Clasing v. Hormel Corp.

• Decision Date: 21 January 2014
• Docket Number: No. C 12–3054–MWB.,C 12–3054–MWB.
• Citation: 993 F.Supp.2d 960
• Parties: Jay CLASING and Deanna Clasing, d/b/a Jade Farms, Plaintiffs, v. HORMEL CORP., Defendant.
• Court: U.S. District Court — Northern District of Iowa

993 F.Supp.2d 960

Jay CLASING and Deanna Clasing, d/b/a Jade Farms, Plaintiffs,

v.HORMEL CORP., Defendant.

No. C 12–3054–MWB.

United States District Court,

N.D. Iowa,

Central Division.

Jan. 21, 2014.

Gary W. Koch, Matthew C. Berger, Gislason & Hunter LLP, New Ulm, MN, for Plaintiffs.

Todd Patrick Langel, Jacob D. Bylund, Faegre Baker Daniels LLP, Des Moines, IA, for Defendant.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

MARK W. BENNETT, District Judge.

TABLE OF CONTENTS

I.

INTRODUCTION

964

A.

Factual Background

964

1.

The parties

964

2.

The parties' written agreements

964

3.

The impact of COOL

965

a.

The requirements of COOL

965

b.

Replacement of the Written Agreement with an Oral

Agreement

965

c.

The Clasings' purchase of additional Canadian pigs

966

4.

The amendment or breach of the parties‘ Oral Agreement

967

B.

Procedural Background

969

1.

The Complaint and the Answer

969

2.

Hormel's Motion For Summary Judgment

970

II.

LEGAL ANALYSIS

971

A.

Standards For Summary Judgment

971

B.

Hormel's Motion For Summary Judgment

972

1.

The breach-of-contract claim

972

a.

Arguments of the parties

972

b.

Analysis

974

i.

The “notice” term

975

ii.

Assent to the new “pricing” term

976

iii.

Breach of the “pricing” term

977

iv.

Breach of the “delivery” term

978

c.

Summary

979

2.

The claim of breach of the implied covenant of good faith and fair dealing

979

a.

Arguments of the parties

979

b.

Analysis

980

3.

The implied contract claims

983

a.

Arguments of the parties

983

b.

Analysis

983

III.

CONCLUSION

984

This is a diversity action by hog finishers against a meat packing company for alleged breach of a 2008 oral contract between the parties for continued purchases of the hog finishers' Canadian-born hogs after legislation implementing mandatory “country of origin labeling”(COOL) for pork became effective.The hog finishers allege that, in 2009, the meat packing company unilaterally changed the pricing and terms for delivery of the hog finishers' Canadian-born hogs.The parties stipulated to the dismissal of the hog finishers' claim of tortious interference with prospective business advantage, but the meat packing company has now moved for summary judgment on the hog finishers' remaining claims of breach of oral contract, breach of implied covenant of good faith and fair dealing, breach of implied-in-fact contract (promissory estoppel), and breach of implied-in-law contract (quasi-contract).

I.INTRODUCTION

A.Factual Background

I set forth here only those facts, disputed and undisputed, sufficient to put in context the parties' arguments concerning the meat packing company's motion for summary judgment.Thus, the “universe” of facts stated here is considerably smaller than the complete set of facts, undisputed and disputed, set forth in the parties' various statements of fact.Unless otherwise indicated, the facts recited here are undisputed, at least for purposes of summary judgment.If necessary, I will discuss additional factual allegations, and the extent to which they are or are not disputed or material, in my legal analysis.

1.The parties

During the time period relevant to their lawsuit, plaintiffsJay Clasing and Deanna Clasing, husband and wife, doing business as Jade Farms, were engaged in the business of purchasing weaner pigs from sow farms, growing and finishing such weaner pigs to slaughter weight, and then selling the market hogs for slaughter.Unless otherwise appropriate, I will refer to the Clasings and/or Jade Farms, individually or collectively, simply as the Clasings.The Clasings were residents of and conducted their hog finishing business in Palo Alto County, Iowa.DefendantHormel Corporation, a Delaware corporation with its principal place of business in Austin, Minnesota, registered to do business in Minnesota and Iowa, is a “packer” as defined in 7 U.S.C. § 191, for purposes of the Packers & Stockyards Act of 1921, 7 U.S.C. §§ 181 et seq.As part of its business, Hormel purchases hogs for slaughter.

2.The parties' written agreements

On April 20, 2007, Hormel entered into a Hog Procurement Agreement (the Written Agreement) with the Clasings with an effective date of July 1, 2007.SeeDefendant's Appendix, Tab I.The initial term of the Written Agreement was one year, with an expiration date on June 30, 2008.The Written Agreement had an “evergreen clause,” however, pursuant to which it would automatically renew at the end of the initial term for successive six-month terms, unless terminated by either party by written notice at least ninety days prior to the end of the then-current term.The Written Agreement included a term that gave Hormel the right to terminate the Written Agreement by written notice to the Clasings at any time if anticipated “country of original labeling” or COOL legislation was passed into law in the United States and certain other contingencies, not at issue here, were met.

The Written Agreement provided a base price for the Clasings' market hogs “equal to the Western Cornbelt Price,” which was further defined as “the average price per carcass cwt. of the prior day's daily weighted average base price for negotiated purchases of barrows and gilts reported by USDA Market News in Western Cornbelt Daily Direct Hog–Afternoon, report HG212 (‘Western Cornbelt Report’) plus $2.00 per carcass cwt.”Id. at 73(Tab Iat 8)(emphasis in the original).This precise contractual definition of “Western CornbeltPrice” notwithstanding, the parties sometimes refer to the price under the Written Agreement as “Western Cornbelt Price plus $2.00” or “WCB + 2.00.”See, e.g.,Defendant's Statement Of Material Facts, ¶ 38.In addition, Hormel provided certain premiums and/or discounts based upon the weight and back fat of the carcasses shown on a Lean Pork Value Table provided to the Clasings.Hormel also provided additional incentives if a certain percentage of carcasses fell within a designated range of weights and back fat in a given quarter.The Written Agreement between the Clasings and Hormel was amended on June 27, 2008, to change the delivery schedule for the Clasings' hogs, but not the pricing.

On or about May 8, 2007, that is, shortly after the Clasings entered into the Written Agreement with Hormel, the Clasings entered into a Purchase Agreement with Big Sky Farms, Inc., a pig supplier in Saskatchewan, Canada, to purchase weaner pigs at a base price of $35.80 a head, but a copy of that agreement is not available.The parties dispute whether the Big Sky Purchase Agreement allowed the Clasings to terminate that Purchase Agreement upon the implementation of COOL legislation, as Hormel contends, or when the Clasings were unable to have their Canadian-born hogs slaughtered, as the Clasings contend.

No claims in the present litigation are based on any alleged breach of the Written Agreement between the Clasings and Hormel, and it is clear that the Clasings delivered Canadian-born hogs to Hormel during the period that the Written Agreement was in force.The Clasings allege that, prior to September 2008, Hormel provided flexibility and had worked cooperatively with the Clasings and other producers to schedule the delivery of market hogs at times that would satisfy Hormel's requirements while also allowing producers to maintain the weight and flow of pigs in their production systems.Hormel qualifies this allegation by alleging that, although it maintained the right to set a delivery schedule pursuant to the Written Agreement, Hormel provided producers with flexibility, to the extent possible, through oral agreements and prior course of dealing.

3.The impact of COOL

a. The requirements of COOL

There is or can be no dispute that the situation for the parties changed dramatically on May 22, 2008, when Congress passed the 2008 Farm Bill, which, among other things, amended the 2002 Farm Bill's mandatory COOL provisions for various meats, including pork.See7 U.S.C. § 1638a(a)(1) and (2)(A)-(D).There is no dispute that the hogs sold by the Clasings to Hormel under the Written Agreement were then designated “Category B” hogs, based upon the 2008 COOL provisions in § 1638a(a)(2)(B), because they were Canadian-born, although they were finished in the United States.Also, there is or can be no dispute that those hogs could not be designated “Category A” hogs, based on § 1638a(a)(2)(A), which indicates United States country of origin, because they had not been exclusively born, raised, and slaughtered in the United States.Therefore, in order to comply with COOL, Hormel was required to keep “Category B” hogs, such as those produced by the Clasings, as well as other categories of hogs, segregated from “Category A” hogs.

b. Replacement of the Written Agreement with an Oral Agreement

On September 11, 2008, Hormel sent a memorandum to all hog producers that sold hogs to Hormel, including the Clasings, explaining the requirements of COOL and Hormel's new policies based upon COOL.The September 11, 2008, memorandum indicated that Hormel would continue to accept Category B hogs at limited times and limited days of the week, but only to certain facilities.During the fall of 2008, Hormel representatives discussed with the Clasings the risk (according to Hormel) or the possibility (according to the Clasings) that Hormel would discontinue taking Category B hogs, and the parties agree that Hormel gave the Clasings contacts for United States sources of weaner pigs.

Hormel alleges, and the Clasings admit, that Hormel sent the Clasings a letter dated September 29, 2008, providing the Clasings with ninety days' notice of termination of their Written Agreement, effective December 31, 2008.The parties also agree that the Written Agreement terminated on December 31, 2008, pursuant to the terms of the September 29, 2008, written notice.There is no claim in this litigation that termination of the Written Agreement was improper.There is a dispute, however, about whether the notice of termination was based on a decision that Hormel had...