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Heartland Cement Co., et al. v. Ultimax Cement Corp.

January 24, 2011

HEARTLAND CEMENT CO., ET AL.
v.
ULTIMAX CEMENT CORP., ET AL.



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM

This action arises from two contractual agreements between the plaintiffs and the defendants regarding the manufacture of certain cement products, the "Amended Supply Agreement" and the "Security Agreement." The plaintiffs, Heartland Cement Company (HCC) and Heartland Cement Sales Company (HCSC) (together, "Heartland"), have sued the defendants, Ultimax Cement Corporation (UCC), Ultimax Cement Manufacturing Corporation (UCMC), KA Group, LP, and Hassan Kunbargi (together, "Ultimax"), to recover for material default of payment obligations under the two agreements.

On August 25, 2010, the plaintiffs filed a complaint alleging that the defendants have failed to make payments as required by the Amended Supply Agreement and that, as a result, they are entitled to both payments and interest due and to exercise certain rights that are triggered by the default per the Security Agreement.

On September 28, 2010, the defendants filed a Motion to Dismiss or Stay in Favor of Arbitration. The defendants argue that the Amended Supply Agreement and the Security Agreement are so intertwined with a third agreement, the "Distribution Agreement," that the arbitration provision in the Distribution Agreement also applies to claims under the Amended Supply and Security Agreements. The plaintiffs deny that these agreements are sufficiently related so as to require that claims arising out of the Amended Supply and Security Agreements be subject to compulsory arbitration. Because the Court is persuaded by the plaintiffs' arguments, it will deny the defendants' motion.

I. Facts

A. Legal Standard

A motion to stay a suit in favor of arbitration is treated as a motion for summary judgment because the Court must decide the question of whether the parties have agreed to submit the dispute to arbitration. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 & n.9 (3d Cir. 1980). Consequently, the Court will view the facts in the light most favorable to the plaintiff.*fn1

In reaching its decision, the Court relies on the complaint and accompanying exhibits, and on the parties' papers regarding the motion to dismiss or stay in favor of arbitration. The Court will limit its discussion of the parties' dealings to those details that are relevant to the pending motion.

B. Agreements

Plaintiff HCC manufactures cement products at its facility in Kansas. HCSC sells specialty cement products under license from Ultimax and arranges for the manufacture of those products by its "affiliated companies" (i.e., HCC). Defendant UCC is engaged in the business of selling specialty cement products. The plaintiffs allege that UCC is the same company as, or the "alter ego" of, UCMC. KA Group is a limited partnership, and Hassan Kunbargi is the shareholder, president, and CEO of UCC, and a partner in and president of KA Group. Compl. ¶¶ 5-16.

There are three agreements between the parties involved in this dispute: (1) the Amended and Restated Supply and Storage Agreement ("Amended Supply Agreement"), (2) the Security Agreement and Addendum ("Security Agreement"), and (3) the Distribution Agreement.

1. Amended Supply Agreement

On January 1, 2000, UCC and HCC entered into the first Supply and Storage Agreement. In it, UCC agreed to pay HCC to manufacture certain "Ultimax Products," i.e., specialty cement products. By the end of August 2000, however, Ultimax*fn2 owed HCC over $2.2 million for unpaid cement manufacturing and production. Compl. ¶¶ 24-25; Amended and Restated Supply and Storage Agreement ("Amended Supply Agreement") § 4.1, Ex. A to Compl.

Thereafter, on September 21, 2000, the same parties entered into the Amended Supply Agreement in order to restructure the debt and establish a mechanism for HCC to collect on the money owed to it by Ultimax. In the agreement, HCC agrees to roll the entire debt into a one-time $2.5 million secured production credit line to cover all of the amounts owed to HCC. The Amended Supply Agreement provides that HCC shall be repaid at a rate of $500,000 annually beginning January 1, 2001, and that the credit line will be secured by a first lien on Ultimax's accounts receivables and certain patents owned by ...


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