Bear Ranch, L.L.C. v. Heartbrand Beef, Inc.

• Citation: 885 F.3d 794
• Decision Date: 20 March 2018
• Docket Number: No. 16-41261,16-41261
• Parties: BEAR RANCH, L.L.C., Plaintiff–Appellant Cross–Appellee v. HEARTBRAND BEEF, INCORPORATED; Ronald Beeman; American Akaushi Association, Incorporated, Defendants–Appellees Cross–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

885 F.3d 794

BEAR RANCH, L.L.C., Plaintiff–Appellant Cross–Appellee

v.HEARTBRAND BEEF, INCORPORATED; Ronald Beeman; American Akaushi Association, Incorporated, Defendants–Appellees Cross–Appellants.

No. 16-41261

United States Court of Appeals, Fifth Circuit.

FILED March 20, 2018

Reagan William Simpson, Esq., Richard Paul Yetter, James E. Zucker, Yetter Coleman, L.L.P., Houston, TX, for Plaintiff–Appellant Cross–Appellee.

James Arthur Reeder, Jr., Conor Paul McEvily, Jason Michael Powers, Vinson & Elkins, L.L.P., Houston, TX, for Defendants–Appellees Cross–Appellants.

Before REAVLEY, SOUTHWICK, and HAYNES, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

This appeal arises after more than five years of litigation between Bear Ranch, a cattle ranch in Colorado, and HeartBrand Beef, a cattle ranch and beef production company in Flatonia, Texas. We AFFIRM the district court’s judgment in all respects except its decision to grant punitive damages to HeartBrand. We conclude punitive damages are not justified under Texas law. We REVERSE that award.

FACTUAL AND PROCEDURAL BACKGROUND

This appeal stems from a long-running dispute between HeartBrand Beef, Incorporated, and Bear Ranch, LLC. The subject of the contract is Akaushi cattle, a specialty breed from Japan known for producing beef with rich flavor, tenderness, and health benefits. Japanese laws protect Akaushi cattle as a national treasure and restrict their export, which results in a limited supply of the cattle in the United States.

In the 1990s, HeartBrand’s predecessor imported 11 head of Akaushi cattle from Japan to New York and eventually to Texas. In 2006, HeartBrand acquired its predecessor’s assets and began "selling Akaushi cattle to a group of producers pursuant to contracts" known as Full-Blood and F1 Program Contracts.¹ The purpose was to "promote the raising of Akaushi cattle and the marketing of meat from such cattle outside of Japan so that the Akaushi breed may grow in stature and number to the mutual economic benefit" of HeartBrand and the contracted producers. The Full-Blood Contracts contained provisions governing, among other things, (1) "the sale of breeding stock;" (2) "registration with the American Akaushi Association, Inc.;" (3) "restrictions on sale of full-blood offspring;" and (4) marketing of the cattle.

In July 2010, Bear Ranch purchased 424 head of cattle and 10,000 units of Akaushi genetic material from HeartBrand (the "HeartBrand Cattle") for $2.4 million, subject to a Full-Blood Contract and an F1 Program Contract. A provision in the Full-Blood Contract was that, "if any legal action is brought to enforce this Agreement ..., it is expressly agreed that the prevailing party ... shall be entitled to recover from the other party reasonable attorney’s fees, expenses, and costs." If Bear Ranch breached, HeartBrand was also entitled to injunctive relief ensuring that it obtained possession of all the cattle identified in the agreement.

Subsequently, Bear Ranch bought more Akaushi cattle from other HeartBrand producers in a series of "handshake" transactions: (1) in December 2010, Bear Ranch purchased 50 cattle from Tony Spears; (2) in June 2011, Bear Ranch purchased approximately 500 cattle from Ronald Beeman; and (3) from July–September 2011, Bear Ranch purchased 195 cattle from Twinwood Cattle. At some point after the cattle purchases, disputes arose between HeartBrand and Bear Ranch regarding the contractual restrictions placed on the Akaushi cattle. HeartBrand claimed the Full-Blood contractual restrictions for the HeartBrand Cattle from the HeartBrand contract also applied to the later purchases of cattle from Spears, Beeman, and Twinwood.

In March 2012, Bear Ranch sued HeartBrand, Beeman, and the American Akaushi Association, Incorporated, alleging that HeartBrand violated the Sherman Antitrust Act and other laws aimed at curbing anticompetitive conduct by "engaging in unfair practices in the livestock industry." Bear Ranch sought declaratory relief to prevent HeartBrand from monopolizing the Akaushi beef product market in the United States. Alternatively, Bear Ranch sought a declaration that the Full-Blood contractual restrictions were unenforceable and that Bear Ranch was fraudulently induced into executing the contracts because HeartBrand represented "that it was the only source of full-blood Akaushi cattle in the United States," which Bear Ranch claims was knowingly false.

During pre-trial proceedings, HeartBrand moved for judgment on the pleadings, which the district court denied, and Bear Ranch moved to amend its complaint, which the district court allowed. In the amended complaint, Bear Ranch dropped its competition-law claims and instead raised breach of contract and fraudulent-inducement claims. HeartBrand and Beeman responded with two counterclaims against Bear Ranch for fraudulent inducement and three for fraud. HeartBrand alleged that Bear Ranch fraudulently induced the original purchase by falsely representing that it would comply with the Full-Blood contractual restrictions. Beeman made similar allegations relating to the 2011 sale of the Beeman Cattle. HeartBrand and Beeman both sought rescission of their respective sales to Bear Ranch. As to its common-law fraud claim, HeartBrand argued "that Bear Ranch had represented that it only intended to produce beef for personal use and that it would comply with the 2010 contractual obligations." HeartBrand claimed this was a knowingly "empty promise[ ]" because Bear Ranch’s alleged intent was to become its rival and avoid complying with the contractual restrictions.

After the parties filed cross-motions for summary judgment, the district court held that the Full-Blood contractual restrictions for the 2010 HeartBrand Cattle purchase did not extend, with certain irrelevant exceptions, to the cattle Bear Ranch subsequently purchased from Spears, Beeman, and Twinwood. The court also determined that "any oral agreement to apply the Full-Blood Contract restrictions would be barred by the statute of frauds[.]" This ruling resulted in the dismissal of Beeman’s fraudulent-inducement claim. The court also dismissed HeartBrand’s and Beeman’s claim for rescission of the Bear Ranch purchases.

The district court determined that the partial summary judgment it granted "changed the complexion of the case." The cattle Bear Ranch had purchased from Spears, Beeman, and Twinwood "were suddenly legally unrestricted." According to HeartBrand, this ruling allowed Bear Ranch to act as its direct competitor in the Akaushi market and "undermin[ed] HeartBrand’s investment in a uniquely refined and documented breeding nucleus." In its ruling, the court did permit HeartBrand’s fraud-based counterclaims, among others, to proceed to trial. Cognizant of the "major shift in the landscape of the case," the district court granted a continuance, which allowed HeartBrand time to submit a revised expert report from Jeffrey S. Andrien, its valuation expert, that would "value the equitable remedy of unjust enrichment on its fraud claims[.]" In his supplemental report, Andrien opined that Bear Ranch’s unjust enrichment from the unrestricted cattle would be $89.8 million—$76.7 million of which was associated with the Beeman Cattle.

After taking Andrien’s deposition, Bear Ranch objected to his report and sought to exclude his testimony under Daubert v. Merrell Dow Pharmaceuticals, Inc. , 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Bear Ranch argued that admitting Andrien’s opinion and testimony would risk "inflaming jury passions" and "the sudden transformation of what has been around a $1 million case ... into a $90 million case will only confuse the jury and ... unfairly prejudice Bear Ranch[.]" The court ultimately permitted Andrien’s testimony at trial and allowed Bear Ranch to put on four rebuttal witnesses, including its own valuation expert.

The trial began on May 16, 2014. On May 29, the jury found for HeartBrand on two counterclaims: (1) fraud regarding the 2011 sale of the Beeman Cattle; and (2) breach of the 2010 Full-Blood and F1 Program Contracts governing the HeartBrand Cattle purchase. The advisory jury found that Bear Ranch was unjustly enriched by $23,199,000 because of its fraudulent behavior in the Beeman Cattle purchase. The jury also assessed against Bear Ranch $1,825,000 in exemplary damages on the Beeman Cattle fraud claim.

After denying multiple post-trial motions, the district court entered an Amended Final Judgment on August 11, 2016. Relevant to this appeal, the court ordered the following: (1) Bear Ranch would take nothing in its suit against the defendants; (2) the provisions of the 2010 contract with HeartBrand did not apply to the Beeman, Spears, or Twinwood Cattle; (3) Bear Ranch was liable for fraudulent inducement committed against HeartBrand based on the 2011 Beeman Cattle purchase; (4) Bear Ranch would hold the Beeman Cattle in a constructive trust for HeartBrand; (5) Bear Ranch would pay $1,825,000 in exemplary damages to HeartBrand; (6) Bear Ranch was liable for breach of contract from the original HeartBrand Cattle purchase; (7) Bear Ranch was ordered to comply with a multi-faceted permanent injunction on the Twinwood/Spears Cattle; and (8) Bear Ranch would pay HeartBrand $3.2 million in attorney’s fees. Bear Ranch timely appealed, and HeartBrand cross-appealed.

DISCUSSION

We will address the issues in the following order. Bear Ranch contests the jury’s finding of fraud on the Beeman Cattle contract, the court’s decision to admit the expert Andrien’s testimony, the injunction requiring Bear Ranch to abide by the HeartBrand contract restrictions on the Twinwood and Spears cattle, the court’s decision to grant $3.2 million in attorney’s fees to HeartBrand as the prevailing party, and the grant of exemplary damages. HeartBrand cross-appeals that the monetary threshold for the constructive trust on the Beeman Cattle was too high. It also argues we should remand for a new trial if...