Barz v. Geneva Elevator Co.

12 F.Supp.2d 943

Kevin BARZ, Jay Behn, Dean Bourquin, Steve Diemer (d/b/a Diemer Brothers), Kent Horner, Larry Meyer, Ken Mutschler, Bart Reinke, Lynn Reinke, Shannon Reinke, Don Swieter, Laverne Swieter, and Kenneth D. Weber, Plaintiffs, v. GENEVA ELEVATOR CO., an Iowa corporation, and United Suppliers, Inc., an Iowa corporation, Defendants, and GENEVA ELEVATOR CO., an Iowa corporation, Counter-Plaintiff, v. Kevin BARZ, Jay Behn, Dean Bourquin, Steve Diemer (d/b/a Diemer Brothers), Kent Horner, Larry Meyer, Ken Mutschler, Bart Reinke, Lynn Reinke, Shannon Reinke, Don Swieter, Laverne Swieter, Kenneth D. Weber, Bruce Behn, Don Butson, Steve Hackbarth, Dallas Hofmeister, Dennis Hofmeister, and Jason Reinke, Counter-Defendants.

No. C 96-3141-MWB.

United States District Court, N.D. Iowa, Central Division.

July 1, 1998.

COPYRIGHT MATERIAL OMITTED

Glenn L. Norris of Hawkins & Norris, Des Moines, IA, for Plaintiffs.

Edward M. Mansfield of Belin, Lamson, Zumbach, Flynn, P.C., Des Moines, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING THE MOTION FOR PARTIAL SUMMARY JUDGMENT OF GENEVA ELEVATOR CO. AND UNITED SUPPLIERS, INC.

BENNETT, District Judge.

                                TABLE OF CONTENTS
I.   INTRODUCTION .................................................. 946
     A. Procedural Background ...................................... 946
     B. Factual Background ......................................... 947
II.  LEGAL ANALYSIS ................................................ 951
     A. Standards For Summary Judgment ............................. 951
     B. The CEA Claim .............................................. 952
        1. The "Grain Contracts" ................................... 953
        2. "Type I" backers ........................................ 954
        3. "Type IIA" and "Type IIB" backers ....................... 955
        4. "Type III" backers ...................................... 957
     C. Negligent Misrepresentation ................................ 957
     D. Breach-Of-Contract Claims .................................. 959
        1. Repudiation ............................................. 959
        2. Substantial impairment .................................. 962
        3. The Producers' damages .................................. 963
III. CONCLUSION .................................................... 964

As these "hedge-to-arrive" contract cases march through the state and federal courts, seemingly endless as the rows of corn in Iowa in July, they may appear to a casual glance to be as uniform as kernels of corn. However, like kernels of corn, upon closer inspection, they show tremendous variety, not in size, shape, color, moisture content, etc., of course, but in the language of the contracts and circumstances of the parties. Thus, as each case ripens to the summary judgment stage, each case — and sometimes each contract for each producer — presents the court with a unique set of circumstances and, it seems, a new set of legal questions. For example, although the court has now considered whether at least five different kinds of "hedge-to-arrive" contracts are illegal off-exchange "futures" contracts under the Commodities Exchange Act (CEA), 7 U.S.C. §§ 1-25, or valid "cash forward" contracts not within the regulatory purview of the CEA, in rulings in Top of Iowa Cooperative v. Schewe, 6 F.Supp.2d 843 (N.D.Iowa 1998), and Oeltjenbrun v. CSA Investors, Inc., 3 F.Supp.2d 1024 (N.D.Iowa 1998), this case involves yet more kinds of HTAs, and nineteen different grain producers. Furthermore, this decision is the first in which this court must consider, in the HTA context whether summary judgment is appropriate on negligent misrepresentation claims and whether, in unique circumstances, summary judgment is appropriate on breach-of-contract claims.

I. INTRODUCTION

A. Procedural Background

As indicated above, this lawsuit is one of a plethora of cases involving so-called "hedge-to-arrive" contracts (HTAs) for the sale and purchase of grain between grain producers and elevators. This lawsuit, which seeks declaratory judgment and other relief, was filed on September 30, 1996, by a group of grain producers (the Producers): Kevin Barz, Jay Behn, Dean Bourquin, Steve Diemer (d/b/a Diemer Brothers), Kent Horner, Larry Meyer, Ken Mutschler, Bart Reinke, Lynn Reinke, Shannon Reinke, Don Swieter, Laverne Swieter, and Kenneth Weber. The defendants in this case are Geneva Elevator Co. and United Suppliers, Inc., which owns and controls Geneva Elevator.

The Producers' complaint originally asserted the following seven claims: Count I sought declaratory judgment of the rights of the parties to the HTAs, a declaration that the HTAs are illegal, void, and unenforceable, because they violate § 4(a) of the CEA, 7 U.S.C. § 6(a), and such other relief as the court deems just and proper; Count II alleged fraud in violation of § 4b of the CEA, 7 U.S.C. § 6b, and sought declaratory judgment and rescission as appropriate relief; Count III alleged fraud in violation of the same provision of the CEA, but sought damages; Count IV alleged a state-law claim for rescission or cancellation of the contracts on the ground of fraudulent misrepresentations; Count V was a state-law claim of fraudulent misrepresentation and sought actual and punitive damages; Count VI alleged a state-law claim of negligent misrepresentation and sought actual and punitive damages; and, finally, Count VII alleged a state-law claim of breach of contract and sought actual and punitive damages.

On December 9, 1996, Geneva Elevator answered only Count I, the declaratory judgment claim, of the claims against it and asserted a counterclaim in several counts. The causes of action asserted in the counterclaim are as follows: Count I of the counterclaim seeks declaratory judgment that the HTAs in question are valid "cash forward" contracts outside the scope of the CEA; Count II of the counterclaim is a state-law claim for breach of contract and seeks damages; Count III of the counterclaim is a state-law claim for specific performance of the HTAs in question; Count IV of the counterclaim is a state-law claim of promissory estoppel seeking enforcement of the HTAs; and Count V of the counterclaim is a state-law claim for unjust enrichment. The counterclaim is also brought against additional Producers Bruce Behn, Don Butson, Steve Hackbarth, Dallas Hofmeister, Dennis Hofmeister, and Jason Reinke.

On March 3, 1997, this court dismissed Count I of the Producers' complaint as to United Suppliers and ordered the Producers to replead their fraud claims and to make such other amendments as they deemed necessary in light of the defendants' motion to dismiss. On March 25, 1997, the Producers filed an amended complaint to replead the fraud claims pursuant to the March 3, 1997, order. The defendants answered the amended complaint on May 5, 1997, and Geneva Elevator reiterated all counts of its counterclaim.

By order dated April 15, 1998, this court granted the defendants' February 11, 1998, motion for judgment on the pleadings and dismissed Counts II through V of the Producers' complaint with prejudice for failure to plead fraud with the particularity required by FED. R. CIV. P. 9(b). Thus, only the Producers' declaratory judgment, negligent misrepresentation, and breach-of-contract claims remain from their original and amended complaints. The defendants moved for partial summary judgment on these claims and on liability as to all but two of the Producers (Jason Reinke and Kenneth Weber) on Geneva Elevators' own breach-of-contract counterclaim in a motion filed April 30, 1998. That motion is now before the court.

The court heard oral arguments on the motion for partial summary judgment on June 18, 1998. The Producers were represented by counsel Glenn L. Norris of Hawkins. & Norris in Des Moines, Iowa. Defendants Geneva Elevator and United Suppliers were represented by counsel Edward M. Mansfield of Belin, Lamson, Zumbach, Flynn, P.C., in Des Moines, Iowa.

B. Factual Background

The court will discuss here only the nucleus of pertinent facts for this litigation. In its legal analysis, the court will address where necessary the Producers' assertions of genuine issues of material fact that may preclude summary judgment in favor of United Suppliers and Geneva Elevator. The nucleus of pertinent facts begins with an examination of the HTAs the Producers entered into with Geneva Elevator.

Each of the HTAs in question consists of two pages: the first page is denominated a "GRAIN CONTRACT" and bears a preprinted number to which the handwritten addition of "FO" has been made; the second page, referred to by the parties as the "backer," is denominated a "GRAIN PRICING PROCEDURE FUTURES ONLY CONTRACT" and states that it is an "Amendment to Contract # ____" or "Addendum to Grain Contract # ____," with the number of the companion "GRAIN CONTRACT" entered in the space provided. The "GRAIN CONTRACT" page of each HTA is a preprinted form in identical, or virtually identical, form with hand-written insertions indicated by underlining, as follows:

                           ____________, 19__
This is to certify that
   [name of Producer]   
___________________________________________
has this day contracted and sold [number
of bushels] of [corn] at [price] per
bushel (____ lbs. per bushel) Grade No
____ to be delivered into Geneva Elevator
Co. [delivery date]

If overrun, the balance to be sold on the market the day of delivery. If short, the shortage will be priced out on last load and Seller will be assessed for the difference. If damaged or inferior grain is delivered and accepted on this contract, the market difference at which such grain is selling under the contracted grade day of delivery shall be deducted from the contract price without notice to Seller.

Any freight increase, prior to delivery, will be deducted from price.

Seller warrants...