Purina Mills, L.L.C. v. Less
| Decision Date | 22 December 2003 |
| Docket Number | No. C02-4100-MWB.,C02-4100-MWB. |
| Citation | 295 F.Supp.2d 1017 |
| Parties | PURINA MILLS, L.L.C., Plaintiff, v. Kenneth LESS and Karla Less, Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
Becky S. Knutson, Davis, Brown, Koehn, Shors & Roberts, Des Moines, IA, Jonathan C. Miesen, Lindquist & Vennum, PLLP, Minneapolis, MN, for Plaintiff.
Michael P. Mallaney, Smith, Schneider, Stiles & Serangeli, Des Moines, IA, for Defendant.
TABLE OF CONTENTS
I. INTRODUCTION .................................................................. 1021
A. Procedural Background ...................................................... 1021
B. Pertinent Factual Background ............................................... 1022
II. STANDARDS FOR SUMMARY JUDGMENT ................................................ 1026
III. LEGAL ANALYSIS ................................................................ 1027
A. Choice of Law .............................................................. 1027
B. Liability — Is Purina Mills, L.L.C. A Proper Party In Interest? ............ 1027
C. Damages .................................................................... 1029
1. Arguments of the parties ................................................ 1029
2. General damage provisions under the U.C.C. .............................. 1031
3. Damages for weanling pigs accepted before the Lesses'
repudiation ............................................................ 1032
4. Damages for the Lesses' repudiation on August 21, 2002 .................. 1033
a. When is the contract/market formula under § 2-708(1)
inadequate? ......................................................... 1035
b. Should Purina be restricted to a lost profits remedy, even
though the contract/market formula would result in a
greater damages award? .............................................. 1037
i. Nobs Chemical, U.S.A., Inc. v. Koppers Co., Inc. ................. 1037
ii. Trans World Metals, Inc. v. Southwire Company .................... 1038
iii. Union Carbide Corporation v. Consumers Power
Company ......................................................... 1039
iv. Diversified Energy, Inc. v. Tennessee Valley Authority ........... 1040
v. Application ...................................................... 1042
c. Application of the lost profits damages formula ...................... 1047
i. Calculation of Purina's lost profits damages ..................... 1047
ii. Prejudgment and postjudgment interest ............................ 1048
IV. CONCLUSION .................................................................... 1049
On October 28, 2002, Purina Mills, L.L.C. ("Purina") filed a complaint with this court claiming that defendants Kenneth Less and Karla Less ("Lesses") breached the Producer Pass-Through Agreement ("Agreement") they entered into with Purina. Specifically, Purina alleges that the Lesses breached the agreement by failing to pay for goods they accepted, and by repudiating the remainder of the contract. In its complaint Purina requests relief in the form of monetary damages resulting from the repudiation, monies still owing Purina on the goods already accepted, pre-judgment interest, costs and any other equitable relief the court deems appropriate. The defendants timely filed their answer on January 3, 2003, which included an affirmative defense that Purina had failed to state a claim upon which relief could be granted. On June 26, 2003, defendants filed a motion requesting the court to allow them to amend their answer, which was granted by Magistrate Judge Paul A. Zoss, in an order dated July 1, 2003. (Doc. No. 21). On July 1, 2003, the defendants filed an amended answer which asserted the additional affirmative defense that Purina had failed to mitigate its damages. (Doc. No. 22). On July 21, 2003, Purina filed its Motion for Summary Judgment and Request for Oral Argument. (Doc. No. 23). On August 4, 2003, this court granted the defendants' motion for extended time to file their resistance to the plaintiff's motion for summary judgment, and, according to the terms of that order, defendants timely filed their resistance on August 18, 2003. (Doc. No. 27). On August 22, 2003, Purina timely filed its reply to the defendants' resistance. (Doc. No. 29).
Subject matter jurisdiction over Purina's state law contract claim is proper under 28 U.S.C. § 1332 — diversity jurisdiction — because the plaintiff is a Delaware corporation with its principle place of business in Delaware, and the defendants are residents of Iowa. Purina avers in its complaint that the amount in controversy exceeds the jurisdictionally required amount of $75,000.00.
The court heard the parties' oral arguments on Purina's motion for summary judgment on October 31, 2003. At these arguments Purina was represented by Jonathan C. Miesen, of Lindquist & Vennum, P.L.L.P. in Minneapolis, Minnesota. Defendants Kenneth Less and Karla Less were represented by Michael P. Mallaney of Hudson, Mallaney & Shindler, P.C. in Des Moines, Iowa. A bench trial on this matter is scheduled for January 5, 2004.
Purina is a limited liability company engaged primarily in the business of manufacturing and selling animal feed and nutrition products. As an offshoot of its primary business activities, Purina also sells feeder pigs and weanling pigs to its feed customers. Purina's predecessor, Purina Mills, Inc., a corporation, was engaged in the same business ventures. Defendants Kenneth Less and Karla Less operate a large hog farm in Merill, Iowa.
On November 25, 1997, the Lesses and Purina's predecessor, Purina Mills, Inc., entered into a contract titled Producer Pass-Through Agreement ("Agreement"). In the Agreement, Purina Mills, Inc., is referred to as `Purina,' and the Lesses are referred to as `Producer.' The objectives of the Agreement are spelled out in the opening paragraph:
WHEREAS, Purina sells feed which is suitable in the industry for the growing of weanling pigs to slaughter weight and wants an assured market for the sale of such feed; and
WHEREAS, Purina has entered into a contract to purchase weanling pigs from a single source for sale to Producer.
WHEREAS, Producer desires to purchase such weanling pigs from Purina for the sole purpose of growing them to slaughter weight.
WHEREAS, Producer desires that Purina purchase the weanling pigs from Perennial Pork, LLP for purpose of sale to Producer. However if weanling pigs are not available from Perennial Pork, LLP, Purina, at is own discretion, will purchase weanling pigs from another single source for sale to Producer.
Plaintiff's Appendix, Doc. No. 23-3 ("Plf.'s App.") at 5. The Agreement provided that the Lesses would purchase approximately 15,000 weanling pigs1 each year from Purina Mills, Inc., for a period commencing on November 25, 1997, through December 31, 2007. The 15,000 weanling pigs were to be delivered in approximately 28 deliveries over the course of the year.2 Upon delivery, the weanling pigs were to be graded by the Lesses as either `grade one,' `substandard' or `rejected.' The Lesses were then to regrade the initially graded `substandard' and `rejected' weanling pigs approximately 48 hours after delivery. The grading system is described in the Agreement as follows:
Pigs weighing 8 pounds or more will be classified as grade one. Pigs weighing less than 8 pounds will be classified as substandard. Sick, crippled, damaged or dead pigs not acceptable to Producer are to be classified as rejects and upon regrading shall be destroyed and not counted as party of the quantity delivered to Producer.
Plf.'s App. at 5. If a weanling pig was regraded `substandard' then the Lesses could elect to either: (1) reject the substandard weanling pig, in which case the Lesses would not have to pay for that pig; or (2) accept the substandard weanling pig and pay a reduced price for that pig. The Agreement requires the Lesses pay $32.00 per `grade one' weanling pig and $24.00 per weanling pig that is regraded as `substandard' and that the Lesses elect to accept. If the Lesses chose not to feed the weanlings Purina products, then the price of each accepted weanling pig, whether graded `grade one' or `substandard,' would increase by $3.00:
15. FEED AGREEMENT. Producer acknowledges that Purina's interest in entering into this Agreement is to supply nutritional products and programs.
a. Producer, therefore, agrees to feed nutritional products manufactured and supplied by Purina to all pigs furnished under this Agreement. If Producer fails to feed the pigs Purina products, the price per pig shall be increased by three dollars ($3.00) each. Producer agrees to furnish to Purina all data and other Documentation as Purina deems necessary to complete and verify group closeouts.
Plf.'s App. at 9.
Situations giving rise to a right to terminate the Agreement, the process that must be followed to effectuate a termination, and damages available if termination occurs, are all discussed in paragraph 16 of the Agreement. Paragraph 16(b) gave Purina Mills, Inc., the right to terminate the Agreement if the Lesses failed "to timely pay any material uncontested obligation due and owing to Purina." Plf.'s App. at 10. In order to exercise this right of termination, Purina Mills, Inc., had to comply with specific notice provisions embodied in the Agreement: (1) "Written notice setting forth the alleged breach in detail" must be given to the breaching party; (2) Where the alleged breach is for failure to make payments due, the breaching party must...
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