970 F.2d 238 (7th Cir. 1992), 91-1312, Superbird Farms, Inc. v. Perdue Farms, Inc.

Docket Nº:91-1312, 91-1397.
Citation:970 F.2d 238
Party Name:SUPERBIRD FARMS, INCORPORATED, Plaintiff-Appellee, Cross-Appellant, v. PERDUE FARMS, INCORPORATED, Defendant-Appellant, Cross-Appellee.
Case Date:July 16, 1992
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 238

970 F.2d 238 (7th Cir. 1992)

SUPERBIRD FARMS, INCORPORATED, Plaintiff-Appellee, Cross-Appellant,

v.

PERDUE FARMS, INCORPORATED, Defendant-Appellant, Cross-Appellee.

Nos. 91-1312, 91-1397.

United States Court of Appeals, Seventh Circuit

July 16, 1992

Argued Jan. 22, 1992.

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[Copyrighted Material Omitted]

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Brent Stuckey (argued), Mark Ewing, Hart, Bell, Deem, Ewing & Stuckey, Vincennes, Ind., for plaintiff-appellee.

Barry Sullivan, Joel T. Pelz, Jenner & Block, Chicago, Ill., Marilyn R. Ratliff, Alan N. Shovers, Kahn, Dees, Donovan & Kahn, Evansville, Ind., C. Lamar Garren (argued), Piper & Marbury, Baltimore, Md., for defendant-appellant.

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Before COFFEY and KANNE, Circuit Judges, and WOOD, Jr., Senior Circuit Judge.

KANNE, Circuit Judge.

This case arose from a turkey growing agreement ("the Agreement") between plaintiff-Superbird Farms, and the predecessors of defendant-Perdue Farms, which provided that Superbird would raise Perdue's young turkeys to maturity. Under the Agreement, Superbird's compensation in large part depended upon the number of turkeys it returned to Perdue. Superbird brought this suit because it claims that Perdue did not deliver as many young turkeys as the Agreement required.

Superbird's complaint sought recovery for breach of contract and fraud, and also sought punitive damages. Count I, the breach of contract count, claimed that Perdue had refused to deliver turkeys in the numbers required under the Agreement. In Count II, Superbird claimed that Perdue fraudulently induced Superbird to enter into an amendment to the Agreement ("the Renewal Agreement"). Count III sought punitive damages on the fraud claim, and for Perdue's allegedly oppressive conduct in breaching the contract.

The case went to trial on October 9, 1990. At the conclusion of the evidence, the district judge directed a verdict against Superbird and in favor of Perdue with respect to the fraud and punitive damages counts. On the breach of contract count, the jury returned a verdict in Superbird's favor in the amount of $1,034,000. In response to post-trial motions, the district judge ordered a remittitur of that verdict to $849,379.19, which Superbird accepted.

Perdue appeals from the breach of contract judgment. It argues that the district judge erred in determining that certain provisions of the Agreement were ambiguous and in failing to give one of Perdue's proposed instructions. Perdue also challenges the sufficiency of the evidence to support the damage award on the contract count. Superbird, in turn, cross-appeals from the directed verdict entered in Perdue's favor on the fraud and punitive damages counts, and argues that it presented sufficient evidence to allow both of these counts to go to the jury. Because this is a diversity case, we follow the law of the forum state, Indiana. Autocephalous Greek-Orthodox Church v. Goldberg & Feldman Fine Arts, 917 F.2d 278, 286 (7th Cir.1990).

I.

Superbird entered into the Agreement on June 1, 1979, with Armour and Company. 1 The Agreement provided that Superbird would grow Armour's young turkeys to maturity in Superbird's range houses and would then return the turkeys to Armour. Superbird did not receive turkeys from other processors. Under the terms of the Agreement, Armour, and later Perdue, supplied the feed and medication for the turkeys and decided when mature turkeys would be slaughtered at its plant. The Agreement required Superbird to maintain the range houses in sanitary condition, and to follow Armour's instructions regarding the care of young turkeys. Armour and Perdue also monitored Superbird's farm manager, who had been an employee of Armour.

Under the Agreement, Superbird's compensation generally depended upon the volume of turkeys it received from Armour. Paragraph 3 of the Agreement regulated the volume of turkeys. That paragraph read:

3. Volume of Young Turkeys to be Delivered and Cared For:

(a) As each Range House is completed, Armour shall deliver to Grower, and Grower shall accept from Armour and care for, one flock of young turkeys to be cared for in such Range House. Subsequently, as each such flock has achieved maturity and is removed by Armour for further processing pursuant to paragraph 11 hereof, Armour shall thereupon deliver to Grower, and Grower

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shall accept and care for, additional flocks of young turkeys.

(b) Armour and Grower contemplate that Armour will deliver to Grower, and Grower will care for, four flocks of young turkeys per fully operational Range House for a maximum of 32 flocks consisting of a total of 300,000 young turkeys in each 12 month period (prorated for any shorter period) throughout the term hereof after eight fully operational Range Houses are constructed by Grower, subject to adjustment as provided in paragraph 17 hereof....

Paragraph 17 allowed the volume specified in p 3 to be adjusted in certain circumstances. That paragraph read:

17. Adjustment of Guaranteed Volumes:

Notwithstanding the provisions of paragraph 3 hereof, Armour shall have the right to adjust (i) the number of young turkeys in a given flock delivered to a Range House, (ii) the grow-out period thereof, and (iii) the gender of same, with a view to adjusting the various weights of young turkeys to be grown to maturity; provided, however, Armour covenants that any such adjustment will not adversely affect the levels of compensation Grower could expect to receive pursuant to paragraph 8 hereof from the volumes contemplated by paragraph 3 hereof.

The initial term of the Agreement expired on December 1, 1984, but Superbird exercised its option to renew the Agreement for an additional term of five years. That option provided that the Agreement could be renewed "upon the same terms and conditions (except that the compensation to be paid by Armour to Grower shall be determined on the basis of rates and fees then prevailing for comparable services and facilities in the State of Indiana.)" The option to renew the contract did not require Armour's consent, but p 21 of the Agreement gave Armour an option to terminate the contract after June 1, 1984, for an agreed price.

On April 26, 1985, the parties entered into the Renewal Agreement, which revised the compensation method under the Agreement. Under the original Agreement, Superbird had been compensated by a fee calculated primarily on the basis of each head of turkey returned to the processing plant. This figure was adjusted by a placement fee for each head delivered to Superbird and a feed conversion bonus payment, designed to encourage Superbird to make efficient use of Armour's feed. The Renewal Agreement changed the basis of Superbird's compensation from the number of turkeys returned to Perdue to the number of pounds of turkey returned. That figure was to be adjusted by Superbird's performance, measured against the average performance of turkey growers in the region. After the new payment system took effect in March 1985, Superbird was unprofitable in 1985, 1986 and 1987.

At trial, Superbird claimed that Perdue breached the Agreement by failing to deliver 300,000 turkeys annually to Superbird. Furthermore, Superbird insisted that as Perdue reduced its deliveries to Superbird it failed to increase Superbird's compensation in accordance with p 17. Perdue claimed that it had no duty to deliver annually 300,000 turkeys to Superbird and that Superbird had ceased operations because it was poorly managed and had failed to meet the husbandry requirements of the Agreement. In support of those claims, Perdue pointed to a cholera epidemic which struck Superbird's flocks during 1987. Perdue insisted that Superbird did not take appropriate measures to stem the epidemic and that the epidemic caused Superbird, in September 1987, to cease operations. Superbird responded that it ceased operations because it had not received enough turkeys from Perdue to be profitable. As the verdict demonstrates, the jury accepted Superbird's version of the events.

II.

On appeal, Perdue first argues that as a matter of law it did not breach the contract because the unambiguous terms of the Agreement did not require it to provide

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300,000 young turkeys annually to Superbird. The district judge found that p 3(b) of the Agreement was ambiguous and allowed the jury to use extrinsic evidence introduced by Superbird to interpret that provision. Perdue argues that the district judge erred in admitting extrinsic evidence to interpret the contract and in failing to direct a verdict in its favor. Perdue then makes the same argument in a slightly different way: because the contract did not require it to deliver 300,000 turkeys annually, Superbird did not suffer any damages as a matter of law.

Perdue argues that the word "maximum" in p 3(b) demonstrates that the Agreement gave Perdue discretion to decide how many turkeys Superbird would receive. Superbird responds that the contract guaranteed it an annual supply of 300,000 young turkeys. The district judge agreed with Superbird that the contract was ambiguous and would allow a jury to interpret the Agreement in Superbird's favor. Accordingly, the district judge instructed the jury that the Agreement was ambiguous, and that it could consider extrinsic evidence in interpreting p 3(b).

Under Indiana law, the existence of a contractual ambiguity is a question of law for the trial judge. Amoco Oil Co. v. Ashcraft, 791 F.2d 519, 521 (7th Cir.1986) (applying Indiana law). On appeal, the trial judge's determination is reviewed de novo. See Orkin Exterminating Co. v. Walters, 466 N.E.2d 55, 60 (Ind.App.1984). Under Indiana law, "[a] contract is ambiguous if a reasonable person would find the contract subject to more than one interpretation." Id...

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