8 F.3d 1235 (7th Cir. 1993), 92-3352, Jeppesen v. Rust

Docket Nº:92-3352, 92-3427.
Citation:8 F.3d 1235
Party Name:Larry JEPPESEN, Plaintiff-Appellee, Cross-Appellant, v. David RUST and Marcus Rust, Defendants-Appellants, Cross-Appellees, and Rose Acre Farms, Inc., Defendant-Appellee.
Case Date:November 05, 1993
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 1235

8 F.3d 1235 (7th Cir. 1993)

Larry JEPPESEN, Plaintiff-Appellee, Cross-Appellant,

v.

David RUST and Marcus Rust, Defendants-Appellants, Cross-Appellees,

and

Rose Acre Farms, Inc., Defendant-Appellee.

Nos. 92-3352, 92-3427.

United States Court of Appeals, Seventh Circuit

November 5, 1993

        Argued Sept. 15, 1993.

Page 1236

        Lee T. Hettinger and Edward Dismukes (argued), Rooks, Pitts & Poust, Chicago, IL, Michael A. Cotteleer, Wheaton, IL, for plaintiff-appellee.

        Corinne Finnerty, McConnell & Finnerty, North Vernon, IN, Terrill D. Albright (argued), Stephen H. Paul, Ronald D. Gifford, Baker & Daniels, Indianapolis, IN, Dinah L. Archambeault, Neil T. Goltermann, Charles L. Bretz, Patricia A. Schneider, Spesia & Ayers, Roger D. Rickmon, Herschbach, Tracy, Johnson, Bertani & Wilson, Joliet, IL, for defendants-appellants.

        Before EASTERBROOK and MANION, Circuit Judges, and WOOD, Jr., Senior Circuit Judge.

        EASTERBROOK, Circuit Judge.

        In 1985 Rose Acre Farms was the fourth largest egg producer in the United States and growing rapidly. It was building an automated facility in White County, Indiana, housing about 1.5 million hens, and planned to construct similar facilities at the rate of one per year. Rose Acre used conveyer belts to move the eggs directly from chicken to carton, washing, drying, and sorting the eggs by size along the way. Integrated collection and packaging reduced Rose Acre's costs but also left some eggs with tiny cracks. If more than 5% of eggs had checks (the name for such cracks), the United States Department of Agriculture would not apply its Grade A seal; as a result Rose Acre sold most of its eggs without federal certification.

        Larry Jeppesen, at the time a self-employed consultant on the marketing of eggs, proposed to Marcus Rust, a director and vice-president of Rose Acre, that Jeppesen take charge of marketing eggs from the new White County facility. Jeppesen proposed to sell the eggs to retail groceries (a market he knew well); to get top dollar, the eggs would need USDA certification. After an exchange of correspondence, Marcus agreed to Jeppesen's proposal, which called for him to receive a stated salary ($100,000 the first year, falling to $60,000 the third) against one-third of the profits. Marcus and his father David (who owned a majority of Rose Acre's shares) were to split the rest of the profits. American Egg Company, as Jeppesen called the unincorporated marketing operation, would buy eggs from Rose Acre at the best price Rose Acre offered to any customer and would have the exclusive right to market Rose Acre's production from White County. Jeppesen agreed to pay the cost of bringing USDA inspectors to the site so that qualifying eggs could receive the Grade A seal. This agreement was memorialized in a letter Jeppesen sent to Marcus, and a handwritten note back from Marcus. Rose Acre's board did not vote on this proposal, although David and Marcus Rust stood on both sides of the transaction.

        By mid-1986, after a year of operation, American Egg's sales were short of expectations. Groceries wanted large, USDA-certified Grade A eggs. The size of eggs increases with the age of the pullets, and those at White County were still young. The USDA certified as Grade A only about half of the facility's production. Jeppesen therefore sold a large fraction of the eggs to the wholesale trade, at lower prices than retailers would have paid for the kind of eggs consumers prefer. American Egg's largest customer was Boomsma, Inc., a producer of eggs and a jobber for other producers' surplus. One of Rose Acre's larger competitors, Boomsma was among six plaintiffs in an antitrust suit charging Rose Acre with predatory pricing. In August 1986 Rose Acre decided to sell Boomsma the entire production of its White County facility at a substantial discount; the Rusts expected Boomsma to dismiss the antitrust suit in exchange. American Egg was dropped. In January 1987 Rose Acre stopped selling to Boomsma, which had not dismissed the suit. At this point Rose Acre had the worst of both worlds: Boomsma was still pursuing its claim under the antitrust laws, and Jeppesen had filed this suit under the diversity jurisdiction charging the Rusts and Rose Acre with breach of contract and interference with his business of selling eggs to Boomsma.

Page 1237

        Each jury decided against Rose Acre. In the antitrust case the jury returned a verdict of $28 million after trebling, but the district court entered judgment in Rose Acre's favor after concluding that it lacked market power. We affirmed. A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir.1989). In Jeppesen's suit the jury concluded that both Marcus and David Rust breached their joint venture agreement and awarded $140,000 in compensatory damages against both Rusts plus $20,000 in punitive damages against...

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