Midwest Renewable Energy, L.L.C. v. B4 Grain, Inc.

MIDWEST RENEWABLE ENERGY, L.L.C., APPELLANT AND CROSS-APPELLEE, v. B4 GRAIN, INC., AND B4 AND AFTER, INC., APPELLEES AND CROSS-APPELLANTS,AND THE ANDERSONS, INC., APPELLEES.

No. A-20-245.

NEBRASKA COURT OF APPEALS

April 13, 2021

MEMORANDUM OPINION AND JUDGMENT ON APPEAL

(Memorandum Web Opinion)

NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).

Appeal from the District Court for Buffalo County: JOHN H. MARSH, Judge. Affirmed.

Bradley D. Holbrook and Elizabeth J. Klingelhoefer, of Jacobsen, Orr, Lindstrom & Holbrook, P.C., L.L.O., for appellant.

Victor E. Covalt III, of Covalt Law Firm, and Adam R. Little, of Ballew Hazen, P.C., L.L.O., for appellees B4 Grain, Inc., and B4 and After, Inc.

Trev E. Peterson and Carly L. Bahramzad, of Knudsen, Berkheimer, Richardson & Endacott, L.L.P., for appellees The Andersons, Inc.

PIRTLE, Chief Judge, and MOORE and RIEDMANN, Judges.

MOORE, Judge.

I. INTRODUCTION

Midwest Renewable Energy, L.L.C. (MRE), filed suit in the district court for Buffalo County against defendants B4 Grain, Inc.; B4 and After, Inc.; and The Andersons, Inc. (Andersons). The court entered judgment in favor of the defendants on MRE's causes of action for breach of contract and subsequently denied MRE's motion for new trial or, in the alternative, to alter or amend the judgment. MRE appeals, and B4 Grain and B4 and After cross-appeal. For the reasons set forth herein, we affirm.

II. BACKGROUND

1. PARTIES

MRE is a Nebraska limited liability company. MRE owns and operates an ethanol plant in Sutherland, Nebraska, and manufactures ethanol and related byproducts using grain.

Prior to December 31, 2010, B4 Grain was in the business of buying and selling grain with its principal place of business in Kearney, Nebraska. B4 Grain supplied corn to MRE's ethanol plant under a series of processing agreements. B4 Grain sold substantially all of its assets to Andersons. Thereafter, B4 Grain formed a new corporation, B4 and After. We refer to these entities collectively as "B4."

Andersons is an Ohio corporation, authorized at all relevant times to do business in Nebraska, in the business of buying and selling grain. Andersons took over selling grain to MRE after its purchase of B4's assets.

The primary issue in the dispute between the parties is the meaning of "cost of corn" (or other equivalent phrase) in the various agreements of the parties. MRE contends that "cost of corn" means the actual cost of corn paid by the defendants to purchase the corn supplied to MRE. The defendants contend that "cost of corn" means the market price for corn on the day that ethanol is sold.

2. CONTRACTS AND RELEVANT DEALINGS

Prior to and during 2008, MRE purchased corn from B4 for the production of ethanol and byproducts at its ethanol plant in Sutherland. Much of this corn was purchased by B4 and sold to MRE at the high end of the corn market in 2008 ($7 plus per bushel). During 2008, MRE signed contracts with B4 to purchase and take future delivery of millions of bushels of corn from B4. In order to assure its ability to deliver corn to MRE as contracted, B4 purchased futures contracts on the commodity exchange to offset its commitments to MRE (collectively referred to as "the higher priced contracts"). Shortly after, corn prices dropped drastically (to $3.80 per bushel). As a result, MRE was unable to produce and sell its products under the original contract prices and B4 was obligated, under its futures positions, to buy grain which MRE could not take.

In October or November 2008, MRE shut down its plant for approximately 6 weeks due to lack of operating capital and advised B4 that it was unable to take delivery and pay for corn under the higher priced contracts. In November or December, B4 and MRE negotiated an arrangement whereby B4 would again provide corn to MRE for processing into ethanol and byproducts. This allowed MRE to resume ethanol production, thus allowing it to fulfill its obligations to B4 and other creditors. As part of the arrangement, MRE was to satisfy its obligations on the higher priced contracts by paying for corn priced in accordance with one of the higher priced contracts, first at 20,000 bushels a month and later at 5,000 bushels a week. This payment was incorporated into a calculation of the net processing fee B4 would pay MRE for the production of ethanol and byproducts. To avoid attachment by MRE's other creditors, B4 retained title to all grain delivered to MRE. B4 also retained title to ethanol and byproducts produced using the grain. B4 agreed to pay MRE a weekly processing fee based upon the gross proceeds of the sale of ethanol and related byproducts, less the "cost of corn" and direct expenses incurred. Under the arrangement, MREcould satisfy its obligations by applying an amount of bushels per month towards the higher priced contracts until its obligations were either paid off, bought back by B4, or canceled. Any remaining profit was to be split equally between MRE and B4.

The weekly processing fee payments reflected estimates of the amount due for the prior week's production. B4 provided weekly emails to MRE showing how the payments were computed, including the corn prices used in the week's calculation. B4 would also occasionally advance funds in excess of production to help MRE meet its obligations. B4 then sent monthly "true-ups" to reconcile the weekly estimated payments and advances with the actual results of ongoing production, sales, and corn used to determine processing fees. The true-ups were presented in the form of a cumulative spreadsheet, showing corn purchased and used, commissions and revenues from the sale of ethanol and byproducts, payments made to MRE, production fee earned, and grain in storage and in process, among other things. Although the spreadsheet includes price data, it does not specify the point in time represented by that data (i.e., price of corn at time of purchase versus when ethanol was sold).

The initial arrangement under which B4 and MRE operated between December 2008 and May 2009 appears to have been primarily oral and very similar to the written processing agreements entered into thereafter. While there is some testimony in the record suggesting that there may have been written versions of the arrangement, or some portion of the arrangement, for the period prior to May 2009, no such written agreements were produced at trial. The only written agreements between B4 and MRE in the record (prior to the relationship with Andersons) are the processing agreements effective from May 29 through September 20, 2009 (when it was to be reviewed); April 1, 2010 (to be reviewed on June 30); and from June 1 through December 31 (when it was to be reviewed). None of these written agreements define the "cost of corn."

From December 8, 2008 through the end of 2010, B4 supplied corn to MRE for processing into ethanol and byproducts. From approximately December 12, 2008, through December 29, 2010, B4 made payment to MRE for processing corn into ethanol and byproducts on a weekly basis and MRE accepted and retained the payments. The last regular payment by B4 to MRE was on December 29. A cumulative report of the monthly "true-ups" between B4 and MRE dated December 31, 2010 was received in evidence, along with the emails from B4 to MRE which calculated the weekly payments and showed the corn prices used in the week's calculations. After B4 sold to Andersons, B4's general manager Eric Bruggeman went to work for Andersons as its merchandising manager and continued to provide MRE with a monthly true-up through July 2011.

Effective January 1, 2011, Andersons purchased substantially all of B4's assets, and B4 ceased conducting the business of buying and selling grain in its own name. Andersons did not purchase MRE's obligation to B4 under the higher priced contracts. Andersons, MRE, and B4 executed a tolling agreement, effective January 1 through March 31 (the tolling agreement), under which Andersons agreed to continue B4's business of providing corn purchased on B4's future contracts with MRE and otherwise for the production and sale of ethanol, reimbursing B4 on MRE's obligations under the higher priced contracts. The tolling agreement was extended April 1 through June 30, July 1 through September 30, and October 1 through December 31; none of the tolling agreements defined the cost of corn. Through the tolling agreement, B4 cancelled one of the higher priced contracts by buying back 200,000 bushels of corn on its books and applied theproceeds to partially satisfy MRE's liability on one or more of the remaining higher priced contracts. B4 set up a "receivable" due to B4 from MRE for the balance.

After executing the tolling agreement, Andersons supplied the corn and made payments to MRE under the agreement. B4 was not obligated to supply or deliver grain to MRE and did not make any payments to MRE directly after December 2010. The first payment by Andersons under the tolling agreement was on January 5, 2011. B4 was a party to the tolling agreement only because MRE was still under contract to pay B4 under the higher priced contracts (which the record indicates were paid off around April 2011) and B4 was entitled to receive payment from Andersons under the tolling agreement to reduce MRE's obligations under the higher priced contracts. The tolling agreement required MRE to make production reports to both Andersons and B4.

3. EVIDENCE REGARDING "COST OF CORN"

A significant amount of evidence was adduced regarding the parties' differing interpretation of the term "cost of corn" in the parties' arrangement and processing agreements.

James Jandrain, chairman of MRE's board, testified about the discussions with B4 in late 2008 leading to the agreements at issue here. He testified that general discussions in the first meeting with B4 included the concept that "the first thing that would be paid is [B4's] cost of corn...