Cooper v. American Auto. Ins. Co.

Decision Date30 October 1992
Docket Number90-6127,Nos. 90-6124,s. 90-6124
PartiesDale COOPER, doing business as Cooper Livestock Marketing Agents, Inc., Plaintiff-Appellant/Cross-Appellee, v. AMERICAN AUTOMOBILE INSURANCE COMPANY; United States of America, ex rel. United States Department of Agriculture, Packers and Stockyards Administration, Defendants- Appellees/Cross- Appellants, v. Kathy Diane COOPER; Robert M. Rodenberger, Jr.; Karen Sue Rodenberger; Donald Blake; Flora Blake; Clarence John Cooper; Norma Cooper, Third-Party Defendants-Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Robert H. Mitchell and Newell E. Wright, Jr. of Robert H. Mitchell & Assoc., Oklahoma City, Okl., for plaintiff-appellant/cross-appellee.

John B. Hayes of Looney, Nichols, Johnson & Hayes, Oklahoma City, Okl., for defendant-appellee/cross-appellant American Auto. Ins. Co.

Warren D. Majors, Asst. U.S. Atty., Oklahoma City, Okl. (Timothy D. Leonard, U.S. Atty., and Roger Griffith, Asst. U.S. Atty., Oklahoma City, Okl., on the brief), for defendant-appellee/cross-appellant U.S. ex rel. U.S. Dept. of Agriculture, Packers and Stockyards Admin.

O. Clifton Gooding and James L. Menzer of Gooding & Menzer, P.C., Oklahoma City, Okl., on the brief for third-party defendants-appellees Robert M. Rodenberger, Jr., Karen Sue Rodenberger, Donald Blake and Flora Blake.

Before McKAY, Chief Judge, HOLLOWAY, Circuit Judge, and WINDER, * District Judge.

HOLLOWAY, Circuit Judge.

No. 90-6124 is an appeal by plaintiffs Cooper Livestock Marketing Agents, Inc. ("CLMA") and Dale Cooper (together "Cooper") from a decision of the United States District Court, Western District of Oklahoma: (1) granting summary judgment to defendant American Automobile Insurance Co. ("AAIC") on Cooper's claim of wrongful termination of surety bonds; and (2) dismissing Cooper's claims of negligence against codefendants United States Department of Agriculture ("USDA") and the Packers and Stockyards Administration ("PSA"). AAIC has cross-appealed in No. 90-6127 the district court's grant of summary judgment to Cooper and the third-party defendants Kathy and Norma Cooper, Robert and Karen Rodenberger, Donald and Flora Blake (collectively, "third-party defendants") on AAIC's claim for indemnification for costs and expenses incurred in defending this litigation.


Over a three week period in late April and early May of 1987, Raymond (or Ricky) Hutson purchased approximately 967 head of cattle from W. Raymond Brown d/b/a Comanche Livestock Auction ("Comanche"), Arrowhead Livestock Auction Sales Co. ("Arrowhead"), and Bowie Livestock Commission, Inc. ("Bowie"). Hutson paid for all of these purchases with checks totalling approximately $400,000, and all of the checks were returned for insufficient funds. On May 27, 1987, Arrowhead, Bowie, and Comanche, believing that Hutson had made the purchases on behalf of Cooper, submitted claims to PSA on a Condition No. 2 surety bond in the amounts $234,206.33 (Arrowhead), $72,351.15 (Bowie), and $87,629.52 (Comanche). This bond was one of three which Cooper had obtained from AAIC. The bonds, which had been executed in May 1985, included:

(1) a $5,000 INDEMNITY BOND, No. 5250384, naming Oklahoma National Stockyards Co. as obligee and Cooper as principal;

(2) a $100,000 CONDITION NO. 1 BOND, No. 5250385, naming the Oklahoma City Livestock Exchange as the trustee/obligee and Cooper as principal;

(3) a $100,000 CONDITION NO. 2 BOND, No. 5250386, with a condition that Cooper would pay to later claimants the purchase price of all livestock purchased on its account.

Cooper was required to post the Condition Nos. 1 and 2 bonds by federal regulations in order to do business in the Oklahoma City Stockyards. In partial consideration for these three bonds, Cooper and the third-party defendants had executed a separate agreement to indemnify AAIC ("the Indemnity Agreement").

As a result of these claims, on June 3, 1987, AAIC notified Cooper that it was terminating the Condition Nos. 1 and 2 bonds effective thirty days after receipt of the notice, and that it was terminating the Indemnity Bond effective fifteen days after receipt of the notice. Cooper and AAIC made attempts to negotiate replacement bonds, but those attempts were not successful. As a result of Cooper's unbonded status, its right to operate as a sales commission company in the Oklahoma City Stockyards was rescinded.

The claims filed by Arrowhead, Bowie, and Comanche allegedly arose out of discussions these firms had with PSA. As a result of Hutson's bad checks, PSA had instituted an investigation of Hutson and Cooper, during the course of which it had issued a press release which Cooper claims contained false information about Cooper's involvement in the bad check transactions. Cooper emphatically denies any connection with Hutson during the time of the purchases.


Cooper filed three separate federal lawsuits, which were later consolidated, alleging that AAIC had wrongfully terminated the livestock dealer surety bonds, causing the destruction of its business operations and the termination of a contract to sell CLMA. 1 Arrowhead, Bowie, and Comanche were also originally named as defendants on that claim. Cooper also alleged that the USDA, through the PSA, had conducted a negligent investigation which had the effect of damaging its business reputation and disrupting the purchase agreement whereby Dale Cooper's interest in CLMA was to have been transferred to Robert Rodenberger. Cooper sought compensatory and punitive damages.

In its answer, AAIC filed a counterclaim against Cooper and the third-party defendants seeking indemnification for attorneys' fees incurred in defending this litigation. In response, the Rodenbergers and Blakes also counterclaimed against AAIC, asserting the same wrongful termination claims pled by Cooper. Some time later, Comanche initiated a suit against AAIC in an Oklahoma district court, seeking a judgment on the Condition No. 2 bond.

On February 28, 1990, the district court entered judgment on eight motions, only three of which are at issue in this appeal. The five not here at issue essentially dropped Bowie, Comanche, and Arrowhead as defendants, and granted summary judgment in favor of AAIC on the counterclaim against it by the third-party defendants.

Pursuant to its order of November 16, 1988, the district court granted summary judgment in favor of AAIC on Cooper's claim of wrongful termination of the surety bonds. Cooper had asserted that AAIC wrongfully cancelled the bonds when it knew or should have known that the claims were frivolous because Hutson was not associated with Cooper at the time he passed the bad checks. Cooper contended that the bonds' termination clauses prohibited cancellation where a frivolous claim had been filed. In response, AAIC argued that the bonds had been terminated strictly in accordance with their provisions.

The district court focused on the termination language in paragraph (k) of the two Condition bonds, Nos. 5250385 and 5250386, 2 which provided:

This bond may be terminated by either party hereto delivering written notice of termination to the other party and the Packers and Stockyards Administration at least thirty (30) days prior to the effective date of such termination.... Immediately upon the filing of a claim for recovery on this bond, unless the Surety believes that such claim is frivolous, the Surety shall cause termination of this bond in accordance with this paragraph.

The district court ruled that the propriety of granting summary judgment hinged on whether the above clauses were ambiguous. Moreover, the court noted that the mere fact that the parties disagreed on the meaning of the clauses was not sufficient to raise a triable issue of fact. Construing the clauses, the court found "paragraph (k) of the subject bonds clear and unambiguous as to the basis for cancellation." Order of November 16, 1988 at 5. Further, the court concluded that there was no irreconcilable conflict between the two cancellation provisions. The court rejected Cooper's argument that the second phrase, being more specific, controlled the first, stating that that rule of construction did not apply unless the clauses were in irreconcilable conflict. Concluding that both provisions of the paragraph were applicable, the court found that the requirements had been complied with and granted summary judgment in favor of AAIC. See id. at 6-7.

Pursuant to its Order of January 30, 1989, the court granted a motion to dismiss Cooper's claims against the USDA and PSA. The district court granted the government's motion to dismiss because it ruled that sovereign immunity had not been waived by the Federal Tort Claims Act ("FTCA"), 28 U.S.C. § 1346 (1988), with respect to Cooper's claims, and the court thus did not have subject matter jurisdiction. In analyzing these claims, the court broke Cooper's arguments into two distinct allegations: "(1) that PSA knew that Hutson was violating certain rules and regulations and failed to act on this knowledge, and (2) that the PSA advised and encouraged Arrowhead, Bowie and [Comanche] to file claims on the Cooper firm bonds." Order of January 30, 1989 at 6.

As to the first allegation, the court ruled that the FTCA's discretionary function exception, 28 U.S.C. § 2680(a) (1988), applied because under the Packers and Stockyards Act, 7 U.S.C. § 181, et seq., PSA was granted broad enforcement discretion in that many of the provisions did not require PSA to follow a particular course of action when violations of the act were suspected. Thus PSA's actions toward Hutson were discretionary.

The court found that Cooper's second claim was "essentially an allegation that the PSA interfered with certain of the plaintiffs' contractual relationships[.]" Id. at 9. Accordingly, the FTCA's interference with contract exception, 28 U.S.C. § 2680(h) (1988), left...

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