Mueller v. Hubbard Milling Co.

• Decision Date: 02 May 1978
• Docket Number: Nos. 77-1413,77-1432,s. 77-1413
• Citation: 573 F.2d 1029
• Parties: Ralph E. MUELLER and Eugene D. Devane, Appellees-Cross-Appellants, v. HUBBARD MILLING COMPANY, Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1029

573 F.2d 1029

Ralph E. MUELLER and Eugene D. Devane, Appellees-Cross-Appellants, v. HUBBARD MILLING COMPANY, Appellant-Cross-Appellee.

Nos. 77-1413, 77-1432.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 18, 1977.

Decided April 10, 1978.

Rehearing and Rehearing En Banc Denied May 2, 1978.

George D. McClintock, Faegre & Benson, Minneapolis, Minn., for Hubbard; Lawrence C. Brown and Jerry W. Snider, Faegre & Benson, Minneapolis, Minn., on the brief.

Charles Quaintance, Jr., Maslon, Kaplan, Edelman, Borman, Brand & McNulty, Minneapolis, Minn., for Mueller et al.; Martin G. Weinstein and Barbara R. Hauser, Maslon, Kaplan, Edelman, Borman, Brand & McNulty, Minneapolis, Minn., on the brief.

Before VAN OOSTERHOUT, Senior Circuit Judge, and LAY and STEPHENSON, Circuit Judges.

VAN OOSTERHOUT, Senior Circuit Judge.

Ralph E. Mueller and Eugene D. Devane brought this action in the United States District Court for the District of Minnesota against Hubbard Milling Company (Hubbard) to recover certain investment losses sustained by them as limited partners in two limited partnership cattle feeding ventures, referred to by the parties as Dakota 14 and Dakota 16, in which Hubbard acted as sole general partner. Following extensive pretrial discovery and a lengthy trial, the cause was submitted to a jury on four theories of liability: federal securities law violations, common law fraud, breach of contract and breach of fiduciary duty. Hubbard's request for special verdict forms was denied, and the jury was instructed to return general verdicts with respect to each of the two plaintiffs and each of the two limited partnerships (a total of four verdicts). Substantial verdicts were returned for plaintiffs in each instance. The Dakota 16 verdicts substantially exceeded the amount sought by plaintiffs and the maximum amount sustainable by the evidence. Plaintiffs later consented to remittiturs on the Dakota 16 verdicts, and judgments were entered on the Dakota 14 verdicts as returned and the Dakota 16 verdicts as remitted. Post-trial relief sought by Hubbard was denied. ¹ Alleging numerous grounds for reversal, Hubbard appeals. Plaintiffs cross-appeal from a denial of their claim for prejudgment interest.

For the reasons stated herein, we vacate the judgments entered below, dismiss plaintiffs' cross-appeal without prejudice and remand for further proceedings.

I.

Dakota 14 and Dakota 16 were the last in a series of eight limited partnerships in which Hubbard acted as general partner and plaintiffs as limited partners. All of the partnerships were formed for the purpose of fattening cattle to slaughter weight at feedlot facilities operated by Fall River Feedlots, Inc. (Fall River), in Hot Springs, South Dakota. Fall River was owned 75% by Hubbard and 25% by T. M. Largent, Fall River's president and manager. Largent was responsible to John McNeal, a vice president of Hubbard, for his actions as feedlot manager. In addition to supervising Largent, McNeal was responsible for Hubbard's performance of its duties as general partner under the partnership agreements. For each limited partnership Largent bought, fattened and sold a herd of cattle; the partnership was then dissolved.

All of the capital in the limited partnerships was contributed by the limited partners; in addition to cash contributions, the limited partners provided letters of credit. ² In exchange for its management services, Hubbard received from the partnership a per head fee, which was four dollars for both Dakota 14 and Dakota 16. Hubbard also received a sliding percentage of any profit, ranging from five per cent of the first ten dollars per head profit to twenty per cent of the total profit if it exceeded twenty-four dollars per head.

Mueller and Devane were without question experienced investors. The partnership agreements were modeled after a limited partnership agreement (Dakota 1) offered by the First National Bank of Minneapolis to its customers as part of an investment opportunities package known as "Total Plan." The partnerships provided a significant tax shelter for the limited partners. Mueller at times consulted his attorney and his accountant with respect to the investments. In 1972 and 1973 Mueller had also formed and been president of a cattle placement and monitoring business, which purchased about 25,000 head of cattle for its customers.

The partnerships were formed pursuant to the Uniform Limited Partnership Act as enacted in South Dakota, South Dakota Compiled Laws Annotated, chapter 48-6 (1967). The agreements recited that they "shall be construed and enforced in accordance with the laws of the State of South Dakota."

Paragraph 8 of the agreements vested exclusive management of the partnerships in Hubbard; Hubbard was authorized, inter alia:

(a) to purchase, hold and sell cattle;

(b) to engage, at its discretion, in "hedging" activities including advance contracting and commodities futures trading in cattle, and to utilize Partnership assets in an amount not to exceed $10 per head of Partnership cattle owned at the time of such hedging activities to cover the costs thereof;

(c) to borrow money from such person or persons in such manner, on such security (including assets of the Partnership and assets pledged to the Partnership) and on such terms as it may see fit, provided that such borrowings must be made without recourse to the Partnership or to any Partner(.)

Paragraph 17 provided: "No Limited Partner shall participate in the control, operation or management of the Partnership business" and "The Limited Partners hereby consent to any purchase or other acquisition, sale, lease, exchange, conveyance or other disposition, mortgage or other encumbrance by the General Partner on behalf of the Partnership, of any or all property now or hereafter acquired for the Partnership, on such terms and conditions as may be determined by the General Partner, notwithstanding that any party hereto may have an interest therein."

At the risk of oversimplification and without attempting to relate all or even most of the relevant evidence, we outline the particular events which gave rise to this lawsuit. Although the agreement for Dakota 14 was executed prior to the one for Dakota 16, the dispute over Dakota 16 developed first, and we accordingly discuss it first.

In the feeder cattle business, the term "breakeven" refers to an estimated price at which cattle must be sold in order to "break even" with the original purchase expense and the cost of feeding. The central controversy over Dakota 16 concerns statements allegedly made by McNeal that Hubbard would notify plaintiffs before purchasing any cattle at breakevens higher than forty-five cents per pound.

Prior to October 15, 1973, Mueller, according to his own testimony, was reluctant to form Dakota 16 because of difficulties then being encountered with Dakota 14 and its immediate predecessor, Dakota 12. Discussing the matter with McNeal, he explained, "we just can't buy ourselves into another loss position." In the course of negotiations, McNeal allegedly made a number of statements which induced plaintiffs to execute the agreement. Most significantly, ³ he "agreed that if we would go into this partnership that he would call us before any cattle were purchased if they were above 43 or 45 cents, if they were above the 45-cent range."

The Dakota 16 agreement was executed on October 15, 1973. Paragraph 5 recited: "The Partnership shall purchase an aggregate of 2,000 feeder cattle and calves during the period from November 1, 1973 through February 14, 1974 and shall market the fattened cattle in lots during the period of March through August of 1974."

On November 12, 1973, Hubbard transferred to Dakota 16, 417 head of cattle which Fall River had previously purchased, some of them in early October. Mueller and Devane did not learn of the transfer until November 27. Upon learning of the transfer, Mueller called McNeal to express concern over Hubbard's transferring cattle purchased before the Dakota 16 agreement was executed, and more especially, over the fact that the 417 cattle had been purchased at breakevens of forty-seven cents. He explained that the purchase would cause him to have trouble with his banker because his banker had loaned him the money for Dakota 16 on the basis that purchases would be at breakevens of forty-three to forty-five cents. Mueller testified that McNeal told him "they wouldn't do any more (purchasing) without talking to us."

No additional cattle were purchased for or transferred to Dakota 16 in November or December. However, Hubbard did purchase an additional 1,516 head of cattle, all at breakevens in excess of forty-five cents, at various times in January. Mueller testified he did not learn of these purchases until January 31.

Declining fat cattle prices, rising feed prices and other factors combined in making Dakota 16 a financial disaster. Hubbard sold the cattle on advance contract in June 1974. Mueller and Devane lost their entire investment, which amounted to $258,000. This sum is the total amount of the verdicts as remitted on Dakota 16.

The Dakota 14 agreement was executed on July 31, 1973. Paragraph 5 recited: "The partnership shall purchase an aggregate of 3,000 feeder cattle and calves during the period of August through October of 1973 and shall market the fattened cattle in lots during the period of January through April of 1974." The dispute over Dakota 14 concerns certain second letters of credit delivered by plaintiffs in December 1973. As already noted, supra note 2, plaintiffs had delivered first letters of credit at the time the partnership was formed.

The purchase and feeding of Dakota 14 cattle was financed through the First National Bank of the Black Hills. Under the financing agreement the bank had authority, at any time its loans exceeded 80% of the value of its collateral, to direct that the partnership's cattle...