Holdings and Proviera from voluntarily dismissing their counterclaims and bringing those claims in arbitration," wrote Judge Edward R. Ardini, Jr. "We nevertheless reverse the trial court’s denial of that motion, as we find that it was incorrect as a matter of law."

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