Public Service Commission v. American Grain & Cattle, Inc.

• Decision Date: 11 July 1979
• Docket Number: No. 9557,9557
• Court: North Dakota Supreme Court
• Parties: PUBLIC SERVICE COMMISSION, Appellant, v. AMERICAN GRAIN & CATTLE, INC., Appellee, and Reliance Insurance Company, a Minnesota Corporation, Appellee. Civ. Rehearing Denied

Page 48

281 N.W.2d 48

PUBLIC SERVICE COMMISSION, Appellant, v. AMERICAN GRAIN & CATTLE, INC., Appellee, and Reliance Insurance Company, a Minnesota Corporation,

Appellee.

Civ. No. 9557.

Rehearing Denied July 11, 1979.

Supreme Court of North Dakota.

June 26, 1979.

Ohnstad, Twichell, Breitling, Arntson & Hagen, West Fargo, for appellant; appearance by John M. Arntson and Leland F. Hagen, West Fargo; argued by Leland F. Hagen.

Degnan, McElroy, Lamb, Camrud, Maddock & Olson, Grand Forks, for appellee, Reliance Insurance Company; argued by James L. Lamb, Grand Forks.

ERICKSTAD, Chief Justice.

Public Service Commission (PSC) and a group of bond claimants appeal from a district court judgment entered August 18, 1978, which reversed a PSC order that required the payment by the appellee, Reliance Insurance Company, of a $250,000 roving grain and hay buyers bond to the bond claimants. We affirm the district court judgment.

American Grain & Cattle, Inc., a Texas agricultural cooperative, began doing business in North Dakota in 1973. The cooperative was formed in Texas a year earlier by a group of Texas businessmen and its purpose was to pool together the grain raised by its members and market it in large volumes. The principal asset of the cooperative was a 26 million bushel grain terminal facility located in the Texas panhandle. In addition to this large grain terminal, the cooperative also acquired a number of other grain elevators and facilities in Texas, Kansas, Minnesota, South Dakota, and North Dakota. By the middle of 1974, the cooperative had between 300 and 400 members including about 60 North Dakota residents.

In the spring of 1973, the North Dakota Securities Commission informed the cooperative that it could not operate in this state unless it made an appropriate registration and obtained permission to conduct business as a foreign cooperative. Instead of registering with the State Securities Commissioner, the cooperative formed a North Dakota cooperative that was exempt from the registration requirements and the North Dakota farmers then became members of that cooperative. The North Dakota cooperative (AGCI-ND) then contracted with the parent cooperative (AGCI-TEX), delegating all managerial responsibilities to it.

On March 28, 1973, an official of AGCI-TEX contacted the PSC regarding a roving grain buyer's bond and license, which is required by Chapter 60-03, N.D.C.C., of a roving grain buyer before it is allowed to operate in this state. After a series of negotiations between the PSC and AGCI-TEX officials, the PSC wrote a letter to the cooperative informing it that if a $250,000 bond was not filed by February 15, 1974, a cease and desist order would be issued against it. The cooperative subsequently filed the bond with the PSC and a license was issued.

Pursuant to their "pooling arrangement", the North Dakota members committed their entire production to the cooperative. The net proceeds from all sales of grain were paid quarterly to all members on a pro-rata basis. In July, 1974, the cooperative defaulted on its payments and the members filed a complaint with the PSC.

Following a hearing, the PSC ordered Reliance Insurance Company to pay the proceeds of the bond to the claimants. Reliance Insurance Company appealed to the district court, which subsequently dismissed the appeal on the grounds that it was improperly perfected. In Reliance Ins. Co. v. Public Serv. Com'n, 250 N.W.2d 918 (N.D.1977), we reversed the order of dismissal and ordered that the appeal be reinstated. Following a remand to the district court, it ordered that the matter be remanded to the PSC for the taking of additional evidence. The PSC again ordered that the bond be paid to the claimants and Reliance Insurance Company again appealed to the district court. The district court reversed the PSC's order and PSC and the bond claimants appeal to this court.

In substance, there are two issues on this appeal:

1. Did the cooperative function as a roving grain buyer pursuant to Chapter 60-03, N.D.C.C., and is the bonding company therefore liable on the bond that was filed pursuant to the Chapter?

2. If not, is the bonding company nevertheless liable on the bond on the grounds of estoppel or common law bond?

The cooperative argues that it did not function as a roving grain buyer pursuant to Chapter 60-03, N.D.C.C., but contends instead that it acted as a marketing agent for the members. Section 60-03-01, N.D.C.C. defines a roving grain buyer as follows:

"60-03-01. Roving grain or hay buyer Definition. The term 'roving grain or hay buyer', when used in this chapter, unless the context thereof otherwise requires, shall mean any person, copartnership, association, agent, or corporation, other than licensed warehousemen and track buyers, Who shall buy grain or hay from the owner for resale and delivery within or without the state or for resale in the local markets. Nothing contained in this chapter shall apply to public warehouses or public warehousemen and track buyers as defined in chapter 60-02." (Emphasis supplied.)

The cooperative also argues that even if it can be considered a roving grain buyer for purposes of Chapter 60-03, N.D.C.C., the bond covers cash transactions only and the transactions in question do not qualify. Section 60-03-04, N.D.C.C., deals with bond filing by a roving grain buyer and provides as follows:

"60-03-04. Bond filing by roving grain or hay buyer Complaint procedure Orders. Before any license is issued to any roving grain or hay buyer, the applicant shall file with the commission a bond in such sum as the commission shall prescribe, but not less than fifteen thousand dollars for each license. Such bond shall:

1. Cover the period of the license;

2. Run to the state of North Dakota for the use and benefit of all persons selling grain or hay to the licensee;

3. Be conditioned for the faithful performance of the duties of the licensee as a roving grain or hay buyer, and be for the specific purpose of protecting persons dealing with the licensee or his or their agent or agents within the state of North Dakota from loss or damage by reason of any violation of this chapter;

4. Not cover transactions wherein it appears to the commission that the sale was made upon any other terms except than for cash ; and

5. Be governed by all of the provisions of law applicable to the business of a roving grain or hay buyer and the rules and regulations of the commission relating thereto.

"Any person claiming to be injured or damaged by a breach of the conditions of the bond given by a licensee under the provisions of this chapter may file a complaint with the commission within six months from the date of the breach of the conditions of the bond. After a hearing, held upon notice to the respondent and to the bonding company, the commission shall be empowered to order the respondent or the bonding company, or both, to pay to the complainant any loss or damage suffered by reason of the breach of the conditions of the bond. If more than one person has been damaged, and the bond is insufficient to pay the entire liability, the penalty of the bond as against the surety shall be ordered to be apportioned among the damaged persons." (Emphasis supplied.)

The claimants respond that the transactions were in essence a sale because the claimants lost the right to recover the grain once it was delivered to the cooperative. The claimants also argue that the transactions in question were for cash pursuant to Section 60-03-04(4), N.D.C.C., and that the PSC determination of this issue should have been upheld by the district court.

The district court stated in its memorandum opinion that the cooperative did not function as a roving grain buyer pursuant to Chapter 60-03, N.D.C.C.:

"On May 18, 1973, the American Grain & Cattle Company was incorporated as a cooperative. Its purpose, as stated in its articles of incorporation, was to market grain for farmers. Members who joined the cooperative agreed to deliver all grain produced under their control to the association for marketing. If the association could adopt or enter into any marketing plan for the pooling of the grain, the agreement provided for equalizing returns to producers. The agreement further provided that the cooperative, at its option, could authorize the buyer of the product to remit all money to the member, and it also authorized the cooperative to collect the entire amount due from the buyer. In this connection, the association guaranteed payment of all sums which were due to the member under the agreement. Provision was made for the deduction of dockage, storage, and other expenses of the cooperative. Nowhere in any of the objective evidence was there any indication that the cooperative intended to buy grain directly from its members. Had it done so, the risk of profit or loss thereafter would have rested with the cooperative."

We agree with the district court. Section 60-03-01, N.D.C.C., specifically defines a roving grain buyer as one "who shall Buy grain . . . from the owner." The articles of incorporation, the membership agreement, and the agreement between AGCI-TEX and AGCI-ND all indicate that the cooperative was to function as a marketing agent for its members and not as a grain buyer. For example, paragraphs 3 and 4 of the membership and marketing agreement provide as follows:

"3. Association agrees to handle or market, and sell in its natural or processed state, all grain so produced and delivered, in such form and manner as Association deems best for the advantage of all persons signing agreements similar hereto and to blend the proceeds thereof with proceeds derived from grain delivered by other producers and establish returns therefor, in such manner as Association shall determine, giving consideration to quality, location of farm where produced and market in which grain is sold.

"4. Association shall pay or at its option authorize the buyer to remit all...