Ala. River Grp., Inc. v. Conecuh Timber, Inc.

• Decision Date: 29 September 2017
• Docket Number: 1150040
• Citation: 261 So.3d 226
• Parties: ALABAMA RIVER GROUP, INC., and George Landegger v. CONECUH TIMBER, INC., et al.
• Court: Alabama Supreme Court

261 So.3d 226

ALABAMA RIVER GROUP, INC., and George Landegger

v.CONECUH TIMBER, INC., et al.

1150040

Supreme Court of Alabama.

September 29, 2017

Rehearing Denied November 17, 2017

* Note from the reporter of decisions: On April 28, 2011, Braxton L. Kittrell, Jr., Retired Presiding Judge, Mobile County, was appointed to preside over this case upon the recusal of the Presiding Judge of the 35th Judicial Circuit.

W. Joseph McCorkle, Jr., David R. Boyd, and Joseph Seawell Moore of Balch & Bingham LLP, Montgomery; Ed R. Haden of Balch & Bingham LLP, Birmingham; R. Bernard Harwood, Jr., of Rosen Harwood, P.A., Tuscaloosa; Cooper C. Thurber and William R. Shreve, Jr., of Phelps Dunbar LLP, Mobile; and Nicholas S. Hare, Jr., of Hare & Hare, Monroeville, for appellants.

Wyman O. Gilmore and R. Edwin Lamberth of Gilmore Law Firm, Grove Hill; and Edward G. Bowron, Forrest S. Latta, and Taylor B. Johnson of Burr & Forman, LLP, Mobile, for appellees.

PARKER, Justice.

Conecuh Timber, Inc., Ayres Forestry, Inc., BAR Forest Products, LLC, Dry Creek Loggers, Inc., Pea River Timber Company, Inc., Pineville Timber Co., LLC, and THE Timber Company, LLC (sometimes referred to as "TTC") (hereinafter collectively referred to as "the wood dealers"), sued Alabama River Group, Inc. ("ARG"), and ARG's chairman and chief executive officer George Landegger (hereinafter collectively referred to as "the ARG defendants"¹ ) in the Monroe Circuit Court, asserting various claims arising from transactions between the wood dealers and ARG's predecessors; the transactions were affected by a short-lived subsidy program administered by the United States Department of Agriculture's Farm Service Agency ("the FSA") known as the Biomass Crop Assistance Program ("BCAP").² Following a jury trial, a judgment was entered against the ARG defendants awarding the wood dealers $1,092,692.71 in compensatory damages and $7,000,000 in punitive damages. The trial court reduced the punitive-damages award by virtue of the statutory cap in § 6–11–21, Ala. Code 1975, resulting in a total judgment of $6,395,489.37. The ARG defendants filed posttrial motions, which, after a hearing, the trial court denied. The ARG defendants appeal.

I. Facts and Procedural History

As part of the Food, Conservation, and Energy Act of 2008, also known as the 2008 Farm Bill, the United States Congress created BCAP to help stimulate the development of renewable "bioenergy" sources and to assist agricultural- and forest-land owners and operators with the use of eligible material in a "biomass conversion facility" ("BCF").³ As one element of BCAP, a wood dealer delivering eligible biomass materials to a qualified BCF was eligible to receive a subsidy from the FSA if the biomass material was subsequently used for generating energy. The FSA first announced details of BCAP in the summer of 2009.

On October 28, 2009, the FSA published a notice outlining what biomass materials were eligible for a BCAP subsidy ("the BCAP materials list"). As concerns this case, the BCAP materials list authorized the payment of a subsidy for eligible timber products such as tree branches, treetops, wood chips, and bark; however, the BCAP materials list specifically enumerated materials that were not eligible for a BCAP subsidy, including what is known in the timber and paper-making industries as "black liquor."⁴

On October 29, 2009, the day after the FSA released the BCAP materials list, the United States Department of Agriculture ("the USDA") discussed BCAP in a telephone conference call with representatives of the timber and paper-making industries, including Landegger. During the call, an FSA official responded to a written question about black liquor by stating that "black liquor is not going to be eligible" for the BCAP subsidy and that, "[i]f a wood residue or pulp material is brought to a pulp mill, the component of that would be turned into black liquor and would not be an eligible material." Landegger asked why black liquor was ineligible, stating he was "not sure what the rationale was for removing black liquor as an eligible material or pulp as a byproduct." The official responded that all the details of BCAP were still being worked out in the regulatory process and that there could be substantial changes in the forthcoming rules.

Although BCAP did not provide any direct benefits to pulp-mill owners, Landegger decided to participate in the program by obtaining certification for two pulp mills operated by Landegger's companies in Monroe County, Alabama (the two companies eventually became ARG).⁵ The ARG mills were thereafter certified by the FSA as qualified BCFs under BCAP. To qualify as a BCF, the ARG pulp mills entered into an agreement with the USDA to follow the rules and regulations governing BCAP and to certify for BCAP subsidies only eligible materials listed on the BCAP materials list. ARG thereafter advertised its BCF status and promoted BCAP to wood dealers throughout its area of operation, explaining to them that they could receive BCAP subsidies for eligible wood products delivered to the ARG pulp mills.

ARG also explained to those wood dealers, however, that it would pay a reduced, below market price for wood products delivered to ARG mills that were eligible for BCAP subsidies, with the expectation that the BCAP subsidies would make up for that discount and provide an additional profit for wood dealers as well. ARG further represented that, if the BCAP subsidies were not paid to wood dealers or were lower than expected, it would pay the "difference" and make wood dealers "whole." The parties dispute, however, whether the "difference" ARG agreed to pay was the difference between the below market price ARG paid and the actual market price in effect at that time or the difference between the below market price ARG paid and the net price the wood dealers expected to get after the advertised BCAP subsidies were paid.

As an example of ARG's BCAP-related transactions with the wood dealers, one of those dealers—Ayres Forestry—was receiving $39 per ton for wood products delivered to the ARG pulp mills before the start of BCAP. An ARG representative explained that Ayres Forestry would receive only $31 per ton from ARG for delivering wood products on the BCAP materials list, but it would also receive a BCAP subsidy of $12.12 per ton from the FSA, thus resulting in a net gain of $4.12 per ton for Ayres Forestry (and an $8 savings per ton for ARG). To receive the BCAP subsidy, Ayres Forestry had to submit to the local FSA office a form, copies of the sales contracts, and sales receipts signed by the ARG mills in their capacity as a BCAP-qualified BCF and reflecting the amount of eligible material delivered. ARG, as a BCF, was required to measure moisture content and tonnage and other relevant qualities of the wood delivered and to certify how much of the wood was eligible under BCAP. ARG required Ayres Forestry and the other wood dealers to use a system by which drivers delivering "BCAP wood" to ARG had to use a card of a particular color.

ARG concluded that there was some ambiguity in the interpretation of the BCAP materials list, specifically whether it barred the payment of a BCAP subsidy for the delivery of only processed black liquor but not materials converted into black liquor. The FSA had stated its intent in the above-referenced conference call that it would not approve wood used for black liquor. Moreover, ARG's chief financial officer and Landegger's son-in-law, Arick Rynearson, sent an e-mail to Landegger warning that "USDA has made their intent clear—they want to exclude black liquor." "We can push it," Rynearson wrote, "but I suspect that in the end, we will end up only having our bark and forest residue qualify." Nevertheless, ARG, with approval from Landegger, made the decision to certify as eligible materials for BCAP subsidies those wood materials that would ultimately be converted into black liquor.

This decision allowed ARG to calculate approximately 50–55% of a tree as eligible under the BCAP materials list, rather than approximately 10–12% of a tree that otherwise would be eligible, thus resulting in higher subsidy payments for the wood dealers and, presumably, more profit for all the parties. In early December 2009, ARG processed an initial "test" load delivered by a wood dealer (not one of the plaintiffs) pursuant to this interpretation of the BCAP materials list. ARG provided the wood dealer with a delivery ticket stating that 54% of the "bone dry tons" of the wood delivered to ARG qualified for the BCAP subsidy. The FSA state office paid the full subsidy on that 54% certification. On December 21, 2009, ARG began processing timber products in this same manner for approximately 50 different wood dealers who agreed to haul wood to ARG.

The wood dealers testified at trial that they were ignorant of the fact that ARG was including in its calculation of eligible materials wood products ARG used in the production of black liquor.

On January 21, 2010, after someone apparently complained to the FSA about ARG, the FSA suspended ARG from participating in BCAP and halted relevant BCAP subsidies to wood dealers who hauled to ARG, explaining in an e-mail sent to county FSA offices that "there may be possible discrepancies in the methods used by [ARG] to determine the percentage of product that is being used for biomass." ARG thereafter learned that the suspension was caused by its decision to certify for a BCAP subsidy material that was being converted to black liquor. ARG immediately began working to get the suspension lifted, and ARG officials, including Landegger, subsequently met with FSA officials in Washington, D.C., to explain their interpretation of the BCAP materials list and to attempt to resolve the dispute and ARG's suspension.

While it worked to reverse the suspension, ARG told the wood dealers that the suspension was just the result of a misunderstanding and encouraged them to continue to...