J & J Farms, Inc. v. Cargill, Inc.

• Decision Date: 03 December 1982
• Docket Number: 81-1800,Nos. 81-1763,s. 81-1763
• Citation: 693 F.2d 830
• Parties: J & J FARMS, INC., a Corporation, Appellant, v. CARGILL, INC., a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 830

693 F.2d 830

19 ERC 1271

J & J FARMS, INC., a Corporation, Appellant, v. CARGILL, INC., a Corporation, Appellee.

Nos. 81-1763, 81-1800.

United States Court of Appeals,

Eighth Circuit.

Submitted Jan. 11, 1982.

Decided Dec. 3, 1982.

Patrick McLarney, Laurel H. Corn, Shook, Hardy & Bacon, Kansas City, Mo., John J. Greer, Dick H. Montgomery, Greer, Nelson, Bertell, Montgomery, Barry & Bovse, Spencer, Iowa, for appellee.

Robert R. Eidsmoe, Charles T. Patterson, Gleysteen, Harper, Eidsmoe, Heidman & Redmond, Sioux City, Iowa, for appellant.

Before HENLEY ^* and McMILLIAN, Circuit Judges, and MEREDITH, ^** Senior District Judge.

PER CURIAM.

J & J Farms, Inc. (J & J) appeals from a final judgment entered in the District Court for the Northern District of Iowa awarding J & J actual damages but setting aside the jury's award of $1 million in punitive damages on motion for judgment n.o.v. by Cargill, Inc. For reversal J & J argues that the district court applied the wrong standard of review in granting the motion for judgment n.o.v. J & J also argues that the district court erred in excluding certain evidence and in denying the motion to compel Cargill to disclose certain financial information. By cross-appeal Cargill challenges the jury's award of $50,603 in consequential damages. For the reasons discussed below, we hold the district court properly set aside the punitive damages but erred in awarding $50,603 in consequential damages. Accordingly, we affirm in part, reverse in part and remand for remittitur of actual damages by $50,603.

J & J is a family-held Oklahoma corporation engaged in several agricultural activities, including the operation of a feedlot. J & J buys young cattle, raises them to a specific weight, and then sells them to other feedlot operators who "finish" the cattle by raising them to slaughter weight. Cargill is one of the world's largest agribusinesses; it owns and operates hundreds of grain elevators, including one located in Alta, Iowa. The Alta elevator is managed by Dean Radke. On February 27, 1980, J & J purchased two truckloads of corn screenings from the Alta elevator. The purchase was arranged through two grain brokers: Darrell Hartman of Van Iperen Feed and Grain in Iowa and Marion Perdue of Kingfisher County Feedyard in Oklahoma. Corn screenings are produced when corn is screened to separate the whole kernels from broken kernels, dust and other foreign matter and are sold for use as livestock feed. The corn screenings were transported by truck by Van Iperen and delivered to J & J late in the afternoon on February 28. The corn screenings were unloaded into a large bunker silo containing other livestock feed. J & J began feeding the corn screenings to cattle on February 28 or 29 and continued to do so until March 10. At that time the corn screenings were almost gone.

Unknown to the parties at the time of the sale on February 27, part of the Alta elevator was contaminated with a pesticide, aldrin. The source and extent of the contamination is not known. Aldrin was widely used in the Midwest against corn rootworms until 1974, when the Environmental Protection Agency banned it from agricultural uses because it caused cancer in laboratory animals. Aldrin is extremely toxic and highly persistent. Trace amounts can be detected in the environment, particularly in soil samples. When animals eat feed contaminated with aldrin, the animals convert the aldrin into dieldrin, another form of aldrin. Dieldrin tends to accumulate in the animals' fatty tissues, liver and bone marrow. At trial expert witnesses testified that the Food and Drug Administration (FDA), in cooperation with the United States Department of Agriculture, has established "action levels" or tolerance levels of .03 parts per million (ppm) for aldrin or dieldrin in feed grains and .3 ppm for aldrin or dieldrin in animals. The marketing of feed grains or livestock with concentrations of aldrin or dieldrin equal to or higher than the action levels is unlawful.

The FDA notified J & J of the aldrin contamination at the Alta elevator on March 10. J & J had planned to market the cattle in early March 1980. Acting upon the advice of its local veterinarian and FDA investigators, J & J delayed marketing the cattle which had been fed the Cargill corn screenings and had them tested for dieldrin. The test results were positive for dieldrin but well below the action level of .3 ppm. Again acting upon the advice of its veterinarian and a veterinary toxicologist, J & J had the cattle retested. The second test results were similar to the first: positive for dieldrin but below the action level. J & J then sold the cattle on April 23, 1980. During the six weeks that the cattle were being tested, the cattle market declined. None of J & J's cattle exceeded the FDA action level for aldrin or dieldrin; however, all of the samples taken from J & J's cattle were positive for dieldrin and some of the samples showed concentrations of dieldrin at .24 ppm. According to the testimony of expert witnesses, any test result showing concentrations of aldrin or dieldrin above .005 ppm is considered positive.

J & J brought this action for actual and punitive damages alleging that Cargill negligently sold the corn screenings without adequate testing and without adequate warning of possible aldrin contamination and breached the implied warranty of merchantability by selling contaminated corn screenings. J & J also alleged that Cargill knew about the aldrin contamination at the Alta elevator on the morning of February 29 but intentionally misrepresented the status of the aldrin investigation and the severity of the contamination in order to protect its position in prospective litigation against another customer.

At trial J & J introduced the following evidence in support of its position. On February 13, 1980, two weeks before the sale to J & J, the FDA was investigating the Alta elevator as a possible source of an aldrin contamination which had been discovered at Bryant Beef, Inc. Bryant Beef is a large Iowa producer of cattle and hogs and one of the Alta elevator's largest local customers. The FDA was checking the corn sales records to determine if the Alta elevator was the source of the contamination. Radke relayed the information about the FDA's Bryant Beef investigation to Cargill's headquarters staff in Minneapolis. On February 25, Bryant Beef informed Cargill that the FDA believed that corn was the probable source of the Bryant Beef contamination. Cargill began its own investigation and began taking samples from the Alta elevator. Kent Norby was in charge of the Cargill investigation. On February 27 the first test results of samples taken from the Alta elevator showed aldrin present in concentrations far below the FDA action level. This was the day the two truckloads of corn screenings were sold to J & J. On February 28, Cargill received additional test results that showed similar very low concentrations of aldrin.

On February 29, at about 7:45 a.m., Norby learned that sample 19 showed a concentration of aldrin at 4.6 ppm, far in excess of the FDA action level of .03 ppm for feed grains. Sample 19 had been taken on February 27. Norby ordered a retest of sample 19 and spent most of that morning in a meeting with attorneys for Cargill and Bryant Beef. Bryant Beef had threatened to bring a multimillion dollar lawsuit against Cargill for causing the contamination and quarantine of its livestock. (Bryant Beef filed its lawsuit against Cargill for $25 million in damages on March 4; the Bryant Beef litigation has been settled.) Norby testified that Cargill's attorneys advised him and other Cargill employees investigating the Alta elevator not to volunteer information about the test results in light of the prospective Bryant Beef litigation. At about 4:00 p.m., Norby discussed the status of the FDA investigation with the regional FDA office but did not disclose the 4.6 ppm test result. At about 5:00 p.m., the Cargill headquarters staff informed Radke of the 4.6 ppm test result and instructed him to shut down the Alta elevator for cleaning, to notify the customers of the possibility of aldrin contamination, and to try to obtain samples. Radke closed the Alta elevator and stopped all sales of corn and corn screenings. Orders were filled from other Cargill elevators. The Alta elevator was closed from March 1 to March 3. At about 5:30 p.m. Radke called Hartman at Van Iperen and learned that the two truckloads had been shipped to J & J. Hartman told Radke to call Perdue at Kingfisher County Feedyard. At about 6:00 p.m. Radke tried to call Perdue but did not reach him. Radke had Perdue's home phone number but did not attempt to call Perdue at home.

The next day, March 1, at about 8:00 a.m., Hartman called Perdue and told him that there was a possible chemical contamination problem at the Alta elevator. About fifteen minutes later Radke called Perdue. Perdue testified that Radke said there was a possible aldrin contamination problem at the Alta elevator, but that Cargill did not think the problem was very serious, and that Cargill wanted samples of the corn screenings to satisfy government inspectors. Perdue testified that Radke did not sound very worried, did not tell him about the 4.6 ppm test result, did not warn him against feeding the corn screenings, and did not tell him that the Alta elevator had been closed temporarily. Perdue further testified that he told Radke that it might be hard to get a sample because he thought the corn screenings had already been fed to cattle. About fifteen minutes later Perdue called Allan Jensen of J & J. Perdue told Jensen what Radke had told him--that there was a possible aldrin contamination problem at the Alta elevator, but that the problem was not serious and that Cargill wanted samples of the corn screenings for government inspection. Jensen testified that he took samples from the corn screenings in the bunker...