Cook v. Hartford Acc. and Indem. Co.

• Decision Date: 23 January 1987
• Docket Number: Civ. No. 85-0-847.
• Parties: Robert M. COOK, et al., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant.
• Court: U.S. District Court — District of Nebraska

657 F. Supp. 762

Robert M. COOK, et al., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant.

Civ. No. 85-0-847.

United States District Court, D. Nebraska.

January 23, 1987.

Law Offices of Robert M. Cook, Norfolk, Neb., for plaintiffs.

Victor J. Lich, Jr., Lich, Herold & Mackiewica, Omaha, Neb., for defendant.

MEMORANDUM OPINION

RICHARD E. ROBINSON, Senior District Judge.

THIS MATTER was tried to the Court on October 22, 1986. The parties have fully briefed the action and the matter is presently ripe for resolution. Jurisdiction is based on the Packers and Stockyards Act, 7 U.S.C. Section 209(b), and 28 U.S.C. Section 1331. The following Memorandum embodies the Court's findings of fact and conclusions of law as mandated by Rule 52(a), Fed.R.Civ.P.

The primary issue presented for resolution is whether the defendant Hartford Accident and Indemnity Company, as surety, is liable on a bond issued to E.K. Corrigan Company, its principal, for the unpaid purchase price of certain cattle purchases made by one Virgil P. Miller, the action's main protagonist. Secondary issues involve whether prejudgment interest is available on any judgment and whether a trustee and/or attorney fee can be obtained. Each of these issues shall be addressed below.

The facts established at trial and in the record are as follows: E.K. Corrigan Company conducts a livestock marketing and clearing agency business in Omaha, Nebraska. As required by the Packers and Stockyards Act, 7 U.S.C. Section 181 et seq., E.K. Corrigan maintained a bond covering its business transactions and the transactions of those clearing through E.K. Corrigan. See 9 C.F.R. 201.29. The Corrigan bond, number 4154636, a copy of which is appended to this Memorandum, was issued by the defendant Hartford Accident and Indemnity Company, as surety, in the amount of $110,000.00 and remained effective through March 1, 1985. See exhibit 1. Registrants covered by the bond, i.e., individuals clearing transactions through E.K. Corrigan, were listed on the bond and could be terminated therefrom pursuant to the provisions set out in section (j). See exhibit 1. E.K. Corrigan listed, and in the past had terminated, registrants on the bond. One of the registrants listed but never terminated prior to the bond's expiration was Virgil P. Miller.

As stated, E.K. Corrigan provided clearing services to various dealers and traders. According to Curtis R. Brown, president and majority shareholder of E.K. Corrigan, clearing services generally amounted to providing short term financing for the clearees. This clearing relationship worked as follows: a trader or dealer clearing through E.K. Corrigan was provided drafts¹ from the E.K. Corrigan Company. When that trader or dealer purchased livestock to be cleared through E.K. Corrigan, he was authorized to sign and issue a Corrigan draft for the purchase price to the seller. This draft would then be honored by Corrigan and paid from its banking account. It was then understood between E.K. Corrigan, as clearor, and the trader or dealer, as clearee, that the clearee would resell the purchased livestock within a short period of time (frequently within twenty-four hours, sometimes within a week to ten days) and settle accounts with Corrigan. For its services, E.K. Corrigan received a commission of one dollar per head of livestock resold. Though it was established at trial that E.K. Corrigan only cleared transactions conducted with E.K. Corrigan drafts,² there was no caveat or restriction embossed on the bond itself indicating that E.K. Corrigan provided clearing services only to those utilizing Corrigan drafts. Rather, the bond's only ostensible limitations on Corrigan clearing services was providing services to those listed as clearees on the Corrigan bond.

Virgil P. Miller, lead protagonist but nonparty in this action, was a registered cattle dealer/trader from Treynor, Iowa. For almost thirty years Miller was associated with E.K. Corrigan as a clearee. His name was listed on the Corrigan bond and was not expunged therefrom until the bond expired. Though associated with E.K. Corrigan, Miller was not a Corrigan employee; he was an independent trader and dealer who at times cleared his livestock purchases through Corrigan, and, at others, purchased solely on his own account. As a practice, when clearing through E.K. Corrigan Miller utilized the Corrigan drafts; otherwise he settled for his purchases with his personal check.

The three sales forming the basis claims of this action were transacted by Miller as follows:³ a) On October 24, 1984, Dean Kinney sold twelve (12) heifers to Virgil Miller for a total purchase price of $5,222.48. On October 31, 1984, Dean Kinney sold sixty-two (62) steers and heifers to Virgil Miller for a total purchase price of $26,005.90. Miller has paid the sum of $7,028.38 to Dean Kinney and the balance of the purchase price due and owing for the livestock purchased on October 24, 1984, and October 31, 1984 is $24,200.00; b) On December 13, 1984, Willard Kepley sold one hundred (100) steers and heifers to Virgil Miller for a total purchase price of $29,202.06. Miller issued his personal check for the purchase price, but the check was not paid due to insufficient funds in the checking account. The purchase price remains due and owing; c) On December 27, 1984, Dunlap Livestock Auction sold twenty-five (25) cows to Virgil Miller for a total purchase price of $8,975.45. Miller did not pay for the cows and the purchase price remains due and owing. In sum, the total claim of the unpaid sellers of livestock listed above is $62,377.51. See exhibits 4, 5, and 6.

All of the unpaid sellers listed above had previously dealt with and knew Miller as a clearee of E.K. Corrigan and all stated they relied on this relation in making the above-noted sales to Miller.⁴ These sellers also acknowledge, however, that in previous dealings with Miller they had received Corrigan drafts not personal checks. They were never, on the other hand, informed or alerted to the alleged restriction that E.K. Corrigan cleared only transactions conducted with its drafts. The evidence demonstrated that at no time prior to these sales were the sellers advised by anyone that Miller no longer cleared his transactions through E.K. Corrigan. Miller himself did not notify the sellers of or allude to the alleged limitation when making these purchases. In fact, when Willard Kepley received Miller's personal check for the December 13, 1984, cattle purchase he questioned Miller about the aberration to which Miller responded he had run out of Corrigan drafts.⁵ Kepley accepted this explanation. Therefore, the unpaid sellers never had notice that, at the time of the unpaid sales, E.K. Corrigan no longer considered Miller a clearee. While it was established that the sellers did not contact E.K. Corrigan or the Packers and Stockyard Administration to find out whether Miller was still bonded prior to the unpaid sales, it is also apparent that the sellers, when dealing with Miller in the above sales, did so in good faith reliance that the purchases would be cleared through E.K. Corrigan Company.

Each of the unpaid sellers filed timely claims on the bond for payment and the plaintiff-trustee, Robert M. Cook, was duly appointed as trustee by Jack W. Brinkmeyer of the Packers and Stockyards Administration to represent these claimants. See exhibits 2, 3, 4, 5, 6, and 7.

There was a conflict in the evidence as to whether Virgil Miller was a clearee for E.K. Corrigan when the claimant sales were made in October and November of 1984. The defendant argues that Miller had been terminated as a clearee on August 6, 1984, when Corrigan president, Curtis R. Brown, refused to give Miller additional Corrigan drafts. Miller's outstanding accounts and backlog of cattle precipitated this action. The defendant argues that Corrigan drafts were essential to clearing transactions through E.K. Corrigan and since Miller no longer possessed the indispensable drafts he was no longer an E.K. Corrigan clearee. It is undisputed that after August 6, 1984, Miller did not, in fact, clear any transactions through E.K. Corrigan.

The plaintiff, on the other hand, argues Miller was a Corrigan clearee at the time of the unpaid sales. The Court finds this is the better legal position. The evidence clearly demonstrated that at all pertinent times, i.e., when the unpaid sales were consummated from October 24 through December 27, 1984, Virgil Miller was listed as a clearee on the E.K. Corrigan bond. In fact, Miller's name was not expunged from the bond at any time prior to its expiration on March 1, 1985. See exhibit 1. Additionally, Miller was listed as a trader on Bulletin No. 80 distributed on September 5, 1984, by the Omaha Live Stock Exchange. See exhibit 15. Bulletin No. 80, which ostensibly sanctioned Miller's clearing through E.K. Corrigan until November 30, 1984, was neither countermanded nor objected to by Corrigan, even though it clearly conflicted with Corrigan's own view that Miller was no longer a clearee. Finally, the bond itself, through section (j), set out procedures for terminating a registrant therefrom. That section provided "termination of the clearance of a registrant under condition clause 3 of this bond may be accomplished by issuance of a rider or endorsement by the Surety herein deducting the name of the clearee. Termination of the clearance shall become effective thirty (30) days after the date of receipt of the rider or endorsement by the administrator, Packers and Stockyard Administration, Washington, D.C." E.K. Corrigan neither followed this procedure nor notified its surety, The Packers and Stockyard Administration, or the Omaha Livestock Exchange, that Miller was no longer a clearee at Corrigan's. E.K. Corrigan's first public notification of Miller's altered status came on January 11, 1985, well after the final sale at issue in this litigation. See exhibit...