Davis Cattle Co., Inc. v. Great Western Sugar Company

Decision Date06 May 1975
Docket NumberCiv. A. No. 74-W-1090.
Citation393 F. Supp. 1165
PartiesDAVIS CATTLE CO., INC., Plaintiff, v. The GREAT WESTERN SUGAR COMPANY and Great Western United Corporation, Defendants.
CourtU.S. District Court — District of Colorado


Williams, Connolly & Califano by Paul R. Connolly, Jeremiah C. Collins, Thomas E. Patton and John W. Vardaman, Jr., Washington, D. C., Houtchens & Houtchens by Jerry C. Daniel, Greeley, Colo., for plaintiff.

Ireland, Stapleton, Pryor & Holmes by Hardin Holmes and Kenneth L. Starr, Denver, Colo., Shank, Irwin, Conant, Williamson & Grevelle by Ivan Irwin, Jr., Dallas, Tex., for defendants.


Findings of Fact and Conclusions of Law

WINNER, District Judge.

Plaintiff's amended complaint pleads two counts. The theory of Count Two is that the sugarbeet growers' contracts which are the subject of this litigation are securities, and that the Court has jurisdiction of Count Two under 15 U. S.C. § 78aa. On January 16, 1975, applying as the law of this Circuit Mr. Steak, Inc. v. River City Steak, Inc., D. C., 324 F.Supp. 640, aff'd 10 Cir., 460 F.2d 666, I held that the growers' contracts are not securities, and Count Two was dismissed. This effectively dismissed Great Western United Corporation from the case because Count One claims only against The Great Western Sugar Company.

Plaintiff is a Kansas Corporation having its principal place of business in Kansas. Defendant Sugar Company is a wholly owned subsidiary of Great Western United, and neither is a citizen of Kansas nor does either maintain a principal place of business in Kansas. Moreover, diversity and jurisdictional amount are admitted as to the named plaintiff. Accordingly, jurisdiction of Count One under 28 U.S.C. § 1332 exists. This count asserts a claimed breach of the 1974 sugarbeet grower's contract between plaintiff and defendant Sugar Company, and, more particularly, a claimed breach of its provisions having to do with the initial payment to be made by the Sugar Company to the growers. The specific provisions of the contract giving rise to this controversy will be discussed in detail later in these findings.

Plaintiff sues for itself and on behalf of all other growers similarly situated, and the complaint asks that the case be certified and treated as a class action. On January 16, 1975, and by order formalized on Feburary 4, 1975, I found that the tests and requirements of Rule 23 for class action treatment were met, and it was ordered that the case be maintained as a class action under the provisions of Rule 23(b)(3). The class was defined as:

"All persons, including individuals, partnerships and corporations, who contracted to grow, grew and delivered prior to November 5, 1974 under a 1974 Sugarbeet Contract with Great Western Sugar Company 12 or more acres of sugarbeets."

The 12-acre limitation was fixed to meet the jurisdictional amount requirement spelled out in Zahn v. International Paper Co. (1973) 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511, and, based on the record made, each grower who, prior to November 5, 1974, grew and delivered to the Sugar Company more than 12 acres of sugarbeets under a 1974 sugarbeet contract has more than $10,000.00 in controversy, exclusive of interest and costs. In accordance with the requirements of Rule 23(c) notice was sent to the class members in the approximate number of 4,000, and approximately 900 class members requested that they be excluded from the class. Records of these exclusion requests have been maintained by the Clerk of the Court and copies have been supplied to counsel for the parties.

Paragraphs 5 and 6 of the sugarbeet growers' contracts are the paragraphs important to this case, and they provide:

"5. Determination of Payment for Sugarbeets. All beets grown hereunder and delivered to the Company, in accordance with the terms of this contract, shall be paid for by the Company on the following basis:
"(a) The price per ton (2,000 lbs.) of beets delivered hereunder to the Company shall be determined upon the average net return per one hundred (100) pounds of sugar received by the Company from sugar manufactured by the Company at, or purchased for distribution from, its factories in the state of Colorado, Kansas, Montana, Nebraska and Wyoming which is sold by the Company during the period commencing October 1, 1974, and ending September 30, 1975 (both dates inclusive), and also upon the average percent sugar in all beets of the 1974 crop grown and delivered by the Grower to the Company under this contract, in accordance with the following schedule:"
The contract then sets out a schedule for per ton payments dependent upon the sugar content of the beets and the "Average Net Return per 100 Pounds of Sugar."

Then, after providing for certain adjustments, we reach the nub of the case which is paragraph 6 of the contract. That paragraph says:

"6. Payment for Sugarbeets. Subject to the deductions and assignments hereinafter authorized, an initial payment shall be made by the Company on or before the 20th day of November for beets delivered prior to the 5th day of November, and an initial payment shall be made on or before the 15th day of each calendar month thereafter for beets delivered during the previous calendar month for which an initial payment has not theretofore been made which shall be at the highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar and the sugar content of beets. Further payments may be made by the Company at such times and in such amounts as the Company may deem to be justified by the aforesaid factors and the quantities of sugar sold. Final settlement in accordance with the terms of this contract, if any amounts be due after credit of all payments theretofore made by the Company to the Grower, shall be made on or before October 25, 1975, unless the Company receives assurance from the United States Department of Agriculture that it is going to report an `actual raw sugar cost' in which event final settlement hereunder shall be made on or before ten days after the reporting of said `actual raw sugar cost' or October 25, 1975, whichever is later."

It is agreed that the 1974 sugarbeet crop had an average sugar content of approximately 17.25% sugar, and the class members received as an initial payment for their 1974 crop a total of $28.58 per ton, $2.33 of which included a payment made by the United States government, the net result of which is, of course, that the Sugar Company itself paid as its initial payment to the growers $26.25 per ton.

Although the contract's schedule does not list a 17.25% sugar content and does not contemplate an "Average Net Return per 100 Pounds of Sugar" of more than $15.00, extrapolation develops per ton payments for beets having a 17.25% sugar content for the following hypothetical "Average Net Returns per 100 Pounds of Sugar":

                       Per               Per ton
                     100 lbs.           payments
                     $15.00             $ 27.407
                     $20.00             $ 36.518
                     $30.00             $ 54.840
                     $40.00             $ 72.962
                     $50.00             $ 91.184
                     $60.00             $109.332

The case has to do with whether the $26.25 per ton initial payment conformed to Great Western's obligations under the contract, taking into account past history of operations under earlier similar contracts. That being true, it is appropriate to supply a bit of company history and a summary of past grower-company relationships.

Great Western Sugar Company is one of Colorado's oldest and most respected companies, but in recent years it has been the target of successful and unsuccessful takeover attempts. After many years as one of the areas two largest sugar refiners, it found itself under new management and it became a part of a conglomerate owned by Great Western United. The conglomerate consisted of the unlikely combination of Great Western Cities a land development company Shakey's a chain of franchised pizza pie parlors and Great Western Sugar Co. Management changed from time to time, and with every change in management, there was an increase in grower concern as to company policies and stability. The sugar business being what it is, in the majority of the growing areas, Great Western was the only purchaser of the growers' beets, and just as Great Western is dependent upon the growers' acreage, the growers must rely on Great Western. The contract spells out that "The grower is an independent contractor," but many of the elements of joint venture are present in the overall picture of company-grower relationships. In fact, Charles R. Haning, a former officer of Great Western, testified that "we are semi-partners with the Growers."

For many years, Frank A. Kemp headed the company, and during his tenure relationships were harmonious and the growers trusted him implicitly. He typically had the company pay 80%-85% of the anticipated net returns for the sugar grown during a particular crop year, arriving at the amount of the payment per ton of beets through the use of the schedule contained in the contract. However, the passage of time led to deaths and retirements, takeover attempts, turmoil within the company, diversification of company efforts into unrelated fields, and a loss of grower confidence which had prevailed over the years.

Robert R. Owen became president of Great Western Sugar Company in 1968, and he served as such until 1971. He is presently the president of Great Western Producers Cooperative which just last year itself unsuccessfully attempted to acquire Great Western Sugar Company. During Owen's tenure as Great Western's president, he orally agreed to pay the growers 85% of the anticipated net returns. Grower-company realtionships were fairly good during Mr. Owen's term, but they did not always equal those which existed under Mr. Kemp.

George Wilber succeeded Mr. Owen in 1971,...

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