Refco, Inc. v. Farm Production Ass'n, Inc.
| Decision Date | 12 April 1988 |
| Docket Number | No. 86-2587,86-2587 |
| Citation | 844 F.2d 525 |
| Parties | REFCO, INC., Appellee, v. FARM PRODUCTION ASSOCIATION, INC., Kenneth Lance, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
G. Alan Wooten, Ft. Smith, Ark., for appellant.
Elizabeth J. Robben, Little Rock, Ark., for appellee.
Before FAGG and MAGILL, Circuit Judges, and ROSS, Senior Circuit Judge.
Appellant Kenneth Lance, President of Farm Production Association, Inc. (Farm Production), appeals from an order of the district court 1 finding him individually liable for a $191,846.06 debit in a commodities trading account with appellee Refco, Inc. Lance raises two principal issues on appeal. 2 First, he argues that Refco's claim seeking recovery of the entire debit amount is barred by Arkansas' five-year statute of limitations. Second, he contends that the district court's factual finding that the account agreement was executed by Lance as an individual, and not as a representative of the corporation, is clearly erroneous. Lance maintains that the commodities trading in the account was for the benefit and risk of Farm Production and denies that he had any personal responsibility for the debit.
After carefully considering the record, together with the briefs and arguments of the parties, we affirm the decision of the district court.
The principal facts in this case are not in dispute. In September, 1966, Farm Production was incorporated under the laws of the State of Arkansas by William Keeton and Hubert L. Burch. The stated purpose of the corporation was to buy and sell agricultural products. By June, 1977, Robert L. Bone had acquired 85% of the stock in Farm Production; the remaining stock was owned by William Keeton. When Keeton died in 1978, the corporation bought his remaining shares.
On June 21, 1977, for the sum of $255, appellant Kenneth Lance, a long-time personal friend of Robert Bone, purchased all of Bone's stock in Farm Production and at the same time executed an option granting Bone the right to repurchase all of Lance's stock in the corporation for $255. This stock option was never exercised by Bone.
On June 16, 1977, several days prior to Lance's purchase of the Farm Production stock, a Corporation Account Agreement and Resolution was executed by Lance on a Refco, Inc. form (ostensibly in the name of "Farm Production Associates, Inc.") authorizing Lance, as president of the corporation, and Nell Lance, his wife, as secretary of the corporation, to trade commodities futures with Refco, Inc. On June 17, 1977, a Refco document entitled "Authorization to Transfer Funds" was executed and signed by "Farm Production Assoc. Inc., Ken Lance, Pres." There were no minutes of the corporation reflecting Lance's claimed election as president.
On October 19, 1977, Lance opened a commodities futures trading account with Refco, Inc. in the name of "Farm Products Assoc." The accompanying customer's agreement was executed by "Kenneth Lance" individually, with nothing to indicate Lance was signing as a corporate officer. The account executive who assisted Lance in opening the account at the Springdale, Arkansas Refco office was Robert Bone. 3
In September, 1977, Robert Bone was suspended by the Commodity Futures Trading Commission from handling customer accounts for thirty days, and following that suspension for the next eleven months Bone was suspended from trading commodities on his own behalf. Lance testified at trial that he purchased the Farm Production stock because Bone needed to dispose of the company due to the trouble Bone was then having with the Commodity Futures Trading Commission.
Lance testified that from October, 1977, throughout the life of the account Robert Bone was allowed to make all the trading decisions of the commodities account. Although not an officer, shareholder or employee of the corporation, Bone received all of the profits from the commodities account. When the commodities trading resulted in a profit, Lance would deposit the margin return check in the Farm Production corporate account and then write a corresponding check to Robert Bone from the same account. At some point during Lance's ownership of the stock in Farm Production, Lance borrowed $7,500 from the corporation as indicated by the corporate tax returns. There was never any formal document evidencing that indebtedness, nor has the loan ever been repaid.
In October, 1979, substantial debits resulted when live cattle futures contracts were liquidated. Open positions existed in the account through October 17, 1979. On October 15, 1979, open positions in soybean futures were closed out at a profit, and on October 17, 1979, live cattle futures contracts were closed out at a loss. The account documents reflect credits and debits relating to these transactions. Additional costs were incurred and debits made to the Farm Production account through January, 1980. At that time, the final debit balance in the account was $191,841.06.
On October 5, 1984, Refco filed suit against Lance for payment of the entire debit balance. The district court entered judgment for Refco finding that the customer's agreement was executed by Lance individually and not as an officer of the corporation. The court further determined that Lance and Bone fraudulently used the corporation as a front to allow Bone to trade commodities, notwithstanding his suspension by the Commodity Futures Trading Commission. Finally, the court found that Lance's account with Refco was an "open market account" and that open positions existed and transactions occurred in the account after October 4, 1979. The court determined, therefore, that Refco's complaint, filed on October 5, 1984, was not barred by Arkansas' five-year statute of limitations, and concluded that Lance was individually liable to Refco for the full amount of the debit balance.
The parties agree that the appropriate statute of limitations period under Arkansas law is five years. Ark.Stat.Ann. Sec. 37-209 (Repl.1962), amended and recodified at Ark.Code Ann. Sec. 16-56-111(a) (1987). The parties disagree, however, as to the proper accrual date of Refco's cause of action. The basis of their disagreement stems from their disparate characterization of the commodities trading account at issue. The classification of the account is significant in determining the accrual date of this cause of action.
On the one hand, Lance argues that the account is an "open account" and that each transaction occurring within the account must be treated separately for statute of limitations purposes. Lance likens the account in the present case to that considered by the Arkansas Supreme Court in Boatner v. Gates Bros. Lumber Co., 224 Ark. 494, 275 S.W.2d 627 (1955). Boatner involved a building contractor who purchased building supplies from a lumber company on credit. The lumber company used a separate ledger page for each of the contractor's various jobs, although the contractor received a consolidated bill at the end of each month. The court held that "the statute of limitations runs separately from the due date of each item in an open account like this one." Id. 275 S.W.2d at 628.
Relying on Boatner, Lance argues that the commodities account in the present case consisted of separate, unrelated transactions and that each transaction closed, and any...
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Eldridge v. Waugh, B-C-94-57.
...was a sham or whether there was undercapitalization or a failure to maintain separate corporate records. Refco, Inc. v. Farm Production Ass'n, 844 F.2d 525, 529 (8th Cir.1988). Other factors courts may consider are failure to keep the corporation's finances separate from the individual's fi......