Western Beef, Inc. v. Compton Inv. Co.

• Decision Date: 11 February 1980
• Docket Number: No. 77-1510,77-1510
• Citation: 611 F.2d 587
• Parties: WESTERN BEEF, INC., Plaintiff-Appellee, v. COMPTON INVESTMENT CO. et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 587

611 F.2d 587

WESTERN BEEF, INC., Plaintiff-Appellee, v. COMPTON INVESTMENT CO. et al., Defendants-Appellants.

No. 77-1510.

United States Court of Appeals Fifth Circuit.

Feb. 11, 1980.

Gerald S. Rourke, Joel R. Weinstein, Washington, D. C., for defendants-appellants.

Wayne P. Sturdivant, John T. Huffaker, Amarillo, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GEWIN, AINSWORTH and REAVLEY, Circuit Judges.

GEWIN, Circuit Judge:

Compton Investment Company and Roebuck Investment Company (C&R) appeal from a judgment of the District Court for the Northern District of Texas, awarding Western Beef, Inc. (Western) $7,111.19 against Compton and $10,860.27 against Roebuck and granting no relief to C&R on their large counterclaims brought against Western under several theories. The trial court, without a jury, determined that Western did not breach the cattle feeding agreements it had with C&R in any material respect and owed no damages to C&R. ¹ The damages awarded to Western were, in large part, amounts determined by the trial court to be Western's share of profits in the venture after the court deducted all costs claimed by Western. We affirm in part, reverse in part, and remand for recomputation of damages and accounting fees.

Western Beef, Inc., a vertically integrated beef producing company, is the parent corporation of several corporate subsidiaries and a grain purchasing division. The subsidiaries relevant to this appeal include three feedlots (Union County Feedlot, Inc., Clayton, New Mexico; Cal-Tex Feed Yard, Inc., Trent, Texas; Dumas Cattle Feeders, Inc., Dumas, Texas), a cattle purchasing company (Clifton Cattle Company), and a cattle slaughtering and meat packing plant (Sunray Meats, Inc.). Western's integral grain purchasing division is Western Beef Grain Company which had at one time been a corporate subsidiary but, in the fall of 1971, was no longer a separate legal entity.

Western's Raison d'etre was primarily to furnish tax deferral advantages for its investors. ² There is evidence that while apparently not all of C& R's principals had this objective foremost in their minds upon entering the investment agreements, it may have been a motivating factor for some of them. The tax ramifications of the plan were in no way mentioned in the agreements, however.

Prior to the formation of the contracts, the Washington, D.C. law firm of Trammel, Rand, Nathan and Bayles, general partner in both Compton and Roebuck, sent Mr. William Barr, employee of the firm, to visit Western Beef and learn about the cattle feeding investment business. Barr was shown the feed and cattle facilities and given some promotional material by Western's senior vice-president. The promotional material described the Western Beef group as if it were a single company and did not mention the individual incorporation of its wholly owned subsidiaries.

Negotiations ensued toward the formation of cattle feeding agreements between C&R and Western. The agreements as ultimately signed provided for C&R to invest a large sum of money in cattle and feed. Western was to purchase grain for C&R, feed the actual grain purchased to cattle purchased for C&R, and sell the cattle for C&R's account when they reached slaughter weight. A relatively stable inventory of cattle were to be fed for both Compton and Roebuck with monthly sales being replenished by new purchases.

The dispute in this case concerns several provisions of the feeding agreements which C&R claim were breached by Western. The contracts provided certain warranties that the price paid for feed and cattle would not exceed the average price per hundred weight paid by Western's most favored customer or by Western itself for feed purchased for its own account. In regard to feed, the amount paid was not to exceed the actual cost of all feed actually consumed by C& R's cattle and this amount only was specified as the allowable feed deduction from gross receipts to determine profits under the agreements. The deduction allowed for cattle costs consisted of the purchase price, related freight charges and standard commission expenses. Western was to maintain records and underlying documents sufficient to permit accurate computation of all amounts required to be computed for purposes of the agreements. The contracts also included a provision allowing C&R to deduct from gross receipts reasonable accounting fees incurred to insure Western's compliance with the terms of the agreements and to permit verification of the amount of profits or losses. Finally the contracts included a nondelegation and assignment clause specifically forbidding Western from delegating its duties or assigning its rights under the contract.

Many of the facts of the case are disputed. Western claims it overcharged C&R in no respect while C&R claim overcharges ranging from the purchase of inferior cattle at premium prices to sale of the cattle below market price to Western's subsidiary packing plant. C&R's claims rest primarily on the theory, however, that the subsidiaries and the grain division were bound by the contracts between C&R and Western and any margin of profit included for these other corporate defendants was an overcharge resulting in too large a deduction from C&R's gross profits. For this reason the determination of whether there has been a material breach of the feeding agreements by Western resulting in damages to C&R turns on the relationship between the parties and in particular, the obligation, if any, owed to C&R by Western's wholly owned subsidiaries and its grain division.

At the outset it must be noted that based on its findings of facts the trial court held that Western's subsidiaries were not bound by the contracts and Western breached the contracts in no material respect. ³

The court's findings of fact are entitled to be affirmed unless they are clearly erroneous. F.R.Civ.P. 52(a). See Horton v. U.S. Steel Corp., 286 F.2d 710, 713 (5th Cir. 1961) ("(f)indings . . . come here well armed with the buckler and shield of F.R.Civ.P. 52(a)"). Appellate courts are, of course, especially reluctant to set aside a finding based on the trial court's evaluation of conflicting oral testimony. See King v. Gulf Oil Co., 581 F.2d 1184, 1186 (5th Cir. 1978).

In this case the trial court determined the intention of the parties entering these contracts by evaluating the testimony given at trial. The finding that the parties did not intend to bind the corporate subsidiaries to perform is supportable by substantial evidence and is not clearly erroneous even though this court may not have made the same finding when presented with this record. To the extent that this finding of fact is not clearly erroneous it must be affirmed.

The trial court's treatment of Western Beef Grain Company deserves a closer look, however. Western Beef Grain, unlike the subsidiary corporate defendants, is not a separate legal entity wholly apart from its owner, Western Beef, Inc. It is simply a division of Western Beef. Yet in its findings of fact, See note 3 Supra, the trial court gave no effect to this legal distinction. The court did recognize the fact that Western Beef Grain was a division of Western Beef, Inc. The problem is not the court's factual finding with respect to Western Beef Grain, the problem is the legal effect that the lower court gave to that finding. It is axiomatic that the scope of review of the legal effect given to accepted facts is much broader than the clearly erroneous standard. See In the Matter of Lee, 570 F.2d 1301, 1302 n.1 (5th Cir. 1978); First National Bank of Miami v. Insurance Company of North America, 495 F.2d 519 (5th Cir. 1974) App. after remand, 535 F.2d 284 (5th Cir. 1976); 9 Wright and Miller, Federal Practice and Procedure: Civil §§ 2588, 2589.

Regardless of the standard of review, however, the court's finding that the corporate defendants other than Western Beef, Inc. are not bound to the contracts, insofar as it applies to Western Beef Grain Company is erroneous as a matter of law. We agree with the recent pronouncement of the Third Circuit in In re Sugar Industry Antitrust Litigation (Stotter and Co., Inc. v. Amstar Corp. et al.), 579 F.2d 13 (3d Cir. 1978). "A division of a corporation is not a separate legal entity but is the corporation itself." Id. at 18.

Western Beef Grain had been a separate legal entity until the summer of 1971 when it was merged into Western as a division. It thereby lost any claim of separateness from Western. For Western to claim that Western Beef Grain's profits...