Nelson v. Production Credit Ass'n of the Midlands, 89-2554

• Decision Date: 17 May 1991
• Docket Number: No. 89-2554,89-2554
• Citation: 930 F.2d 599
• Parties: Joe NELSON and Margaret Nelson, Appellants, v. PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 599

930 F.2d 599

Joe NELSON and Margaret Nelson, Appellants, v. PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, Appellee.

No. 89-2554.

United States Court of Appeals Eighth Circuit.

Submitted June 13, 1990.

Decided April 9, 1991.

Rehearing and Rehearing En Banc

Denied May 17, 1991.

David H. Hahn, Lincoln, Neb., for appellants.

Steven W. Olsen, Scottsbluff, Neb., for appellee.

Before JOHN R. GIBSON, Circuit Judge, and HEANEY and TIMBERS, ^* Senior Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Joe and Margaret Nelson appeal from an order granting judgment notwithstanding the verdict in favor of Production Credit Association of the Midlands (PCA). The jury found in favor of the Nelsons on their claims of breach of contract, negligence and misrepresentation and awarded damages to the Nelsons in the amount of $1,278,000. The district court ¹ subsequently entered a judgment notwithstanding the verdict for PCA on all three claims and, in the alternative, granted the motion for a new trial.

On appeal, the Nelsons challenge the judgment notwithstanding the verdict by arguing that: (1) the district court should not have relied on North Dakota precedent when determining the validity of an oral contract formed in Nebraska; (2) sufficient evidence of misrepresentation existed to sustain the jury's verdict; and (3) the district court erred when it held that PCA had no duty to lend money to the Nelsons. Finally, Nelsons argue that the district court abused its discretion when it granted the provisional order for a new trial. We affirm the district court's entry of judgment notwithstanding the verdict and do not reach the issue of the ruling on the new trial motion.

Joe and Margaret Nelson were ranchers in Morrill County, Nebraska. They borrowed money each year to purchase cattle and pay their operating expenses. Each fall they sold cattle to repay the loans.

In 1975 the Nelsons changed lenders from a local bank to PCA, a cooperative organization. In November of each year, the Nelsons would present financial information to PCA and apply for a loan for the upcoming year. After reviewing the ranch's financial condition, PCA would decide whether to lend. ² In exchange for the loans, the Nelsons would give PCA a lien on all ranch livestock, products, and machinery. In years when the ranch lost money, the Nelsons included the losses in the requested loan amount for the upcoming year, thus carrying the debt forward.

The Nelsons incurred losses in five of the seven years between 1977 and 1983. During that time PCA became concerned about the high expenses of the Nelson's farm and their mounting debt. In 1983, one of PCA's loan officers wrote to the Nelsons explaining that before PCA would consider the loan application for the 1984 operating year, the Nelsons would have to devise and implement a plan to reduce their outstanding debt with PCA. ³ PCA warned the Nelsons: "Your financial position requires substantial debt reduction (more than sale of the cow herd alone can achieve) as well as a reduction in overall operating costs if the loan is to return to a workable cashflow position."

PCA's request for a "plan" prompted the Nelsons to go to a management specialist and an economist at the University of Nebraska Panhandle Station for help. These experts devised a Ranch Plan ⁴ for the Nelsons. The Ranch Plan analyzed the production potential of the Nelsons' ranch, and proposed additional stocking and intensive grazing techniques to increase the ranch's profitability.

Three weeks after the August letter, Rodney Uhrig of the PCA wrote a second letter to the Nelsons stating Although I do not feel that refinancing your present debt is a solution to the problems that your operation faces, it seems that this alternative is the most appealing from your perspective. Therefore, unless we can agree upon a plan for dealing with those problems which is satisfactory to both of us, your alternatives are to either secure financing through another source or to provide the PCA with a sufficient liquid margin to offset the risk position of the loan. In the latter case, our credit decisions and future financing can only be based upon your ability to maintain this liquid position.

. . . . .

In order for the PCA to finance a program similar to that which you followed in the past year, a livestock margin position of $200,000 would need to be provided. To achieve this, additional long-term financing of $400,000-$500,000 would have to be obtained to retire the estimated PCA carryover debt, plus purchase of 600 head of calves. From our standpoint, the $400,000 figure is a minimum, since the loan's liquid margin could deteriorate swiftly if your historical loss trend continues.

Finally, I should stress the point which I made earlier, that if you choose to pursue the refinancing route, you should make every effort to obtain the maximum loan possible, since our position will rely almost entirely upon a liquid margin with secondary collateral of machinery and a third mortgage with limited equity. Considering this position, our ability to finance your operation under adversity would continue only so long as the liquid margin could be maintained.

Appendix for Appellee at 4-5 (emphasis added).

The PCA extended the 1983 loan past its November 1983 maturity to allow the Nelsons time to find a long-term lender and restructure their debt. Finally, in February 1984, when the Nelsons had obtained a long-term loan commitment from Traveler's Insurance Company, PCA renewed the 1983 loan until November 1984. Travelers loaned the Nelsons $350,000, of which the Nelsons paid approximately $240,000 to PCA.

During the 1984 operating year, the Nelsons' ranch lost $61,000. As a condition to lending money to the Nelsons for 1985, PCA required the Nelsons to sign a memorandum of understanding which provided that if the ranch did not earn at least $29,725 in the 1985 operating year, the Nelsons agreed to find alternative financing and pay off their PCA loan. After careful consideration, the Nelsons signed the agreement and received another one-year loan from PCA.

In 1985 the Nelsons lost $170,000, and by October of that year they owed PCA approximately $383,000. Since then they have not applied for a loan from PCA or made any payments on the 1985 loan. When PCA obtained an Order in Replevin, the Nelsons filed for protection under the Bankruptcy Code and an adversary proceeding ensued. The bankruptcy court ultimately transferred this case to the district court.

At trial, the Nelsons raised three primary claims. First, that their discussions with PCA of a Ranch Plan amounted to an oral contract in which PCA obligated itself to finance the Nelsons for a minimum of three years while they carried out the proposed plan. The Nelsons claimed six counts of breach of the oral contract, primarily alleging that PCA unreasonably called the Nelsons' loan and did not adequately assist them in carrying out the Ranch Plan.

Although the jury found the existence and breach of a contract, the district court's order granting PCA's motion relied on two grounds in concluding that no contract had been formed. First, it concluded that the relevant evidence, interpreted in the light "most favorable to the Nelsons, did not support a conclusion that PCA agreed to provide operating capital for the expansion of the Nelsons' ranch operation to full productivity over a three-year period or to restructure the Nelsons' debt situation to permit proper funding of the Nelsons' ranching operation." Nelson v. Production Credit Association, 729 F.Supp. 677, 684 (D.Neb.1989). The court also held that even if the evidence did point to some kind of agreement, the terms of such an agreement were "too indefinite to permit the enforcement of the contract." Id.

The Nelsons' second claim was that PCA made six separate misrepresentations to them. These were: (1) that PCA intended to fund the Ranch Plan, (2) that PCA had special concern for its members beyond just acting as their commercial bank, (3) that the relationship between PCA and the Nelsons was more than just commercial lender and borrower, (4) that Nelsons were required to pay down their loan with PCA in order to make their ongoing loan relationship sound for both parties, (5) that getting $350,000 from Travelers and paying down the PCA loan would permit PCA to fund Nelsons' ranch plan, and that (6) PCA intended to act as the ranch's operating lender for at least three years so that the Nelsons could implement the ranch plan and work themselves out of debt.

The district court thoroughly considered the Nelsons' six claims of misrepresentation and concluded that the strongest testimony presented at trial, viewed in the light most favorable to the Nelsons, did not support an actionable misrepresentation claim, and, therefore, the misrepresentation claim should not have been submitted to the jury. Id. at 684-86.

The Nelsons' third claim was that PCA negligently failed to support the Nelsons' efforts to carry out the ranch plan. In their complaint, the Nelsons enumerated nine separate grounds for this negligence. Judge Urbom reviewed Nebraska tort law and concluded that PCA owed no fiduciary or common law duty to the Nelsons and that there could be no duty because no contract existed between the Nelsons and PCA.

The court also stated that even if evidence existed to support a contract to lend the Nelsons money, "that claim was sued under the breach of contract theory and cannot form a separate claim in negligence. Nothing in ... Nebraska law suggests that both a contract action and a negligence action are permitted when duties rest upon a contract. When a claim is based upon a failure to comply with an express contractual provision, the nature of the action is in contract, rather than in negligence." At 687 (citing L.J. Vontz Constr. Co. v. Nebraska, 230 Neb. 377, 432 N.W.2d 7 (1988); Fuchs v. Parsons Constr. Co., 166 Neb. 188, 88 N.W.2d 648 (1...