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Clasing v. Hormel Corp.

United States District Court, Eighth Circuit

January 21, 2014

HORMEL CORP., Defendant.


MARK W. BENNETT, District Judge.

This is a diversity action by hog finishers against a meat packing company for alleged breach of a 2008 oral contract between the parties for continued purchases of the hog finishers' Canadian-born hogs after legislation implementing mandatory "country of origin labeling" (COOL) for pork became effective. The hog finishers allege that, in 2009, the meat packing company unilaterally changed the pricing and terms for delivery of the hog finishers' Canadian-born hogs. The parties stipulated to the dismissal of the hog finishers' claim of tortious interference with prospective business advantage, but the meat packing company has now moved for summary judgment on the hog finishers' remaining claims of breach of oral contract, breach of implied covenant of good faith and fair dealing, breach of implied-in-fact contract (promissory estoppel), and breach of implied-in-law contract (quasi-contract).


A. Factual Background

I set forth here only those facts, disputed and undisputed, sufficient to put in context the parties' arguments concerning the meat packing company's motion for summary judgment. Thus, the "universe" of facts stated here is considerably smaller than the complete set of facts, undisputed and disputed, set forth in the parties' various statements of fact. Unless otherwise indicated, the facts recited here are undisputed, at least for purposes of summary judgment. If necessary, I will discuss additional factual allegations, and the extent to which they are or are not disputed or material, in my legal analysis.

1. The parties

During the time period relevant to their lawsuit, plaintiffs Jay Clasing and Deanna Clasing, husband and wife, doing business as Jade Farms, were engaged in the business of purchasing weaner pigs from sow farms, growing and finishing such weaner pigs to slaughter weight, and then selling the market hogs for slaughter. Unless otherwise appropriate, I will refer to the Clasings and/or Jade Farms, individually or collectively, simply as the Clasings. The Clasings were residents of and conducted their hog finishing business in Palo Alto County, Iowa. Defendant Hormel Corporation, a Delaware corporation with its principal place of business in Austin, Minnesota, registered to do business in Minnesota and Iowa, is a "packer" as defined in 7 U.S.C. § 191, for purposes of the Packers & Stockyards Act of 1921, 7 U.S.C. §§ 181 et seq. As part of its business, Hormel purchases hogs for slaughter.

2. The parties' written agreements

On April 20, 2007, Hormel entered into a Hog Procurement Agreement (the Written Agreement) with the Clasings with an effective date of July 1, 2007. See Defendant's Appendix, Tab I. The initial term of the Written Agreement was one year, with an expiration date on June 30, 2008. The Written Agreement had an "evergreen clause, " however, pursuant to which it would automatically renew at the end of the initial term for successive six-month terms, unless terminated by either party by written notice at least ninety days prior to the end of the then-current term. The Written Agreement included a term that gave Hormel the right to terminate the Written Agreement by written notice to the Clasings at any time if anticipated "country of original labeling" or COOL legislation was passed into law in the United States and certain other contingencies, not at issue here, were met.

The Written Agreement provided a base price for the Clasings' market hogs "equal to the Western Cornbelt Price, " which was further defined as "the average price per carcass cwt. of the prior day's daily weighted average base price for negotiated purchases of barrows and gilts reported by USDA Market News in Western Cornbelt Daily Direct Hog-Afternoon, report HG212 (Western Cornbelt Report') plus $2.00 per carcass cwt." Id. at 73 (Tab I at 8) (emphasis in the original). This precise contractual definition of "Western Cornbelt Price" notwithstanding, the parties sometimes refer to the price under the Written Agreement as "Western Cornbelt Price plus $2.00" or "WCB 2.00." See, e.g., Defendant's Statement Of Material Facts, ¶ 38. In addition, Hormel provided certain premiums and/or discounts based upon the weight and back fat of the carcasses shown on a Lean Pork Value Table provided to the Clasings. Hormel also provided additional incentives if a certain percentage of carcasses fell within a designated range of weights and back fat in a given quarter. The Written Agreement between the Clasings and Hormel was amended on June 27, 2008, to change the delivery schedule for the Clasings' hogs, but not the pricing.

On or about May 8, 2007, that is, shortly after the Clasings entered into the Written Agreement with Hormel, the Clasings entered into a Purchase Agreement with Big Sky Farms, Inc., a pig supplier in Saskatchewan, Canada, to purchase weaner pigs at a base price of $35.80 a head, but a copy of that agreement is not available. The parties dispute whether the Big Sky Purchase Agreement allowed the Clasings to terminate that Purchase Agreement upon the implementation of COOL legislation, as Hormel contends, or when the Clasings were unable to have their Canadian-born hogs slaughtered, as the Clasings contend.

No claims in the present litigation are based on any alleged breach of the Written Agreement between the Clasings and Hormel, and it is clear that the Clasings delivered Canadian-born hogs to Hormel during the period that the Written Agreement was in force. The Clasings allege that, prior to September 2008, Hormel provided flexibility and had worked cooperatively with the Clasings and other producers to schedule the delivery of market hogs at times that would satisfy Hormel's requirements while also allowing producers to maintain the weight and flow of pigs in their production systems. Hormel qualifies this allegation by alleging that, although it maintained the right to set a delivery schedule pursuant to the Written Agreement, Hormel provided producers with flexibility, to the extent possible, through oral agreements and prior course of dealing.

3. The impact of COOL

a. The requirements of COOL

There is or can be no dispute that the situation for the parties changed dramatically on May 22, 2008, when Congress passed the 2008 Farm Bill, which, among other things, amended the 2002 Farm Bill's mandatory COOL provisions for various meats, including pork. See 7 U.S.C. § 1638a(a)(1) and (2)(A)-(D). There is no dispute that the hogs sold by the Clasings to Hormel under the Written Agreement were then designated "Category B" hogs, based upon the 2008 COOL provisions in § 1638a(a)(2)(B), because they were Canadian-born, although they were finished in the United States. Also, there is or can be no dispute that those hogs could not be designated "Category A" hogs, based on § 1638a(a)(2)(A), which indicates United States country of origin, because they had not been exclusively born, raised, and slaughtered in the United States. Therefore, in order to comply with COOL, Hormel was required to keep "Category B" hogs, such as those produced by the Clasings, as well as other categories of hogs, segregated from "Category A" hogs.

b. Replacement of the Written Agreement with an Oral Agreement

On September 11, 2008, Hormel sent a memorandum to all hog producers that sold hogs to Hormel, including the Clasings, explaining the requirements of COOL and Hormel's new policies based upon COOL. The September 11, 2008, memorandum indicated that Hormel would continue to accept Category B hogs at limited times and limited days of the week, but only to certain facilities. During the fall of 2008, Hormel representatives discussed with the Clasings the risk (according to Hormel) or the possibility (according to the Clasings) that Hormel would discontinue taking Category B hogs, and the parties agree that Hormel gave the Clasings contacts for United States sources of weaner pigs.

Hormel alleges, and the Clasings admit, that Hormel sent the Clasings a letter dated September 29, 2008, providing the Clasings with ninety days' notice of termination of their Written Agreement, effective December 31, 2008. The parties also agree that the Written Agreement terminated on December 31, 2008, pursuant to the terms of the September 29, 2008, written notice. There is no claim in this litigation that termination of the Written Agreement was improper. There is a dispute, however, about whether the notice of termination was based on a decision that Hormel had made at that time with respect to the implementation of COOL, as Hormel contends, or whether Hormel only made a decision about implementation of COOL considerably later, as the Clasings contend.

The parties agree that, on the same day that Hormel terminated the parties' Written Agreement, the parties orally agreed that Hormel would continue to accept the Clasings' Category B hogs after termination of the Written Agreement at the same base price provided in the Written Agreement "until further notice." This is the Oral Agreement on which the Clasings' claims in this litigation are based. These terms are indicated in a handwritten internal memorandum of Hormel at Defendant's Appendix, Tab N, dated September 29, 2008.[1] The Clasings contend that the "further notice" required under this Oral Agreement was six months' notice, because that was consistent with the amount of time necessary for the Clasings to market any Category B hogs in their system when the notice was received and the amount of notice that Hormel provided to other producers with Category B hogs. Hormel disputes that there was any requirement for six months' notice-or, indeed, for any particular period of notice at all-under the Oral Agreement or that Hormel provided any other producer with six months' notice, because Hormel asserts that there is no evidence to support either allegation.

The Clasings allege that, after September 2008, Hormel severely limited their flexibility in scheduling the delivery of their market hogs, including by requiring delivery of at least two loads each day and limiting the maximum number of loads that would be received each day. Hormel denies that the Oral Agreement granted the Clasings any right to influence the delivery schedule, but alleges that the Clasings did have input into their scheduling of hog deliveries and purposefully delivered two to three loads each day.

c. The Clasings' purchase of additional Canadian pigs

On or about November 20, 2008, the Clasings purchased an additional 4, 415 head from Big Sky, in excess of the pigs that the Clasings were already receiving under the Big Sky Purchase Agreement, at a price of $22.00 per head, that is, $13.80 below the contract price in the Big Sky Purchase Agreement. There is or can be no dispute that these additional pigs would be designated Category B hogs at slaughter, because they were born in Canada. The Clasings admit that, at the time that they purchased these additional Canadian-born pigs, they did not know what the market hog price would be for those pigs. The Clasings contend that, prior to purchasing these additional Canadian pigs, Jay Clasing contacted and received assurances from Hormel that Hormel would take the additional Canadian-born pigs when they reached slaughter weight. The Clasings contend that they would not have agreed to purchase these additional Canadian-born pigs, if Hormel had not given them such assurances. Hormel contends that the record shows that, at most, Hormel representatives had indicated a willingness to buy the Category B hogs when the time came, but that there was no agreement to purchase them at any specified price.

4. The amendment or breach of the parties' Oral Agreement

On January 15, 2009, the USDA published the final rule for compliance with mandatory COOL, which became effective March 16, 2009. Hormel alleges that, through early 2009, it negotiated with the Clasings about taking delivery of additional Category B hogs and about setting a date for the end of the Clasings' delivery of Category B hogs. Hormel alleges that, eventually, on April 16, 2009, it agreed with the Clasings that it would take the Clasings' excess Category B hogs through December 15, 2009, and would pay the Clasings a base price of the Western Corn Belt plus $1.50 (which the parties agree was $0.50 less per cwt. than the previously agreed price) with a 94 percent USDA cutout cap for all Category B hogs delivered after May 3, 2009. The "USDA cutout cap" capped the base price at 94 percent of the Carcass Cutout Price that the USDA formulates, as indicated in reports published by the USDA. Hormel alleges that the parties also agreed that the Clasings would deliver twelve loads of Category B hogs per week at the new agreed price and that Hormel would make efforts to accept additional loads from the Clasings, but that those additional loads would be priced at Hormel's open market negotiated pricing. Hormel also alleges that, on April 16, 2009, in an e-mail to the Clasings, Hormel confirmed in writing the parties' amendment of the Oral Agreement, to be effective May 3, 2009, see Defendant's Appendix, Tab U, [2] and Hormel refers to this e-mail as the "Amendment" of the Oral Agreement.

The Clasings dispute that there was a "negotiation" or an "Amendment"; rather, they contend that Hormel dictated what it was going to do, including unilaterally changing the price for the Clasings' Category B hogs. Similarly, the Clasings admit that they received an internal e-mail forwarded to them by Doug England at Hormel stating the terms dictated by Hormel for the purchase of the Clasings' Category B hogs after May 3, 2009, but the Clasings deny that this e-mail "confirmed" any negotiation of or agreement to the purported Amendment. When asked at deposition if he had accepted Hormel's terms in April 2009, because he didn't have other options for the Canadian-born hogs, Mr. Clasing answered, "I accepted them, but I didn't agree with it." Defendant's Appendix at 59 (Tab H) (Jay Clasing Deposition at 125:15-21).

On April 17, 2009, Doug England e-mailed the Clasings a Hormel Quality Assurance Program and Animal Welfare Handling document, Defendant's Appendix, Tab W, for signature, stating, inter alia, "Jay, I know that you already signed this welfare requirement. I need it signed again for the new contract agreement." Defendant's Appendix, Tab V. The Clasings signed the Producer Certification for the Quality Assurance Program and Animal Welfare Handling Document on April 29, 2009, and e-mailed it back to Doug England that same day. The parties dispute whether Mr. Clasing knew that the Certification was associated with the purported Amendment of the Oral Agreement and the Clasings deny that they negotiated or agreed to the terms of the purported Amendment.

At some point, the Clasings had entered into a Renewal Term Addendum Livestock Purchase Agreement, effective May 1, 2009, renewing the May 8, 2007, Purchase Agreement between the Clasings and Big Sky. Plaintiffs' Appendix, Tab I. The Clasings contend that, immediately upon learning in April 2009 that Hormel would stop accepting Canadian-born market hogs in December 2009, they contacted Big Sky to terminate the Clasings' contract with Big Sky for the future purchase of Canadian-born weaner pigs, effective July 18, 2009. Defendant's Supplemental Appendix at 192-94 (Tab II). Hormel denies that Jay Clasing did not learn that Hormel would discontinue accepting Canadian-born market hogs until April 2009, because Hormel representatives had been working with the Clasings since at least January 2009 to help them find a replacement source of pigs and had been informing the Clasings that Hormel was not going to be a long-term harvester of Canadian-born hogs.

The Clasings admit that, on May 3, 2009, they began to deliver, on average, more than 12 loads of Canadian-born hogs per week to Hormel and that they were paid and accepted payment at the reduced price stated in the purported Amendment. The Clasings allege, however, that they repeatedly protested the change in the pricing of their Canadian-born hogs. The parties agree that, at times after May 3, 2009, the 94 percent cutout cap resulted in payment to the Clasings of less than the base price in the purported Amendment of the Western Cornbelt Price plus $1.50. The Clasings also alleged, in their Complaint, that the "unilateral" change in the delivery terms "depriv[ed] [them] of the opportunity to achieve the premiums under Defendant's carcass merit buying program that Plaintiffs had historically achieved." Complaint (docket no. 2), ¶ 33.

The parties agree that the Clasings specifically objected to the terms of the purported Amendment on or about July 1, 2009, but the Clasings contend that they had never agreed to the purported Amendment and that they had protested the price change in the purported Amendment prior to that date, as well. Hormel alleges, and the Clasings deny without citing supporting portions of the record, that the Clasings continued to deliver Category B hogs to Hormel until November 2009.

B. Procedural Background

1. The Complaint and the Answer

The Clasings filed the Complaint (docket no. 2) initiating this action against Hormel Corporation on August 6, 2012. In their Complaint, the Clasings originally asserted five claims, although all are based, at least in part, on Hormel's alleged conduct that also allegedly breached the September 29, 2008, Oral Agreement.

More specifically, in Count I, the Clasings asserted a "breach of contract" claim, based on alleged breach of the Oral Agreement by "unilaterally reducing the price [Hormel] paid for Plaintiffs' market hogs and changing the delivery terms." Complaint, Count I, ¶ 33. Similarly, in Count II, the Clasings asserted a "breach of implied covenant of good faith and fair dealing" claim, again based on allegations that Hormel "unilaterally alter[ed] the price and delivery terms for the delivery of market hogs from Plaintiffs, " but also alleging additional misconduct in breach of the implied covenant, consisting of the following:

(ii) discriminating against Plaintiffs in the price paid for market hogs by continuing to pay the higher prices to certain preferred producers, and (iii) retaliating against Plaintiffs for reporting a suspected violation of the Packers & Stockyards Act to [the Grain Inspection, Packers & Stockyards Administration of the United States Department of Agriculture (GIPSA)] by refusing to make any future purchases from Plaintiffs and notifying other packers of Plaintiffs' complaint to GIPSA, thereby inducing such other packers to refuse to purchase Plaintiffs' market hogs.

Complaint, Count II, ¶ 39.

In Counts III and IV, the Clasings asserted alternatives to their claim of breach of an express contract in Count I. Specifically, in Count III, they asserted a claim of "promissory estoppel (contract implied in fact), " based on allegations that Hormel's representations after terminating the parties' Written Agreement "were intended to induce Plaintiffs to continue to provide market hogs to Defendant, " that they acted in reasonable reliance on the promises and representations by Hormel by continuing to purchase Canadian-sourced weaner pigs from Big Sky, but that Hormel's "unilateral changes to the price and delivery terms associated with its purchase of Plaintiffs' market hogs... forced [Plaintiffs] to deliver its [sic] market hogs to Defendant at a substantial loss from what Defendant had promised to Plaintiffs, " and that an injustice can be avoided only if Hormel's promises to them are enforced. Id. at Count III, ¶¶ 43-47. In Count IV, the Clasings asserted a claim of "quasi-contract (contract implied in law), " based on allegations that they conferred a benefit on Hormel by continuing to deliver market hogs to Hormel following the termination of the parties' Written Agreement, that Hormel accepted and appreciated the benefit conferred by the Clasings and understood that the Clasings were relying on Hormel's representations and promises by continuing to purchase Canadian-sourced weaner pigs from Big Sky in order to secure a sufficient supply of weaner pigs, that Hormel "acted unjustly and inequitably by unilaterally reducing the price for Plaintiffs' market hogs... and unilaterally imposing new delivery terms, " and that "[e]quity and good conscience" require that the court impose contractual obligations and payment terms on Hormel under the doctrine of quasi-contract. Id. at Count IV, ¶¶ 50-53.

Finally, in Count V, the Clasings asserted a claim of "tortious interference with prospective advantage, " based on allegations identical to part of the third alleged breach of the covenant of good faith and fair dealing in Count II. Thus, in Count V, the Clasings alleged that they had a reasonable expectation and probability of obtaining economic advantage and economic benefits from the future sales of market hogs that they would have finished using their real property and hog finishing facilities and equipment, that Hormel knew of their expectation of economic advantage and economic benefits from the future sales of market hogs, but Hormel "intentionally and wrongfully interfered with Plaintiffs' expectation of economic advantage and economic benefits from the future sales of market hogs by notifying other packers of Plaintiffs' complaint to GIPSA in retaliation for such complaint, thereby inducing such other packers to refuse to purchase ...

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