Cargill Meat Solutions Corp. v. Premium Beef Feeders, LLC

• Decision Date: 02 March 2016
• Docket Number: Case No. 13-1168-EFM-TJJ
• Parties: Cargill Meat Solutions Corporation, Plaintiff, v. Premium Beef Feeders, LLC, and Power Plus Beef Feeders, LLC d/b/a Power Plus Feeders, LLC, Defendants.
• Court: U.S. District Court — District of Kansas

168 F.Supp.3d 1334

Cargill Meat Solutions Corporation, Plaintiff,

v.Premium Beef Feeders, LLC, and Power Plus Beef Feeders, LLC d/b/a Power Plus Feeders, LLC, Defendants.

Case No. 13-1168-EFM-TJJ

United States District Court, D. Kansas.

Signed March 2, 2016

Holly A. Dyer, James M. Armstrong, Paige D. Pippin, Sarah Burch Macke, Foulston Siefkin LLP, Wichita, KS, for Plaintiff.

Charles H. Cooper, William R. Sampson, Zach Chaffee-McClure, Shook, Hardy & Bacon LLP, Kansas City, MO, J. Clay Christensen, Jonathan M. Miles, Christensen Law Group, PLLC, Oklahoma City, OK, Katherine J. Andrusak, Ken M. Peterson, Will B. Wohlford, Morris, Laing, Evans, Brock & Kennedy, Chtd., Wichita, KS, Lucas C. Wohlford, Gardere Wynne Sewell LLP, Dallas, TX, for Defendants.

MEMORANDUM AND ORDER

ERIC F. MELGREN

, UNITED STATES DISTRICT JUDGE

Plaintiff Cargill Meat Solutions Corporation (“Cargill”) filed suit against Defendants Premium Beef Feeders, LLC and Power Plus Beef Feeders, LLC. Cargill alleges breach of contract arising from the parties' Cattle Procurement and Feeding Agreement. The Defendants' answer included two counterclaims. In relevant part, Defendants' Count I alleges breach of both contract and the implied duty of good faith and fair dealing. Count II alleges breach of fiduciary duty. Before the Court are three motions filed by Cargill in response to the Defendants' counterclaims: (1) Cargill's motion to dismiss the breach of fiduciary duty claim (Doc. 219); (2) Cargill's motion for partial summary judgment on the claims for breach of contract and the duty of good faith and fair dealing (Doc. 127); and (3) Cargill's motion to exclude expert testimony (Doc. 130). For the reasons stated below, the Court denies Cargill's motion to dismiss and motion for partial summary judgment. The Court grants in part and denies in part Cargill's motion to exclude expert testimony.

I. Factual and Procedural Background¹

The Defendants specialize in procuring, feeding, and selling cattle. The Defendants and Cargill formed an agreement in which the Defendants would process and slaughter cattle through Cargill's processing plants. The agreement was embodied in the Cattle Procurement and Feeding Arrangement (“CPFA”) on May 24, 2011. Under the CPFA, Cargill and the Defendants were to (1) jointly hold title to all cattle purchased pursuant to the agreement; (2) share equally in the profits or losses of the cattle; and (3) jointly operate together to procure, feed, and toll process the cattle. The CPFA also contained a risk management provision that provides:

The Parties agree that Cargill will be solely responsible for determining and implementing any risk management (i.e. hedging) strategies for the Cattle on feed with the Feedlot Vendor, and the grain associated with feeding the Cattle.

Cargill implemented hedges on cattle as early as March 2011. Cargill did not implement hedges on corn until August 2011. Farrin Watt, who handled the risk management for Cargill, stated that he would not typically wait so long to implement corn hedges. Watt explained that he was “being patient” because corn prices were high.

The CPFA resulted in significant losses for the Defendants. Due to these losses, the Defendants were unable to timely pay their debts. And when the Defendants failed to pay Cargill their share of the losses, Cargill brought suit in Kansas state court alleging breach of the CPFA. The Defendants timely removed the case to this Court and brought two counterclaims against Cargill. Count I alleges breach of contract, joint venture, and the implied duty of good faith and fair dealing. Count II alleges breach of fiduciary duty. Cargill now moves for dismissal of the Defendants' breach of fiduciary duty claim. The Defendants allege that Cargill owed them fiduciary duties because the CPFA constituted a joint venture. Cargill contends that the Defendants fail to state a claim upon which relief can be granted because there was no joint venture and no other facts would give rise to fiduciary duties. Cargill also moves for summary judgment on the portion of the Defendants' contract and good faith and fair dealing claims that arise out of Cargill's risk management strategies.

II. Legal Standard

A. Motion to Dismiss

Under Rule 12(b)(6), a defendant may move for dismissal of any claim for which the plaintiff has failed to state a claim upon which relief can be granted. Upon such a motion, the Court must decide “whether the complaint contains enough facts to state a claim to relief that is plausible on its face.”² A claim is facially plausible if the plaintiff pleads facts sufficient for the Court to reasonably infer that the defendant is liable for the alleged misconduct.³ The plausibility standard reflects the requirement in Rule 8 that pleadings provide defendants with fair notice of the nature of claims as well as the grounds on which each claim rests.⁴ The Court must accept all of the factual allegations in the complaint as true.⁵ But the Court need not afford such a presumption to legal conclusions.⁶ If the allegations in the complaint are “so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible.”⁷

B. Motion for Partial Summary Judgment

Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact, and the movant is entitled to judgment as a matter of law.⁸ A fact is “material” when it is essential to the claim, and issues of fact are “genuine” if the proffered evidenced permits a reasonable jury to decide the issue in either party's favor.⁹ The moving party bears the initial burden of proof, and must show the lack of evidence on an essential element of the claim.¹⁰ If the moving party carries this initial burden, the non-moving party that bears the burden of persuasion at trial may not simply rest on its pleading but must instead “set forth specific facts” from which a rational trier of fact could find for the non-moving party.¹¹ These facts must be clearly identified through affidavits, deposition transcripts, or incorporated exhibits; conclusory allegations alone cannot survive a motion for summary judgment.¹² To survive summary judgment, the non-moving party's evidence must be admissible.¹³ The Court views all evidence and reasonable inferences in the light most favorable to the party opposing summary judgment.¹⁴

III. Analysis

A. Motion to Dismiss

Cargill moves to dismiss the Defendants' counterclaim for breach of fiduciary duty. To prove a breach of a fiduciary duty under Kansas law, the Defendants must prove that: (1) a fiduciary relationship existed between Cargill and the Defendants; (2) Cargill had a duty to the Defendants based on the fiduciary relationship; and (3) Cargill breached that duty.¹⁵ Cargill claims that the Defendants fail to state a claim for breach of fiduciary duty because they did not adequately plead the existence of a fiduciary relationship. The Defendants respond by arguing that the CPFA constituted a joint venture, which is a fiduciary relationship. Alternatively, the Defendants argue that even if the CPFA was not a joint venture, a fiduciary relationship was implied in law.

“Whether a fiduciary relationship exists depends on the facts and circumstances of each case.”¹⁶ Such relationships are never presumed and should be extended reluctantly to commercial transactions.¹⁷ The burden of proving a fiduciary relationship rests on the party asserting its existence.¹⁸ Kansas recognizes two types of fiduciary relationships: (1) those specifically created by contract, such as principal and agent; and (2) those implied in law due to the facts surrounding the involved transactions and the parties' relationship.¹⁹ If the parties' agreement constituted a joint venture, then the first type of fiduciary relationship exists.²⁰

Cargill argues that the Defendants have not adequately alleged either type of fiduciary relationship. The Defendants contend that they have sufficiently alleged the existence of a joint venture. Alternatively, the Defendants argue that they sufficiently alleged the existence of the second category of fiduciary relationships, one implied in law.

1. Fiduciary Relationship Specifically Created by Contract

The Defendants claim the CPFA constituted a joint venture. But Cargill argues that the plain language of the CPFA precludes the existence of a joint venture. Cargill relies on the “Independent Parties” provision of the CPFA in making this claim. The “Independent Parties” provision states that:

[The Defendants] and Cargill agree that this agreement does not, and is not intended to create a partnership. None of the Parties shall be deemed to be an agent of the other Parties. Neither [the Defendants] nor Cargill shall at any time bind any other Party to any agreement, debt or obligation or otherwise act for any other Party. In no event will the parties be liable for any debt or obligations of the other Parties outside of the joint payments owed to third parties as described under Section 6, herein.

Cargill's argument goes as follows. Parties to a joint venture “stand in the relation of principal, as well as agent, as to one another.”²¹ And the “Independent Parties” provision explicitly declares that neither party shall be deemed the other's agent. Thus, the contract precludes the existence of a joint venture because parties in a joint venture are each other's agents, and the CPFA disclaims an agency relationship. As Cargill aptly summarizes its argument, “[a]s agency is a necessary component of joint ventures, it is impossible to preclude the creation of an ‘agency’ relationship while at the same time creating a joint venture.” On the surface, Cargill's argument is quite convincing. But it is unsupported by the law.

Under Kansas law parties cannot entirely preclude the creation of an agency relationship simply by disclaiming it in writing.²² Instead, “an agency...