Larson v. Farmers Cooperative Elevator of Buffalo Center, Iowa

• Decision Date: 13 March 2000
• Docket Number: 99-3170,DEFENDANTS-APPELLANTS,Nos. 99-2954,PLAINTIFF-APPELLE,DEFENDANTS-APPELLEES,V,PLAINTIFF-APPELLAN,s. 99-2954
• Citation: 211 F.3d 1089
• Parties: (8th Cir. 2000) JAMES LARSON,FARMERS COOPERATIVE ELEVATOR OF BUFFALO CENTER, IOWA, AN IOWA COOPERATIVE, FARMERS COOP CO., LEDYARD, IOWA, AN IOWA COOPERATIVE, JAMES LARSON,FARMERS COOPERATIVE ELEVATOR OF BUFFALO CENTER, IOWA, AN IOWA COOPERATIVE, FARMERS COOP CO., LEDYARD, IOWA, AN IOWA COOPERATIVE, Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1089

211 F.3d 1089 (8th Cir. 2000)

JAMES LARSON, PLAINTIFF-APPELLEE,

V.

FARMERS COOPERATIVE ELEVATOR OF BUFFALO CENTER, IOWA, AN IOWA COOPERATIVE, FARMERS COOP CO., LEDYARD, IOWA, AN IOWA COOPERATIVE, DEFENDANTS-APPELLANTS.

JAMES LARSON, PLAINTIFF-APPELLANT,

V.

FARMERS COOPERATIVE ELEVATOR OF BUFFALO CENTER, IOWA, AN IOWA COOPERATIVE, FARMERS COOP CO., LEDYARD, IOWA, AN IOWA COOPERATIVE, DEFENDANTS-APPELLEES.

Nos. 99-2954, 99-3170

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: March 13, 2000

Filed: May 11, 2000

Appeal from the United States District Court for the Northern District of Iowa

[Copyrighted Material Omitted] Before McMILLIAN and Heaney, Circuit Judges, and Bogue, ¹ District Judge.

Bogue, District Judge.

Introduction

This case involves cross-appeals from a decision in the United States District Court for the Northern District of Iowa. ² Appellant-defendant Farmers Cooperative of Buffalo Center ("Buffalo Center") and Farmers Cooperative of Ledyard, ("Ledyard") claim the district court erred in denying a motion for a new trial. Buffalo Center and Ledyard, hereinafter Elevators or Coops, challenge jury instructions related to the question of adequate assurance. Appellant-plaintiff Larson filed a cross-appeal. Larson contends that the appeal submitted by the Elevators was untimely and the district court abused its discretion in allowing the appeal. We affirm.

I.

At trial the parties presented the following evidence: Jim Larson farms corn and soybeans on land near Armstrong, Iowa. He plants his corn in and around May of each year and attempts to harvest it by Thanksgiving. Hoping to wait for a higher price and to avoid the long lines at elevators in the fall, Larson typically will dry and store the corn, waiting until the following summer to sell. In 1993, Larson harvested around 6,500 bushels of corn. In 1994, Larson was able to harvest around 50,000 bushels and 80,000 bushels in 1995.

In the summer of 1994, Larson hired Steve Loggeman to aid in the marketing of his corn. Based on prior yields, it was determined that 50,000 bushels would be available for delivery each year. Larson eventually developed a plan to deliver 25,000 bushels of corn to each of two different elevators each year. Farmers Cooperative Elevator of Buffalo Center, Iowa, and Farmers Cooperative Company, Ledyard, Iowa, are Iowa cooperatives with their principal place of business in Buffalo Center and Ledyard respectively. Larson considered the two Elevators and ultimately planned to deliver corn to each of them.

To complete the plan, Larson and Loggeman created documents called a Flex Hedge Program. Each program contained a set of offers to enter into Hedge to Arrive, or HTA ³ , contracts. The Ledyard and Buffalo Center elevators both accepted programs with similar HTA provisions and were completed by late 1994. Each HTA would list an initial delivery date and an initial price. When the delivery date approached, Larson would have the option of delivering corn at the set HTA price or selling his grain for cash. If Larson chose to sell at the cash price rather than the HTA price, the contract would then be "rolled," or postponed. When a contract was rolled, a new delivery date corresponding to a delivery date for a futures contract on the Chicago Board of Trade (CBOT) would be set. A new price indicating the spread, or difference, between the initial delivery date and the new delivery date would be established according to CBOT figures.

Larson's right to roll was part of the standing agreement with the Elevators. According to Larson, the ability to roll was integral to the plan he and Loggeman had created. Larson had entered an HTA with Buffalo Center referencing 110,000 bushels of corn and an HTA with Ledyard referencing 100,000 bushels of corn. The HTAs had an initial delivery date in 1995 or 1996. If Larson could not roll, his plan to deliver 50,000 bushels per year cumulatively to the Elevators would be transformed into a plan to deliver 210,000 bushels in 1995 and 1996. Larson contends that because his original plan was to deliver at most 25,000 bushels to each Elevator each year it was necessarily required that he be able to roll the HTAs into future crop years.

Buffalo Center and Ledyard hedged their commitment to buy from the producer by entering a corresponding short position on the CBOT. Such short positioning left the possibility of margins that would need to be covered. A margin is a deposit that a holder of a CBOT contract must make as insurance of performance. Larson's contracts with both Buffalo Center and Ledyard indicated the Elevators were responsible for possible margins. This was supported by the testimony of two individuals. Derald Goetz was a general marketer and grand merchandiser who worked for Ledyard between 1989 and 1996. Dean Beenken was a member and secretary of the Buffalo Center board of directors. Both testified that each Elevator had at least constructive knowledge of an obligation to cover margins under the marketing agreements created by Larson.

In 1995 Larson made deliveries of 25,000 and 20,000 bushels of corn to Ledyard and Buffalo Center respectively. Similarly, 25,000 bushels of corn were delivered to Ledyard in 1996. 38,000 bushels were delivered to Buffalo Center in 1996. By early 1996, market prices increased which led to a decrease in the value of the Elevators' short positions. The Elevators were forced to make increasingly large margin payments to maintain their short positions. Testimony at trial evidenced the concern held by the Elevators as to the margin amounts each had to cover.

On June 4, 1996, Ledyard sent a letter entitled "Demand for Adequate Assurance of Performance" to Larson. The letter stated its concern surrounding the substantial sums the Elevator had committed to covering margins under the Flex Hedge Contracts. The Elevator stated that it had covered these margins based on the contractual agreement between Larson and Ledyard. Ledyard stated that various market and non-market conditions and developments created reasonable grounds for insecurity with respect to Larson and others who held Flex Hedge Contracts with the Elevator. Because of such insecurity, Ledyard demanded that Larson provide the Elevator with adequate written assurances of his intent to perform under the Flex Hedge Contracts.

Ledyard specifically demanded adequate assurance of Larson's performance related to: (1) his obligation to deliver the contractually stated number of bushels of grain to Ledyard on or before the delivery dates identified in an attached schedule; and (2) his obligation to fully reimburse Ledyard for all commissions and margins it had paid on his behalf, as well as all other costs incurred by the Elevator pursuant to the contract, less any reimbursement already received by the Elevator. Ledyard included a list of items that it would consider constituting adequate assurance ⁴ if completed on or before the end of business on June 14, 1996. Ledyard also stated it would treat his refusal to provide such assurances made by that date as a repudiation of the HTA agreement.

On September 11, 1996, Buffalo Center sent a similar letter to Larson through Mr. George F. Davison, who was then Larson's attorney. Buffalo Center identified similar difficulties due to market conditions, including increasing commodity prices, limited grain supplies, and overall market volatility. The letter continued, stating that the Coop had reason to believe that Larson may be unable or did not intend to honor his contractual commitments. Buffalo Center similarly requested receipt of certain items to constitute proof of adequate assurance. ⁵ Similar to Ledyard, Buffalo Center stated that it would treat Larson's refusal to provide adequate assurance as a repudiation of the contracts.

On September 24, 1996, Larson filed a complaint in the United States District Court for the Northern District of Iowa. Larson requested a declaratory judgment declaring the HTAs were illegal under the Commodities Exchange Act (CEA). 7 U.S.C. 1 et. seq. Larson also brought breach of contract claims against both Elevators. The Elevators answered on February 6, 1997. Both raised affirmative defenses and brought counterclaims against Larson. Each counterclaim alleged breach of contract due to Larson's repudiation by failing to give adequate assurance of delivery as proposed in their earlier letters. Ledyard sought damages of $120,750 plus interest and Buffalo Center sought damages of $93,350 plus interest.

On October 2, 1998, the district court ruled on pending summary judgment motions submitted by both parties. The Coops were awarded summary judgment in their favor on Count I of Larson's complaint which had sought declaratory judgment that the HTA contracts that he entered into with the Coops for the sale and purchase of grain were void, voidable, and unenforceable because they were in irreconcilable conflict with the CEA. The district court found that as a matter of law the HTAs Larson entered into with Buffalo Center and Ledyard were "cash forward contracts" not within the regulatory purview of the CEA.

After the summary judgment ruling, Larson had a remaining claim of breach of contract asserting nominal damages. Buffalo Center and Ledyard retained breach of contract claims against Larson. The district court retained supplemental jurisdiction pursuant to 28 U.S.C. 1367. The case was tried in the United States District Court for the Southern District of Iowa on May 3, 1999, although it remained a Northern District case. The parties agreed to waive any venue problems in trying a Northern District case in the Southern District of Iowa.

At the close of evidence, a jury instruction conference was held pursuant to Fed. R. Civ. P. 51. At that time the district court assembled its Final Jury Instructions. Counsel for the Elevators objected to the court's proposed jury instructions four and five. ⁶ Buffalo...