Bbserco, Inc. v. Metrix Co., 01-1302.

• Decision Date: 03 February 2003
• Docket Number: No. 01-1302.,01-1302.
• Citation: Bbserco, Inc. v. Metrix Co., 324 F.3d 955 (8th Cir. 2003)
• Parties: BBSERCO, INC., a Colorado Corporation, # 84-1291855 Plaintiff-Appellee, v. METRIX COMPANY, Defendant, Green Bay Dressed Beef, Inc., Defendant-Appellant, John Schoen, Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

324 F.3d 955

BBSERCO, INC., a Colorado Corporation, # 84-1291855 Plaintiff-Appellee, v.METRIX COMPANY, DefendantGreen Bay Dressed Beef, Inc., Defendant-AppellantJohn Schoen, Defendant.

No. 01-1302.

United States Court of Appeals, Eighth Circuit.

Submitted: May 13, 2002.

Filed: February 3, 2003.

Rehearing Denied March 7, 2003.

COPYRIGHT MATERIAL OMITTED

Kevin James Visser, William S. Vernon, Moyer & Bergman, Cedar Rapids, IA, for BBSerCo, Inc.

J. Richard Johnson, White & Johnson, Cedar Rapids, IA, Warren M. Wanezek, Wanezek & Umentum, Green Bay, WI, James F. Bennett Bryan & Cave, St. Louis, MO, for Green Bay Dressed Beef, Inc.

Before BOWMAN and BYE, Circuit Judges, and NANGLE,¹District Judge.

BYE, Circuit Judge.

This dispute arises from a failed joint venture to produce and market fetal bovine serum.Green Bay Dressed Beef, Inc., (Green Bay) appeals from a final order of the district court² denying its motion for judgment as a matter of law(JAML) and upholding a jury verdict on breach of contract and fraud claims in favor of BBSerCo, Inc.We affirm.

I

Because BBSerCo prevailed at trial, we must view the factual record in the light most favorable to and give it the benefit of all reasonable inferences the record will support.SeeFletcher v. Price Chopper Foods of Trumann, Inc.,220 F.3d 871, 873(8th Cir.2000).

Fetal bovine serum is a product used in cell culture research, the production of pharmaceuticals, and veterinary medicine.Fetal bovine serum comes from the blood of fetal calves — those calves found in the wombs of the small percentage of pregnant cows brought to slaughter.Fetal calf blood is largely protected from infection, and therefore has no antibodies to interfere with cell culture applications.

Fetal calf blood is processed into serum by removing red blood cells.This "raw" serum is then filtered to remove any bacteria and becomes "sterile" serum, the finished product.World-wide demand for sterile serum is relatively static, with about 500,000 liters consumed per year.The supply, on the other hand, fluctuates a great deal.When the beef industry is strong, few pregnant cows are slaughtered and the supply of fetal blood drops.Consequently, the price for fetal bovine serum rises.When economic or natural pressures cause reductions in herd size (e.g., drought conditions), more pregnant cows are slaughtered and the supply of fetal blood increases, driving the price of fetal bovine serum down.Because of these market dynamics, relatively few companies produce serum.Two companies alone are responsible for about half of all world-wide sales of sterile serum, Life Technologies (30%) and HyClone (20%).Similarly, there are relatively few companies which produce raw serum.The Metrix Company(Metrix), an Illinois corporation doing business in Dubuque, Iowa, is America's largest producer of raw serum.

Typically, slaughterhouses do not process fetal calf blood into serum.They merely sell their blood to producers like Metrix.But in 1994, Wendell Leinweber and George (Skip) Wrape, two individuals with many years of experience in this field, formed BBSerCo with the idea of partnering with slaughterhouses to process serum.BBSerCo would charge a fixed fee to produce and sell raw serum on behalf of a slaughterhouse.That way, BBSerCo would realize a steady income regardless of the fluctuations in the serum market.Without having to finance inventory by purchasing blood, BBSerCo could survive as a new and relatively small player in the market.The slaughterhouse would profit too.It could more easily ride the ups and downs of the serum market, and increase its overall profit margin by selling serum instead of blood when the market was good.The idea was that both parties would win in the long run.

BBSerCo planned to enter joint venture agreements with sixteen slaughterhouses.It first approached Green Bay, a large Wisconsin slaughterhouse.In early 1995, the parties struck a deal.BBSerCo would produce and sell raw serum on Green Bay's behalf for a $28 per liter processing fee.In the beginning, the joint venture worked well.Raw serum was selling as high as $192 per liter.After subtracting BBSerCo's processing fee, Green Bay still realized a profit significantly higher than it would have by selling blood to producers at about $90 per liter.

The good times quickly dissipated, however.Drought and other factors affecting the beef industry caused record cattle kills in 1996 and 1997.The price of serum tumbled, and the joint venture began to unravel.Green Bay eventually demanded a floor price, $120 per liter, at which BBSerCo had to sell the serum.When the market would not bear that price, the joint venture's inventory of serum built up and BBSerCo collected no processing fees.By December 1996, BBSerCo could no longer service its bank debt.It discontinued processing blood for the joint venture with over 11,000 liters of serum in inventory.

The two parties met to decide what to do about the inventory.Green Bay insisted the serum be sold, whether by Green Bay or BBSerCo.In January 1997, control of the inventory switched from BBSerCo to Green Bay.Although the inventory remained in the same cold storage facility, it moved from BBSerCo's account into Green Bay's account.BBSerCo's bank insisted, however, that the proceeds of all sales, whether made by BBSerCo or Green Bay, continue to go into BBSerCo's account and applied to outstanding loan obligations.The parties agreed to have the bank deduct BBSerCo's processing fees from the proceeds of all sales, then send the remaining proceeds to Green Bay.

On June 13, 1997, Green Bay secretly agreed to sell the entire inventory to Metrix, without paying BBSerCo's processing fees.But there was a catch.Each batch of inventory had a corresponding sample that had to be tested before a buyer could resell the serum.BBSerCo had the samples.Green Bay had no experience in selling serum, and did not fully realize the importance of the samples.Green Bay shipped sixteen liters of inventory to Metrix, thinking Metrix could use those for testing.

On July 30, Metrix called Leinweber at BBSerCo to ask about the BBSerCo-labeled serum it had just received from Green Bay.Leinweber told Metrix he knew nothing about the delivery.Leinweber then called Green Bay's implementation manager, Wayne Krueger, and asked whether Green Bay knew of any prospective sales.Even though Krueger knew about the delivery to Metrix, and about Green Bay's agreement to sell to Metrix, he told Leinweber he was unaware of any interest.

On July 31, Green Bay realized it could not complete the sale without the samples, so Krueger called Leinweber to find out where the samples were.Leinweber told him BBSerCo had the samples in Colorado, and asked Krueger again whether Green Bay knew of any interest in the serum.Krueger again denied Green Bay's awareness of a possible sale.Since Green Bay did not have access to the samples, Krueger called Leinweber back later asking him to send all the samples to Metrix.When Krueger mentioned Metrix, Leinweber asked him about the small amount of inventory that Green Bay sent to Metrix.Krueger implied he was unaware of the details of that transaction.Leinweber told Krueger some of the inventory was already "out on test," meaning other customers were testing the samples for a possible purchase.It was bad business to send out samples on the same batch to more than one customer at a time without informing the later customer the product was being considered by someone else.But since Green Bay wanted all the samples, and Leinweber did not know Green Bay had already secretly agreed to sell the entire inventory to Metrix and cut BBSerCo out of the deal, Leinweber agreed to send all samples to Metrix.

On August 1, Leinweber faxed a letter to Green Bay discussing the small shipment of inventory to Metrix, his understanding that Metrix wanted to test all the samples, and expressing BBSerCo's continued faith in Green Bay as its business partner:

I'm assuming that BBSerCo was taken out of the loop initially as an oversight.Such oversight was the result of seeing an opportunity to make a quick sale ....Lets work closer together on this [potential sale to Metrix] to make sure everything that is required by [Metrix] is addressed.I will remain in contact with them to make sure any questions or additional data they required is provided.I will keep you informed on the progress as it happens.

Leinweber's fax also informed Green Bay that BBSerCo had successfully sold a portion of the inventory, and was wiring $127,296 to Green Bay's account.An hour after receiving the fax, Green Bay's COO, Wayne Matzke, called Leinweber to thank him for the wired money and assured him that BBSerCo was not "being taken out of the loop."

But on August 15, after all the remaining serum had been shipped to Metrix, Matzke called Leinweber and told him about the Metrix sale.Matzke also told Leinweber that Green Bay had no intention of paying BBSerCo's processing fees, which would have totaled $202,560.Over the next several weeks, BBSerCo negotiated with both Green Bay and Metrix to get paid its processing fees.On September 4, 1997, when those attempts failed, Metrix wired its entire payment directly to Green Bay.

BBSerCo immediately sued Metrix, its principal owner John Schoen, and Green Bay in Iowa state court.Green Bay removed the case to federal district court.The case was tried seven days before a jury.At the close of evidence and before submitting the case to the jury, the district court granted Metrix's and Schoen's motions for JAML.

The jury considered three of BBSerCo's claims against Green Bay — breach of contract, fraudulent misrepresentation, and fraudulent nondisclosure — and found in BBSerCo's favor on the fraudulent nondisclosure and contract claims.The jury awarded $202,560 in processing fees, $86,522 in lost profits, $33,681 in interest, and...