Johnson v. Associated Milk Producers, Inc.

• Decision Date: 14 October 2016
• Docket Number: No. 15–0105.,15–0105.
• Citation: 886 N.W.2d 384
• Parties: Virgil JOHNSON and Virgil Johnson Trucking, Appellants, v. ASSOCIATED MILK PRODUCERS, INC., Appellee.
• Court: Iowa Supreme Court

886 N.W.2d 384

Virgil JOHNSON and Virgil Johnson Trucking, Appellants,

v.ASSOCIATED MILK PRODUCERS, INC., Appellee.

No. 15–0105.

Supreme Court of Iowa.

Oct. 14, 2016.

John S. Anderson and Stephen J. Belay of Anderson, Wilmarth, Van Der Maaten, Belay, Fretheim, Gipp & Zahasky, Decorah, for appellants.

Matthew C. Berger of Gislason & Hunter LLP, New Ulm, MN, for appellee.

WATERMAN, Justice.

In this appeal, we must decide which rule of contract law applies to resolve a standoff over a change in hauling fees paid by a dairy cooperative to an independent contractor who transported milk from farms to the co-op's facilities.The parties agree their oral contract could be terminated at will by either side upon reasonable notice.The co-op notified the hauler it would be phasing out a $100 trip fee it had been paying to the hauler in addition to agreed hauling rate.The hauler objected, but continued to transport milk and bill the co-op for the trip fees.The co-op continued receiving shipments and paid the agreed hauling rate without the trip fees.Months later, the hauler sued for the unpaid trip fees, and the co-op declared the contract terminated.

The co-op moved for summary judgment, asserting it could modify the terms of the at-will contract upon reasonable notice and the hauler accepted the modification by continued performance.The hauler resisted and, without contesting the reasonableness of notice, argued the co-op improperly had attempted to modify an existing contract without consideration or consent.The district court granted summary judgment for the co-op, concluding, based on the undisputed facts, that the change in payment terms was a new offer the hauler accepted by performance.The court of appeals reversed, concluding questions of fact as to acceptance precluded summary judgment.We granted the co-op's application for further review.

For the reasons explained below, we hold that in this at-will contract, the co-op could alter payment terms prospectively upon reasonable notice.The co-op made it clear that it would pay according to a new schedule.The hauler understood this.The hauler faced a choice of accepting the new terms or ceasing performance.The hauler accepted by performance notwithstanding its protests.Accordingly, we vacate the decision of the court of appeals and affirm the district court's summary judgment dismissing the hauler's claims.

I.Background Facts And Proceedings.

The record establishes the following facts as undisputed.On September 1, 2000, Associated Milk Producers, Inc.(AMPI) entered into an oral agreement with Virgil Johnson, the sole proprietor of Virgil Johnson Trucking.AMPI is a cooperative of dairy farmers that receives milk produced by its members, processes the milk into butter and cheese, and sells the dairy products.AMPI contracts with independent haulers to transport milk from the farms to its facilities.Haulers are paid directly by AMPI, which in turn passes through those costs to its members.Johnson was hired as an independent contractor to deliver milk from the dairy farms to a station in Fredericksburg, Iowa, where the milk was transferred from the hauler trucks to a semi-tanker for transport to AMPI's processing facilities.For this service, AMPI agreed to pay Johnson a “hauling rate” of $0.50 per one hundred pounds of milk delivered, a rate based on the distance between the various farms and Fredericksburg.

Johnson also later offered to haul milk from Fredericksburg to AMPI's facilities in Arlington and Des Moines, Iowa.AMPI agreed to pay Johnson the standard hauling rate, plus an additional “trip fee” for that service.The trip fee was based on the amount that AMPI had been paying another semi-driver ($1.00 per mile) and the distance from Fredericksburg to the facilities.Johnson and AMPI negotiated the trip fee to be $100 for deliveries to Arlington and $340 for deliveries to Des Moines.

The duration of the contract was unstated.Johnson understood the agreement to be “for the indefinite future.”Johnson acknowledged this was typical of hauling contracts in the milk industry because the dairy farmers remained free to move on and sell their milk to competing processors at any time.Neither party asserts there were any assurances given about the duration of the contract, and Johnson stated he believed he had the right to “retire” or “to stop[ ] performance under the contract” at any time.

The parties continued working together for twelve years.They modified their oral agreement several times as circumstances changed.For example, in 2005 or 2006, the station in Fredericksburg closed, and Johnson began delivering milk directly from the farms to AMPI's facilities in Arlington and Des Moines.AMPI agreed to increase Johnson's base hauling rate three times, from $0.50 per hundred pounds in 2000 to $0.51 per hundred in 2006, $0.545 in 2008, and $0.565 in 2009.Johnson purchased three more delivery routes from AMPI and other haulers.AMPI made no representations regarding how long Johnson could perform hauling services on these routes.Johnson understood when he purchased the routes that “those patrons had the right and were free to leave at any time.”

On June 19, 2012, Don DeVelder, senior vice president of AMPI, notified Johnson by letter that AMPI was commencing a study “regarding the inconsistency of hauler payment programs” to rectify discrepancies in how milk haulers were paid for comparable work.Under the new program, AMPI sought to “pay every hauler in the same way by using the same formula, which will be based on miles driven, stops made and pounds of milk picked up.”AMPI stated that the study might result in “pay rate adjustments” for haulers and invited them to offer input on the new program.Johnson, through his attorney, sent a letter back to DeVelder stating Johnson was unwilling to renegotiate the terms of their oral agreement.

Over a year later, on July 31, 2013, the division manager of AMPI wrote Johnson to inform him that AMPI had completed the study and would be implementing changes to rates in several steps over the next few months.Specifically, the $100 trip fee Johnson had been paid for deliveries to Arlington was to be phased out: the fee would be reduced to $75 in September, to $50 in October, to $25 in November, and eliminated in December.Johnson responded by letter that he did not agree to the reductions, but later admitted he understood AMPI would no longer pay the trip fees.

In September, AMPI began paying Johnson under the program announced weeks earlier, thereby reducing the trip fee to $75 for deliveries that month.On October 7, Johnson submitted an invoice to AMPI charging $100 for trip fees and stating that he had received insufficient payment for his September hauls.AMPI's manager returned the invoice with a handwritten note at the bottom, stating, “Virgil, [b]ill paid according to the attached notice dated July 31, 2013.”Johnson continued to bill AMPI at $100 for the trip fees.AMPI did not return the next several invoices with comments, but paid only the base hauling rate and reduced trip fees as set forth on the July 31 schedule.Johnson understood AMPI would not pay his $100 trip charges but nevertheless continued hauling milk from the farms to AMPI.

On December 17, AMPI's manager sent another letter to Johnson, reiterating the payment policy implemented months earlier.The letter stated that after November, Johnson would be paid at his current hauling rate of $0.565 per one hundred pounds delivered, but would no longer be receiving any trip fee.The letter concluded by stating, “If this is not acceptable with you let me know so we can make other arrangements to haul AMPI member's milk.”

On January 9, 2014, Johnson filed a civil action against AMPI in the Iowa District Court for Allamakee County, alleging claims for breach of contract, promissory estoppel, and unjust enrichment.Johnson claimed that AMPI unilaterally attempted to modify the oral agreement by its July 31, 2013 letter and did so without consideration or acceptance.AMPI denied liability in its answer and alleged as an affirmative defense that the July 31, 2013 modification was effective or, alternatively, that a new contract had been formed without the $100 trip fee.

After filing this lawsuit, Johnson continued to deliver milk for AMPI throughout 2014, submitting monthly invoices to AMPI that included the $100 trip fee.Early that year, Johnson added language to his invoice stating, “A 15% interest charge will be added on all unpaid balances beginning January 1, 2014.”Johnson had not charged AMPI interest previously, nor had AMPI agreed to pay interest.Johnson continued to submit invoices to AMPI for the $100 trip fees plus interest.Johnson billed AMPI in this fashion until AMPI terminated the arrangement in December.

Meanwhile, on September 26, AMPI filed a motion for summary judgment.AMPI argued its July 31, 2013 memorandum effectively operated as a notice of termination of the parties' at-will oral agreement and a proposal for a new contract with trip fees phased out.By continuing to deliver milk, AMPI argued, Johnson consented to the terms of the new agreement.Additionally, AMPI asserted the existence of a contract precluded Johnson's claims for unjust enrichment and promissory estoppel.

Johnson filed a resistance to the motion on October 22.Johnson argued that AMPI failed to terminate the existing agreement and that summary judgment was precluded by factual disputes as to whether AMPI's attempted unilateral modification altered the agreement's terms.Johnson never argued he was not given reasonable notice of the change in terms.On November 12, Steven Faust, division manager of AMPI, sent Johnson a letter terminating his employment.AMPI explained the termination was because “in the course of [the] lawsuit, [Johnson] ha[d] attempted to spin [his] continued deliveries to AMPI as evidence that AMPI agreed to continue paying [him] the $100.00 ‘trip...