Townson v. Koch Farms, LLC

• Decision Date: 01 December 2014
• Docket Number: Case No.: 4:13-CV-1703-VEH
• Parties: PHIL TOWNSON, Plaintiff, v. KOCH FARMS, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

PHIL TOWNSON, Plaintiff, v. KOCH FARMS, LLC, et al., Defendants.

Case No.: 4:13-CV-1703-VEH

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA MIDDLE DIVISION

December 1, 2014

MEMORANDUM OPINION

I. INTRODUCTION AND PROCEDURAL HISTORY

Plaintiff Phil Townson ("Mr. Townson") initiated this lawsuit against Defendant Koch Farms, LLC ("Koch"),¹ in the Circuit Court of DeKalb County, Alabama, on August 5, 2013. (Doc. 1-1 at 5).² The parties' dispute arises out of their commercial chicken dealings. (See generally Doc. 1-1). Koch removed the lawsuit to federal court on September 12, 2013, on the basis of diversity jurisdiction. (Doc. 1 at1; id. 2 ¶ 2).

Mr. Townson's complaint originally contained seven counts, but after this court's memorandum opinion and order (Doc. 16) entered on April 22, 2014, only Count One for breach of contract (Doc. 1-1 at 8) and Count Five for tortious interference with a business relationship (Doc. 1-1 at 11) remain in the lawsuit. (Doc. 16 at 8).

Pending before the court is Koch's Motion for Summary Judgment (Doc. 27) (the "Motion") filed on September 3, 2014. The Motion seeks a dismissal of Counts One and Five. (Doc. 27 at 1). Koch filed a brief and evidence in support of its Motion (Doc. 28) on September 3, 2014.³

Mr. Townson opposed the Motion (Docs. 30, 31)⁴ on September 24, 2014, and Koch followed with its reply (Doc. 32) on October 7, 2014. Accordingly, the Motion is now ready for disposition and, for the reasons explained below, is due to be granted in part and otherwise termed as moot.

II. FACTUAL BACKGROUND⁵

A. Koch and the Integrated Poultry Business

Koch is part of an integrated poultry process that takes chicken from the stage of being hatched from an egg to being slaughtered and processed so that it is ready to eat. AF No. 1.⁶ Koch places chicks with farmers (also known as "growers"), such as Mr. Townson, to raise the chicks. AF No. 2. Koch buys the chicks from third-party suppliers and retains ownership of them while the grower raises them. AF No. 3.Koch provides all of the feed, medicine, and vaccinations for the chicks, and pays the grower an agreed-upon rate for raising the chicks. AF No. 4.

The chicks grown on Mr. Townson's farm are known in the industry as "pullets." AF No. 5. Pullets are raised to lay eggs that will hatch. Id. After hatching, those chicks then become broiler birds that are grown to be slaughtered and eaten. Id. Pullets are of particular importance because they are the ultimate source of chicken to be processed and sold. AF No. 6.

Due to their special breeding, pullets must be raised in a very controlled environment. AF No. 7. More specifically, Koch requires its growers to follow strict programs regarding the amount of light the pullets receive each day, the amount and timing of food and water the pullets receive, and the proper temperature, humidity and litter (i.e., floor) conditions. AF No. 8. These programs directly promote the well-being of the pullets and maximize the number of eggs they will later lay. AF No. 9.

Koch monitors the progress of the pullets closely through the use of field technicians that regularly visit the farms and prepare inspection reports detailing the condition of the birds and the grower's compliance with the growing programs. AF No. 10. Mike Hoggard ("Mr. Hoggard"), the pullet technician from Koch responsible for overseeing Mr. Townson's last flock of pullets, visited Mr. Townson's farm atleast once per week, and sometimes three or four times per week. AF No. 11.

Koch estimates that, for a farm the size of Mr. Townson's, it had approximately $660,000 invested in the birds by the time that livestock was ready to be moved to "breeder" or "laying" houses. AF No. 12

B. Mr. Townson's Purchase of a Pullet Farm and Related Commercial Relationships

Mr. Townson bought a pullet farm in Ider, Alabama from Joel and Amanda Garner in 2008. AF No. 13. Mr. Townson obtained financing for that farm purchase from First Bank of the South ("FBS"), which loan was partially guaranteed by the Farm Service Agency ("FSA") of the United States Department of Agriculture. AF No. 14. Prior to approving that financing for Mr. Townson, FBS required Koch to provide a letter announcing that it intended to place chickens on his farm. AF No. 15. Koch provided FBS with this letter of intent, and Mr. Townson admits he would not have been able to get the loan from FBS to acquire the farm without it. AF No. 16.

As additional security for the loan, FBS also required Mr. Townson to execute an assignment to FBS of Koch's payments owed to him, and for Koch to sign an acknowledgment of that assignment. AF No. 17. Pursuant to that agreement, Koch provided FBS with Mr. Townson's compensation for raising the pullets, and FBS would, in turn, use a portion of that remittance to apply to Mr. Townson's loanobligation. AF No. 18. Consequently, FBS was aware of the poultry growing arrangement between Mr. Townson and Koch. AF No. 19.

Mr. Townson's farm, also known as "Heaveni Farm," consisted of six pullet houses and one male house. AF No. 20. The six pullet houses contained approximately 10,000 pullets each, and the one male house contained approximately 5,000-8,000 fowl. AF No. 21. Thus, as a whole, Mr. Townson's farm could house approximately 65,000 to 68,000 chickens at a time. AF No. 22. Each flock would stay on Mr. Townson's farm for approximately six months. AF No. 23.

Koch and Mr. Townson would execute four separate, but similarly worded,⁷ contracts for each flock grown on Mr. Townson's farm. (Doc. 28-6 at 56);⁸ (Doc. 28-7 at 32 at 124).⁹ More specifically, a separate contract existed for houses 1 and 2, another for houses 3 and 4, another for houses 5 and 6, and one for house 7. (Doc. 28-6 at 56).This series of separate contracts was necessary because Koch typically delivered and picked up the pullets two houses at a time in an effort to match schedules with vacancies in the breeder houses, another stage of the integrated poultry process. (See Doc. 28-7 at 32 at 123 (explaining series of contracts inconjunction with Koch's delivery and pick up of birds and how breeder farms typically consist of only two houses)).

Each pullet agreement regularly and expressly provides that its terms and conditions "will remain in effect until 1 Flock unless terminated pursuant to this Contract." (Doc. 28-12 at 6 ¶ 16).¹⁰ Thus, each pullet agreement automatically terminated once Mr. Townson grew "1 Flock" from chicks to pullets. Each pullet agreement also prohibits any oral amendments. Id. Instead, "[m]odification . . . may only be accomplished by written instrument fully executed by the Producer and an authorized representative of the Company." Id.

C. Koch Becomes Concerned about Its Commercial Relationship with Mr. Townson and Conditions Providing Him with Future Flocks upon Making Certain Repairs and Adjustments to His Farm.

Although Mr. Townson denies Koch's criticisms of his performance as a pullet grower, Koch asserts that it became dissatisfied with Mr. Townson's services for a variety of reasons. For example, on or about July 29, 2011, Mr. Hoggard, Jim Marsh ("Mr. Marsh") (Breeder Hatchery Manager for Koch), and Ed Poucher ("Mr. Poucher") (Chattanooga Live Operations Manager) visited Mr. Townson's farm and, according to Mr. Marsh, found the conditions to be disturbing. AF No. 29.

Koch also met with Mr. Townson on August 11, 2011, and showed him photos of what it deemed to be illustrative of the poor conditions on his farm. AF No. 30. During this meeting, Koch provided Mr. Townson with a "punch list" of corrections that it required him to make to each of the seven houses before Koch would place additional birds on his farm. AF No. 31. Koch provided this list to Mr. Townson around the middle of the last set of written contracts, which were the ones executed in March 2011. AF Nos. 32, 33. In a letter dated August 17, 2011, from Mr. Marsh to Mr. Townson, Mr. Marsh documented what the parties had discussed during their August 11, 2011, meeting, including the requirement that "all of the items on the housing and equipment list must be corrected prior to the next placement of birds." AF No. 34.

After the punch list was provided to Mr. Townson, the following status with respect to his repair efforts were observed and documented according to Mr. Hoggard:

a) On October 18, 2011, the floors were not finished, the interior floors were below exterior grade, and Mr. Hoggard could see under the walls in many places. Litter from the previous flock in houses 5-7 had not even been completely cleaned out yet;

b) On November 16, 2011, low areas were in houses 1-3 and continuing drainage problems existed. Mr. Hoggard stated at the end of his report from this visit, "Phil, Call me when you are ready for me to come back and check.";c) As of December 12, 2011, none of the floors had been approved in any of the houses, and the floors in houses 5-7 had still not been completely cleaned out from the last flock. Mr. Townson had not replaced the drops yet either;

d) Mr. Townson did not close on a loan for some of the repairs until February 12, 2012, more than six months after the punch list was provided; While Mr. Townson started working on some of the punch items shortly after he received the list from Koch, other repair attempts were not even started until after the loan closed;

e) On March 1, 2012, the floors had gotten worse, and none of them passed the inspection. Mr. Townson also failed to appear at this scheduled meeting; and

f) On or about May 12, 2012, Mr. Hoggard provided Mr. Townson with a list of repairs that Townson had yet to complete in each house. Such repairs included, among other things, fixing drinker frames, installing heaters, leveling feeders, fixing light leaks, moving water supply lines, fixing vent doors, fixing holes in the ceiling, and fixing feed corners.

AF No. 38 ¶¶ a-f.¹¹

Additionally, on or about July 16, 2012, nearly a year after the punch list had been provided to...