Busse v. Pacific Cattle Feeding Fund No. 1, Ltd.

• Decision Date: 14 March 1995
• Docket Number: No. 06-94-00052-CV,06-94-00052-CV
• Citation: 896 S.W.2d 807
• Parties: Lavern T. BUSSE and Jeff Busse, Appellants, v. PACIFIC CATTLE FEEDING FUND # 1, LTD., Appellee.
• Court: Texas Court of Appeals

Page 807

896 S.W.2d 807

Lavern T. BUSSE and Jeff Busse, Appellants, v. PACIFIC CATTLE FEEDING FUND # 1, LTD., Appellee.

No. 06-94-00052-CV.

Court of Appeals of Texas Texarkana.

Submitted Dec. 8, 1994.

Decided March 14, 1995.

Rehearing Denied March 14, 1995.

James H. Baumgartner, Jr., David Reese, Vial, Hamilton, Koch & Knox, Dallas, for appellants.

Orrin L. Harrison, III, Vinson & Elkins, LLP, Eric R. Cromartie, Hughes & Luce, LLP, Thomas W. Mills, Jr., Mills Presby & Anderson, Dallas, for appellee.

Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.

OPINION

CORNELIUS, Chief Justice.

Lavern T. Busse and his son, Jeff Busse, appeal from an adverse judgment rendered in Pacific Cattle Feeding Fund's suit against them for damages resulting from Pacific's investment in a failed cattle marketing arrangement. Pacific sued the Busses, alleging Texas Securities Act and Deceptive Trade Practices Act violations, common law fraud, and breach of contract. The court rendered summary judgment for Pacific on the Securities Act claims. The jury found in Pacific's favor on the DTPA and fraud claims. The court directed verdicts for the Busses on Pacific's breach of contract claims.

Stan Bert formed the Pacific Cattle Corporation, of which he was president and sole shareholder, in September 1985. He formed the Pacific Cattle Feeding Fund # 1, here called "Pacific," as a Texas limited partnership with Pacific Cattle Corporation as general partner in 1986-87. Pacific began investing in cattle in October 1988.

Lean and Free, an Iowa corporation, was formed in September 1987 by twenty-five investors to take advantage of a process developed in England by which Holstein bulls fed a special diet purportedly produced beef low in saturated fat, calories, and cholesterol. Lean and Free encountered financial difficulties early, and by April or May of 1988, it approached Lavern Busse about providing capital. In December of 1988, Lavern Busse made Lean and Free a loan of $150,000, and in January 1989, he increased the loan to $243,000. In April 1989, Lean and Free approached Lavern Busse about additional monies. In response, Lavern increased the amount of his loan and converted the loan into common and preferred stock, making him the major stockholder.

Pacific alleged that Bert learned about Lean and Free in 1989 from Dean Freed of Ag Dimensions International (ADI), which was locating and managing livestock enrolled in the Lean and Free Program. ADI told Bert about Lavern Busse, and Bert and Lavern Busse met on October 23, 1989, at Lavern's office in Cedar Rapids, Iowa. Present at the meeting were ADI principals and Mike Knipp, a Lean and Free manager. Lavern Busse already had bulls enrolled in the Lean and Free program under what were called finishing contracts. Bert testified that Lavern Busse assured him that there was more demand for Lean and Free beef than they could satisfy, that he needed to get more investors like Pacific so he could invest more of his money to increase inventory, that Lean and Free was building inventory so it could meet demand, that it had a contract with Amway to supply it with beef, and that he was carrying Lean and Free beef on his own menus at Bonanza steakhouses. At the close of the meeting, Lavern Busse told Bert that he should deal with ADI and that ADI would put together a group of Busse's bulls that Pacific could buy and place with Lean and Free for feeding.

After the meeting, Bert received through the mail at his Texas offices some Lean and Free advertising brochures that contained analyses of the rate of return investors would receive by investing in Lean and Free.

Bert testified that before he invested he learned that an ADI officer had been convicted of fraud involving cattle contracts. Steve Knutson, a banker at Norwest Bank in Iowa, called Bert to tell him that ADI's chief executive officer, Dennis Peterson, had served some time in prison. Bert then called Jeff Busse. Jeff Busse told Bert that they knew about Peterson's history but that controls were in place at ADI to protect investors. Bert and Jeff Busse had a second phone conversation in which they discussed the difficulties Pacific was having arranging financing at Norwest Bank for the bull purchase. Bert testified that Jeff Busse told him that if the financing did not come through, Lavern Busse would sell the bulls to other buyers. Bert testified that Jeff told him he would speak to Knutson at the bank to speed the matter along.

Pacific bought 1,362 cattle from Lavern Busse on January 25, 1990. Pacific simultaneously entered into feeding and finishing contracts with Lean and Free. The contracts provided that Pacific would pay for feeding the cattle, and once the cattle were ready for slaughter, Lean and Free would repurchase them at cost plus 12% interest, reimburse Pacific for its incurred feed costs, and pay Pacific $25 per head profit.

Lean and Free failed to find enough markets to support its operations. By April 1990, it had failed to repurchase Pacific's cattle, failed to reimburse Pacific for its feed costs, and failed to pay the $25 per head profit. On June 7, 1990, Lean and Free's directors allowed Lavern Busse, as its only secured creditor, to foreclose on the company's processed inventory and trade name. From June 1990 to January 1991, Pacific continued to feed its cattle and gradually sold them off.

Pacific filed suit against Lavern and Jeff Busse in August 1991. It alleged that the Busses knew Lean and Free was failing and that they sold the bulls to Pacific as part of a scheme to liquidate the inventory before the business went under.

The trial court granted partial summary judgment in favor of Pacific on its claims against Lavern Busse under the Texas Securities Act and granted the Busses a directed verdict on Pacific's breach of contract and alter ego claims. The other issues were submitted to a jury, which found in favor of Pacific, assessing actual damages, additional damages under the DTPA, and punitive damages under the common law fraud claims. The court entered judgment for Pacific on its DTPA claim, but reduced the additional damages by $405,000.

The Busses contend in their first point of error that the trial court erred in denying their motion to dismiss based on forum selection clauses in the feeding and finishing contracts.

Forum selection clauses are valid in Texas. Greenwood v. Tillamook Country Smoker, 857 S.W.2d 654, 657 (Tex.App.--Houston [1st Dist.] 1993, no writ). Parties are allowed to choose the forum in which to litigate their disputes. In this case, the feeding and finishing contracts between Pacific and Lean and Free contained the following clauses:

This agreement and the rights and obligations of the parties arising hereto shall be construed in accordance with the laws of the State of Iowa, with venue in [certain Iowa counties].

A forum selection clause, however, does not apply to a tort action alleging that the plaintiff was induced by misrepresentations to enter into the contract, where construction of the rights and liabilities of the parties under the contract is not involved. See Caton v. Leach Corp., 896 F.2d 939, 942-43 (5th Cir.1990); Pozero v. Alfa Travel, Inc., 856 S.W.2d 243, 245 (Tex.App.--San Antonio 1993, no writ). Where the wrongs arise from misrepresentations inducing a party to execute the contract and not from breach of the contract, remedies and limitations specified by the contract do not apply. See Caton v. Leach Corp., supra; Decision Control Systems, Inc. v. Personnel Cost Control, Inc., 787 S.W.2d 98, 100-01 (Tex.App.--Dallas 1990, no writ).

This case does not involve an interpretation or construction of the contracts but rather the misrepresentations and fraud in the inducement to sign the contracts. The rights, obligations, and cause of action do not arise from the contracts but from the Deceptive Trade Practices Act, the Texas Securities Act, and the common law.

In Pozero v. Alfa Travel, Inc., a couple purchased a cruise ticket and a ticket cancellation insurance policy. They sued the travel agent and the cruise line, as principal, when the cruise was canceled and the insurance refused to reimburse them. The ticket contract had a forum-selection clause setting California as forum for any lawsuit "arising out of or in any manner relating" to the contract. The court held that the DTPA action involved misrepresentations and nondisclosures leading to the ticket's purchase, not a construction of the ticket contract.

Likewise, in this case the causes of action are based on alleged fraud and deceptive practices that induced Pacific to enter into the contracts, not to interpret or enforce rights under the contracts. Moreover, the Busses were not even parties to the contracts. Although Pacific alleged that Lean and Free was Lavern Busse's alter ego, they failed to prove that allegation.

The Busses rely on Barnette v. United Research Co., 823 S.W.2d 368 (Tex.App.--Dallas 1991, writ denied). That case, however, is distinguishable because there the issues arose from an employment contract and from the parties' employer-employee relationship that implicated the contract terms. Here, the fraud and misrepresentation allegations deal not with the terms of the contract, but predate the contract and deal with inducement to sign the contract. Similarly, the case of Brock v. Entre Computer Centers, Inc., 740 F.Supp. 428 (E.D.Tex.1990), involved a provision that applied to "any action" and was not limited to actions arising under the contract itself. Moreover, the court in Brock was construing a federal venue statute not involved here.

For the reasons stated, we conclude that the contractual forum selection clauses do not control this suit.

The Busses also contend that the court erred in denying their motion for judgment notwithstanding the verdict as to Pacific's DTPA claim because Iowa law, not Texas law, applies to the transaction.

A choice of law question is subject...