Mashuda v. Western Beef, Inc.

• Court: U.S. District Court — Eastern District of Pennsylvania
• Writing for the Court: COHILL
• Citation: Mashuda v. Western Beef, Inc., 527 F.Supp. 887 (E.D. Pa. 1981)
• Decision Date: 02 December 1981
• Docket Number: Civ. A. No. 78-767.
• Parties: Bernie S. MASHUDA, Plaintiff, v. WESTERN BEEF, INC., Defendant.

527 F. Supp. 887

Bernie S. MASHUDA, Plaintiff, v. WESTERN BEEF, INC., Defendant.

Civ. A. No. 78-767.

United States District Court, W. D. Pennsylvania.

December 2, 1981.

John W. Giltinan, Krug, Selko & Giltinan, Pittsburgh, Pa., for plaintiff.

Charles W. Kenrick, Dickie, McCamey & Chilcote, Pittsburgh, Pa., Gibson, Ochsner & Adkins, Amarillo, Tex., for defendant.

MEMORANDUM OPINION

COHILL, District Judge.

Introduction

Bernie S. Mashuda, an individual who resided until his recent death in Evans City, Pennsylvania, filed this action against Western Beef, Inc., a corporation with offices in Amarillo, Texas, for damages allegedly arising from the breach of a cattle feeding agreement. This Court has jurisdiction over the subject matter of Mr. Mashuda's lawsuit pursuant to 28 U.S.C. § 1332(a) (1976), which bestows original jurisdiction on the district courts over all civil actions where the amount in controversy exceeds $10,000 and the parties are citizens of different states. Venue properly lies in the Western District of Pennsylvania because the plaintiff resides in this district. See 28 U.S.C. § 1391(a) (1976).

Following a period of extensive discovery, the defendant filed a motion for summary judgment. The parties have presented the Court with briefs, supplemental briefs and oral argument on the motion.

A federal court will grant summary judgment only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, a court must view the facts in the light most favorable to the non-moving party. Goclowski v. Penn Central Transportation Company, 571 F.2d 747, 751 (3d Cir. 1977); Smith v. Pittsburgh Gage and Supply Company, 464 F.2d 870, 874 (3d Cir. 1972). The movant has the burden of establishing that no genuine issue of fact exists. Scooper Dooper, Inc. v. Kraftco Corp., 494 F.2d 840, 848 (3d Cir. 1974). With these principles in mind, we now turn to an examination of the factual basis that underlies the defendant's motion.

I. Factual Background

Mr. Mashuda operated on a fiscal tax year that ended on April 30th. In April 1976, he wanted to establish a cattle feeding program that would create a deferral of taxable income for two years. Working through a broker, Mr. Mashuda asked Western Beef to participate in the development of such a program. Extensive discussions among Mr. Mashuda's son, Daniel, an accountant, David Goode, two representatives of the brokerage firm of Bache Halsey Stuart Shields, Inc., and a representative of Western Beef yielded an agreement that Mr. Mashuda signed on April 22, 1976.

Under the terms of the agreement, Mr. Mashuda would provide $30,000 of equity capital to Western Beef for the purchase of three hundred head of cattle and the necessary feed. Western Beef would purchase the cattle and the feed, would place the cattle in one of its feedlots, would feed and care for the cattle in accordance with prevailing standards of animal husbandry, would market the cattle, and would deposit the proceeds from the sales in Mr. Mashuda's account. Title to the cattle and to the feed would be in Mr. Mashuda's name at all times. The seventh paragraph of the agreement read as follows:

7. HEDGING — It is understood between Feeder and Owner that hedging cattle or grain on commodity futures markets is a vital part of this program. Hedging will be entered into for the purpose of minimizing losses and "locking in" profits; however, such hedging may have the effect of reducing profits or "locking in" losses if a subsequent rise in market prices is experienced. Feeder shall have full authority to execute such futures transactions as in its opinion is deemed proper. Feeder agrees to finance margin requirements of hedging provided assignment of the hedging account maintained with a commodity broker is executed in proper form acceptable to Feeder's lending agency. The gain or loss plus interest on such hedging under this provision shall be for the account of Owner.

Hedging is the establishment of a position in the commodities futures market that is approximately equal to, but the reverse of, the position that the investor holds in tangible commodities. This technique minimizes the risk of financial loss in the event that commodity prices move in an unexpected direction.

Through letters dated May 6, 1976 and June 22, 1976, Western Beef informed Mr. Mashuda that it had acquired cattle for his account. It also recommended in those letters that he confer regularly with his advisors on total cost projections and on developments in the futures market.

In early November 1976, Western Beef informed Mr. Mashuda's accountant through a letter that no hedges had been placed on Mr. Mashuda's cattle, that the market price for cattle had fallen substantially, that Mr. Mashuda's account had sustained a loss of $12,000, and that Western Beef was projecting a further loss of $6,000. Western Beef explained to the accountant that it had understood the agreement to be that Mr. Mashuda, with the assistance of his broker, would conduct all hedging activities. It stated that it now inferred from the absence of hedging, however, that Mr. Mashuda had expected Western Beef to conduct the hedging activities. Finally, Western Beef expressed a willingness to modify the agreement to remedy the apparent misunderstanding and to attempt to recover the loss that Mr. Mashuda had sustained.

Representatives of Western Beef and Mr. Mashuda promptly began to discuss the possibility of modifying the agreement. As a result of these negotiations, Western Beef sent the following letter to Mr. Mashuda's accountant:

January 17, 1977 Mr. David Good Joyce, Good and Corfield Certified Public Accountants Manor Oak # 2 1910 Cochran Road Pittsburgh, Pennsylvania 19222

Re: Mr. Bernie Mashuda

Dear Mr. Good:

On April 22, 1976, Mr. Mashuda entered into a cattle feeding agreement with Western Beef, Inc. Option VII was included in this agreement whereby all profits or losses were for the account of Mr. Mashuda. Under the contract Western provided a projected break even on cattle purchased, together with monthly accounting reports.

Subsequently, it was found that a misunderstanding existed as to who would be responsible for any hedging activities. As a result, no hedges were placed and the cattle were sold on a declining market with substantial losses. In view of this situation, Western offers the following:

1. Western and Mashuda will amend the feeding agreement to share profits and losses on an equal basis on any additional cattle purchased. However, Western will not allocate any profits to itself until the original capital of $30,000 has been recovered for Mashuda.

2. Western will purchase for Mashuda additional cattle with the objective to defer all income to future periods through consumed feed by the fiscal year ending April 30.

3. Because of the high leverage required for additional purchases, interest will be allowed to Western for any advances made at the same rates charged by the lending institution, CNT Financial Corp.

4. Western will assume all hedging responsibilities and any profits or losses from such hedging activities will be included with profits or losses from cattle sales to determine overall profitability.

5. Mashuda agrees to continue the cattle feeding activities for a minimum of three years from the initial date of the contract, and Mashuda shall have two additional one year options to continue, at his election. If, however, future losses reduces sic the equity capital of Mashuda below 10% of the initial capital, Westerm sic may terminate the cattle feeding program.

If the above is acceptable to Mr. Mashuda, will you kindly have him sign one copy of this letter and return to us.

Sincerely S/F.H. Simpson F. Howard Simpson Senior Vice President FHS/hg Accepted by _____________________ _____________________ Signature Date cc: Mr. Bruce Davies Bache & Co 600 Grant Street Pittsburgh, Pennsylvania 15222

Mr. Mashuda did sign and return a copy of the letter on January 31, 1977.

The plaintiff does not dispute that Western Beef conscientiously performed its duties under the modified agreement. The market price for cattle continued to decline during the first half of 1977, however. As a result, the value of the plaintiff's account fell to under $2,000.00. Pursuant to the term in the agreement that permitted Western Beef to terminate Mr. Mashuda's account if the equity capital fell to a level of less than ten percent of the initial investment, Western Beef tendered a check in the amount of $1,758.65 to Mr. Mashuda on July 15, 1977. Mr. Mashuda refused to accept the check and filed this lawsuit.

The plaintiff alleges that Western Beef breached the cattle feeding agreement by failing to place hedges during the period May 1976 through November 1976. The defendant has moved for summary judgment on the basis of two affirmative defenses. First, Western Beef contends that the completed performance of its duties under the modified agreement acted as an accord and satisfaction for any claims arising from the alleged breach of the original contract. Second, Western Beef argues that the plaintiff is estopped from now asserting that it had a duty under the original agreement to place hedges because the plaintiff acknowledged in the modified agreement that a misunderstanding had existed about the assignment of hedging responsibilities.

II. Choice of Law

Before addressing the two affirmative defenses that underlie the defendant's motion for summary judgment, we must determine whether the law of Texas or the law of Pennsylvania controls the disposition of the substantive issues. In a diversity action, a federal district court must apply the choice of law rules of the forum...