Bank of St. Louis v. Morrissey, s. 78-1338

• Decision Date: 01 May 1979
• Docket Number: Nos. 78-1338,78-1367,s. 78-1338
• Citation: 597 F.2d 1131
• Parties: BANK OF ST. LOUIS, a Banking Corporation, Appellee, v. John J. MORRISSEY, Appellant, Cross-Appellee. Edwin APPEL, John F. Sullivan, and Albert Stern, v. Henry A. LONGMEYER, Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1131

597 F.2d 1131

BANK OF ST. LOUIS, a Banking Corporation, Appellee, v. John J. MORRISSEY, Appellant, Cross-Appellee.

Edwin APPEL, John F. Sullivan, and Albert Stern, v. Henry A. LONGMEYER, Appellee, Cross-Appellant.

Nos. 78-1338, 78-1367.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 8, 1979.

Decided May 1, 1979.

Reed Johnston, Jr. of Peper, Martin, Jensen, Maichel & Hetlage, St. Louis, Mo., for Morrissey; Arthur L. Smith, St. Louis, Mo., on brief.

Robert S. Allen of Lewis, Rice, Tucker, Allen & Chubb, St. Louis, Mo., for Longmeyer; Andrew Rothschild, St. Louis, Mo., on brief.

Before GIBSON, Chief Judge, and STEPHENSON and McMILLIAN, Circuit Judges.

GIBSON, Chief Judge.

In this diversity case, we again consider a contract dispute which arose from the collapse of cattle prices in 1974. Previously, in Kropp v. Ziebarth, No. 78-1182 (8th Cir. February 28, 1979), we were faced with alleged breach of a contract to purchase cattle of various Exotic breeds. In this case the Exotic aspect is supplied by the cattlemen rather than the cattle. EFG Cattle Company (EFG) was a joint venture organized by Stephen D. Oppenheim of the New York accounting firm of Oppenheim, Appel, Dixon and Co. EFG was designed as an entity through which clients of the Oppenheim firm could invest in cattle feeding operations in the Midwest and gain tax advantages by deducting feed and interest expenses in one year while deferring income recognition to the following year when the cattle were sold. For the 1973-74 program, James J. Morrissey acted as the general partner for EFG which was at that time purported to be a limited partnership. When cattle prices fell in 1974, the paper losses which had been coveted turned into a plague of actual losses, and the parties involved discovered that they did not share an understanding as to how losses should be allocated. This resulted in litigation. The District Court ¹ resolved the various claims and entered judgment that, Inter alia, awarded Morrissey, on behalf of EFG $364,977.11 against Henry Longmeyer, the manager for the project. Both Morrissey and Longmeyer appeal. ² We affirm.

In carrying on its activities, EFG utilized the services of a cattle manager. He was a person who was familiar with cattle feeding operations and had the necessary connections for credit in the Midwest as well as knowledge of actual feedlot operators. The cattle manager served to coordinate all activities as well as oversee and inspect the cattle from time to time. Finally, he was responsible for marketing the cattle at the appropriate time. The EFG operation had been going on for several years prior to 1970 when Oppenheim was introduced to Henry Longmeyer by Morrissey. Longmeyer was a farmer-businessman in the St. Louis area. He agreed to and did manage the 1970-71, 1971-72, 1972-73, and 1973-74 cattle programs for EFG. Each year he bought the cattle, selected the feedlots, arranged for the cattle to be fed at the feedlots, inspected the cattle, and eventually arranged for their sale. In addition, Longmeyer assisted in arranging financing for the necessary cattle loans. In 1972-73 and 1973-74, the loans were made by the Bank of St. Louis. ³ For the 1970-71 program, Longmeyer was paid a management fee of five dollars per head, of which he was to pay one dollar to Morrissey for having brought EFG and Longmeyer together, and Longmeyer was to receive one-half of the profits of the program. During subsequent years, the management fee was reduced to four dollars per head, but the even division of profits remained undisturbed. Longmeyer was not obligated to continue paying a finders fee to Morrissey; however, he apparently continued to do so for the 1971-72 and the 1972-73 programs.

There was no written agreement between EFG and Longmeyer. As long as the feeding operations were profitable, this did not cause any serious problems. However, in the 1973-74 program year, losses occurred. At that time the parties discovered that they had varying and conflicting views as to how losses were to be allocated. Both parties understood that EFG would pay the first fifteen dollars of loss. However, Morrissey and Oppenheim, on behalf of EFG, took the position that Longmeyer was responsible for all losses over fifteen dollars per head. In contrast, Longmeyer was of the opinion that he was responsible for only one-half of the losses over fifteen dollars per head. Since the amount of loss in excess of fifteen dollars per head was $1,528,741.78, a substantial amount rested upon which version of the agreement was to be followed. This has been the central question in this appeal.

The litigation growing out of this loss began on May 7, 1976, when the Bank of St. Louis filed a complaint against Morrissey, seeking to recover sums allegedly due the bank on a promissory note signed by Morrissey. On December 29, 1976, Morrissey filed a first amended answer, counterclaim, and third-party complaint. In the third-party complaint, Morrissey joined Longmeyer as a third-party defendant and alleged that Longmeyer was liable for losses in excess of fifteen dollars per head. On May 19, 1977, Morrissey was permitted by the District Court to file a supplemental and amended answer in which he deleted his allegation that he was the sole general partner of EFG and instead alleged that he was the assignee of all partners of EFG. ⁴

The case was tried to the District Court without a jury. In a thorough memorandum of findings of fact and conclusions of law, the District Court resolved the issues presented by the case. In this memorandum, dated January 6, 1978, and an accompanying order, the District Court awarded Morrissey a judgment in the amount of $364,977.22 under the third-party action against Longmeyer. ⁵

The District Court entered findings of fact and conclusions of law including a finding that Longmeyer was entitled to the agreed-upon management fee and that the parties had agreed on an even division of profits and that EFG would bear the first fifteen dollars per head of loss. The District Court found that there was no agreement with respect to division of losses in excess of fifteen dollars per head. The District Court concluded that New York law should govern the relationship between Longmeyer and EFG. Under that law, the court held that the relationship was a joint venture, and that in the absence of an agreement on the sharing of losses in excess of fifteen dollars per head those losses should be evenly divided under New York law. In a subsequent order the District Court denied Morrissey an award of prejudgment interest to which Morrissey claimed he was entitled under New York law. This appeal by both parties followed.

Two questions are presented by Morrissey's appeal: (1) Should the judgment in favor of Morrissey be increased from an amount ($364,977.11) based on one-half of the losses in excess of fifteen dollars per head to an amount ($447,177.22) based on one-half of all losses incurred? (2) Should an award of prejudgment interest be made to Morrissey on his recovery from Longmeyer?

The Longmeyer cross-appeal presents two issues which can be summarized: (1) Is Morrissey barred from recovery by the fact that his pleadings alleged a contract for the division of losses which was not proven? (2) Is the District Court's finding of a joint venture between Longmeyer and EFG clearly erroneous?

We will first consider the matters raised on the cross-appeal. If Longmeyer prevails on either of those issues, the judgment will have to be reversed and it will not be necessary to reach the questions presented by Morrissey's appeal.

It is difficult to understand the basis for Longmeyer's first allegation of error. However, as we understand it, Longmeyer is urging that Morrissey brought suit on the basis of an oral contract, one of the elements of which was that Longmeyer would bear the risk of all losses over fifteen dollars per head. The District Court declined to find that a contract concerning allocation of losses over fifteen dollars per head had been agreed upon. Therefore, according to Longmeyer, Morrissey was not entitled to recover any amount. ⁶ Longmeyer relies primarily upon a long series of decisions of Missouri state courts applying technical rules of pleading in contract actions. See, e. g., Cole v. Armour, 154 Mo. 333, 55 S.W. 476 (1900); Young v. Hall,280 S.W.2d 679, 681 (Mo.Ct.App.1955); Usona Mfg. Co. v. Shubert-Christy Corp., 132 S.W.2d 1101, 1103 (Mo.Ct.App.1939). Longmeyer does not specify why federal courts hearing this action should be concerned by technical rules of state pleading. The law is clear that the federal courts apply the Federal Rules of Civil Procedure in questions regarding pleadings, not state rules. Asay v. Hallmark Cards, Inc., 594 F.2d 692, 698 (8th Cir. 1979); Altoona Clay Products, Inc. v. Dun & Bradstreet, Inc., 367 F.2d 625, 629 (3d Cir. 1966). Rule 8 of the Federal Rules of Civil Procedure provides the general rules for pleading in contract actions. ⁷ 2A Moore's Federal Practice P 8.17(6) (1975); 5 Wright and Miller, Federal Practice and Procedure: Civil § 1235 (1969).

In the present case, Morrissey's third-party complaint read in pertinent part:

4. In or about December, 1973, E.F.G. Cattle Company (hereinafter referred to as "E.F.G."), and third party defendant entered into an oral agreement for the buying and feeding of cattle whereby it was agreed that (1) E.F.G. would finance the purchase, care and feeding of a number of head of steers; (2) third party defendant would arrange for the purchase, care, feeding and eventual sale of the cattle; (3) the parties would divide equally the net profits, if any, from the sale of the cattle; and (4) E.F.G. would bear the risk of loss to the cattle, feed, or other related property but third party defendant would bear any net loss in excess of $15.00 per head of cattle.

5. Thereafter, pursuant to the agreement, E.F.G. financed the purchase,...