Gemstone Foods, LLC v. AAA Foods Enters.
| Decision Date | 12 February 2022 |
| Docket Number | 5:15-cv-01179-MHH,5:15-cv-02207-MHH |
| Court | U.S. District Court — Northern District of Alabama |
| Parties | GEMSTONE FOODS, LLC et al., Plaintiffs, v. AAA FOODS ENTERPRISES, INC. et al., Defendants. MICHAEL ENSLEY et al., Plaintiffs, v. BEN O. TURNAGE et al., Defendants. |
III.
The defendants have filed three motions for summary judgment: an omnibus motion for summary judgment as to all claims from all defendants except Mr Wester, (Doc. 414); a separate motion for summary judgment from Ms. Carr and AAA relating to the pricing claims against them, (Doc. 417); and a motion for summary judgment as to all claims from Mr. Wester, (Doc. 419).
As noted, Gemstone and RCF contend that, while the defendants were associated with Gemstone, they took advantage of Gemstone in two ways: AAA invoiced Gemstone for more than $0.01 per pound for meat that Ms. Carr sourced for RCF to portion (and Mr. Ensley had Gemstone pay the inflated invoices), and Mr. Welborn, Mr. Wester, and Mr. Pass operated a sideline business that diverted work from Gemstone. Gemstone also contends that, as the defendants broke their ties with the company, they combined to open Farm Fresh, a portioning company that competed with Gemstone; recruited dozens of Gemstone employees; took Gemstone documents and data; and diverted business from Gemstone.
Our analysis begins with two preliminary issues concerning the alleged AAA invoicing scheme and then proceeds through the defendants' arguments concerning the plaintiffs' state and federal law claims. As we evaluate the defendants' arguments, we view the evidence in the light most favorable to Gemstone and RCF.
The defendants contend that the Court should disregard the alleged penny-per-pound agreement between Gemstone and Ms Carr/AAA, and they argue that if the Court does so, then the plaintiffs' claims against the defendants will collapse like a house of cards. (See Doc. 414, pp. 41-51).[1] The defendants argue that Gemstone has not established that a “cost-plus” agreement existed, (Doc. 414, p. 42 & n.20), and even if there is evidence of an agreement, the statute of frauds bars claims based on the agreement because the agreement is not in writing. (Doc. 414, pp. 41-46; Doc. 417, pp. 30-48).[2] Ms. Carr and AAA contend that there is no evidence of mutual assent to the price term. (Doc. 417, pp. 24-30).
As for evidence of the “cost-plus” agreement, the defendants assert that the only evidence of the agreement is “Ben Turnage's uncorroborated testimony.” (Doc. 414, p. 42). Much of this argument is about semantics. Mr. Turnage labeled Gemstone's agreement with Ms. Carr/AAA a “cost-plus” agreement. Ms. Carr submits that AAA did not have a “cost-plus” agreement with Gemstone. (Doc. 238-2, p. 6, ¶ 23). The label is insignificant; the terms of the agreement count.[3] The evidence concerning the terms of the agreement starts with Mr. Turnage's testimony that Ms. Carr agreed to source chicken for Gemstone for $0.01 per pound. Mr. Turnage's testimony is evidence capable of creating a genuine issue of fact.[4] And Mr. Turnage's testimony regarding the penny-per-pound agreement is not uncorroborated. Ms. Carr testified: “[T]he original agreement was they were going to pay me, with their money, not mine, a penny a pound . . . he said . . . that I would be paid a penny a pound on the purchasing and two cents a pound on sales.” . In a July 17, 2013 email that Ms. Carr sent to herself, she wrote: (Doc. 525-10, p. 1). Later that year, Ms. Carr sent an email to Mr. Turnage in which she stated: “I make .01-.02 on Gemstone and more on others I sell too [sic] because of the volume Gemstone buys and they pay me faster than some of the others.” (Doc. 422-64, p. 2).[5] Mr. Turnage's testimony and Ms. Carr's statements about the penny-per-pound that she charged Gemstone for sourced meat, viewed in the light most favorable to Gemstone and RCF, creates a jury question regarding the existence of the pricing agreement.
Viewed in the light most favorable to the plaintiffs, Ms. Carr's agreement to reduce her fee to half of one cent per pound ($0.005/pound) for sourcing chicken after Gemstone started using its own credit with suppliers provides additional circumstantial evidence of the cost-plus agreement. The second agreement resembles the first - i.e., charging a fee per pound - but Ms. Carr reduced her fee for locating chicken for RCF to process because she no longer was bearing the risk associated with using her credit to supply chicken to RCF for portioning.
Other than the credit risk, under its initial arrangement with Gemstone, AAA bore the cost of transportation. It is undisputed that AAA did not bill Gemstone for transportation costs. Ms. Carr said so in her deposition. . In a June 2014 email to Mr. Turnage, Mr. Ensley explained that he (Mr. Ensley) paid Ms. Carr “just for buying [chicken] and not includ[ing] trucking, customers or profits to the equation.” (Doc. 422-66, p. 3). The “customers” piece is undisputed too; Ms. Carr testified that, to help Gemstone get off the ground, under her initial arrangement with Gemstone, she did not charge Gemstone for the customers that she identified for portioned chicken. In a November 2013 email to Mr. Turnage, Ms. Carr stated that Mr. Ensley would “just let[] [her] make money on selling Gemstone the raw material.” (Doc. 240-1, p. 12).
Thus, the evidence, viewed in the light most favorable to the plaintiffs, cumulatively supports a reasonable inference that, beginning in 2013, Ms. Carr agreed that AAA would charge Gemstone $0.01 per pound for chicken that Ms. Carr sourced for RCF's operations.
As to the statute of frauds, under the Uniform Commercial Code - the UCC, certain contracts for the sale of goods that are not memorialized in writing are unenforceable. See U.C.C. § 2-201 (Am. Law Inst. & Unif. Law Comm'n 1977). Alabama has adopted the UCC, and Alabama's statute of frauds is codified in Section 7-2-201 of the Code of Alabama. That section provides: “Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker.” Ala. Code § 7-2-201(1).
The statute of frauds, like all of Article 2 of the UCC, applies only to contracts for the sale of goods. Ala. Code §§ 7-2-102, 7-2-201. “A contract that is exclusively for services, therefore, is not governed by Article 2.” BMC Indus., Inc. v. Barth Indus., Inc., 160 F.3d 1322, 1329 (11th Cir. 1998). “Courts are frequently faced, however, with contracts involving both goods and services-so-called ‘hybrid' contracts.” BMC Indus., 160 F.3d at 1329. To determine whether the UCC governs a hybrid contract, “[m]ost courts follow the ‘predominant factor' test.” BMC Indus., 160 F.3d at 1329. Under this test, if the “predominant factor, ” “thrust, ” and “purpose” of the contract “is the rendition of service, with goods incidentally involved, ” then the UCC does not govern the contract. BMC Indus., 160 F.3d at 1329-30. On the other hand, if the “predominant factor, ” “thrust, ” and “purpose” of the contract “is a transaction of sale, with labor incidentally involved, ” then the UCC governs the contract. BMC Indus., 160 F.3d at 1330.
Here, the evidence, viewed in the light most favorable to the plaintiffs, indicates that the agreement between Ms. Carr/AAA and Gemstone is a “hybrid contract.” It involves goods - raw poultry - and an array of services. A reasonable jury could credit the following evidence and find that Ms. Carr and AAA predominantly provided brokerage and related services to Gemstone and RCF:
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