CoBank, ACB v. Reorganized Farmers Cooperative Association, No. 04-3385 (Fed. 10th Cir. 3/14/2006)
| Decision Date | 14 March 2006 |
| Docket Number | No. 04-3385.,04-3385. |
| Parties | CoBANK, ACB, Plaintiff-Appellee v. REORGANIZED FARMERS COOPERATIVE ASSOCIATION, a Kansas cooperative association; FCA POST-CONFIRMATION TRUST, a Kansas trust established pursuant to the confirmed reorganization plan of the Farmers Cooperative Association, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
(D. Kan.) (D.Ct. No. 02-CV-1300-JTM).
Before LUCERO, Circuit Judge, BRORBY, Senior Circuit Judge, and HARTZ, Circuit Judge.
Appellant The Reorganized Farmers Cooperative Association and its successor-in-interest in bankruptcy, FCA Post-Confirmation Trust (referred to together hereafter as the Cooperative), appeal the district court's decision granting summary judgment in favor of Appellee CoBank, ACB, on the Cooperative's claims of breach of contract, breach of duty of good faith and fair dealing, fraud, breach of fiduciary duty, and tortious interference with contract, which relate to default on a loan agreement between CoBank, as the lender, and the Cooperative, as the borrower. Exercising our jurisdiction under 28 U.S.C. § 1291, we affirm.
The relevant facts are undisputed, with the exception of certain facts which the district court found immaterial to its summary judgment determination and which we address hereafter. To begin, CoBank is an agricultural lending bank chartered as a federal instrumentality, with its principal place of business in Colorado, and the Cooperative is an organization formed by a collection of farmers under the laws of the State of Kansas, with its principal place of business in Kansas. On or about January 31, 2000, the Cooperative and CoBank entered into a Master Loan Agreement (loan agreement) which was subsequently amended on August 2, 2000.
Under the terms of the loan agreement, the Cooperative obtained both revolving and term loans based in part on a requirement it maintain working capital of $1 million at the end of each fiscal year, ending on July 31 of each year. It also provided any modification of the agreement must be approved by CoBank, in writing, and signed on behalf of CoBank. The loan agreement, as amended, also contained a default provision which stated CoBank had no obligation to continue to extend credit to the Cooperative for any default event and in the event of such a default could discontinue extending credit at any time without prior notice. It also provided that in the event of default CoBank could, on notice to the Cooperative, terminate any commitment.
On September 21, 2000, accountants presented the Cooperative with a preliminary audit showing an operating loss of approximately $1.6 million for the fiscal year and a violation of the working capital section of the loan agreement requiring $1 million in working capital. Prior to the audit the Cooperative reported working capital of $1.7 million for the 2000 fiscal year, while after the audit its actual working capital totaled only $102,363. The next day, Friday, September 22, 2000, the Cooperative advised CoBank of the results of the preliminary audit. On the same day, a CoBank representative, David Ehret, met with the Cooperative's president and chief executive officer, Don Dumler, to discuss the Cooperative's default on the terms of the loan agreement and verbally advised Mr. Dumler that the Cooperative could continue to pay expenses necessary to preserve CoBank's collateral, such as payroll and utilities, and to buy grain, provided it was purchased and sold in back-to-back transactions.1 Although neither party discussed the amounts necessary to cover such expenditures, Mr. Ehret anticipated only minimal expenses and back-to-back grain sales over the weekend.
While it is disputed whether CoBank otherwise restricted or froze the Cooperative's line of credit immediately after obtaining the audit report, it is undisputed that on Monday, September 25, 2000, the next business day after receiving the audit, Mr. Ehret, on behalf of CoBank, faxed to the Cooperative a letter of notice of default on the loan, based on its $1.6 million reported loss and violation of the $1 million working capital contingency. In the letter, he identified the Cooperative's debt to CoBank at over $11 million, advised that CoBank was suspending monetary advances on the Cooperative's seasonal line of credit, and stated, (Emphasis added.)
On Sunday, September 24, 2000, even before CoBank sent the letter of default, Cooperative officials, in anticipation of possibly filing for bankruptcy, scheduled a meeting for the next day with a group of bankruptcy attorneys. On Monday, September 25, 2000, at 9:00 a.m., the Cooperative's president and chief executive officer, chief financial officer, board chairman, and legal counsel met for approximately four hours with bankruptcy attorneys, who discussed the time frame for filing bankruptcy and the need to file in a timely manner if the Cooperative elected to file for bankruptcy. During this time, the Cooperative continued aggressive purchases of grain, even though by Monday, September 25, 2000, CoBank's default notice advised it to reassess its ability to continue purchasing grain and its representatives were "on pins and needles" wondering how they would "pay people."
On the same day, Monday, September 25, 2000, a Cooperative employee requested and received from CoBank credit manager Dennis Blick the amount of $60,000 for payment on a margin call on grain. That evening, the Cooperative's Board of Directors held a special meeting at which its counsel suggested the board retain the same bankruptcy attorneys from the morning meeting to handle the bankruptcy filing. During that meeting, Mr. Dumler called Mr. Ehret and asked if the Cooperative could buy grain, to which Mr. Ehret again generally approved back-to-back grain purchases without reference to amount.
The next morning, Tuesday, September 26, 2000, the Cooperative's Board of Directors met with the same bankruptcy attorneys and again discussed the possibility of filing for bankruptcy. While the exact time is in dispute, it is undisputed that on the same day the Cooperative's chief executive officer, Mr. Dumler, requested approval from Mr. Blick for an advance of $4,056,969.95 to the Cooperative to pay for grain ($3.2 million), freight ($719,000), and payroll ($160,000). This amount was more than twice the amount the Cooperative had ever requested from CoBank during its entire loan history and consisted of unsecured creditor expenses. During a conference call later that day, CoBank declined to advance the $4 million requested. The next day, Wednesday, September 27, 2000, the Cooperative filed a petition for Chapter 11 bankruptcy in the federal bankruptcy court in Kansas, and any further discussions or requests for monetary advances apparently ceased.
Following receipt of a demand letter from the Cooperative asserting its intention to file a lawsuit against CoBank, CoBank filed a complaint for declaratory relief. In response, the Cooperative filed counterclaims against CoBank for breach of written contract, breach of oral contract, breach of duty of good faith and fair dealing, fraud, breach of fiduciary duty, and tortious interference with contract, but eventually abandoned its breach of oral contract claim which it based on CoBank's verbal commitments of continued monetary advances for grain, utilities, and payroll. Following extensive briefing on CoBank's motion for summary judgment on the Cooperative's counterclaims, the district court granted summary judgment in favor of CoBank and against the Cooperative for the reasons articulated hereafter. This appeal followed, in which the Cooperative contends the district court erred in granting summary judgment to CoBank and renews its claims of breach of written contract, breach of duty of good faith and fair dealing, fraud, breach of fiduciary duty, and tortious interference with contract. We address each claim in turn, noting the claims raised by the Cooperative are based on the same operative facts in support of its abandoned breach of oral contract claim but stated under different legal theories in an apparent attempt to find some means of success on at least one theory.
To begin, we review de novo the district court's summary judgment decision, examining the record and drawing all reasonable inferences in the light most favorable to the non-moving party. See Palladium Music, Inc. v. EatSleepMusic, Inc., 398 F.3d 1193, 1196 (10th Cir. 2005). Summary judgment is appropriate if the record shows there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Id. (). In considering summary judgment determinations, we may affirm the district court's grant of summary judgment for any reason supported by the record. See Baca v. Sklar, 398 F.3d 1210, 1216 (10th Cir. 2005). In considering disputed facts, we have held mere allegations unsupported by other evidence are insufficient to survive a motion for summary judgment. Id.
The Cooperative suggests summary judgment is inappropriate based on CoBank's refusal to honor Mr. Ehret's verbal commitments to advance funds for grain and other general expenses after its material default. It asserts these commitments modified the written agreement, and CoBank's failure to later advance the $4 million requested breached not only the written loan agreement but the covenant of good faith and...
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