Appley Bros. v. US

• Decision Date: 11 April 1996
• Docket Number: No. CIV 92-4110,CIV 92-4037.,CIV 92-4110
• Citation: 924 F. Supp. 935
• Parties: APPLEY BROTHERS, et al., Plaintiffs, v. UNITED STATES of America, Defendant. UNITED STATES of America, Plaintiff, v. TRANSAMERICA INSURANCE CO., Defendant.
• Court: U.S. District Court — District of South Dakota

924 F. Supp. 935

APPLEY BROTHERS, et al., Plaintiffs, v. UNITED STATES of America, Defendant.

UNITED STATES of America, Plaintiff, v. TRANSAMERICA INSURANCE CO., Defendant.

Nos. CIV 92-4110, CIV 92-4037.

United States District Court, D. South Dakota, Southern Division.

April 11, 1996.

John J. Ulrich, U.S. Attorney's Office, Sioux Falls, SD, Peter Bonner, International Affairs, Department of Agriculture, Office of General Counsel, Washington, DC, for Plaintiff United States of America in No. CIV 92-4110.

James M. Cremer, Bantz, Gosch, Cremer, Peterson & Sommers, Aberdeen, SD, for Defendant Transamerica Insurance.

Jonathan K. VanPatten, USD School of Law, Vermillion, SD, for Plaintiff Appley Brothers, et al.

Glenn L. Roth, Freeman, SD, for Plaintiff Kaylor Grain Co., Inc.

James M. Cremer, Bantz, Gosch, Cremer, Peterson & Sommers, Aberdeen, SD, for Plaintiff Transamerica Insurance.

John J. Ulrich, U.S. Attorney's Office, Sioux Falls, SD, Bertha R. Mitrani, U.S. Dept. of Justice, Torts Branch, Civil Division, Washington, DC, Peter Bonner, International Affairs, Department of Agriculture, Office of General Counsel, Washington, DC, for Defendant United States of America in No. CIV 92-4037.

MEMORANDUM OPINION AND ORDER

PIERSOL, District Judge.

The United States brings this action against Transamerica Insurance Company, CIV 92-4110, to collect on three Warehouseman's Bonds issued on behalf of Bird Grain Elevator in favor of the United States. Before the Court for ruling are the parties' cross-motions for summary judgment. The Court grants summary judgment for the United States and denies Transamerica's motion.

The facts essentially are undisputed. Transamerica admits the government's "Statement of Material Facts Not In Dispute," with one exception, and as will be shown later, Transamerica has produced insufficient evidence on that point to preclude entry of summary judgment for the government. Transamerica concedes that it is liable to the United States under the Warehouseman's Bond issued effective September 23, 1987, so what remains at issue is Transamerica's liability under the 1986 and 1988 bonds.

Bird Grain was a federally-licensed elevator engaged in the purchase, storage, and sale of soybeans, oats, corn, and other grains. Dennis Bird served as the elevator's president and general manager, and he was responsible for the day-to-day operation of the elevator. Under the United States Warehouse Act, Bird was required to execute and file with the Secretary of Agriculture a sufficient bond to the United States to secure the faithful performance of his obligations as a warehouseman under federal statutes and regulations and of "such additional obligations as a warehouseman as may be assumed by him under contracts with the respective depositors of agricultural products in such warehouse." 7 U.S.C. § 247. The parties agree that, under the Warehouse Act, Bird was required to maintain at all times sufficient inventory of the requisite quality grain to meet all storage obligations on demand.

Pursuant to the Warehouse Act and its regulations, Bird Grain purchased from Transamerica on September 4, 1986, Warehouseman's Bond No. 5365 58 30, in the penal sum of $209,000, to take effect September 23, 1986. (Doc. 1, Ex. A.) The bond bound Transamerica as surety, jointly and severally with the principal, Bird Grain, to the United States to:

Faithfully perform during the period of one year commencing September 23, 1986, or until the termination of the federal warehouse license(s) of Bird Grain in the event of termination prior to the end of the one year period, all obligations of a licensed warehouseman under the terms of the Warehouse Act and regulations thereunder relating to grain; and

Faithfully perform during said one year period and thereafter, whether or not said warehouse(s) remain(s) licensed under the Act, such delivery obligations and further obligations as a warehouseman as exist at the beginning of said one year period or are assumed during said period and prior to termination of said license(s) under contracts with the respective depositors of such products in the warehouse(s).

(Doc. 1, Ex. A at 1-2.) Because of the addition of licensed storage space at Bird Grain, which included Section E, Tank 5, and temporary storage bunkers XX and YY, Bird Grain and Transamerica, on April 9, 1987, executed an "Agreement to Increase and Extend Bond," raising the penal sum of the 1986 Warehouseman's Bond to $341,000. (Doc. 1, Ex. B.)

Pursuant to the Warehouse Act and its regulations, Bird Grain purchased from Transamerica on August 17, 1987, Warehouseman's Bond No. 5365 58 30, in the penal sum of $253,000, to take effect September 23, 1987. (Doc. 1, Ex. C.) With the exception of different dates, this bond contains language identical to the 1986 bond quoted above. (Doc. 1, Ex. C at 1-2.) Transamerica concedes in its brief "that at the time this bond was issued, there were outstanding `delivery obligations' that equaled or exceeded the amount of the bond." (Doc. 66 at 8.) Thus, Transamerica is liable to the United States on this 1987 bond for the sum of $253,000.¹

Pursuant to the Warehouse Act and its regulations, Transamerica issued on September 23, 1988, an unnumbered Warehouseman's Bond with respect to Bird Grain in the penal sum of $233,000, for the year commencing September 23, 1988. (Doc. 1, Ex. D.) The bond bound Transamerica as surety, jointly and severally with the principal, Bird Grain, to the United States:

If the said license(s) or any amendments thereto be granted and said principal, and its successors and assigns operating said warehouse(s), shall faithfully perform during the period of this bond all obligations of a licensed warehouseman under the terms of the United States Warehouse Act and regulations thereunder relating to grain;

Then this obligation shall be null and void and of no effect, otherwise to remain in full force. For purposes of this bond, the aforesaid obligations under the Act and regulations and contracts include obligations under any and all modifications of same....

This bond obligation shall be and remain in full force and effect for a minimum of one year beginning with the effective date and shall be considered a continuous bond thereafter until terminated as herein provided. The total liability of the surety is limited to the penal amount hereof, for liabilities that accrue during the term hereof.

(Doc. 1, Ex. D at 1-2.)

Effective July 1, 1983, Bird Grain entered into Uniform Grain Storage Agreement # A46-3-CCC1615J with the Commodity Credit Corporation (CCC), a wholly owned corporation and instrumentality of the United States. (Doc. 1, Ex. E.) This agreement was subsequently amended as of July 1, 1985, July 2, 1985, and July 1, 1986. (Id.) Effective April 1, 1988, Bird Grain entered into Uniform Grain Storage Agreement # A46-3-CCC1615K with CCC. (Doc. 1, Ex. F.) Between September 29, 1986, and September 15, 1987, inclusive, Bird Grain received from or for CCC, and issued warehouse receipts to CCC for, 640,283.44 bushels of No. 2 yellow corn. (Doc. 58, Ex. D at ¶ 3.) Between September 24, 1987, and May 23, 1988, inclusive, Bird Grain received from or for CCC, and issued warehouse receipts to CCC for, 163,896.05 bushels of No. 2 yellow corn. (Id.) On November 7, 1987, Bird Grain received from or for CCC, and issued a warehouse receipt to CCC for, 14,584 bushels of sample grade corn. (Id. & Annex 1 at Receipt 444.) Bird Grain owed an additional storage obligation to CCC for 488.82 bushels of No. 2 yellow corn that were not shipped pursuant to a CCC loading order for 75,488.82 bushels on May 4, 1988. (Doc. 58, Ex. D at ¶ 4.)

On March 30, 1988, a federal warehouse examiner found Bird Grain to be grade deficient in No. 2 yellow corn by at least 6,405 bushels. Upon reconstruction of Bird Grain's records at a subsequent examination on November 15, 1988, federal examiners found Bird Grain to be quantity deficient in corn by at least 475,689 bushels as of September 20, 1988, and quantity deficient in corn by at least 257,229 bushels as of November 15, 1988. On November 18, 1988, the Department of Agriculture suspended Bird Grain's federal warehouse license. (Doc. 69 ¶ 7; Doc. 87 ¶ 7.) On the same date, the South Dakota Public Utilities Commission suspended Bird Grain's grain dealer's license. (Id. at ¶ 13; Id. at ¶ 13.) As of December 9, 1988, the corn quantity deficiency was at least 347,167 bushels. In each case, Bird Grain had insufficient quantities of corn on hand to fulfill its obligations under issued warehouse receipts to CCC and other depositors. (Doc. 1, Complaint ¶ 15, Doc. 4, Answer ¶ 2.) As of January 1989, CCC owned 819,252.31 bushels of corn deposited with Bird Grain. (Doc. 58, Ex. "Facts" at ¶ 20; Doc. 68 ¶ 1.) CCC issued two loading orders on January 12, 1989, demanding shipment of this grain from the warehouse. (Doc. 58, Ex. D at 61-66.)

In accordance with the Judgment entered in Curry v. U.S. Dept. of Agriculture, CIV 89-4160 (D.S.D.1991) (Doc. 58, Ex. F), CCC, as a valid claimant, received from the proceeds of the liquidation of commodities at the Bird Grain Elevator $784,207.35, which, at $2.068 per bushel (the value realized, net of transportation, advertising, and other merchandising costs, for all corn in the warehouse), is equivalent to 379,210.51 bushels of corn. (Doc. 58, Ex. D at ¶ 7, 9.) Of the 819,252.31 bushels of corn owned by CCC originally deposited at Bird Grain, the warehouse failed to redeliver or pay the value of 440,041.8 bushels. (Doc. 58 Ex. "Facts" at ¶ 22; Doc. 68 at ¶ 1.) The value of the 440,041.8 bushels of yellow corn is $1,096,412.01. (Doc. 58 "Brief" at 14-15; Doc. 58 "Facts" at ¶ 23; Doc. 68 at ¶ 1.)

The South Dakota Circuit Court, First Judicial Circuit, appointed the South Dakota Public Utilities Commission (PUC) as Receiver of Bird Grain to take possession of any traceable grain proceeds and of the cash proceeds of the $50,000...