Pitman Farms v. Kuehl Poultry, LLC
| Decision Date | 08 September 2022 |
| Docket Number | 21-1113 |
| Parties | Pitman Farms Plaintiff - Appellee v. Kuehl Poultry, LLC; Rodney Boser; Dan Schlichting; John Tschida; Chris Uhlenkamp; David Welle Defendants - Appellants |
| Court | U.S. Court of Appeals — Eighth Circuit |
Submitted: December 14, 2021
Appeal from United States District Court for the District of Minnesota
Before SMITH, Chief Judge, GRUENDER and KOBES, Circuit Judges.
This case concerns the application of two Minnesota statutes and a rule promulgated by the Minnesota Department of Agriculture (MDA) that establish the liability of a parent company for the unmet contractual obligations of its subsidiary under certain kinds of agricultural contracts. Minn. Stat. § 17.93, subd. 2; Minn. Stat. § 27.133; Minn. R 1572.0040. At issue is whether the relevant Minnesota statutory and administrative law applies to chicken production contracts between the defendants (collectively, the Growers) who are Minnesota chicken producers, and Simply Essentials, LLC (Simply Essentials), a chicken processor. If they apply, then plaintiff Pitman Farms (Pitman Farms), a California corporation and Simply Essentials's parent company, is liable to the Growers for Simply Essentials's breaches of contract.
Pitman Farms brought suit under the federal Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that the Minnesota statutes and cases governing agricultural parent-company liability do not apply to the Growers' contracts with Simply Essentials. Pitman Farms argued that the parent-liability authorities do not by their own terms apply to the contracts. Pitman Farms also argued that Delaware law rather than Minnesota law governs the Growers' contracts with Simply Essentials. Lastly, it argued that applying the parent-liability authorities would run afoul of the federal dormant Commerce Clause doctrine.
The Growers filed a counterclaim also for declaratory relief. In it, they sought contrary declarations and damages. The parties filed cross-motions for summary judgment on their respective declaratory-judgment claims. The district court granted Pitman Farms's summary-judgment motion and denied the Growers' cross-motion based upon its conclusion that the Minnesota parent-liability authorities do not by their terms apply to the subject contracts because those authorities do not apply to parent companies of LLCs. It did not reach Pitman Farms's other arguments. We now reverse and remand for further proceedings.
This dispute concerns two provisions of the Minnesota Statutes and a related administrative rule: (1) Minn. Stat. § 17.93, subd. 2 (), (2) Minn. Stat. § 27.133 ("Parent company liability"), and (3) Minn. R. 1572.0040 ("PARENT COMPANY LIABILITY"). These authorities establish liability of parent companies for the debts of their subsidiaries with respect to certain agricultural contracts, overriding the general rule that precludes such liability.
These authorities have a common origin. On April 28, 1988, the Minnesota Legislature directed the MDA commissioner to convene an advisory task force to advise and provide recommendations to the legislature for "economic protection for [Minnesota] farmers producing agricultural commodities under contract." Pitman Farms v. Kuehl Poultry LLC, 508 F.Supp.3d 465, 485 n.16 (D. Minn. 2020) (quoting 1988 Minn. Laws 1265). "Such economic protection 'would be provided when businesses have filed bankruptcy and are unable to make payments under the contract or are otherwise financially unable to make payments under the contract.'" Id. (quoting 1988 Minn. Laws 1265). In February 1990, the advisory task force issued its Final Report. The Report reiterated the task force's purpose to study and recommend new programs that would provide economic protection for producers of agricultural products. See R. Doc. 70-8, at 9.
Minn. Stat. § 17.93, subd. 2 (emphasis omitted).
Chapter 17 of the Minnesota Statutes contains provisions generally relating to the purpose and operations of the MDA. Id. ( ). This includes provisions establishing the department and its principal positions, such as the position of commissioner, see id. § 17.01, as well as prescribing the powers and duties of the department, see, e.g., id. §§ 17.013, 17.03, 17.039-.107. Many sections of chapter 17 authorize the MDA commissioner to promulgate administrative rules to enforce or to implement different sections of this chapter. See, e.g., id. §§ 17.035, subd. 2(a); 17.494; 17.496-.498; 17.4997; 17.701; 17.991. Section 17.945 authorizes the MDA commissioner to "adopt rules to implement sections 17.90 to 17.98." Under this authority, the MDA commissioner sought to implement chapter 1572 of the Minnesota Rules.
Pursuant to Minn. Stat. § 14.131, the MDA prepared a "statement of need and reasonableness" (SONAR)[3] in reference to chapter 1572. The SONAR for the adoption of a proposed "Rule Governing Producer Protection" was published on November 19, 1990. R. Doc. 70-9, at 1 (emphasis omitted). The SONAR referred repeatedly to Minn. Stat. §§ 17.90-.98 as the "Producer Protection Act," and it identified the overarching purpose for the adoption of rules "governing the protection of producers . . . to implement the Producer Protection Act[,] including the prohibition of specific trade practices." Id.
Minnesota Rule 1572.0040 implements § 17.93, and it contains similar language to its companion statutory provision:
A corporation, partnership, sole proprietorship, or association that through ownership of capital stock, cumulative voting rights, voting trust agreements, or any other plan, agreement, or device, owns more than 50 percent of the common or preferred stock entitled to vote for directors of a subsidiary corporation or provides more than 50 percent of the management or control of a subsidiary is liable to a seller of agricultural commodities for any unpaid claim or contract performance claim of that subsidiary.
With regard to Rule 1572.0040, the SONAR explained that "[t]his rule is reasonable because it allows the producer recourse against a third party who substantially owns or controls the corporation that has contracted with the producer." R. Doc. 70-9, at 3. Additionally, in its discussion of the potential effects of the MDA's implementation of the Act on small businesses, the SONAR reiterated that "[t]he intent of the Producer Protection Act was to provide financial protection for producers, most of whom are small business persons." Id. at 4. Chapter 1572, including Rule 1572.0040, went into effect in March of 1991. 15 Minn. Reg. 1285, 1924 (Mar. 4, 1991).
In a provision entitled "Public policy," chapter 27 provides a statement of the legislature's policy goal in enacting the statute: "It is therefore declared to be the policy of the legislature that certain financial protection be afforded those who are producers on the farm ...." Id. § 27.001.
It is undisputed that Simply Essentials was the subsidiary of its parent, Pitman Farms, which had a greater than 50-percent stake in the former. It is likewise undisputed that the Growers are "producers" for the purpose of § 17.93 as that term is defined in § 17.90:
Id. § 17.90, subd. 4. The Growers "provide[d] management, labor, machinery, [and] facilities" for producing chickens, but they did not own the chickens and could not therefore transfer title to any commodity. Id. Hence, they meet the definition of "producer" given in subparagraph (2) but not that given in subparagraph (1).
The term "producer" appears repeatedly in the sections from 17.90 to 17.98.[5]"Seller," on the other hand, only appears twice: once in § 17.90 and again in § 17.93. As to the former instance, the term appears within the definition of "[a]gricultural contract" and is used to specifically exclude contracts with "seller[s] of grain" from the definition. Id. § 17.90, subd. 1a. "Seller" is not defined in § 17.90.
However "seller" is defined in chapter 27: "'Seller' means a farmer or wholesale produce dealer, whether the person is the owner of the produce or produces it for another person who holds title to it." Id. § 27.01, subd. 10...
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