J-R Grain Co. v. FAC, Inc., J-R
| Decision Date | 31 July 1980 |
| Docket Number | J-R,No. 79-1614,79-1614 |
| Citation | 627 F.2d 129 |
| Parties | GRAIN COMPANY, a Kansas Corporation, Appellant, v. FAC, INC., f/k/a Feaster Foods Agricultural Co., and Feaster Foods Co., Nebraska Corporation; Richard S. Westin and Douglas D. Leech, Individuals, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
James B. Cavanagh (on brief), Erickson, Sederstrom, Leigh, Johnson, Koukol & Fortune, Omaha, Neb., for appellant.
Eugene P. Welch (on brief), Gross, Welch, Vinardi, Kauffman, Day & Langdon, Omaha, Neb., for appellees; Thomas A. Greenan, Omaha, Neb., on brief.
Before STEPHENSON, HENLEY and McMILLIAN, Circuit Judges.
J-R Grain Co. appeals from a judgment entered in the district court 1 for the District of Nebraska finding, among other things, that FAC, Inc. (formerly known as Feaster Foods Agricultural Co.) breached a fertilizer supply contract with J-R Grain and awarding J-R Grain damages in the amount of $196,064.07 from FAC. In this appeal J-R Grain does not challenge the district court's finding of breach of contract or the amount of damages. J-R Grain does challenge the district court's failure to hold any of the other defendants 2 liable, particularly Richard S. Westin. As noted below, it appears that FAC has ceased to conduct business and has virtually no corporate assets.
For reversal J-R Grain argues that the district court erroneously failed to find that (1) Westin, Douglas D. Leech and Feaster Foods Co. had engaged in a conspiracy to defraud J-R Grain, (2) FAC was inadequately capitalized, and (3) Westin and Leech were liable as the directors of FAC for transferring without consideration the corporate assets of FAC to the newly incorporated D & D Commodity Co. For the reasons discussed below, we affirm the judgment of the district court.
In July, 1974, Douglas D. Leech, a former feed and grain broker, was interested in starting an agricultural fertilizer business and was looking for investment capital. Richard S. Westin, an Omaha businessman and president of Feaster Foods Co., 4 was receptive to Leech's business idea and they incorporated Feaster Foods Agricultural Co. on July 26, 1974. Westin and his wife Diane each contributed $1,250 to the company; Leech was to have contributed $2,500 but never actually did so. Leech was president of Feaster Foods Agricultural Co. and in charge of its business operations. Westin was vice-president and also served as a management consultant. Feaster Foods Agricultural Co.'s business address was Suite 205, 4223 Center Street, Omaha, telephone 558-7400. The company's bookkeeping and secretarial work was performed by Feaster Foods Co. pursuant to a management agreement. Westin arranged a substantial line of credit (either $50,000 or $100,000) for Feaster Foods Agricultural Co. at the American National Bank in Omaha, secured by the company's inventory and accounts receivable and guaranteed by Westin and Feaster Foods Co. Feaster Foods Agricultural Co. then began buying and selling fertilizer and agricultural chemicals and was quite successful.
At a feed and grain association convention in Omaha, Nebraska, in January, 1975, Robert Maher, the manager of J-R Grain Co., a Kansas corporation engaged in the business of buying and selling grain and fertilizer, met Leech in one of the convention hospitality rooms. They exchanged business cards. Leech told Maher that he was a broker in the fertilizer business and was interested in buying fertilizer from him. Later Maher met Marty Shipporeit, a representative of Cargill Co., a large agricultural products company, and asked Shipporeit about Feaster Foods Agricultural Co. Shipporeit answered that "Feaster Foods" was a reputable and long established company which Cargill had dealt with in the past. As noted by the district court, Shipporeit had mistakenly believed Feaster Foods Agricultural Co. was Feaster Foods Co. Neither Maher or any other J-R Grain representative made any further inquiries about Feaster Foods Agricultural Co.
In February, 1975, J-R Grain had a chance to obtain some anhydrous ammonia fertilizer. There was a fertilizer shortage in 1974-1975; it was a seller's market during that time. Maher contacted Leech and offered to sell 2,500 tons of anhydrous ammonia fertilizer to Feaster Foods Agricultural Co. for $349 per ton plus shipping charges. Leech was interested; he checked with several possible buyers and entered into an oral agreement to sell the entire 2,500 tons to an Illinois farm supplier, Mid-States Supply Co., for $360 per ton. Leech then orally agreed to buy the 2,500 tons of fertilizer from J-R Grain. 5 The fertilizer was to be shipped at the rate of 600 tons per month, with shipping and destination instructions to be forwarded by Leech.
On February 18, 1978, Leech met Maher and Jimmie Dorman, the president of J-R Grain, in York, Nebraska to sign the contract. At this meeting Leech mentioned a few of his other business deals he was selling potash in New Mexico, his "partner" was the owner of a bacon bits factory and was negotiating the purchase of a dairy in Omaha, he had "a home" for the entire 2,500 tons of fertilizer, and he and his "partner" were interested in possibly handling the interim financing of the purchase of a boatload of fertilizer under consideration by an associate of Maher's. Maher had requested Leech to bring a financial statement of Feaster Foods Agricultural Co. to this meeting, but Leech did not do so nor did he later mail a copy to J-R Grain. Nonetheless, the contract was executed by Leech for Feaster Foods Agricultural Co. and by Maher and Dorman for J-R Grain without any verification of Feaster Foods Agricultural Co.'s financial condition.
In order to fulfill the contract, J-R Grain entered into supply contracts with BEC Transportation (1,000 tons at $336 per ton) and McCormick Grain (1,500 tons at $330 per ton). In March, 1975, Feaster Foods Agricultural Co. forwarded delivery instructions for four railroad carloads of fertilizer. Feaster Foods Agricultural Co. paid J-R Grain for these four carloads. A fifth carload was similarly shipped and payment was made. These five carloads accounted for approximately 405 tons of fertilizer.
In late March, the weather in Illinois was rainy; farmers were unable to apply the fertilizer. Mid-States Supply, confronted with reduced demand, refused to accept further shipments. Feaster Foods Agricultural Co. refused to forward additional shipping instructions to J-R Grain. In early April, Maher approached Leech with an option to cancel at no cost or to delay shipment of 700 of the remaining 2,095 tons of fertilizer. Leech refused both options and maintained that his obligation with Mid-States Supply was for the entire 2,500 tons.
In the interim, J-R Grain received more fertilizer from its suppliers and, without shipping instructions, shipped four more carloads of fertilizer to Feaster Foods Agricultural Co. in Omaha. Feaster Foods Agricultural Co. refused to pay for the four additional carloads. On April 22, Maher telephoned Leech but was unable to get in touch with him. Maher did speak with Westin, who invited Maher and Dorman to come to Omaha to speak with Leech about the contract. On the evening of April 23, Dorman, Maher and Leech discussed the contract; it became clear that Feaster Foods Agricultural Co. was in no position to perform its side of the bargain. Leech explained that his buyer (Mid-States Supply) refused to accept any more fertilizer. In addition, the market price for fertilizer was falling rapidly. On April 24, Westin met with Leech, Maher and Dorman. Later an employee of Feaster Foods Agricultural Co. sold one carload of fertilizer at below contract price; J-R Grain sold nine carloads (some carloads were in transit) at a private sale 6 at below contract price. J-R Grain also cancelled the balance of its supply contracts.
On April 27 or 28, Westin and Leech changed the name of Feaster Foods Agricultural Co. to FAC, Inc. FAC has conducted no business since May 4, 1975. On May 7, Westin and Leech incorporated a new company, D & D Commodity Co., to engage in the business of buying and selling fertilizers and agricultural chemicals. 7 Westin and Leech, as director of FAC, transferred without consideration an automobile and approximately $12,000 of inventory owned by FAC to D & D Commodity. This transfer left FAC with corporate assets consisting of less than $100 in a checking account. The current corporate status of both FAC and D & D Commodity is unclear.
J-R Grain then filed this action in federal district court. The basis for jurisdiction was diversity of citizenship. 28 U.S.C. § 1332. J-R Grain alleged that FAC breached its contract with J-R Grain; that Westin and Leech made fraudulent representations to J-R Grain about the financial condition of FAC; that Feaster Foods Co. and Westin fraudulently allowed FAC to use the name "Feaster Foods Agricultural Co." to mislead the public in general and J-R Grain in particular; that Westin, Leech, Feaster Foods Co. and FAC conspired to defraud J-R Grain by using FAC as a "shield" for speculation in the fertilizer market; and that FAC was inadequately capitalized by Westin and Leech, thus warranting the disregard of the corporate entity and the imposition of personal liability on Westin and Leech. 8
The case was tried to the district court sitting without a jury. The district court found in favor of J-R Grain on the breach of contract claim and awarded substantial damages, including incidental and consequential damages. The district court, however, found no evidence of fraud, conspiracy or inadequate capitalization. Judgment was entered against FAC only. This appeal followed. Our review is limited:
Unless we determine that these findings by the district court are clearly erroneous, we are bound to uphold its decision. And a finding of fact is only deemed clearly erroneous if it...
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