United States District Court, N.D. Iowa, Western Division
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
LEONARD T. STRAND, CHIEF JUDGE
before me are cross motions for summary judgment. Doc. Nos.
53 and 54. The motions are fully submitted and I find that no
oral argument is necessary.
Rembrandt Enterprises, Inc. (Rembrandt), a large scale
producer of eggs, filed this action on December 9, 2015. Doc.
No. 1. Rembrandt primarily requests declaratory relief
regarding its purchase contract with defendant Dahmes
Stainless, Inc. (Dahmes). Rembrandt also requests restitution
and an accounting of Dahmes' expenses. Id., at
a manufacturer of industrial products, filed its answer on
April 1, 2016. Doc. No. 14. Dahmes also filed a counterclaim
against Rembrandt, alleging two counts of breach of
contract. Doc. No. 14 at 12-15. Dahmes also filed a
motion to strike a portion of the complaint, arguing that it
contained a description of an offer to compromise. Doc. No.
16. The Honorable C.J. Williams, Chief United States
Magistrate Judge, found it appropriate to seal the relevant
documents rather than striking them. Doc. No. 29. Dahmes then
filed a supplemental answer. Doc. No. 31. The parties also
stipulated to a protective order. Doc. No. 17.
parties filed cross motions for summary judgment on March 3,
2017. Doc. Nos. 53 and 54. Rembrandt filed a resistance to
Dahmes' motion for summary judgment on April 7, 2017.
Doc. No. 69. On that same date, Dahmes filed a resistance to
Rembrandt's motion for summary judgment. Doc. No. 70.
Each party then filed reply materials. Doc. Nos. 71, 72, 73.
the pendency of the case, the parties have engaged in
numerous discovery disputes (See Doc. Nos. 40, 49)
and several disputes regarding the sealed information
(See Doc. No. 66).
FINDINGS OF FACT
noted above, Rembrandt is a large scale producer of eggs and
egg products, with several different facilities in Iowa and
Minnesota. In approximately 2014, Rembrandt sought to expand
its business and provide egg products to cereal producer
Kellogg. The exact details regarding
Rembrandt's and Kellogg's relationship are disputed.
In short, Rembrandt alleges it had assurances that it could
become Kellogg's sole egg product supplier because
Kellogg's relationship with its past supplier had soured.
Dahmes posits that Rembrandt was merely hoping that if it
substantially increased its output capacity it could secure a
larger share of Kellogg's business. Regardless, it is
undisputed that Rembrandt took steps to comply with
Kellogg's corporate requirements and to become a more
significant supplier for Kellogg. Rembrandt began the
undertakings necessary to build a new egg processing plant
near an existing facility in Thompson, Iowa. Rembrandt's
plan for the new site was for a large scale facility, with a
construction budget of over $100 million dollars.
of the new and expanded Thompson facility, Rembrandt entered
into an agreement (Doc. No. 53-3 at 18) with Dahmes for an
industrial egg dryer. Rembrandt and Dahmes signed the purchase
agreement on November 20, 2014. The purchase price was $8.5
million dollars, subject to adjustment for change orders.
Following subsequent change orders, the actual price turned
out to be $8.99 million. A down payment of $2.5 million was
due at signing and additional progress payments were
scheduled throughout the contract term.
terms, the agreement is governed by Minnesota law. It
required Dahmes to install the dryer with an initial
completion date of December 1, 2015, and a final
operation-ready completion date of January 1, 2016. Rembrandt
contends those dates were included in the agreement to allow
it to begin its proposed relationship with Kellogg. Dahmes
states that it was largely unaware of why Rembrandt was
building a new facility or how it was financing the project.
agreement contained financial penalties for missed deadlines.
The agreement also contained several confidentiality
requirements that have been previously discussed in the
course of this case. Because of the scale of the project,
Dahmes was required to coordinate installation with the
Rembrandt's general contractor. Rembrandt broke ground on
its Thompson facility in the fall of 2014. The parties
dispute whether the specific location of the dryer's
installation was necessarily included in the agreement (i.e.,
was the agreement to provide a dryer for the Thompson
facility or was the agreement to provide a dryer that
Rembrandt merely intended to have installed at the Thompson
Pathogenic Avian Influenza (Avian Flu) is an aggressive
illness fatal to domestic poultry. In the spring of 2015, an
epidemic of Avian Flu hit the Midwestern United States. The
outbreak was notorious and engendered a large amount of media
coverage and government intervention. While six Rembrandt
facilities were affected by the Avian Flu, the Thompson
facility was not. Ultimately, Rembrandt was forced to
eliminate over a million birds, which cut its production
capacity by over 50%.
causes of the Avian Flu outbreak are disputed. Rembrandt
asserts that it took appropriate precautionary measures to
avoid the outbreak and spread of an Avian Flu type illness.
Dahmes contends that Rembrandt increased its risk by having
an “inline” production model in which eggs are
hatched, raised, and processed in the same location. Dahmes
posits that if these operations were kept separate, the
impact of an Avian Flu outbreak could have been limited.
result of its lost capacity, Rembrandt declared a force
majeure to its buyers and began distributing eggs and egg
products on a pro rata basis. Rembrandt also limited access
to its Thompson facility to reduce the risk of an Avian Flu
infection. Egg prices went up and Rembrandt lost its
opportunity to supply eggs to Kellogg at the quantities that
Rembrandt had hoped. Rembrandt contends it lost other business
and profits as a result of the Avian Flu outbreak and the
market repercussions the outbreak caused. Dahmes contends
that Rembrandt's problems were partly self-inflicted,
such as being unable to provide cage-free eggs requested by
one of its biggest customers, General Mills. Dahmes argues
that Rembrandt had already missed opportunities with Kellogg
prior to the Avian Flu outbreak and that Rembrandt had failed
to achieve its objectives with Kellogg as early as late 2014.
Finally, Dahmes contends that Rembrandt was largely
compensated for the damages from the Avian Flu outbreak by
insurance and government payments.
2015, Rembrandt told its contractors, including Dahmes, of a
temporary halt on the new Thompson facility. The parties
agree that on October 22, 2015, Rembrandt informed Dahmes
that the expansion was not happening. Dahmes told Rembrandt
that this constituted a breach of contract. In January 2016,
Rembrandt's board voted to formally scuttle the
construction project and write off the costs occurred.
Rembrandt's exact financial situation at the time, along
with the reason the board decided to scuttle the project, are
disputed by the parties.
to the alleged breach, Rembrandt had paid Dahmes $4.31
million, although it appears that $546, 000 was subsequently
returned to Rembrandt per the parties' agreement. Dahmes
presented Rembrandt with a one page accounting summary of its
alleged damages, which purported to itemize claims for lost
profits of $2.4 million, $329, 000 in alleged costs incurred
for suspending work in process, and actual expenses allegedly
incurred of $992, 000.
relevant facts are discussed below.
SUMMARY JUDGMENT STANDARDS
party may move for summary judgment regarding all or any part
of the claims asserted in a case. Fed.R.Civ.P. 56(a). Summary
judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with affidavits, if any, show that there is no
genuine issue of material fact and that the moving party is
entitled to a judgment as a matter of law.” Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986).
material fact is one that “‘might affect the
outcome of the suit under the governing law.'”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). Thus, “the substantive law will identify which
facts are material.” Id. Facts that are
“critical” under the substantive law are
material, while facts that are “irrelevant or
unnecessary” are not. Id.
issue of material fact is genuine if it has a real basis in
the record, Hartnagel v. Norman, 953 F.2d 394, 395
(8th Cir. 1992) (citing Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586-87 (1986)), or
when “‘a reasonable jury could return a verdict
for the nonmoving party' on the question.”
Woods v. DaimlerChrysler Corp., 409 F.3d 984, 990
(8th Cir. 2005) (quoting Anderson, 477 U.S. at 248).
Evidence that only provides “some metaphysical doubt as
to the material facts, ” Matsushita, 475 U.S.
at 586, or evidence that is “merely colorable” or
“not significantly probative, ”
Anderson, 477 U.S. at 249-50, does not make an issue
of material fact genuine.
such, a genuine issue of material fact requires
“sufficient evidence supporting the claimed factual
dispute” so as to “require a jury or judge to
resolve the parties' differing versions of the truth at
trial.” Anderson, 477 U.S. at 248-49. The
party moving for entry of summary judgment bears “the
initial responsibility of informing the court of the basis
for its motion and identifying those portions of the record
which show a lack of a genuine issue.”
Hartnagel, 953 F.2d at 395 (citing Celotex,
477 U.S. at 323). Once the moving party has met this burden,
the nonmoving party must go beyond the pleadings and by
depositions, affidavits, or otherwise, designate specific
facts showing that there is a genuine issue for trial.
Mosley v. City of Northwoods, 415 F.3d 908, 910 (8th
Cir. 2005). The nonmovant must show an alleged issue of fact
is genuine and material as it relates to the substantive law.
If a party fails to make a sufficient showing of an essential
element of a claim or defense with respect to which that
party has the burden of proof, then the opposing party is
entitled to judgment as a matter of law. Celotex,
477 U.S. at 322.
determining if a genuine issue of material fact is present, I
must view the evidence in the light most favorable to the
nonmoving party. Matsushita, 475 U.S. at 587-88.
Further, I must give the nonmoving party the benefit of all
reasonable inferences that can be drawn from the facts.
Id. However, “because we view the facts in the
light most favorable to the nonmoving party, we do not weigh
the evidence or attempt to determine the credibility of the
witnesses.” Kammueller v. Loomis, Fargo &
Co., 383 F.3d 779, 784 (8th Cir. 2004). Instead,
“the court's function is to determine whether a
dispute about a material fact is genuine.” Quick v.
Donaldson Co., Inc., 90 F.3d 1372, 1376-77 (8th Cir.
cross motions for summary judgment, the “court must
rule on each party's motion on an individual and separate
basis, determining, for each side, whether a judgment may be
entered in accordance with the Rule 56 standard.” 10A
Charles Alan Wright, Arthur R. Miller & Mary Kay
Kane, Federal Practice and Procedure § 2720 (3d
ed. 1998). When the parties seek summary judgment on some of
the same issues, I may consider all the parties'
arguments as to each issue, keeping in mind the separate
inferences that are to be drawn from each motion. See
Wright v. Keokuk Cnty. Health Ctr., 399 F.Supp.2d 938,
946 (S.D. Iowa 2005).
motion for summary judgment, Rembrandt makes three arguments.
First, that it is entitled to summary judgment on its
declaratory judgment claim based on the doctrine of
frustration of purpose. Second, Rembrandt is entitled to
summary judgment on Dahmes' breach of contract
counterclaim. Finally, Rembrandt argues that it is entitled
to summary judgment on Dahmes' counterclaim for lost
requests that the court “enter an Order in Dahmes'
favor granting Dahmes' Motion for Summary Judgment and
dismissing Rembrandt's Complaint. . .” Doc. No. 54
at 2. Dahmes then goes onto request a trial on the issue of
its damages. Accordingly, then, it seems Dahmes is requesting
summary judgment on Rembrandt's declaratory judgment
claim and in favor of its breach of contract counterclaim.
Breach of Contract
outset, the parties agree that they entered into a contract
and that Rembrandt breached that contract. Their dispute is
whether the breach is excusable. As noted above, when
considering cross motions for summary judgment, I must
consider the issues individually to preserve the proper
deference to the non-moving party. In this instance, the
parties raise wholly separate rationales in support of their
respective motions. Accordingly, I will consider the motions
Frustration of Purpose
motion for summary judgment is rooted in the doctrine of
frustration of purpose. As set out in Rembrandt's brief:
defense of frustration of purpose applies where: (1) The
party's principal purpose in making the contract is
frustrated; (2) without that party's fault; (3) by the
occurrence of an event, the non-occurrence of which was a
basic assumption on which the contract was made. City of
Savage v. Formanek, 459 N.W.2d 173, 176 (Minn.Ct.App.
1990) (internal citation omitted).
Because all three elements are indisputably present,
Rembrandt is entitled to judgment as a matter of law on its
declaratory judgment claim that it was entitled to terminate
the Agreement, and on Dahmes' counterclaim that Rembrandt
terminated the Agreement without cause.
Doc. No. 53-1 at 14.
states that the principal purpose of the agreement with
Dahmes was to “supply equipment for the egg processing
facility under construction at Rembrandt's location in
Thompson, Iowa.” Id. Rembrandt then makes its
argument regarding each frustration of purpose element.
Regarding the purpose of the contract, Rembrandt argues:
principal purpose of the contract “[m]ust be so
completely the basis of the contract that, as both parties
understand, without it the transaction would make little
sense.” City of Savage, 459 N.W.2d at 176
(quoting Restatement (Second) of Contracts § 265 cmt. a
(1981)). However, it is only the purpose of the party seeking
to be excused from the contract that must be frustrated for
the doctrine to apply. Little Canada Charity Bingo Hall
Ass'n v. Movers Warehouse, Inc., 498 N.W.2d 22, 25
(Minn.Ct.App. 1993). In other words, the lynchpin is
Rembrandt's purpose, not Dahmes' purpose. In
determining the principal purpose of a contract, a court may
consider both extrinsic evidence and the surrounding
circumstances. Pieper, Inc. v. Land O'Lakes Farmland
Feed, LLC, 390 F.3d 1062, 1066 (8th Cir. 2004). . .
principal purpose is expressly stated in Article I of the
Agreement: to obtain a yellow egg dryer that will be
“install[ed] . . . at Rembrandt's location in
Thompson, Iowa” where Rembrandt was building a new egg
processing plant. (SOF ¶ 19.) The Agreement's
requirement that the dryer be “fully installed”
and “produc[ing] saleable and acceptable product . . .
no later than January 1, 2016” provides further
evidence of this specific purpose, since the deadline was
necessary for Rembrandt to begin processing Kellogg's
dried egg volume at the Thompson facility. (SOF ¶ 20.) .
In [City of Savage v. Formanek, 459 N.W.2d 173, 176
(Minn.Ct.App. 1990)] the Minnesota Court of Appeals held that
the principal purpose of the defendant landowners in entering
an assessment agreement with the City of Savage to lay sewer
lines was to “enable industrial development” on
their property. 459 N.W.2d at 176. The court found this to be
the principal purpose based on the fact that the landowners
“would have little use for sewer and water on a parcel
of land they have held for 31 years if they could not sell or
develop it.” Id. at 176. Here, it is
undisputed that Rembrandt had no use for a dryer capable of
drying over 12, 000 pounds of whole eggs per hour unless it
was installed in a facility capable of producing and
processing such an enormous volume of liquid eggs. (SOF
¶ 16.) Consequently, without the planned Thompson
facility to make use of the yellow dryer, the Agreement
“would make little sense.” See Formanek,
459 N.W.2d at 176.
Id. at 14-16.
frustration, Rembrandt argues that its purpose was thwarted
by the Avian Flu outbreak:
Under Minnesota law, a party's principal purpose is
frustrated when a change in circumstances leaves it with
“no commercial reason” to follow through on the
agreement. Pieper, 390 F.3d at 1066; accord
Formanek, 459 N.W.2d at 166 (rejecting argument that
the purpose of the contract must become impossible to
constitute frustration). In this case, it did become
impossible for Rembrandt to achieve its principal purpose in
entering the Agreement--obtaining a large yellow dryer for
the new Thompson facility--because the 2015 HPAI outbreak
forced Rembrandt to terminate construction of the Thompson
facility. The changes wrought by HPAI made a new factory
unjustifiable, making it unlikely it could ever open its
doors even if was built. . .
There was no point in continuing construction, however,
because HPAI had caused such a massive drop in demand for
dried egg products that the new facility would likely never
have opened its doors. (SOF ¶ 56.) Nor would
Rembrandt's lenders have permitted such capital
expenditures by Rembrandt; they slashed Rembrandt's
capital expenditure budget from $365 million over five years
to no more than $35 million in 2016 and $20 million annually
thereafter. (SOF ¶ 58.)
The cancellation of the Thompson facility project, which
frustrated Rembrandt's principal purpose of obtaining a
dryer for the facility, is similar to the frustration in both
Orix and Formanek.
Id. at 16-17.
Regarding the second element, Rembrandt argues that “a
party is not at fault for the frustration of a contract's
principal purpose if it did not cause the frustrating event.
See Formanek, 459 N.W.2d at 177.” Id.
at 18. Rembrandt states that the Avian Flu outbreak
frustrated its ability to ...