James Larson v. Farmers Cooperative , 211 F.3d 1089 ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
__________
No. 99-2954
__________
James Larson, *
*
Plaintiff-Appellee, *
*
v. *
*
Farmers Cooperative Elevator of *
Buffalo Center, Iowa, an Iowa *
Cooperative, Farmers Coop Co., *
Ledyard, Iowa, an Iowa Cooperative, *
* Appeal from the United States
Defendants-Appellants. * District Court for the
* Northern District of Iowa
__________ *
*
No. 99-3170 *
__________ *
*
James Larson, *
*
Plaintiff-Appellant, *
*
v. *
*
Farmers Cooperative Elevator of *
Buffalo Center, Iowa, an Iowa *
Cooperative, Farmers Coop Co., *
Ledyard, Iowa, an Iowa Cooperative, *
*
Defendants-Appellees. *
__________
Submitted: March 13, 2000
Filed: May 11, 2000
__________
Before McMILLIAN and HEANEY, Circuit Judges, and BOGUE,1 District Judge.
_________
BOGUE, District Judge.
Introduction
This case involves cross-appeals from a decision in the United States District
Court for the Northern District of Iowa.2 Appellant-defendant Farmers Cooperative of
Buffalo Center (“Buffalo Center”) and Farmers Cooperative of Ledyard, (“Ledyard”)
claim the district court erred in denying a motion for a new trial. Buffalo Center and
Ledyard, hereinafter Elevators or Coops, challenge jury instructions related to the
question of adequate assurance. Appellant-plaintiff Larson filed a cross-appeal.
Larson contends that the appeal submitted by the Elevators was untimely and the
district court abused its discretion in allowing the appeal. We affirm.
I.
At trial the parties presented the following evidence: Jim Larson farms corn and
soybeans on land near Armstrong, Iowa. He plants his corn in and around May of
1
The Hon. Andrew W. Bogue, Senior United States District Judge for the
District of South Dakota, sitting by designation.
2
The Hon. Mark W. Bennett, United States District Judge for the Northern
District of Iowa.
2
each year and attempts to harvest it by Thanksgiving. Hoping to wait for a higher price
and to avoid the long lines at elevators in the fall, Larson typically will dry and store
the corn, waiting until the following summer to sell. In 1993, Larson harvested around
6,500 bushels of corn. In 1994, Larson was able to harvest around 50,000 bushels and
80,000 bushels in 1995.
In the summer of 1994, Larson hired Steve Loggeman to aid in the marketing of
his corn. Based on prior yields, it was determined that 50,000 bushels would be
available for delivery each year. Larson eventually developed a plan to deliver 25,000
bushels of corn to each of two different elevators each year. Farmers Cooperative
Elevator of Buffalo Center, Iowa, and Farmers Cooperative Company, Ledyard, Iowa,
are Iowa cooperatives with their principal place of business in Buffalo Center and
Ledyard respectively. Larson considered the two Elevators and ultimately planned to
deliver corn to each of them.
To complete the plan, Larson and Loggeman created documents called a Flex
Hedge Program. Each program contained a set of offers to enter into Hedge to Arrive,
or HTA3, contracts. The Ledyard and Buffalo Center elevators both accepted programs
with similar HTA provisions and were completed by late 1994. Each HTA would list
an initial delivery date and an initial price. When the delivery date approached, Larson
would have the option of delivering corn at the set HTA price or selling his grain for
cash. If Larson chose to sell at the cash price rather than the HTA price, the contract
would then be “rolled,” or postponed. When a contract was rolled, a new delivery date
3
HTA contracts are made for certain commodities such as corn or soybeans.
They contemplate the delivery of a commodity which may or may not presently exist
at some unknown time in the future. The amount to be delivered is determined at the
outset, but the time and price is not. A tentative time and price for delivery is initially
established. This initial time and price is determined by the price and delivery month
of a futures contract traded on the Chicago Board of Trade (CBOT). The time for
delivery can be “rolled,” or pushed, from one month to a later month.
3
corresponding to a delivery date for a futures contract on the Chicago Board of Trade
(CBOT) would be set. A new price indicating the spread, or difference, between the
initial delivery date and the new delivery date would be established according to CBOT
figures.
Larson’s right to roll was part of the standing agreement with the Elevators.
According to Larson, the ability to roll was integral to the plan he and Loggeman had
created. Larson had entered an HTA with Buffalo Center referencing 110,000 bushels
of corn and an HTA with Ledyard referencing 100,000 bushels of corn. The HTAs had
an initial delivery date in 1995 or 1996. If Larson could not roll, his plan to deliver
50,000 bushels per year cumulatively to the Elevators would be transformed into a plan
to deliver 210,000 bushels in 1995 and 1996. Larson contends that because his original
plan was to deliver at most 25,000 bushels to each Elevator each year it was
necessarily required that he be able to roll the HTAs into future crop years.
Buffalo Center and Ledyard hedged their commitment to buy from the producer
by entering a corresponding short position on the CBOT. Such short positioning left
the possibility of margins that would need to be covered. A margin is a deposit that a
holder of a CBOT contract must make as insurance of performance. Larson’s contracts
with both Buffalo Center and Ledyard indicated the Elevators were responsible for
possible margins. This was supported by the testimony of two individuals. Derald
Goetz was a general marketer and grand merchandiser who worked for Ledyard
between 1989 and 1996. Dean Beenken was a member and secretary of the Buffalo
Center board of directors. Both testified that each Elevator had at least constructive
knowledge of an obligation to cover margins under the marketing agreements created
by Larson.
In 1995 Larson made deliveries of 25,000 and 20,000 bushels of corn to Ledyard
and Buffalo Center respectively. Similarly, 25,000 bushels of corn were delivered to
Ledyard in 1996. 38,000 bushels were delivered to Buffalo Center in 1996. By early
4
1996, market prices increased which led to a decrease in the value of the Elevators’
short positions. The Elevators were forced to make increasingly large margin payments
to maintain their short positions. Testimony at trial evidenced the concern held by the
Elevators as to the margin amounts each had to cover.
On June 4, 1996, Ledyard sent a letter entitled “Demand for Adequate
Assurance of Performance” to Larson. The letter stated its concern surrounding the
substantial sums the Elevator had committed to covering margins under the Flex Hedge
Contracts. The Elevator stated that it had covered these margins based on the
contractual agreement between Larson and Ledyard. Ledyard stated that various
market and non-market conditions and developments created reasonable grounds for
insecurity with respect to Larson and others who held Flex Hedge Contracts with the
Elevator. Because of such insecurity, Ledyard demanded that Larson provide the
Elevator with adequate written assurances of his intent to perform under the Flex Hedge
Contracts.
Ledyard specifically demanded adequate assurance of Larson’s performance
related to: (1) his obligation to deliver the contractually stated number of bushels of
grain to Ledyard on or before the delivery dates identified in an attached schedule; and
(2) his obligation to fully reimburse Ledyard for all commissions and margins it had
paid on his behalf, as well as all other costs incurred by the Elevator pursuant to the
contract, less any reimbursement already received by the Elevator. Ledyard included
a list of items that it would consider constituting adequate assurance4 if completed on
4
Adequate assurance according to Ledyard’s letter would include:
1. Payment in full of all commissions and margins previously paid by the
Coop on your behalf and all other costs incurred by the Coop pursuant to the
Contracts applicable to the 1996 production year; or a binding letter of credit,
in form and substance reasonably acceptable to the Coop, from an institutional
lender to the Coop, obligating such lender to pay the Coop total amount of such
5
or before the end of business on June 14, 1996. Ledyard also stated it would treat his
refusal to provide such assurances made by that date as a repudiation of the HTA
agreement.
On September 11, 1996, Buffalo Center sent a similar letter to Larson through
Mr. George F. Davison, who was then Larson’s attorney. Buffalo Center identified
similar difficulties due to market conditions, including increasing commodity prices,
limited grain supplies, and overall market volatility. The letter continued, stating that
the Coop had reason to believe that Larson may be unable or did not intend to honor
his contractual commitments. Buffalo Center similarly requested receipt of certain
items to constitute proof of adequate assurance.5 Similar to Ledyard, Buffalo Center
commissions, margins, and other costs; and
2. Payment in full of the amount necessary to bring the “Average contract
Price” under all Contracts applicable to production years following 1996 up to
a price which is $.50 below the futures contract price in the applicable futures
contract month on the date of payment; or a binding letter of credit, in form and
substance reasonably acceptable to the Coop, from an institutional lender to the
Coop, obligating such lender to pay the Coop the total amount of such
commissions, margins, and other costs. . .; and
3. Execution of an agreement, in form and substance reasonably acceptable
to the Coop, whereunder you agree to pay all commissions and margins under
the Contracts from the date of such agreement to the date of actual delivery
under the Contracts; and
4. A copy of this letter, signed by you where set forth below, agreeing to
deliver to the Coop on or before the “Delivery Dates” identified on Schedule A,
the stated number of bushels of grain as set forth in the Contracts, in satisfaction
of your delivery requirements thereunder.
(Emphasis added).
5
Buffalo Center gave only two criteria for Larson to demonstrate adequate
assurance:
6
stated that it would treat Larson’s refusal to provide adequate assurance as a
repudiation of the contracts.
On September 24, 1996, Larson filed a complaint in the United States District
Court for the Northern District of Iowa. Larson requested a declaratory judgment
declaring the HTAs were illegal under the Commodities Exchange Act (CEA). 7
U.S.C. § 1 et. seq. Larson also brought breach of contract claims against both
Elevators. The Elevators answered on February 6, 1997. Both raised affirmative
defenses and brought counterclaims against Larson. Each counterclaim alleged breach
of contract due to Larson’s repudiation by failing to give adequate assurance of delivery
as proposed in their earlier letters. Ledyard sought damages of $120,750 plus interest
and Buffalo Center sought damages of $93,350 plus interest.
On October 2, 1998, the district court ruled on pending summary judgment
motions submitted by both parties. The Coops were awarded summary judgment in
their favor on Count I of Larson’s complaint, which had sought declaratory judgment
that the HTA contracts that he entered into with the Coops for the sale and purchase
of grain were void, voidable, and unenforceable because they were in irreconcilable
conflict with the CEA. The district court found that as a matter of law the HTAs
1. Payment in full of all commissions and margins previously paid by the
Coop on Mr. Larson’s behalf in all other costs incurred by the Coop pursuant to
the Contracts; or a binding letter or credit, in form and substance reasonably
acceptable to the Coop, from an institutional lender to the Coop, obligating such
lender to pay the Coop the total amount of such commissions, margins and other
costs; and
2. A copy of this letter, signed by Mr. Larson where set forth below,
agreeing to deliver to the Coop on or before the “Delivery Dates” identified on
Schedule A, the stated number of bushels of grain as set forth in the Contracts,
in satisfaction of his delivery requirements thereunder.
(Emphasis added).
7
Larson entered into with Buffalo Center and Ledyard were “cash forward contracts”
not within the regulatory purview of the CEA.
After the summary judgment ruling, Larson had a remaining claim of breach of
contract asserting nominal damages. Buffalo Center and Ledyard retained breach of
contract claims against Larson. The district court retained supplemental jurisdiction
pursuant to 28 U.S.C. § 1367. The case was tried in the United States District Court
for the Southern District of Iowa on May 3, 1999, although it remained a Northern
District case. The parties agreed to waive any venue problems in trying a Northern
District case in the Southern District of Iowa.
At the close of evidence, a jury instruction conference was held pursuant to Fed.
R. Civ. P. 51. At that time the district court assembled its Final Jury Instructions.
Counsel for the Elevators objected to the court’s proposed jury instructions four and
five.6 Buffalo Center and Ledyard based such an objection on the contention that the
6
The objected to instructions were Final Jury Instructions 4 and 5. Instruction
4 stated:
4. You are also instructed that it is unlawful to enter into a contract
for the purchase or sale of commodity futures unless the transaction
is conducted on or is subject to the rules of the Chicago Board of
Trade or other designated contract market. Therefore, if you find
that a demand for assurances constituted a demand to enter into a
purchase or sale of a commodity futures that was not subject to the
rules of a designated contract market (i.e., it constituted a demand
for an “off-exchange” transaction), you may find that such a
demand was unlawful and unreasonable, and therefore constituted
a breach of the underlying HTA contract, if the Coop making the
demand refused to perform the underlying HTA further without
such a transaction.
As stated by the district court in its Memorandum Opinion and Order Regarding
8
evidence did not support the giving of an instruction which stated that a demand for
adequate assurance constituted a demand to enter into a purchase or sale of commodity
futures, and that there was no evidence on the record that any such demand was made.
The Elevators also objected that there was no evidence in the record that pursuant to
such a demand, a party or one of the producers would actually take over ownership of
a commodity futures position on the Board of Trade that was either in the name of the
Coop or in the Coop’s brokerage account.
The objections to jury instructions four and five were overruled. The jury was
read the Final Jury Instructions in their entirety. The jury returned a verdict in favor of
Larson awarding him nominal damages of $1 each against Ledyard and Buffalo Center.
The jury also found in favor of Larson on each of the Coop’s claims for breach of
contract. Judgment was entered upon the jury’s verdict on May 10, 1999. On May 24,
1999, the Elevators filed a motion for a new trial pursuant to Fed. R. Civ. P. 59(a) and
(e). The basis for such a motion was that the Final Jury Instructions were improper.
On June 11, 1999, the district court denied the Motion for New Trial. Elevators
filed a Notice of Appeal on July 14, 1999. A Motion for Extension of Time to File
Notice of Appeal was filed by Elevators on August 2, 1999, which the district court
granted on August 5, 1999. Larson then objected based on the timeliness issue.
II.
Defendant’s Motion for New Trial, the “pertinent part of Final Jury Instruction No. 5
was similar, but stated that if the jury found a Coop had made a demand to enter into
an ‘off-exchange’ transaction, the jury could also find that such a demand was unlawful
and unreasonable, and therefore the Coop that made the demand could not prove a
failure to give adequate assurances, on Larson’s part, based on refusal to enter into
such a transaction, and hence could not prove a breach of contract by Larson on the
ground that he had refused to enter into such a transaction.”
9
Larson has filed cross-appeal No. 99-3170. He argues the district court abused
its discretion in exercising its equitable powers and allowing the notice of appeal
despite its claimed untimeliness. The court carefully considered Larson’s arguments
below and applied the standard announced by the Supreme Court in Pioneer Inv.
Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (1993). Under
the facts of this case, the court’s findings were not erroneous. Finding no abuse of
discretion in the district court’s analysis, we conclude that Larson’s arguments related
to the issue of timeliness must fail.
III.
Appeal No. 99-2954 comes in the form of review of the district court’s denial
of a motion for new trial. Authority to grant a new trial pursuant to Federal Rule of
Civil Procedure 59 is fully within the discretion of the district court. Douglas County
Bank & Trust Co. v. United Financial Incorporated, --- F.3d --- , 2000 WL 295111 *4-
*5 (8th Cir. 2000); see also Gray v. Bicknell, 86 F.3d 1472, 1480 (8th Cir. 1996). A
motion for new trial will be granted when a miscarriage of justice occurred in the first
trial. Gray, 86 F.3d at 1480. Such a miscarriage of justice occurs when there is
insufficient evidence to support the verdict. Douglas County Bank & Trust Co., 2000
WL 295111 at *5 (citing First State Bank of Floodwood v. Jubie, 86 F.3d 755 (8th Cir.
1996)). A district court’s denial of a motion for a new trial will not be reversed unless
there has been a clear abuse of discretion. Keenan v. Computer Associates
International, Inc., 13 F.3d 1250, 1269 (8th Cir. 1994).
Elevators argue the district court erred by failing to grant Elevators’ motion for
a new trial. In support of that argument, Elevators cite the district court’s instruction
of the jury regarding “off exchange” transactions being illegal under the Commodities
Exchange Act in the context of the Elevators request for adequate assurance from
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Larson. Elevators contend the district court erred in submitting instructions four and
five to the jury.
IV.
On appeal, Elevators maintain the evidence in record did not support portions
of each jury instruction. Elevators contend the instructions were a correct statement
of law, but were not applicable to the factual issues confronting the jury question of
breach of contract. Specifically, Elevators submit the evidence demonstrated the letters
sent to Larson referred to his HTA agreements. Elevators maintain that any demands
for assurances should not be analyzed separately from the HTA contracts, and that the
district court had already held that the HTAs were not “off-exchange” futures contracts.
Therefore, Elevators submit that the evidence did not support an instruction that their
requests for adequate assurance could constitute a demand to enter into an off-board
purchase or sale of commodities futures. Elevators also argue that there is no evidence
in the record that Larson would take over ownership of a commodity futures position
on the CBOT that was either in the name of the Coop or in the Coop’s brokerage
account.
We review the district court’s jury instructions for abuse of discretion. Grain
Land Coop v. Kar Kim Farms, Inc., 199 F.3d 983, 995 (8th Cir. 1999). The Court of
Appeals must 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.” Id. (quoting White v. Honeywell, Inc., 141 F.3d 1270, 1278 (8th Cir.
1998)).
The evidence submitted during trial supports the district court’s decision to
utilize jury instructions four and five. The June 4, 1996, and September 24, 1996
letters both contain a demand for assurances specifically requesting “adequate
assurances hereunder” payment of all commissions and margins previously paid by the
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Coop on Mr. Larson’s behalf and all other costs incurred by the Coop pursuant to the
contracts. Plaintiff’s Trial Exh. 32, at 2; Plaintiff’s Trial Exh. 61, at 2. Each demand
for assurances requested that Larson pay all costs of each Elevator’s futures position
on the CBOT, which was taken by each Elevator to “hedge” its contract with Larson.
Both letters sent to Larson therefore could be read by a jury as demanding that Larson
assume the Elevators’ losses on each of their respective short positions. Furthermore,
there was no indication that a purchase or sale of the Elevators’ futures position was
conducted pursuant to rules of a designated contract market. Therefore, if the jury
found there was such a demand, the jury could have considered it a demand to engage
in an “off-exchange” transaction. The district court instructed the jury accordingly.
The language within each jury instruction also adequately tracked the statutory
language of the Commodities Exchange Act, found at 7 U.S.C. § 6(a)7. Viewed in light
7
At 7 U.S.C. § 6(a), the Commodity Exchange Act states:
Unless exempted by the Commission pursuant to subsection (c) of this section,
it shall be unlawful for any person to offer to enter into, to enter into, to execute,
to confirm the execution of, or to conduct any office or business anywhere in the
United States, its territories or possessions, for the purpose of soliciting or
accepting any order for, or otherwise dealing in, any transaction in, or in
connection with, a contract for the purchase or sale of a commodity for future
delivery (other than a contract which is made on or subject to the rules of a
board of trade, exchange, or market located outside the United States, its
territories or possessions) unless -
(1) such transaction is conducted on or subject to the rules of a board of
trade which has been designated by the Commission as a “contract market” for
such commodity; . . . .
(emphasis added).
Jury instructions 4 and 5 contained the following language similar to the above
statute:
You are instructed that it is unlawful to enter into a contract for the purchase or
sale of commodity futures unless the transaction is conducted on or is subject to
12
of the applicable law and evidence presented by Elevators and Larson, the district court
did not abuse its discretion in allowing jury instructions four and five. As long as the
jury is correctly instructed on the substantive issues in the case, the language and form
of jury instructions are committed to the sound discretion of the district court.
Scamardo v. Scott County, 189 F.3d 707, 711 (8th Cir. 1999). See also Williams v.
Valentec Kisco, Inc., 964 F.2d 723, 731 (8th Cir.1992)).
V.
When reviewing a jury instruction, this court must “determine whether the
instruction fairly and adequately states the applicable law when reading the instruction
as a whole.” Stockmen’s Livestock v. Norwest Bank of Sioux City, 135 F.3d 1236,
1245-1246 (8th Cir. 1998) (quoting First Dakota Nat’l Bank v. St. Paul Fire and Marine
Ins. Co., 2 F.3d 801 (8th Cir. 1993)). Before an appellant is entitled to any relief on the
ground that the district court committed error due to its instruction of the jury, the error
must be prejudicial. Stockmen’s Livestock, 135 F.3d at 1246. Even if an error
occurred, we reverse only if the error affected the substantial rights of the parties.
Frazier v. Iowa Beef Processors, Inc., 200 F.3d 1190, 1193 (8th Cir. 2000); see also
Martin v. Wal-Mart Stores, Inc., 183 F.3d 770, 773 (8th Cir.1999).
It is the contention of the Elevators that they were prejudiced because the jury
was not given the necessary background to address the instructions, including the
definition of certain terms applicable to the CEA. Elevators contend that without
the rules of the Chicago Board of Trade or other designated contract market.
Therefore, if you find that a demand for assurances constituted a demand to enter
into a purchase or sale of commodity futures that was not on or subject to the
rules of a designated contract market (i.e. it constituted a demand for an “off-
exchange transaction”), you may find that such a demand was unlawful and
unreasonable, . . .
(emphasis added).
13
proper guidance from the court the jury was free to make a legal interpretation of the
CEA and its applicability to the Elevators. We reject the contention that Elevators
were prejudiced by the instructions. As discussed, evidence submitted during trial, as
well as the district court’s interpretation of applicable law, merited the instructions.
The instructions also included the appropriate elements for contract and breach of
contract under Iowa law. When reading the instructions as a whole, they fairly and
adequately stated the law applicable to the dispute. Stockmen’s Livestock, 135 F.3d
at 1246. The district court did not commit error in submitting the instructions, let alone
error affecting the substantial rights of the Elevators. Kramer v. Logan County School
Dist. No. R-1, 157 F.3d 620, 625 (8th Cir. 1998). A miscarriage of justice has not
occurred. Id.VI.
For the reasons stated in this opinion, we find the district court did not abuse its
discretion in exercising its equitable powers and allowing Elevators’ notice of appeal.
We also believe the district court properly instructed the jury, and that judgment was
properly entered upon the jury’s verdict in favor of Larson. 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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