Midwest Oilseeds, Inc. v. Limagrain Genetics Corp.

Decision Date14 October 2004
Docket NumberNo. 03-2089.,03-2089.
PartiesMIDWEST OILSEEDS, INC., Plaintiff/Appellee, v. LIMAGRAIN GENETICS CORPORATION, formerly known as Callahan Enterprises, Inc., Defendant/Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Appeal from the United States District Court for the Southern District of Iowa, Robert W. Pratt, J.

COPYRIGHT MATERIAL OMITTED

George Pazuniak, argued, Wilmington, DE (John F. Fatino, Des Moines, IA, and Michael Rosiello, Indianapolis, IN, on the brief), for appellant.

Edward M. Mansfield, argued, Des Moines, IA (Roger T. Stetson and Danielle M. Shelton, Des Moines, IA, and Paul D. Burns, Cedar Rapids, IA, on the brief), for appellee.

Before BYE, HANSEN and MELLOY, Circuit Judges.

BYE, Circuit Judge.

The parties to this diversity action together pioneered the marketing of soybean seeds in the 1970s, jointly ventured into the seed-breeding business in the 1980s, and wound up in federal court when their industry entered the biotechnology age. The main issue on appeal is whether restrictions in the parties' 1986 joint-venture agreement (the Agreement) applied to the inheritable genetic makeup, or germplasm, of the seed at issue or applied only to the seed itself.

The district court1 determined the Agreement protected the germplasm and granted summary judgment for appellee Midwest Oilseeds, Inc. (MO). On appeal, appellant Limagrain Genetics Corporation (CEI)2 challenges this judgment and other rulings by the district court. We affirm.

At this point, we provide an overview of the complex procedural history of this case. While Section I provides a recitation of the essential facts, some details are reserved for the legal analysis in subsequent sections.

MO sued CEI in Iowa state court, and CEI removed the case to federal district court. MO alleged CEI had made unauthorized use of MO's restricted germplasm. Specifically, MO alleged CEI breached the Agreement by performing unauthorized breeding with MO seeds and their descendants and by licensing MO seeds and their descendants to third parties without use restrictions. MO sought liquidated damages of $10 for each bushel marketed in breach of the Agreement. CEI brought seven counterclaims, the first of which alleged MO itself breached the Agreement by failing to pay CEI royalties due under the Agreement.3

The district court granted summary judgment on MO's breach-of-contract claim and ruled the liquidated-damages clause in the agreement was enforceable. The court also granted MO's motion for summary judgment on all CEI counterclaims except the first. Hence, the measure of damages owed MO, as well as CEI's breach-of-contract counterclaim, proceeded to trial.

On the eve of trial, MO brought a Motion for Judgment Based on Prior Rulings, arguing the court's construction of the Agreement applied retrospectively to restrict CEI's use of MO seed which CEI had received before the execution of the Agreement on March 14, 1986. The district court granted the motion but again concluded the measure of damages was a jury issue.

The jury found CEI and its licensees sold or transferred 3,449,445 bushels of seed in breach of the Agreement. Accordingly, the court entered a judgment of $34,494,450 ($10 × 3,449,445 bushels) in favor of MO. The jury also found CEI was entitled to $1,818,055 in damages for MO's failure to pay fees on 4,243,542 bushels of seed MO had licensed (i.e., $0.4266 per bushel).

Post trial, the court thrice entered judgment as a matter of law (JAML). First, the court determined eleven additional seed lines should have been included in the verdict and awarded MO an additional $4,339,010 in damages.4 Accordingly, the court amended the verdict to $38,833,460. Second, the court ruled only seven of the thirty-one seed varieties at issue in CEI's counterclaim were subject to the Agreement's fee-sharing provision. Accordingly, the court reduced CEI's award to $180,725.80. As to the remaining seven varieties, the court granted MO's motion for a new trial, concluding the court had erroneously placed the burden of proof on MO instead of CEI, the party alleging the breach on the counterclaim. CEI then conceded it could not meet the burden, and so the court entered JAML in favor of MO on the entire counterclaim.

The court entered final judgment in favor of MO and against CEI in the amount of $40,892,353.67, consisting of damages, interest, costs, and fees. This timely appeal followed.

On appeal, CEI claims the district court erred when it (1) granted summary judgment for MO on its breach-of-contract claim, (2) ruled the liquidated-damages provision was enforceable, (3) concluded the Agreement's restrictions applied retrospectively to MO seed CEI received before the Agreement's effective date, (4) granted MO's motions for JAML and a new trial on CEI's first counterclaim, and (5) dismissed three of CEI's other counterclaims. We affirm in all respects.

I
A. Early Relationship Between the Parties

In 1975, Midwest Oilseeds, a corporation formed by Harry Stine in 1972 to breed soybean seed, and Callahan Enterprises, Inc. first collaborated to breed and market new variations of soybean seed. Under their initial agreement, renewed in 1981, MO developed seed and CEI served as MO's exclusive distributor.

In 1982, a year after CEI started its own breeding program, the two companies formed a joint venture. They shared seed varieties with each other, and each compensated the other with research fees, or royalties, for the sale or transfer of seeds developed in the venture.5 Other than the duty to collect and pay these royalties, the agreement placed no restrictions upon the use of the other party's seed in the development of new seed varieties.

In 1983, however, MO started to restrict the use of the seeds it developed and sold to third parties. Typically, MO permitted its customers to use seeds only to grow grain for feed or processing. Breeding with the seeds was prohibited. In other words, with the dawn of bioengineering, MO started treating the genetic material in the seeds, the germplasm, as intellectual property.

B. The 1986 Negotiations and Agreement

In February 1986, MO gave formal notice to CEI that it was terminating the 1982 agreement, and the parties started negotiating a new contract. Mr. Stine himself handled negotiations for MO; counsel represented CEI. Mr. Stine amended the 1982 agreement by hand, adding Section 4,6 a provision restricting CEI's use of MO seed. CEI then typed a version of the contract making the restrictions mutual. In response, MO asked CEI to share the liabilities and costs of enforcing the restrictions on third parties. Because CEI believed the restrictions would be unenforceable, it ultimately agreed to restrict its use of MO seeds unilaterally, and as a result, the final version of the Agreement incorporated the amendments Mr. Stine had first inserted in his own hand. As we discuss at length in Section II of this opinion, these amendments limited CEI's seed-breeding use of MO seeds to making first-generation A X B crosses.

C. Subsequent Dealings

In July 1987, MO wrote CEI a letter expressing concern about a possible breach of the Agreement. The letter asked CEI to advise all parties who had received "Midwest developed seed or seed derived by use of Midwest developed seed of the restrictions referred to in [Paragraph 4(b)]." Instead of disputing MO's assertion Paragraph 4(b) applied to seeds with a Midwest pedigree, CEI responded it was implementing the program.

Next came three attempts by CEI to amend Paragraph 4(b). In 1987, CEI proposed making the restrictions mutual and giving CEI a blanket exclusion from the restrictions in the development of new lines. In 1988, CEI proposed an amendment allowing the party originating a line to decide whether the restrictions would apply. In 1988, Rhone-Poulenc (Rhone), a French Company, acquired CEI for sixteen million dollars. On June 12, Rhone's president wrote Mr. Stine, inviting him to discuss the possible acquisition of MO, or alternatively, an amendment to the Agreement. A Rhone internal document dated weeks before the letter and entitled "Recommendations—M.O./C.E.I. Contracts" stated, "Germplasm Policy—delete CEI restrictions and have mutual usage policy.... CEI needs to establish CEI germplasm policy."

After MO thrice declined to amend the Agreement, CEI gave formal notice of termination on July 1, 1989, effective in two years. CEI's president stated Rhone directed the termination because Rhone could not live with the contract as it stood. Under the terms of the Agreement, either party could terminate the agreement with two-years notice, but the agreement provided research fees would continue after termination for seeds in elite trials which the parties had not deleted from the venture.

D. Alleged Breach of the Agreement

In 1996, MO learned CEI had bred subsequent generations of MO offspring. In a series of letters, the parties disputed whether CEI's conduct violated Section 4. In internal documents, a Limagrain7 official stated the question was unanswered, and an officer opined MO's restrictions were against United States law and recommended CEI wait silently for Mr. Stine to attack. After conducting a legal review, CEI took the position it could breed freely with seeds having an MO pedigree and market the resulting offspring without paying MO royalties. At this point, MO did not sue.

In 1998, MO learned CEI had not only been engaged in its own breeding activities, but had also licensed to third-party competitors seeds owing their lineage to MO-developed seeds. Soon after, the parties entered into negotiations, which collapsed in August 2000. On November 29, 2000, MO filed the present lawsuit.

E. Other District Court Proceedings

In its complaint, MO properly pleaded three legal theories: Breach of contract, conversion, and misappropriation of...

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