In re Pilgrim's Pride Corp.

• Decision Date: 31 January 2012
• Docket Number: No. 08–45664 (DML).,08–45664 (DML).
• Citation: 467 B.R. 871
• Parties: In re PILGRIM'S PRIDE CORPORATION, et al., Debtors.
• Court: U.S. District Court — Northern District of Texas

467 B.R. 871

In re PILGRIM'S PRIDE CORPORATION, et al., Debtors.

No. 08–45664 (DML).

United States Bankruptcy Court, N.D. Texas, Fort Worth Division.

Jan. 31, 2012.

Clayton E. Bailey, David William Parham, Baker & McKenzie LLP, Dallas, TX, for Debtor.

Kurt E. David, The Davis Law Firm, Tampa, FL, Russell A. Wade, III, Lake Butler, FL, for Keith Hudson, Glenda Hudson, Abel Tellechea dba Abel T. Farm, Adalberto Brito dba AC Paradise, Janet Brito dba Brito Farm, Cullinane Farms, LLC, Bruno Lazaro Garcia, Moises Rodriguez, and Roman Vasallo dba R & C Farm.

MEMORANDUM OPINION

D. MICHAEL LYNN, Bankruptcy Judge.

Before the court is Reorganized Debtors' Motion for Summary Judgment on Claims Asserted by Certain Live Oak, Florida Growers (the “Motion”) filed by Debtors by which Debtors ask that the claims of nine chicken growers (the “Growers”) ¹ be summarily disallowed. The court conducted a hearing on the Motion on November 28, 2011.

The Growers had asserted claims for damages under a number of theories: 1) violation of the Packers and Stockyards Act, 2) violation of the Florida Deceptive and Unfair Trade Practices Act, 3) unconscionability, 4) reformation, 5) fraud, 6) breach of joint venture agreement, 7) promissory estoppel, and 8) breach of contract.

At the hearing, the court granted summary judgment as to all but the breach of contract claims. Following the hearing, at the court's suggestion, Debtors and the Growers filed additional briefs in supplement to the briefs and summary judgment evidence previously provided to the court.

This matter is subject to the court's core jurisdiction. 28 U.S.C. §§ 1334 and 157(b)(2)(B). This memorandum opinion contains the court's findings of fact and conclusions of law. Fed. R. Bankr.P. 7052 and 9014.

I. Background

Debtors, and specifically the parent debtor, Pilgrim's Pride Corporation (“PPC”), are chicken integrators that process and sell chicken on the wholesale and retail markets. Debtors commenced these chapter 11 cases on December 1, 2008. Debtors' plan, which provides for payment in full with interest of all unsecured claims, was confirmed on December 10, 2009.

The Growers owned and operated chicken farms in the vicinity of Debtor's Live Oak, Florida, processing plant (the “Live Oak Plant”). Prior to commencement of these chapter 11 cases, the Growers had entered into contracts with PPC by which they grew chickens for processing at the Live Oak Plant. In December of 2008 and July of 2009,² Debtors filed motions under section 365(a) of the Bankruptcy Code (the “Code”) ³ by which they sought to reject and ultimately were authorized to reject the contracts between PPC and various chicken growers serving the Live Oak Plant including the Growers. The relationship between chicken growers and Debtors and the events and court proceedings surrounding the rejection of the Growers' contracts are fully described in a prior opinion of this court. See In re Pilgrim's Pride Corp., 403 B.R. 413 (Bankr.N.D.Tex.2009) (the “Rejection Opinion”).

By the Motion and associated briefs, Debtors contend that the Growers are not entitled to assert damage claims by reason of rejection of their contracts. See Code § 502(g)(1). The Growers, on the other hand, insist that rejection of their contracts led to substantial damages for which they are entitled to make claims under a theory of breach of contract.⁴ The Motion and this memorandum opinion deal only with Debtors' liability, if any, to the Growers arising from the rejection of their contracts.⁵

II. Summary Judgment Standard

Rule 56(a) of the Federal Rules of Civil Procedure, applicable to the Motion pursuant to Federal Rules of Bankruptcy Procedure 7056 and 9014, provides that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Fed. R. Bankr.P. 7056 and 9014. “If a party fails to properly support an assertion of fact or fails to properly address another party's assertion of fact ... the court may ... (3) grant summary judgment if the motion and supporting materials—including the facts considered undisputed—show that the movant is entitled to it....” Fed.R.Civ.P. 56(e). Rule 56 thus “mandates the entry of summary judgment ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). “[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

“[T]he [initial] burden on the moving party may be discharged by ‘showing’ ... that there is an absence of evidence to support the nonmoving party's case.” Id. at 325, 106 S.Ct. 2505. Once the moving party has carried this initial burden, its opponent must establish that there exists a “genuine” issue of fact, something which requires “more than simply show[ing] that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The nonmoving party must rather come forward with “specific facts” showing that a genuine issue for trial exists. Id. at 587, 106 S.Ct. 1348. “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505. In determining whether the nonmoving party has properly shown that a genuine issue for trial exists, the court should “construe all facts and inferences in the light most favorable to the nonmoving party....” Murray v. Earle, 405 F.3d 278, 284 (5th Cir.2005).

In the case at bar most of the issues posed by the Motion require only that the court determine a legal question. At most, the court need but look to the contracts of the Growers to decide most of the issues. Where there is no factual finding required, summary judgment is appropriate. See City of Alexandria v. Cleco Corp., 735 F.Supp.2d 465, 472 (W.D.La.2010) (citing numerous cases in which courts have found it appropriate to grant motions for summary judgment because the issues were purely legal in nature). Moreover, though the Motion was filed by Debtors, under Rule 56(f)(1), the court may alternatively grant summary judgment in the Growers' favor.⁶

III. Discussion

Rejection of a contract by a trustee or debtor in possession pursuant to section 365(a) is treated as a breach of the contract. See Code § 365(g); Stewart Title Guar. Co. v. Old Republic Nat'l Title Ins. Co., 83 F.3d 735, 741 (5th Cir.1996) (noting that “[t]he Code states that, except in certain narrowly circumscribed instances, rejection of an executory contract or lease constitutes a material breach.”); NLRB v. Bildisco & Bildisco, 465 U.S. 513, 530, 104 S.Ct. 1188, 1198, 79 L.Ed.2d 482 (1984) (stating that the “Bankruptcy Code specifies that the rejection of an executory contract which had not been assumed constitutes a breach of the con tract....”). The counterparty to the contract is entitled to a claim for its damages calculated as if the breach occurred immediately prior to the commencement of the bankruptcy case.⁷ See id.

In the case at bar, however, Debtors argue that rejection of the Growers' contracts could not give rise to a claim for damages because (1) Debtors could have terminated the contracts by reason of economic necessity as provided in the contracts and would then have had no liability to the Growers; (2) the contracts permitted termination by either party between flocks; ⁸ and (3) in any case, PPC was not required to provide any flocks ever to the Growers and so had no obligation to perform at all under the contracts except during the time when flocks were in fact placed. Alternatively, Debtors claim that the Growers have failed to mitigate damages when they had an opportunity to do so and, under the Growers' contracts, Debtors cannot be held liable for consequential damages.

A. Economic Necessity

Debtors argue that the contracts with the Growers, according to their terms, could have been terminated by reason of economic necessity. They note that the court, in the Rejection Opinion, concluded that the Live Oak Plant was losing about $1,000,000 per week and that rejection of the contracts with growers would reduce that loss by $800,000 per week. Thus, Debtors state, the economic necessity of terminating the Growers was proven and Debtors consequently should owe the Growers no damages, just as would have been true if the contracts had been terminated, rather than rejected.⁹

But, in the first place, two of the contracts at issue do not even include a term allowing PPC to terminate on the basis of economic necessity.¹⁰ Second, as for those contracts that do allow for termination based on economic necessity, that is not what Debtors chose to do.

Under section 365(a), in order to be authorized to reject a contract, the trustee—or, as here, the debtor in possession—need only satisfy the business judgment test. See Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1309 (5th Cir.1985) (stating that “[i]t is well established that ‘the question whether a lease should be rejected ... is one of business judgment.’ ” (quoting Group of Inst. Investors v. Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 318 U.S. 523, 550, 63 S.Ct. 727, 742, 87 L.Ed. 959 (1943))); Bildisco, 465 U.S. at 524–25, 104 S.Ct. 1188 (departing from the usual business judgment standard in considering the proper standard for rejection of a collective bargaining agreement under section 365(a)); In re Food City, Inc., 94 B.R. 91, 93 (Bankr.N.D.Tex.1988).

It was based on satisfaction of...