Johnson v. Land O' Lakes, Inc.
| Decision Date | 10 August 1998 |
| Docket Number | No. C 96-3079-MWB.,C 96-3079-MWB. |
| Citation | 18 F.Supp.2d 985 |
| Parties | Larry JOHNSON and Marvin Johnson, Plaintiffs, v. LAND O' LAKES, INC., Defendant. |
| Court | U.S. District Court — Northern District of Iowa |
Glenn L. Norris, Hawkins & Norris, Des Moines, IA, for Plaintiffs.
Lawrence A. Moloney, Doherty, Rumble & Butler, Minneapolis, MN, for Defendant.
TABLE OF CONTENTS
I. INTRODUCTION ...................................................988
A. Procedural Background........................................988
B. Factual Background...........................................989
II. LEGAL ANALYSIS..................................................993
A. Standards For Summary Judgment...............................993
B. The CEA Claims...............................................994
1. The principal arguments...................................994
2. The supplemental arguments................................997
C. The Tort Claims.............................................1001
III. CONCLUSION.....................................................1002
Yet another "hedge-to-arrive" grain contract case has ripened to the summary judgment stage. Once again, the court is squarely presented with the key question in many such cases, are certain kinds of "hedge-to-arrive" (HTA) contracts illegal off-exchange "futures" contracts under the Commodities Exchange Act (CEA), 7 U.S.C. §§ 1-25, or valid "cash forward" contracts not within the regulatory purview of the CEA? However, the court is also presented with an entirely new question, are all of the producers' tort claims barred by the "economic loss doctrine," because the producers' purely economic damages are properly redressed through contract remedies? Whether the questions presented are old or new, the court must give individualized consideration to them in the circumstances of this case.
This lawsuit was commenced as a declaratory judgment action on September 10, 1996, by grain producers Larry Johnson and Marvin Johnson against Land O' Lakes, an agricultural cooperative that operates a grain elevator called the Rockwell Ag Center. In Count I of their complaint, the Johnsons seek declaratory judgment that the HTAs they entered into with the Rockwell Ag Center for the sale and purchase of grain are void, voidable, and unenforceable because they are in irreconcilable conflict with the CEA. The Johnsons also assert claims of fraudulent misrepresentation pursuant to the CEA and common law, negligent misrepresentation, and breach of contract.
Land O' Lakes moved for partial summary judgment on January 15, 1998, on the Johnsons' CEA and common-law tort claims. Land O' Lakes asserts that, as a matter of law, the HTAs the Johnsons entered into with Rockwell Ag Center are not illegal off-exchange futures contracts that violate the CEA, but are instead legal "cash forward" contracts. Land O' Lakes has also moved for summary judgment on all of the Johnsons' tort claims on the ground that they are barred by the "economic loss doctrine," because the Johnsons' purely economic damages are properly redressed through contract remedies. Finally, Land O' Lakes has moved for summary judgment on the Johnsons' negligent misrepresentation claim, asserting that neither Land O' Lakes nor its employees are properly subject to such a claim. Land O' Lakes offered no argument in support of this final contention, however.
The Johnsons originally resisted Land O' Lakes' motion on March 30, 1998, but the court granted the parties' joint stipulation for withdrawal of that resistance pending depositions of Randy Park, the grain manager of the Rockwell Ag Center. The Johnsons then filed a substituted resistance on June 5, 1998. The Johnsons resisted all three parts of Land O' Lakes' motion. They reiterated their contention that the HTAs violate the CEA and asserted that Iowa's version of the Uniform Commercial Code (UCC) preserves their tort remedies. The Johnsons also noted the lack of any argument or evidence offered by Land O' Lakes in support of Land O' Lakes' contention that it and its employees are not subject to a negligent misrepresentation claim.
In its reply brief, filed June 15, 1998, Land O' Lakes offered no counterargument concerning the economic loss doctrine, and still offered no argument in support of dismissing the negligent misrepresentation claim. Land O' Lakes instead concentrated the entirety of its reply brief on the CEA issue. However, that was not the end of the briefing. On August 7, 1998, when this court was on the brink of filing the present opinion, the Johnsons filed a motion to allow filing of a supplemental brief in support of their resistance to Land O' Lakes' motion for partial summary judgment. In their supplemental brief, the Johnsons present additional relevant authorities concerning the CEA issues, and arguments based thereon, as to which they assert counsel previously had no knowledge. Land O' Lakes has resisted the filing of the supplemental brief as calculated to be prejudicial and fundamentally unfair, coming as it does at the eleventh hour with no prior notice. The court will give separate consideration to the Johnsons' supplemental brief.
The court heard oral arguments on Land O' Lakes' motion for partial summary judgment on July 1, 1998. Plaintiffs Larry and Marvin Johnson were represented by counsel Glenn L. Norris of Hawkins & Norris in Des Moines, Iowa. Defendant Land O' Lakes was represented by counsel Lawrence A. Moloney of Doherty, Rumble & Butler in Minneapolis, Minnesota. The court regrets that an intervening criminal trial delayed the filing of the present ruling, not least because trial in this matter is set to begin on August 26, 1998.
The court will discuss here only the nucleus of facts pertinent to the present motion for partial summary judgment. In its legal analysis, the court will address where necessary the parties' assertions of genuine issues of material fact that may preclude summary judgment. The nucleus of pertinent facts begins with an examination of the HTAs the Johnsons have entered into with Land O' Lakes' Rockwell Ag Center.
The contracts are similar in form to the FCC contracts this court discussed in Oeltjenbrun v. CSA Investors, Inc., 3 F.Supp.2d 1044-47, 1998 WL 199042 (N.D.Iowa April 19, 1998).1 However, there are two slightly different forms of the contract at issue here.
Marvin Johnson's contracts, entered into a few weeks earlier than Larry's, are each in the following form, whether for soybeans or corn, with handwritten entries on blanks excluded, although the court has added paragraph numbers:
[1.] BUYER and SELLER agree to the following:
[2.] BUYER confirms the following futures transaction was made for seller today on the Chicago Board of Trade, Seller agrees that said grain is yet to have the "CASH PRICE" determined for arrival;
[In tabular form:]
QUANTITY ____ BUSHELS ____ GRADE & GRAIN ____ ARRIVAL PERIOD ____ DESTINATION ____ QUALITY __ FUTURES OPTION __ FUTURES OPTION PRICE ___
[3.] SELLER states knowledge of cash basis which is the difference between a designated futures option on the Chicago Board of Trade and the cash price of grain for the designated arrival period of this contract. SELLER understands that the Cash Basis has not been determined in establishing the "Cash Price" of said grain on arrival.
[4.] SELLER understands that the "Cash Basis" will be the difference between the price quoted for the futures options designated in this contract and the "Cash Price" of the grain for the designated arrival period in this contract on the date and time SELLER elects to set the cash price of said grain.
[5.] SELLER agrees to set the "Cash Basis" and determine the cash value of said grain on or before ______. Unless other terms have been agreed upon by both Buyer and Seller prior to said date, and grain has not been priced by Seller, Buyer is authorized to set the cash basis and to set the cash price of contract.
[6.] Buyer shall be responsible for commissions and margin requirements of this transaction. Buyer agrees that this transaction shall be subject to the rules of the Chicago Board of Trade and the marketing policies of the Buyer.
[7.] SELLER agrees to a service fee of ___ cents per bushel and the service charge will be assessed against the cash price of this contract.
[8.] Failure by the Seller to perform on this contract [sic], Seller shall be subject to all of the terms of the "Grain Purchase Contract and Confirmation" attached to and made a part of this contract.
[9.] This is NOT considered a credit sale contract as long as final price is determined before delivery.
Complaint, Ex. B; Answer and Counterclaim, Ex. B. Of the tabular material in Marvin Johnson's HTAs, only the "Bushels," "Grade & Grain," "Futures Option," and "Futures Option Price" have been filled in. Although each of the contracts refers to a "Grain Purchase Contract and Confirmation" purportedly attached to the HTA, neither Land O' Lakes nor Marvin Johnson has provided the court with a copy of such a document for any of Marvin Johnson's HTAs.
Land O' Lakes contends that Marvin Johnson has failed to make delivery on the following six HTAs: (1) No. 900, dated February 29, 1996, for delivery of 5,000 bushels of soybeans with a "futures option" of November 1996, a "futures option price" of $6.01 per bushel, a deadline of October 30, 1996, to set the cash basis and determine the cash value of the grain, and a service fee of two cents per bushel; (2) No. 926, dated April 19, 1996, for delivery of 5,000 bushels of soybeans with a "futures option" of November 1996, a "futures option price" of $5.87½ per bushel, a deadline of October 31, 1996, to set the cash basis and...
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