Grain Land Coop v. Paul Obermeyer ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-3217
___________
Grain Land Coop; *
*
Plaintiff-Appellant; *
*
v. *
*
Kar Kim Farms, Inc.; Richard Ernest; *
Blane Amundson; Dwight Andersen; *
Crystal Andersen; Bruce Andersen; *
Darren Anderson; Gene Anderson; *
Joel Anderson; Bruce Annis; Dennis L. *
Becker; John Becker; Craig Beyer; *
Eldon Beyer; Mike Beyer; Bruce * Appeals from the United States
Blakesley; Donald Bleess; Morris * District Court for the
Blom; Paul B. Blom; Daniel Bonnett; * District of Minnesota.
Clyde Buendorf; Douglas Burgmann; *
David Burk; William L. Burk; Dean *
Caldwell; Joel Caldwell; Gary Caldwell, *
individually and doing business as *
Caldwell Farms; William Carr; *
Dahlstrom Agency; William Daly; *
Richard Dickman; Daniel Discoll; Mark *
Ristau, individually and doing business *
as Drisstau Farms; Drisstau Farms Plus; *
Patrick Ducanson; Karl Duncanson, *
individually and doing business as *
Duncanson Growers; Roger Dutton; Joel *
Eckhart; Donald Edberg; Ronald *
Erickson; Duwayne E. Evenson; Mark *
Fendrich; Marlin Fendrich; Todd *
Fenske; Heidi Fenske; Glen Frandle; *
John S. Frandle, individually and doing *
business as Frandle Brothers; Steve *
Frederick; Dale Garvick; Ivan Gesche; *
Cary Goemann; Joel Goemann; Byron F. *
Goodrich; Gary Goodrich; Neil *
Granberg; Curtis Gronewald; Kenneth *
Haase; Harlan Hall; Brian Halverson; *
Bruce Halverson; Douglas Hankerson; *
Edna Hansen; Dennis Hanson; Morris *
Hanson, Jr.; Mark Hatteberg; Thomas *
Helgeson; Bruce Helland; Harvey *
Hislop; Scott Hislop, individually and *
doing business as Hislop Farms, Inc.; *
Dean Hoechst; Daniel Huper; Steve *
Huper; Tom Huper; Dean M. Johnson; *
Douglas Johnson; Elwood Johnson; *
Michael A. Johnson; Roger A. Johnson; *
Thomas Jones; Juergens Farms, Inc.; *
Ken Kaduce; Eugene Kaiser; Kevin *
Kaiser; Lawrence Kalis; Keller Farms, *
Inc.; David A. Kluender; Dale Koestler; *
Norman Kohlmeyer; Lawrence *
Landsteiner; Paul Landsteiner; James *
Landsteiner, individually and doing *
business as Landsteiner Farms; *
Elwood Langsev; Bruce Lawrence; *
Arlen S. Legred; Kevin Legred; Roger *
Legred; Thilmer M. Legred; Thomas *
Legred; Nathan Legred; Leland *
Enterprises, Ltd.; Gehard Leland; *
Gene Leland; Lee Manthei; Tim *
Manthei, individually and doing *
business as Manthei Brothers; Bruce *
Mauer; Neal Mensing; James A. Meyer; *
Sheldon E. Meyer; Ellen J. Molskness; *
Gerald Molskness; Andrew A. Monson; *
Erik Monson; Melvin Moore; Jason *
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Mortvedt; Oris Mortvedt; Jon *
Mutschler; Nelson Farms, Inc.; Richard *
W. Neinow Co.; Roger D. Nimz; *
Selmer Nordaas; *
*
Defendants; *
*
Paul Obermeyer; *
*
Defendant-Appellee; *
*
Carrol Olsen; Charles Olson; Claire *
Olson; Diane Olson; Orin J. Olson; *
Shawn Olson; Todd Olson; Wayne *
Olson; Robert Oren; Tim Oren, *
individually and doing business as *
Oren Brothers; Ronald Osmundson; *
Randy Oswald; Larry G. Paul; Jeff *
Peterson; John Pfaffinger; Georgianne *
Pfaffinger; Neil Rame; David *
Rennpferd; Fred Rennpferd, individually *
and doing business as Rennpferd Farms; *
Dennis Rollenhagen; Richard Rose; *
Steven Rose; Danny Rynearson; Dave *
Rynearson, individually and doing *
business as Rynearson Brothers; *
Thomas Sackett; Mark Sahr; David L. *
Sanders; Roger Schaper; Ron L. *
Schaper; Greg Schultz; Richard Schulz; *
George Shanahan; John Shanahan, *
individually and doing business as *
Shanahan Bros.; Roger Shirk; Steven *
Shirk; James Skogen; Glen Skogen, *
individually and doing business as *
Skogen Brothers; Don Slette; Sohn *
Dairy, Inc.; Dennis Sonnabend; Paul R. *
Sonnek; Robert Sonnek, Jr.; Randy *
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Steinhauer; Dennis Stenzel; Stevens *
Seed Farm, Inc.; Todd Stewart; Kurt *
Sylvara; Dan Timm; Newton P. Toland; *
Scott K. Volz; Ronald Wegner; Michael *
Wegner, individually and doing business *
as Wegner Farms and doing business as *
Wegson Farms; Dwight Weise; Everett *
Wessels; Jean Wessels; Charles O. *
Willette; Dale Wishart; Alan *
Yonkovich; Gary Yonkovich; Mike *
Yonkovich, individually and doing *
business as Yonkovich Bros.; *
*
Defendants. *
---------------------------------------------
Jason Mortvedt; John Becker; Clyde *
Buendorf; Mark Fendrich; Harlan Hall;*
Daniel W. Huper; Thomas W. Huper; *
Roger A. Johnson; Thomas R. Jones; *
Kevin Kaiser; Keller Farms, Inc.; *
Norman R. Kohlmeyer; Elwood *
Langsev; Roger Legred; Thilmer M. *
Legred; Thomas Legred; Nathan *
Legred; Gerald Molskness; Nelson *
Farms; Selmer Nordaas; *
*
Plaintiffs; *
*
Paul Obermeyer; *
*
Plaintiff-Appellee; *
*
Ronald Osmundson; Gregory Schulz; *
Richard D. Schulz; Mark Sahr; Skogen *
Brothers; Todd Stewart; Yonkovich *
Brothers; *
*
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Plaintiffs; *
*
v. *
*
Grain Land Coop; *
*
Defendant-Appellant; *
*
Michael Christensen; Joseph Burke; *
*
Defendants. *
-------------------------------------------
Commodity Futures Trading *
Commission; *
*
Amicus on Behalf of *
Appellee. *
___________
No. 98-3304
___________
Grain Land Coop; *
*
Plaintiff-Appellee; *
*
v. *
*
Kar Kim Farms, Inc.; Richard Ernest; *
Blane Amundson; Dwight Andersen; *
Crystal Andersen; Bruce Andersen; *
Darren Anderson; Gene Anderson; *
Joel Anderson; Bruce Annis; Dennis L. *
Becker; John Becker; Craig Beyer; *
Eldon Beyer; Mike Beyer; Bruce * Appeals from the United States
Blakesley; Donald Bleess; Morris * District Court for the
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Blom; Paul B. Blom; Daniel Bonnett; * District of Minnesota.
Clyde Buendorf; Douglas Burgmann; *
David Burk; William L. Burk; Dean *
Caldwell; Joel Caldwell; Gary Caldwell, *
individually and doing business as *
Caldwell Farms; William Carr; *
Dahlstrom Agency; William Daly; *
Richard Dickman; Daniel Discoll; Mark *
Ristau, individually and doing business *
as Drisstau Farms; Drisstau Farms Plus; *
Patrick Ducanson; Karl Duncanson, *
individually and doing business as *
Duncanson Growers; Roger Dutton; Joel *
Eckhart; Donald Edberg; Ronald *
Erickson; Duwayne E. Evenson; Mark *
Fendrich; Marlin Fendrich; Todd *
Fenske; Heidi Fenske; Glen Frandle; *
John S. Frandle, individually and doing *
business as Frandle Brothers; Steve *
Frederick; Dale Garvick; Ivan Gesche; *
Cary Goemann; Joel Goemann; Byron F. *
Goodrich; Gary Goodrich; Neil *
Granberg; Curtis Gronewald; Kenneth *
Haase; Harlan Hall; Brian Halverson; *
Bruce Halverson; Douglas Hankerson; *
Edna Hansen; Dennis Hanson; Morris *
Hanson, Jr.; Mark Hatteberg; Thomas *
Helgeson; Bruce Helland; Harvey *
Hislop; Scott Hislop, individually and *
doing business as Hislop Farms, Inc.; *
Dean Hoechst; Daniel Huper; Steve *
Huper; Tom Huper; Dean M. Johnson; *
Douglas Johnson; Elwood Johnson; *
Michael A. Johnson; Roger A. Johnson; *
Thomas Jones; Juergens Farms, Inc.; *
Ken Kaduce; Eugene Kaiser; Kevin *
Kaiser; Lawrence Kalis; Keller Farms, *
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Inc.; David A. Kluender; Dale Koestler; *
Norman Kohlmeyer; Lawrence *
Landsteiner; Paul Landsteiner; James *
Landsteiner, individually and doing *
business as Landsteiner Farms; *
Elwood Langsev; Bruce Lawrence; *
Arlen S. Legred; Kevin Legred; Roger *
Legred; Thilmer M. Legred; Thomas *
Legred; Nathan Legred; Leland *
Enterprises, Ltd.; Gehard Leland; *
Gene Leland; Lee Manthei; Tim *
Manthei, individually and doing *
business as Manthei Brothers; Bruce *
Mauer; Neal Mensing; James A. Meyer; *
Sheldon E. Meyer; Ellen J. Molskness; *
Gerald Molskness; Andrew A. Monson; *
Erik Monson; Melvin Moore; Jason *
Mortvedt; Oris Mortvedt; Jon *
Mutschler; Nelson Farms, Inc.; Richard *
W. Neinow Co.; Roger D. Nimz; *
Selmer Nordaas; *
*
Defendants; *
*
Paul Obermeyer; *
*
Defendant-Appellant; *
*
Carrol Olsen; Charles Olson; Claire *
Olson; Diane Olson; Orin J. Olson; *
Shawn Olson; Todd Olson; Wayne *
Olson; Robert Oren; Tim Oren, *
individually and doing business as *
Oren Brothers; Ronald Osmundson; *
Randy Oswald; Larry G. Paul; Jeff *
Peterson; John Pfaffinger; Georgianne *
Pfaffinger; Neil Rame; David *
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Rennpferd; Fred Rennpferd, individually *
and doing business as Rennpferd Farms; *
Dennis Rollenhagen; Richard Rose; *
Steven Rose; Danny Rynearson; Dave *
Rynearson, individually and doing *
business as Rynearson Brothers; *
Thomas Sackett; Mark Sahr; David L. *
Sanders; Roger Schaper; Ron L. *
Schaper; Greg Schultz; Richard Schulz; *
George Shanahan; John Shanahan, *
individually and doing business as *
Shanahan Bros.; Roger Shirk; Steven *
Shirk; James Skogen; Glen Skogen, *
individually and doing business as *
Skogen Brothers; Don Slette; Sohn *
Dairy, Inc.; Dennis Sonnabend; Paul R. *
Sonnek; Robert Sonnek, Jr.; Randy *
Steinhauer; Dennis Stenzel; Stevens *
Seed Farm, Inc.; Todd Stewart; Kurt *
Sylvara; Dan Timm; Newton P. Toland; *
Scott K. Volz; Ronald Wegner; Michael *
Wegner, individually and doing business *
as Wegner Farms and doing business as *
Wegson Farms; Dwight Weise; Everett *
Wessels; Jean Wessels; Charles O. *
Willette; Dale Wishart; Alan *
Yonkovich; Gary Yonkovich; Mike *
Yonkovich, individually and doing *
business as Yonkovich Bros.; *
*
Defendants. *
---------------------------------------------
Jason Mortvedt; John Becker; Clyde *
Buendorf; Mark Fendrich; Harlan Hall; *
Daniel W. Huper; Thomas W. Huper; *
Roger A. Johnson; Thomas R. Jones; *
Kevin Kaiser; Keller Farms, Inc.; *
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Norman R. Kohlmeyer; Elwood *
Langsev; Roger Legred; Thilmer M. *
Legred; Thomas Legred; Nathan *
Legred; Gerald Molskness; Nelson *
Farms; Selmer Nordaas; *
*
Plaintiffs; *
*
Paul Obermeyer; *
*
Plaintiff-Appellant; *
*
Ronald Osmundson; Gregory Schulz; *
Richard D. Schulz; Mark Sahr; Skogen *
Brothers; Todd Stewart; Yonkovich *
Brothers; *
*
Plaintiffs; *
*
v. *
*
Grain Land Coop; *
*
Defendant-Appellant; *
*
Michael Christensen; Joseph Burke; *
*
Defendants. *
-------------------------------------------
Commodity Futures Trading *
Commission; *
*
Amicus on Behalf of *
Appellant. *
__________
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Submitted: May 10, 1999
Filed: December 15, 1999
___________
Before MCMILLIAN, HEANEY, and JOHN R. GIBSON, Circuit Judges.
___________
HEANEY, Circuit Judge.
The Commodity Exchange Act (CEA), 7 U.S.C. §§ 1-25 (1999), requires that
transactions in commodity futures contracts take place only under the rules of a board
of trade that has been designated by the Commodity Futures Trading Commission
(CFTC). Excluded from regulation under the CEA are contracts for “any sale of any
cash commodity for deferred shipment or delivery,” 7 U.S.C. § 1a(11), otherwise
known as cash-forward contracts. In this case, we are called upon to consider the
CEA’s application to a particular arrangement for the sale of grain by a farmer to a
grain elevator, the Hedge-to-Arrive or Flex-Hedge-to-Arrive contract (HTA), as well
as certain state-law claims arising from that arrangement.
I. Background
Between May and September of 1995, Paul Obermeyer entered into five HTAs
with Grain Land Coop (Grain Land) pertaining to corn. The HTA arrangement worked
as follows: Obermeyer agreed to deliver at an unspecified time a fixed quantity and
grade of grain to Grain Land. The per-bushel sale price was determined by reference
to a futures contract price from the Chicago Board of Trade (CBOT) for March 1996,
plus or minus a variable component referred to as “basis.” Basis is the difference
between the price of the designated futures contract and the cash price for that same
commodity. While the CBOT reference price was fixed at the time of the contract, the
basis was allowed to float until Obermeyer elected to fix it, at a point prior to the
“twenty-fifth day preceding the futures month of delivery.” If Obermeyer failed to set
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basis prior to that day, Grain Land had the right to set basis and thereby set the sale
price for the grain.
The contract also called for Grain Land to establish an offsetting “hedge”
transaction by taking a “short,” or sell, position on the CBOT equal to its buy
obligation under the HTA. The elevator maintained a margin account with the
exchange, and assumed responsibility for “margin calls” on the hedge position,
increasing the account if rising futures prices caused the equity in the account to
decline, as well as covering any commissions resulting from the CBOT transaction.
Obermeyer’s HTA contract for corn allowed him to “roll,” or postpone, delivery to a
later date. When Obermeyer elected to defer delivery, Grain Land also rolled its hedge,
buying back its existing short position and taking a new position in the new delivery
month. Any gain or loss Grain Land realized in rolling the hedge was added to or
subtracted from the original futures reference price. In essence, the rolling provision
allowed Obermeyer to take advantage of rising cash prices by selling his grain on the
cash market and deferring delivery under the HTA.
The documents intended to create this arrangement, however, are somewhat less
than clear. They begin by reciting the terms of the hedge transaction (grain, grade,
quantity, and futures month), and list a destination of Kiester (a small town in south-
central Minnesota) and an “Arrival Period” designated “OPEN.” The contracts go on
to define basis and the provisions for setting basis, and establish Grain Land’s
responsibility for margin and commissions resulting from the hedge. The contracts
further provide that Obermeyer must set basis on or before the “twenty-fifth day
preceding the futures month of delivery”; that Obermeyer must pay two cents per
bushel to roll; and that Obermeyer “has the right to cancel [the] futures contract” for
five cents per bushel plus or minus the accumulated spread. Finally, the contracts
provide that in order to collect gains, Obermeyer “must make a delivery of grain
sometime.”
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Changes in the price of corn beginning in the fall of 1994 led many producers to
roll their delivery obligations. Specifically, both supply and demand factors conspired
to drive up the price of corn.1 Rather than eventually falling, as farmers expected,
prices continued to rise through 1995 and early 1996, creating an unprecedented market
“inversion.” In the inverted market, demand for grain was so strong that buyers were
willing to pay a premium for immediate delivery, causing prices for futures contracts
with more immediate delivery dates to exceed prices for futures contracts with delivery
dates that were further out.
Some farmers responded to the market inversion by rolling their HTA delivery
obligations and selling their grain on the cash market, thereby obtaining higher prices
than they would have obtained under their HTA contracts. Obermeyer elected in
February 1996 to roll his HTAs from March to May. Under normal market conditions,
producers might have been able to cover their remaining short positions by waiting until
grain prices fell. However, corn prices did not drop, prompting some producers to
further roll their contracts, which caused their HTA per-bushel prices to drop
accordingly. Likewise, each time a producer rolled an HTA, grain merchants like Grain
Land realized losses on short futures positions and had to meet mounting margin calls.2
II. The Lawsuit
In response to these market conditions, on April 4, 1996, Grain Land notified its
producers of a series of “policy changes” adopted by its Board of Directors. Pursuant
to these policy changes, Grain Land announced that it was terminating all outstanding
1
See Erik Asklesen, Hedge-to-Arrive Contracts and the Commodity Exchange
Act, 7 Kan. J. L. & Pub. Pol’y 122, 126 (1998).
2
For every penny the price of corn gained on the futures market, Grain Land had
to meet approximately $200,000 in margin calls on its outstanding HTA hedge
transactions.
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HTAs, which permitted farmers to roll their delivery obligations, and requiring the
execution of new contracts. Under the new contracts, a farmer who wished to roll his
delivery obligation would be required either to maintain a cash deposit with Grain Land
to cover possible rises in futures prices, or to purchase a “price protection rider” from
Grain Land. On April 15, a group of more than 100 producers responded through
counsel, insisting that their existing HTAs allowed them to roll their delivery
obligations “for as long as they desired to do so,” and demanding assurances that Grain
Land would continue to honor the contracts. Grain Land replied on April 17, stating
it would honor “any legal obligation” to roll the contracts until they were terminated,
but that “[c]ontract holders who desire[d] to roll the hedge to arrive contracts beyond
December 1996, must notify Grain Land prior to June 25, 1996 and enter into a new
contract to do so.” The producers refused.
In August 1996, Grain Land brought suit in various Minnesota state courts
against approximately 160 farmers. Each defendant was a member of the cooperative
and was a party to an HTA with an outstanding delivery obligation. In September
1996, the farmers removed the actions to the district court, which ordered the creation
of a “master docket and case file” and directed the parties to file “master pleadings.”
Grain Land filed its master complaint in January 1997, seeking declaratory judgments
(1) that the HTAs were forward contracts excluded by the CEA, or in the alternative,
that even if the contracts were subject to the CEA, they were nevertheless enforceable
between the parties; and (2) that the farmers were thereby obligated to deliver grain or
pay damages for breaching the HTAs. Grain Land also brought state-law claims
against the farmers for breach of contract.3
The farmers filed their master complaint in February 1997, naming as defendants
Grain Land and two of its employees, Michael Christensen and Joseph Burke. The
3
Grain Land also filed a third-party complaint against Farmers Commodities
Corporation, which was later dismissed without prejudice.
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farmers sought a declaration that the HTAs were subject to and prohibited by the CEA
and therefore unenforceable, and that the farmers were entitled to recission of the
HTAs because Grain Land committed fraud in violation of the CEA. The farmers also
included separate counts alleging fraud under the CEA and a number of state-law
claims for fraud, negligent misrepresentation, breach of fiduciary duty, and breach of
contract.
Following a period of discovery, Grain Land, Christensen, and Burke moved for
partial summary judgment. The district court directed the parties to address, as a
preliminary matter, whether the HTAs were futures contracts within the purview of the
CEA. After the court received briefs from the parties and from amici, the court ruled
that although “some of the characteristics of [the HTAs] differ from more traditional
cash-forward instruments, their essential terms plant them firmly within the narrow
scope of the [cash-forward] exclusion.” In re Grain Land Coop Cases, 978 F. Supp.
1267, 1277 (D. Minn. 1997).
The court examined the vague cash-forward exception in light of the history of
the CEA, and determined that the critical inquiry was whether the parties to the HTAs
expected the contracts to lead to the delivery of the commodity. The court noted that
the Grain Land HTAs were made between parties who were both “in the grain
business”; that the grain possessed inherent value to both parties insofar as the farmers
grew the grain and Grain Land bought and sold it; that the farmers received payment
only upon delivery of the actual commodity; and that “delivery and payment routinely
occurred” on millions of bushels of grain, indicating the parties anticipated actual
delivery of the grain. Further, the court determined the HTAs possessed certain
characteristics identified by the CFTC as distinguishing forward contracts. See id. at
1276-77.
The court rejected the farmers’ argument that the contracts were infused with an
inordinate degree of speculativeness by virtue of the uncertain delivery date. Although
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the contracts permitted the farmers to roll their delivery obligations, the court observed
that the contracts nevertheless required delivery at some point. Moreover, although the
HTAs included cancellation provisions, the court noted that only twelve such
cancellations had been identified, and that millions of bushels of grain had been
successfully delivered pursuant to the contracts since Grain Land introduced them.
Finally, the court concluded that the HTAs' price terms, while flexible, were not unduly
ambiguous, as they provided a mechanism for determination of a final, definite price.
Accordingly, the court granted Grain Land, Christensen, and Burke's summary
judgment motion with respect to the farmer's CEA-related claims. See id. at 1277.
Additionally, because Obermeyer had premised his state-law claims against
Christensen and Burke for breach of fiduciary duty on an argument that the HTAs
effectively transformed them into commodities brokers, the court determined that these
claims also failed.
The court determined, however, that the relationship between the federal and
state claims was sufficiently close that it was appropriate to retain jurisdiction over the
farmers' state-law claims. The court rejected Grain Land's argument that the farmers'
contract action was barred by the election-of-remedies doctrine. However, the court
determined that Minnesota's economic-loss doctrine precluded the farmers from
recovering in tort for economic injuries that arose from a commercial transaction, and
dismissed the farmers' claims of fraud and fraudulent or negligent misrepresentation.
See id. at 1278-80.
Three of the approximately 160 cases were later set for a jury trial on the parties'
opposing contract claims; one of those cases was Obermeyer's. At the conclusion of
the trial, the jury returned a verdict in Obermeyer's favor, finding that Grain Land
breached its contracts with Obermeyer and that Obermeyer did not waive his rights
under the contract. As Obermeyer’s sole remedy, the court rescinded the HTAs and
declared them null and void. The court later denied Grain Land’s post-trial motions for
judgment as a matter of law, for a new trial, and to alter or amend the judgment.
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Grain Land now appeals from the jury verdict in favor of Obermeyer. Grain
Land also appeals the district court’s denials of its motions for judgment as a matter of
law, to alter or amend the judgment, and for a new trial. Obermeyer cross-appeals from
the district court’s partial grant of summary judgment in favor of Grain Land on both
parties’ claims under the CEA.4 We affirm the district court in all respects.
III. Discussion
A. CEA
We review the district court’s grant of summary judgment to Grain Land on the
CEA claims de novo, and our task is to determine if the evidence taken in the light most
favorable to Obermeyer fails to create a genuine issue of material fact and Grain Land
is entitled to judgment as a matter of law. See Regents of the Univ. of Minn. v. Chief
Indus., Inc., 106 F.3d 1409, 1410 (8th Cir. 1997).
Although the CEA excludes from its reach “any sale of any cash commodity for
deferred shipment or delivery,” 7 U.S.C. § 1a(11), it offers no further guidance in
distinguishing between an unregulated cash-forward contract and a CFTC-regulated
futures contract. Nevertheless, the legislative history of the CEA and its predecessors
4
We emphasize that our jurisdiction is limited to the dispute between Grain Land
and Obermeyer. Although the district court’s pretrial order directing the creation of a
master docket and case file and the filing of master pleadings is not entirely clear as to
the degree of separation maintained by the individual actions, it appears the cases were
merged for convenience and efficiency only. As such, we properly have jurisdiction
only from the final judgment in Obermeyer’s case. See Tri-State Hotels, Inc. v. FDIC,
79 F.3d 707, 711-12 (8th Cir. 1996) (holding that where technical consolidation does
not occur and cases are joined merely for convenience, “each suit retains its individual
nature, and appeal in one suit is not precluded solely because the other suit is still
pending before the district court”).
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points to a congressional distinction between the standardized and transferrable
commodities futures contracts traded on markets like the CBOT and the contracts used
by producers and distributors or processors to fix in the present a price for a delivery
in the future. It was transactions of the former category, which usually do not result in
the physical transfer of any of the underlying commodity and are vulnerable to
manipulation and excessive speculation, that Congress sought to regulate through the
CEA and its predecessors. See CFTC v. Co Petro Mktg. Group, Inc., 680 F.2d 573,
577-79 & nn.4-6 (9th Cir. 1982) (tracing legislative history of cash-forward exception);
see also Lachmund v. ADM Investor Servs., Inc., 191 F.3d 777, 786-87 (7th Cir.
1999); Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 318 (6th Cir. 1998).
Thus, it is the contemplation of physical delivery of the subject commodity that is the
hallmark of an unregulated cash-forward contract.5 In order to determine whether a
5
The Fourth Circuit has explained the distinction this way:
Because the [CEA] was aimed at manipulation, speculation, and other
abuses that could arise from the trading in futures contracts and options,
as distinguished from the commodity itself, Congress never purported to
regulate “spot” transactions (transactions for the immediate sale and
delivery of a commodity) or “cash forward” transactions (in which the
commodity is presently sold but its delivery is, by agreement, delayed or
deferred) . . . . Transactions in the commodity itself which anticipate
actual delivery did not present the same opportunities for speculation,
manipulation, and outright wagering that trading in futures and options
presented. From the beginning, the CEA thus regulated transactions
involving the purchase or sale of a commodity “for future delivery” but
excluded transactions involving “any sale of any cash commodity for
deferred shipment or delivery.” 7 U.S.C. § 2 . . . .
A “futures contract,” or “future,” never precisely defined by
statute, nevertheless has an accepted meaning which brings it within the
scope of transactions historically sought to be regulated by the CEA.
It is generally understood to be an executory, mutually binding
agreement providing for the future delivery of a commodity on a date
certain where the grade, quantity, and price at the time of delivery are
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transaction is an unregulated cash-forward contract, we must decide “whether there is
a legitimate expectation that physical delivery of the actual commodity by the seller to
the original contracting buyer will occur in the future.” Andersons, 166 F.3d at 318;
see also Lachmund, 191 F.3d at 787-88; CFTC v. Noble Metals Int’l, Inc., 67 F.3d
766, 772-73 (9th Cir. 1995); Oeltjenbrun v. CSA Investors, Inc., 3 F. Supp. 2d 1024,
1039-40 (N.D. Iowa 1998).
Courts engaged in this inquiry have shunned self-serving labels attached to the
contracts in question, and instead examined the intentions of the parties, the terms of
the contract, the course of dealing between the parties, and any other relevant factors
to determine whether the parties contemplated physical delivery. This individualized,
multi-factor approach scrutinizes each transaction for such characteristics as whether
fixed. To facilitate the development of a liquid market in these
transactions, these contracts are standardized and transferrable. Trading
in futures seldom results in physical delivery of the subject commodity,
since the obligations are often extinguished by offsetting transactions that
produce a net profit or loss. The main purpose realized by entering into
futures transactions is to transfer price risks from suppliers, processors
and distributors (hedgers) to those more willing to take the risk
(speculators). Since the prices of futures are contingent on the vagaries
of both the production of the commodity and the economics of the
marketplace, they are particularly susceptible to manipulation and
excessive speculation.
In contrast to the fungible quality of futures, cash forwards are
generally individually negotiated sales of commodities between principals
in which actual delivery of the commodity is anticipated, but is deferred
for reasons of commercial convenience or necessity. These contracts are
not readily transferable and therefore are usually entered into between
parties able to make and receive physical delivery of the subject goods.
Salomon Forex, Inc. v. Tauber, 8 F.3d 966, 970-71 (4th Cir. 1993) (citations and
footnote omitted).
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the parties are in the business of obtaining or producing the subject commodity;
whether they are capable of delivering or receiving the commodity in the quantities
provided for in the contract; whether there is a definite date of delivery; whether the
agreement explicitly requires actual delivery, as opposed to allowing the delivery
obligation to be rolled indefinitely; whether payment takes place only upon delivery;
and whether the contract’s terms are individualized, rather than standardized. See
Lachmund, 191 F.3d at 787; Andersons, 166 F.3d at 320; Co Petro, 680 F.2d at 578-
79. We believe that this approach, which the district court applied to Obermeyer’s
contracts, see In re Grain Land Coop Cases, 978 F. Supp. at 1273-74, is the
appropriate method to determine whether a contract contemplates actual delivery, and
thus the best means of identifying those transactions which Congress sought to regulate
through the CEA.6 We now apply this analysis to Obermeyer’s contracts.
We note initially that the existence of a delivery obligation is less than clear from
the face of the contract documents. Indeed, the same observation has been made of
contracts largely identical to Obermeyer’s. See Johnson v. Land O’Lakes, Inc., 18 F.
Supp.2d 985, 989-90, 994-95 (N.D. Iowa 1998) (“[T]he objective delivery obligation
in the Johnsons’ HTAs with Land O’Lakes is at best implied.”); Oeltjenbrun, 3 F.
Supp.2d at 1045-46. Nevertheless, we believe that the language of the contracts, taken
as a whole, suggest a delivery obligation. We note in particular the contracts’
references to Kiester as the “destination” and to a “designated arrival period.”
The delivery obligation suggested by the language of the contract becomes much
clearer when we look beyond the contract itself. Grain Land was in the business of
obtaining grain for resale, relied on actual delivery to carry on its business, and was
capable of taking delivery of the grain called for by the HTA. It entered into HTAs
only with grain farmers and producers. Obermeyer, a farmer, is in the business of
producing grain and is equipped for delivering grain. Moreover, the HTAs bear little
6
We note amicus CFTC advocates such a multi-factor approach.
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resemblance to futures contracts as traded on exchanges like the CBOT: the contract
terms were individually negotiated, rather than standardized; because the contracts
were not standardized, Obermeyer was unable to realize accumulated gains or losses
by merely engaging in an offsetting transaction; HTAs were not offered to the general
public; and Obermeyer was not required to guarantee performance by maintaining
margin. Cf. Salomon Forex, Inc. v. Tauber, 8 F.3d 966, 970-71 (4th Cir. 1993); Co
Petro, 680 F.2d at 579-80; In re Stovall, Comm. Fut. L. Rep. (CCH) ¶ 20,941 (Dec. 6,
1979) (setting forth what CFTC recognizes as characteristics of futures contract).
Although the HTAs have some features that tend to differentiate them from
traditional cash-forward contracts, we believe the above attributes establish that the
contracts in question contemplated physical delivery of the subject commodities and
are therefore cash-forward contracts outside the reach of the CEA.
Obermeyer contends that the contracts “simply permitted the producer to
unilaterally and unequivocally avoid setting basis and avoid delivery for any reason,”
permitting him to defer delivery indefinitely, and thus imposing no real obligation to
deliver grain. (Appellee’s Br. at 42.) He also points to the cancellation provision as
permitting him to avoid delivery. These features of Obermeyer’s relationship with
Grain Land do not transform the HTAs into futures contracts. His ability to roll the
contracts merely allowed him to delay his delivery obligation rather than avoid it
altogether. Cf. Nagel v. ADM Investor Servs., No. 96-C2675, 1999 WL 692395, at
*10 (N.D. Ill. Aug. 23, 1999) (Easterbrook, J.) (“Farmers’ ability to defer delivery
[under an HTA] is just that: a power to defer.”). And cancellation–while admittedly
a means of negating the delivery obligation–did not permit Obermeyer to use the HTAs
to engage in unadulterated futures speculation, as the contracts provided that
Obermeyer “must make a delivery of grain sometime to collect gains.”7
7
Obermeyer never sought to cancel his HTAs. There is evidence in the record
that Grain Land permitted a handful of farmers to cancel their HTAs and realize gains
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More fundamentally, we disagree with Obermeyer’s contention that HTAs can
only fall within the cash-forward exception if obligations of the parties to make or to
accept delivery are inescapable. It is true that in In re Bybee, 945 F.2d 309 (9th Cir.
1991), the Ninth Circuit, guided by CFTC interpretations of the cash-forward
exception, concluded that such enforceable obligations are sufficient to place a
transaction within the cash-forward exception. However, we find no support for
Obermeyer’s contention that a mutually enforceable delivery obligation is necessary to
place a transaction outside the reach of the CEA. Cf. Bybee, 945 F.2d at 315
(concluding precious-metals transactions where parties “had the legal obligation to
make or take delivery upon demand of the other” were not illegal off-exchange futures
transactions); MG Refining & Mktg., Inc. v. Knight Enter., Inc., 25 F. Supp. 2d 175,
184 (S.D.N.Y. 1998) (rejecting contention that Bybee signaled end of multi-factor test
to determine transaction’s underlying purpose). While a purely contract-based analysis
would render our task much easier, requiring that we look no further than the terms of
the contract itself, we believe such a myopic approach would expand the gravitational
pull of the CEA beyond what is suggested by the congressional policies underlying the
vague text of § 1a(11). Rather, we believe the inquiry must focus on “whether there
is a legitimate expectation that physical delivery of the actual commodity by the seller
to the original contracting buyer will occur in the future.” Andersons, 166 F.3d at 318.
Finally, we reject Obermeyer’s assertion that CFTC administrative rulings in
proceedings against elevators for violating the CEA through their dealings in HTAs
embody a statutory interpretation to which we owe deference under Chevron, U.S.A.,
Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984). Among these
on the futures position, either receiving cash payments from Grain Land, or receiving
the gains in the form of adjustments to the terms of other business between the farmer
and the elevator. Although this evidence may be relevant to whether those particular
contracts were futures contracts, we do not believe it is relevant here, inasmuch as it
sheds no light on the course of dealing between Obermeyer and Grain Land.
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administrative rulings is an ALJ’s preliminary determination that Grain Land has
violated various provisions of the CEA through its marketing and use of HTAs. See
In re Grain Land Coop., CFTC Docket No. 97-1 (Nov. 6, 1998) (Initial Decision).
While we have followed the general approach advocated by the CFTC by looking to
the transaction’s ultimate purpose, we believe the relevance of these administrative
decisions is limited by a fundamental difference between these CFTC proceedings and
this private lawsuit. In the administrative proceedings cited by Obermeyer, the inquiry
was whether the respondent grain elevators and officials had, in the course of their
dealings with multiple farmers over several years, violated various provisions of the
CEA. By contrast, the question before us is limited to whether Grain Land’s contracts
with Obermeyer are enforceable cash-forward contracts. As such, we are not
concerned with Grain Land’s dealings with other farmers, and confine our discussion
to the contracts and course of dealings between Obermeyer and Grain Land.
B. Pendent Claims
Grain Land contends the district court erred in retaining jurisdiction after
disposing of the CEA claims on summary judgment. We disagree. The district court
did not, as Grain Land suggests, divest itself of all jurisdiction by deciding that the
HTAs were not subject to the CEA. See Koke v. Stifel, Nicolaus & Co., Inc., 620 F.2d
1340, 1346 (8th Cir. 1980) (concluding that district court’s grant of summary judgment
on federal securities claims did not compel dismissal for lack of jurisdiction of
plaintiff’s pendent state claims). Nor did the district court abuse its discretion in
exercising supplemental jurisdiction. We recognize that “in the usual case in which all
federal-law claims are eliminated before trial, the balance of factors to be considered
under the pendent jurisdiction doctrine–judicial economy, convenience, fairness, and
comity–will point toward declining to exercise jurisdiction over the remaining state-law
claims.” Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988). However,
this rule is not inflexible, see id., and in light of the considerable resources invested by
the court in arriving at its summary judgment ruling, we are unable to say that the
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district court abused its discretion, see Murray v. Wal-Mart, Inc., 874 F.2d 555, 558
(8th Cir. 1989) (noting district court’s exercise of jurisdiction over state claims after
dismissal of federal claims may be justified by, inter alia, substantial investment of
judicial time and resources).
Next, Grain Land contends the district court erred in denying its motion for
judgment as a matter of law, because the HTAs were terminable at will by their own
terms under Minnesota’s version of the Uniform Commercial Code (UCC) and under
Minnesota common law. We review de novo, applying the same standards as the
district court. See Aerotronics, Inc. v. Pneumo Abex Corp., 62 F.3d 1053, 1069 (8th
Cir. 1995). We must consider the evidence in the light most favorable to Obermeyer,
meaning that we (1) assume that the jury resolved all evidentiary conflicts in
Obermeyer’s favor; (2) assume as true all facts that Obermeyer’s evidence tended to
prove; (3) give Obermeyer the benefit of all favorable inferences which may reasonably
be drawn from those facts; and (4) uphold the denial of the motion if, in light of the
foregoing, reasonable jurors could differ as to the conclusion that could be drawn from
the evidence. See Norton v. Caremark, Inc., 20 F.3d 330, 334 (8th Cir. 1994).
Grain Land argues it was entitled to judgment as a matter of law because the
HTAs granted it the right to bring Obermeyer’s rolls to an end by setting basis and
requiring delivery. It points to the following provision:
SELLER agrees to set the “Cash Basis” and determine the cash value of
said grain on or before 25TH DAY PRECEDING THE FUTURES
MONTH OF DELIVERY. Unless other terms have been agreed upon by
both Buyer and Seller prior the [sic] said date, and grain has not been
priced by seller[,] Buyer is authorized to set the Cash Basis and to set the
cash price of contract.
(Appellant’s Add. at D3.) This argument is without merit. We believe a reasonable
jury could have interpreted the above provision to mean that Grain Land could set the
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cash basis only if Obermeyer had not done so by the twenty-fifth day of the month
preceding the futures reference month.8 Because Obermeyer’s HTAs were, after he
rolled them, pegged to May 1996 corn futures, Grain Land would have had no right to
set basis until April 25. However, it was on April 4 that Grain Land announced that it
was terminating outstanding HTAs. Thus Grain Land’s termination was not justified
by the clause permitting it to set basis and require delivery.
Grain Land also argues the HTAs were terminable at will because, under the
UCC, “[w]here the contract provides for successive performances but is indefinite in
duration it is valid for a reasonable time but unless otherwise agreed may be terminated
at any time by either party.” Minn. Stat. Ann. § 336.2-309(2) (West 1966). According
to Grain Land, rolling the HTAs constituted performance rendered successive by virtue
of the fact that Obermeyer could exercise his right to roll indefinitely. Grain Land
argues persuasively that rolling must be a form of performance, because it is Grain
Land’s refusal to roll Obermeyer’s HTAs that is at the heart of his breach-of-contract
claim. Obermeyer responds, also persuasively, that this argument contradicts Grain
Land’s argument–which we have accepted–that the underlying purpose of the HTAs
was the delivery of grain, rather than futures speculation.
We believe this question must be resolved in Obermeyer’s favor. Grain Land
offers no authority–nor have we found any–for its contention that a contract which is,
in essence, a contract for the sale of goods, and which, on its face, calls for that sale to
occur but once, may be termed a contract that “provides for successive performances.”
We disagree with Grain Land that Obermeyer’s breach-of-contract claim is therefore
necessarily defeated. Assuming for the sake of argument that the only actionable
breach by Grain Land was a breach of its obligation to pay for and accept delivery of
Obermeyer’s grain, Grain Land’s refusal to roll nevertheless went to the heart of the
8
This is the interpretation given at trial by Burke, who had been involved in
marketing the HTAs.
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contract. This is because rolling the contract meant not only rolling the hedge position
but also rolling the date on which the grain was to be delivered.
Grain Land further argues that even if the HTAs did not require successive
performance, it was permitted to terminate the HTAs under Minnesota common law.
However, this common-law rule has been displaced by § 336.2-309(2), and is therefore
inapplicable to commercial contracts for the sale of goods. See Minn. Stat. § 336.1-
103.
Grain Land maintains the district court should have granted its motion for a new
trial based on alleged evidentiary errors. The disputed evidence relates to negotiations
in April 1996 between Grain Land and farmers with outstanding HTA obligations, and
the district court’s rulings were based on Federal Rule of Evidence 408, which excludes
evidence relating to the offer or acceptance of a compromise to prove liability for or the
validity of a claim. We will reverse the district court’s denial of Grain Land’s new trial
motion if it “represents a clear abuse of discretion or a new trial is necessary to avoid
a miscarriage of justice.” Lamb Eng’g & Const. Co. v. Nebraska Pub. Power Dist.,
103 F.3d 1422, 1430 (8th Cir. 1997) (internal quotation omitted). An evidentiary ruling
does not warrant a new trial unless the evidence was so prejudicial that a new trial
would likely produce a different result. See Bevan v. Honeywell, Inc., 118 F.3d 603,
612 (8th Cir. 1997). Grain Land contends that Obermeyer should not have been
permitted, over its objection, to testify that in the course of settlement negotiations he
made an offer to deliver the contracted grain to Grain Land and that Grain Land
rejected his offer. Likewise, Grain Land argues it should have been allowed to present
evidence that it too made a proposal for delivery terms, which Obermeyer rejected.
Further, Grain Land maintains that the district court should have allowed it to present
evidence that its termination of the HTAs was motivated by the farmers’ assertions that
the contracts were illegal, rather than by a Grain Land financial crisis. After a careful
examination of the record, we are unable to say the district court’s resolution of the
disputes amounted to an abuse of its considerable discretion. Moreover, we are quite
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unpersuaded that a new trial at which these evidentiary matters were resolved in Grain
Land’s favor would produce a different result.
Grain Land also challenges the district court’s jury instructions, arguing that the
instructions (1) misstated the law regarding Grain Land’s right to terminate the HTAs;
(2) erroneously permitted the jury to conclude that Obermeyer was not required to
deliver within a reasonable time; and (3) erroneously permitted the jury to determine
that Grain Land was required to honor its commitments under the HTAs in perpetuity.
We review the district court’s jury instructions for abuse of discretion. See Slathar v.
Sather Trucking Corp., 78 F.3d 415, 418 (8th Cir. 1996). Our task is to determine
whether the instructions, taken as a whole and viewed in light of the evidence and
applicable law, “fairly and adequately submitted the issues in the case to the jury.”
White v. Honeywell, Inc., 141 F.3d 1270, 1278 (8th Cir. 1998) (internal quotation
omitted). We have already rejected Grain Land’s assertion that it had a right to
terminate the HTAs, and we think it clear that the remaining instructions accurately
stated the applicable provisions of Minnesota’s UCC.
Grain Land’s final argument is that the district court should have granted its
motion to alter or amend the judgment because recission is not an appropriate remedy
for unreasonable notice of termination. We will not reverse absent a clear abuse of the
district court’s broad discretion in determining whether to grant such a motion. See
Innovative Home Health Care, Inc. v. P.T.-O.T. Assocs., 141 F.3d 1284, 1286 (8th Cir.
1998). Grain Land premises this argument on its contention that it had the right to
unilaterally terminate the HTAs, reasoning that the jury’s verdict must be read as
finding that Grain Land failed to give Obermeyer reasonable notice of termination.
This argument fails because, as we have already discussed, we do not agree with Grain
Land’s assertion that it had a right to terminate the HTAs. The district court’s ruling
was not an abuse of discretion.
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Finally, Obermeyer contends the district court erred by granting Grain Land’s
motion in limine to exclude evidence relating to the existence of a fiduciary duty on
Grain Land’s part, effectively dismissing his claim against Grain Land for breach of
fiduciary duty. Whether this was an evidentiary ruling, as Grain Land argues, or a
dismissal, as Obermeyer argues, we decline to resuscitate the claim. We are unable to
find in the record any evidence that the ruling prejudiced Obermeyer.
IV.
To sum up: we agree with the district court that Grain Land’s HTAs with
Obermeyer were contracts for the sale of a cash commodity for deferred delivery and
therefore not subject to the CEA. We also believe that the district court properly
exercised supplemental jurisdiction, and that judgment was properly entered upon the
jury’s verdict in favor of Obermeyer. We affirm the judgment of the district court in
all respects.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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