## Facts

- Hodge Brothers, Inc. (and related farm entities) operated a grain and soybean farm in Wisconsin.
- DeLong Company, Inc. was a Wisconsin grain dealer; William DeLong and David DeLong were connected to the dealership as principals/agents.
- The parties entered into multiple written “Grain Purchase” contracts for grain transactions.
- Each contract stated it was made “in accordance with the applicable trade rules” of the National Grain and Feed Association (NGFA).
- The NGFA Trade Rules were contained in a separate booklet and provided that covered disputes would be resolved through NGFA arbitration.
- The Trade Rules directed arbitration before the NGFA arbitration committee and referenced separate NGFA Arbitration Rules that governed the procedure.
- Hodge was not an NGFA member.
- The NGFA Arbitration Rules (in a third document) stated that if a nonmember agreed to submit a dispute to NGFA arbitration, the nonmember agreed to be bound by those Arbitration Rules.
- A dispute arose out of the parties’ grain dealings.
- Hodge sued in federal court asserting federal statutory claims (including the Commodity Exchange Act and RICO) and state-law claims such as fraud and breach of contract, and sought remedies including rescission and declaratory relief.
- DeLong counterclaimed on state-law theories tied to the same transactions, including claims under Wisconsin’s grain-dealer/warehouse regulatory scheme and common-law claims.
- Defendants moved to stay the federal case and compel arbitration under the Federal Arbitration Act (FAA), relying on the contracts’ reference to NGFA Trade Rules.
- Hodge argued it was not bound because (i) the NGFA Trade Rules’ arbitration language referred to disputes “between members,” and Hodge was not a member, and (ii) even if the Trade Rules applied, the separate NGFA Arbitration Rules were not incorporated into the contracts.

## Issues

1. Whether the grain-purchase contracts’ reference to NGFA Trade Rules created an enforceable agreement to arbitrate under the FAA, even though Hodge was not an NGFA member.
2. Whether the NGFA Arbitration Rules, set out in a separate document, were part of the parties’ agreement through incorporation by reference.
3. Whether the arbitration agreement applied to the parties’ federal statutory claims (Commodity Exchange Act and RICO) and related state-law claims and counterclaims arising out of the grain transactions.
4. Whether the individual defendants associated with the grain dealer could compel arbitration for claims based on conduct tied to the same contractual relationship.
5. Whether objections based on illegality, rescission, or public-policy attacks on NGFA arbitration barred enforcement of the arbitration agreement at the threshold stage.

## Decision

- The court granted the motion to stay the federal action and compelled arbitration under the FAA.
- The court held that the contracts’ language making the deals “in accordance with” NGFA Trade Rules incorporated those rules, including the requirement to arbitrate covered disputes.
- Hodge’s nonmembership did not prevent enforcement because Hodge agreed by contract to apply the NGFA Trade Rules to the transactions.
- The court rejected the argument that the NGFA Arbitration Rules were excluded simply because they were in a separate document; the Trade Rules’ direction to NGFA arbitration and the Arbitration Rules’ treatment of nonmembers made the NGFA arbitration procedure part of what the parties agreed to when they chose NGFA Trade Rules.
- The court concluded the arbitration obligation reached the parties’ disputes arising from the grain dealings, including the Commodity Exchange Act and RICO claims and related state-law causes of action, as well as counterclaims tied to the same course of dealing.
- The court allowed the individual DeLong defendants to seek arbitration because the claims against them were based on actions connected to the same transactions and contractual relationship governed by the arbitration agreement.
- The court declined to deny arbitration based on broad illegality/rescission or policy objections aimed at the contracts or forum; absent a contract defense directed specifically at the arbitration agreement, such matters were to be addressed in arbitration.

## Legal Principles

- Under the FAA, courts must enforce written arbitration agreements and stay litigation of claims subject to arbitration, unless a generally applicable contract defense defeats the arbitration agreement.
- Contract terms may incorporate external materials by reference when the contract clearly identifies the referenced rules and shows intent to make them part of the agreement; incorporated trade-association rules may include mandatory arbitration.
- A party may be bound to trade-association arbitration without being a member when that party agreed by contract to apply the association’s rules.
- When incorporated trade rules direct disputes to arbitration under a defined set of arbitration procedures, the referenced procedural rules may be treated as part of the arbitration agreement even if contained in a separate document.
- Arbitration clauses tied to commercial transactions may apply to federal statutory and state common-law claims arising from the same dealings, absent a clear congressional bar to arbitration of the federal claims.
- Under separability principles, challenges to the validity of the contract as a whole (including rescission or illegality claims) generally do not block arbitration; a challenge must be aimed at the arbitration agreement itself to be decided by the court at the gateway.
- Agents or related individuals may invoke an arbitration agreement where the claims against them rest on conduct connected to the contract containing the arbitration provision and are closely linked to the claims against the signatory entity.

## Conclusion

In Hodge Brothers v. DeLong Co., the district court enforced NGFA arbitration based on grain contracts incorporating NGFA Trade Rules, held that a nonmember was bound to arbitrate under the NGFA framework (including the referenced Arbitration Rules), applied the arbitration agreement to the parties’ related federal and state claims and counterclaims, allowed the individual dealer principals/agents to compel arbitration, and stayed the federal case under the FAA.


Hodge Brothers v. DeLong Co., 942 F. Supp. 412 (1996)