CH Codding & Sons v. Armour and Company, 9342.
| Decision Date | 05 December 1968 |
| Docket Number | No. 9342.,9342. |
| Citation | 404 F.2d 1 |
| Parties | C. H. CODDING & SONS, a Partnership Composed of Charles H. Codding, Sr., Charles H. Codding, Jr., and Donald K. Codding, Appellant, v. ARMOUR AND COMPANY, a Delaware Corporation, Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
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David Hall, Tulsa, Okl., and Robert P. Kelly, Pawhuska, Okl. (Stanley B. Block, Chicago, Ill., with them on the brief), for appellant.
Horace D. Ballaine, Tulsa, Okl. (George E. Leonard with him on the brief), for appellee.
Before MURRAH, Chief Judge, and BREITENSTEIN and HILL, Circuit Judges.
This diversity action was brought in the district court by Armour and Co. for an accounting of the proceeds from the liquidation of a joint venture between Armour and C. H. Codding & Sons. Codding answered and counterclaimed for loss of anticipated profits for breach of the joint venture agreement and in violation of the antitrust laws. By agreement all issues but the counterclaim were submitted to a Special Master. The trial court adopted the Master's report as its findings of fact and directed a jury verdict for Armour on Codding's counterclaim. Codding appeals alleging numerous errors in the Master's report and challenging the judgment on the directed verdict.
The purpose of the joint venture was to produce beef cattle with carcasses of higher yield through the use of progeny tested sires with production tested commercial beef herds. This process involved the breeding of commercial cows by artificial insemination from selected bulls known to be genetically superior.
Under the 6 year agreement Codding was to furnish the use of its ranch and all facilities along with 750 cows. Codding was to manage the venture, keep the books, and receive a guaranteed minimum of $50,000 per year along with 50% of each year's heifer calf crop from the joint venture cows and all permanent improvements to the ranch at the end of the venture. Armour was to collect and process all semen and in a general way underwrite the venture financially. From the very start the enterprise was financially unsuccessful with net losses occurring each year, and therein lie the seeds of this lawsuit, details of which will be discussed where relevant.
The issues before the Special Master involved claims by Codding for certain expenses incurred by it which it felt were rightly joint venture expenses and claims by Armour on behalf of the joint venture and itself challenging expenses of Codding.
Codding initially attacks the trial court's judgment by asserting that the findings and report of the Special Master, which were adopted by the trial court as its own, were not in accord with Rule 52, Federal Rules of Civil Procedure for lack of the required specificity. From our review of the Master's report we are convinced that, except as hereinafter noted, the findings were entirely sufficient to support the ultimate conclusions of fact and law and it is, of course, elementary that the findings of fact and conclusions of law when sufficiently specific are presumptively correct and will not be set aside by this Court unless clearly erroneous. Transportation Insurance Co. v. Hamilton, 10th Cir., 316 F.2d 294; and United States Fidelity and Guaranty Co. v. State of Oklahoma, 10th Cir., 383 F.2d 417. We shall now consider the points raised against them.
But before we do so let us note the nature of a joint venture relationship. It is, of course, fiduciary in character — each adventurer owing the other and the joint venture the highest degree of fidelity, loyalty and fairness in their mutual dealings. Rocket v. Ford, 326 P.2d 787 (Okl.1958). As then Judge Cordozo stated: "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." Meinhard v. Salmond, 249 N.Y. 458, 164 N.E. 545, 62 A.L.R. 1 (1928). Cf. Opco, Inc. v. Scott, 10th Cir., 321 F.2d 471 and Homestake Min. Co. v. Mid-Continent Exploration Co., 10th Cir., 282 F.2d 787. And when, as here, one party is given managerial authority requiring affirmative consent of the other party only in specified cases this duty of openness and full disclosure is accentuated. Bosworth v. Eason Oil Co., 202 Okl. 359, 213 P.2d 548 (1949). We now discuss the challenges made by Codding in light of these basic principles.
The Master's report allowed Codding the $14,235.58 rental paid for the Olsen lease. Codding contends that while this is correct it was never actually given credit for this amount either in the recapitulation of the accounting or in the judgment. In its reply Armour refers us to certain portions of the record to show that this amount was included in another figure for which Codding did receive credit. Our review of the record and report leaves the issue in doubt. While Codding may have received credit for this amount we cannot identify it in the recapitulation and neither Armour's proffered explanation nor the court's findings of fact are of any assistance. We consequently remand this portion of the case for redetermination and more specific findings.
Admittedly Codding appropriated 115 joint venture bulls for its own use. Later Codding sold 40 of these bulls for $19,100. In the accounting the Master allowed Codding to keep the remaining 75 bulls and the $19,100 but charged Codding $12,995 as and for the 115 bulls.1 By some legerdemain we're now urged to allow Codding $8,475 of this amount. In short, it wants the bulls and the money. The assertion of such a claim in light of the facts taxes our credulity and is unworthy of comment.
A further claim by Codding denied by the Master was for miscellaneous expenses, i. e. commissions, maintenance, and repairs. These expenditures were made by Codding from its own bank account. Codding testified he felt these were proper joint venture expenses. With the exception of $1,500 Codding did not specifically notify Armour of any of these expenditures nor record them on the joint venture's books. While there is evidence that Armour's employees had knowledge of the activity there can be no estoppel as Codding made no attempt to charge these expenses to the joint venture thus imposing no duty on Armour to challenge them. We feel the Master was justified in denying this claim in view of the fiduciary relationship between Armour and Codding. Knowledge that Armour, under the terms of the joint venture agreement, would eventually bear the costs of these repairs imposed a duty on Codding as manager of the joint venture to keep Armour informed as to present and contemplated expenditures. While Armour's consent may not have been required for certain expenditures good faith required full disclosure at all times. Codding's expressed intent to charge in futuro is unpersuasive.
Codding admittedly acquired this lease in the name of C. H. Codding & Sons, a partnership, for the purpose of using it for its own cattle but asserts that this intent was frustrated by Armour's refusal to allow Codding to separate the Codding cows from the joint venture herd and that joint venture cows actually used this lease during 1964. Thus, it argues that in light of the authority granted it by the joint venture agreement to obtain leases and be reimbursed this expense should have been allowed. The Master apparently was of the opinion that while some of the joint venture cattle were grazed on this lease in 1964 the pasture was not needful to the joint enterprise and that under the peculiar circumstances Codding was not entitled to reimbursement. From our review of the record we cannot say that the Master's findings are clearly erroneous.
Codding argues here that the Master found that only the expenses for fitting and grooming were outside the scope of the joint venture and not the expenses for feeding. This overlooks the Master's finding that "Coddings should not be allowed their expense for the fitting, feeding and grooming of the bulls as joint venture expense." The Master based this conclusion on his previous finding that the showing of the registered herd was a "venture of their Codding own". As this is not clearly erroneous but rather appears eminently correct we must reject Appellant's argument.
Codding next claims $64,091 for the failure of Armour to allow the joint venture to build a laboratory for the Controlled Estrus Program. In 1959 the original joint venture agreement was modified to provide, inter alia, for the joint venture "to build * * * a suitable laboratory and shelter facilities for conducting a Controlled Estrus Program * * *" By letter agreement the joint venture agreed with Armour to build the laboratory for an agreed compensation. The shelter was built and the initial experiments carried out. Subsequently it clearly appeared that no drugs were available at that time to enable the joint venture to control the estrus cycle of range cattle. Without being able to control this cycle the laboratory was no longer needed. Codding argues that the joint venture agreement committed Armour to build a laboratory and that this was the consideration for Codding to agree to carry on the Controlled Estrus Program. The argument overlooks the nature of a joint venture and the fiduciary duty owed by the manager to the venture and the co-adventurer. Codding, as manager, cannot be heard to insist that the joint venture expend funds to accomplish no other purpose than Codding's financial benefit. To allow this would be to allow the worst kind of bad faith by one owing in law the highest degree of fidelity.
Early in the venture a need arose for "catch bulls" to breed joint venture cows. Catch bulls are bulls turned in with the cows after the cows have been bred artificially...
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