Opinion
Case No. 03-4025-JAR
June 1, 2004
MEMORANDUM AND ORDER
This matter comes before the Court on plaintiffs' Motion for Partial Summary Judgment (Doc. 84) and defendants' Motion for Summary Judgment (Doc. 85). Plaintiffs Sunflower Pork, Inc. (SPI), Sunflower Central, LLC (Sunflower Central) and Chad Burkdoll d/b/a/ C C © C) request only a determination that the contract at issue in plaintiffs' breach of contract claim is ambiguous as a matter of law. Defendants Consolidated Nutrition, L.C. (CN); AGP Grain Cooperative (AGP); ADM Alliance Nutrition, Inc. (ADM); and Premiere Agri Technologies, Inc., seek summary judgment on plaintiffs' breach of contract, fraud, negligent misrepresentation, and breach of duty of good faith and fair dealing claims. For the reasons stated below, plaintiffs' motion is denied and defendants' motion is granted in part and denied in part.
I. Summary Judgment Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." The requirement of a "genuine" issue of fact means that the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Id. at 251-52.
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. This burden may be met by showing that there is a lack of evidence to support the nonmoving party's case. Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party to show that there is a genuine issue of material fact left for trial. "A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of [its] pleading, but must set forth specific facts showing that there is a genuine issue for trial." Therefore, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. The Court must consider the record in the light most favorable to the nonmoving party.
See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
See Anderson, 477 U.S. at 256.
Id.
See id.
See Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir. 1984), cert. denied 469 U.S. 1214(1985).
The Court notes that summary judgment is not a "disfavored procedural shortcut"; rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."
Celotex, 477 U.S. at 327 (quoting Fed.R.Civ.P. 1).
II. Facts
The following facts are either uncontroverted or related in the light most favorable to the nonmoving party. This determination was complicated by plaintiffs' insistence on responding to defendants' factual allegations, not with specific facts, but with legal assertions or conclusory statements, and plaintiffs' failure to support contested facts by reference with particularity to the record. Further complicating the situation was the source of plaintiffs' alleged factual allegations, many of which came from a declaration authored by Scott Burkdoll, the Secretary, Treasurer and partial owner of SPI. To survive summary judgment Burkdoll's declaration "must be based upon personal knowledge and set forth facts that would be admissible in evidence; conclusory and self-serving affidavits are not sufficient." Rather than setting forth facts based on personal knowledge, the declaration is littered with unsubstantiated statements and legal conclusions. And, the declaration conflicts with prior sworn deposition testimony of individuals at SPI. The Court has disregarded all conclusory, self-serving so-called facts in its determination of the uncontroverted facts material to this Order.
See D. Kan. Rule 56.1(b) that provides "each fact in dispute shall be numbered by paragraph and shall refer with particularity to those portions of the record upon which the opposing party relies."
See Murray v. City of Sapulpa, 45 F.3d 1417, 1422 (10th Cir. 1995); see also D. Kan. Rule 56.1(d) (requiring that "all facts on which a motion or opposition is based shall be presented by affidavit . . . Affidavits or declarations shall be made on personal knowledge and by a person competent to testify to the facts stated which shall be admissible in evidence.)
Plaintiffs are businesses engaged in providing hog finishing production facilities to the pork industry. SPI's business consists of the feeding and finishing of swine; and Sunflower Central and C C built and managed several swine barns as independent contractors for SPI. By 1995, SPI had been a custom finisher of pigs for five or six years.
In the mid 1990's, Defendant CN was engaged in the livestock food production business. To complement its feed business, CN became involved in the production of swine. In 1994, CN entered into a written agreement (Seaboard Agreement) with Seaboard Farms, Inc. (Seaboard). The Seaboard Agreement obligated CN to provide a large supply of market hogs annually, which were to be slaughtered by Seaboard. CN was to commence providing pigs in the first quarter of 1996 and the Seaboard Agreement was to terminate in December 2002, or sooner in the event of default. In May 1995, after signing the Seaboard Agreement, defendants sought to reduce their commitment of market hogs from 300,000 to 100,000, or preferably to sign a new agreement, because pork prices were at historic lows. Seaboard did not respond to defendants' request.
Originally, CN planned to build a 15,000 sow farrowing and nursery unit to achieve the necessary deliveries of feeder pigs to satisfy the Seaboard Agreement. This operation, though, was never achieved. In 1995, CN sought an arrangement with pig finishing entities where its weaned pigs could be fed, grown, and finished by an independent finisher and then sent to Seaboard for slaughter. Negotiations with SPI to form such an arrangement began in May 1995. At first, CN contemplated an arrangement in which SPI would own the pigs. However, SPI did not want to take on the market risk associated with the ownership of the pigs. Nor did any other finisher want to take on the risk; as of June 6, 1995, no finishers had signed any contracts with CN.
Because SPI did not want to own the pigs, the parties began to negotiate a new contract, in which CN would maintain ownership of the pigs. The parties negotiated for several months and exchanged various contract drafts. On October 30, 1995, CN and SPI entered into two written contracts, which established that SPI was to provide and build hog growing facilities for CN and that CN was to be the owner of the pigs housed in SPI's facilities.
The first contract (one-year contract) applied to SPI's existing facilities and provided that "this contract shall be in effect for a term of one (1) year commencing upon the first delivery of feeder pigs, unless sooner terminated by default." Exhibit A to the one-year contract contemplated an initial availability date of November 15, 1995.
The second contract (seven-year contract) applied to facilities which were to be built by SPI. Section 2.0 of the seven-year contract, entitled "Term of Contract" states:
This contract shall be in effect for a term of seven (7) years commencing upon the first delivery of feeder pigs, unless sooner terminated by default. During the seven (7) year period, this contract may only be terminated by default as hereinafter provided.
Section 1.0 of the seven-year contract further provides:
A. Buildings and Facilities. Independent Contractor hereby agrees to dedicate for the term of this contract, the finishing barns legally described on Exhibit "A" attached hereto, solely to the purpose of growing pigs pursuant to the terms of this contract.
Exhibit A to the contract designates eighteen separate barns with initial availability dates ranging in chronological order from December 1, 1995 to October 31, 1996. And, section 3.0 of the seven year contract entitled "Obligations and Warranties of Owner" provides:
A. Delivery of Pigs. Owner will deliver pigs to Independent Contractor for feeding and rearing at the facilities described above commencing no later than two weeks following notice from the Contractor that barns are ready for Owner's pigs (Approximate time schedule to be followed as stated in Exhibit A.).
Exhibit B to the seven-year contract provided a payment schedule for the parties. It states that CN shall pay SPI "in twelve (12) monthly installments a base fee per annum of 48.60 per annum per pig space of 7.8 square feet per head for the term of this agreement commencing the first month following [d]elivery of pigs to the facility."
Additionally, section 11.0 to the seven-year contract states that: "[t]he foregoing constitutes the entire agreement between the parties. No modification of any of the terms or conditions contained herein may be made except by subsequent written document signed by both parties."
During the negotiations that formed the contracts, SPI knew that defendants had a contractual relationship with Seaboard to supply a large number of hogs and knew that its finishing services were needed. SPI's board of directors approved the language of the final contracts before they were signed by SPI. Likewise, CN's President, Davis McCarty, signed the contracts on behalf of defendants. SPI did not care who at CN had reviewed the contracts prior to their execution.
SPI believed it was getting a good price for the pigs under the contracts because CN had been unable to find any other entity to finish its pigs and was, at that point, "in desperate need of facilities." Pursuant to the contracts, CN was obligated to pay for all the spaces, regardless of whether or not they were used.
The contracts required that SPI use "Supersweet" feed and CN warranted that "all feed delivered to [SPI's] facility to be fed to [CN's] pigs is of suitable quality and appropriate nutrition to grow healthy market hogs capable of achieving market hog premiums and feed conversion premiums" described in the contracts. On at least one occasion, SPI discovered dog food in the pig ration. SPI complained to defendants in writing, discussed the substandard pig feed with defendants in a meeting, and prepared a report detailing the damages incurred from the bad feed. Although the contracts gave SPI the right to reject substandard feed, SPI never did so.
The contracts also gave SPI the right to reject unhealthy feeder pigs. Pursuant to the contracts, defendants were required to "anticipate the number of pigs that will be rejected by [plaintiffs] and add the appropriate number of pigs to accommodate maximum unit size." At least once, SPI attempted to reject an entire load of pigs, and defendants told SPI to keep the pigs until an agreement could be reached for SPI to accept the pigs. SPI kept notes of substandard pigs, informed defendants in writing of the inferior pigs, and itemized its damages from poor pigs in a report.
Under the contracts, SPI was required to comply with all applicable laws and regulations, and to implement an acceptable manure management program. SPI was responsible for maintaining the manure lagoon and ensuring proper permits were obtained. By September 2, 1998, SPI had hired an environmental engineering firm to construct three new manure lagoons and to replace two existing lagoons that were not in compliance. On December 21, 1998, defendants issued a default notice to SPI, based upon SPI's violations of the environmental standards in the contracts. And, on January 10, 1999, CN employees, including its environmental manager, met with individuals at the Kansas Department of Health of Environment [KDHE] to discuss environmental issues at SPI. CN's environmental manager noted that they had "woke them [KDHE] up a little about the issues."
CN's first delivery of feeder pigs to SPI occurred on or around December 8, 1995, which was the first fill date under the one-year contract. The first delivery date to a barn designated in the seven-year contract apparently occurred on January 20, 1996. The contract between CN and Seaboard for market hogs was terminated on August 14, 1998, and by 1999 plaintiffs knew that the Seaboard Agreement had been terminated. SPI continued to finish hogs for defendants, even after the Seaboard Agreement was terminated.
But, by 2000, SPI believed that defendants were "looking for ways to void the contract [with SPI] or terminate it prematurely." In 1998, pork prices were at historically low levels and in November of that year, CN sent SPI a letter suggesting that plaintiffs reduce the contract price because "costs were higher at SPI." Additionally, defendants issued several default notices to SPI claiming that SPI had repeatedly violated material terms of the agreement. Nevertheless, defendants continued to pay SPI all the rental amounts due for all of the pig spaces covered by the contracts until December 2002. On January 11, 1999, defendants notified SPI that the seven-year contract would expire in December 2002. And on December 7, 2002, defendants removed feeder pigs from plaintiffs' facilities.
On August 14, 1998, the same day CN's agreement with Seaboard was terminated, CN filed suit against Seaboard. CN sued Seaboard in part because Seaboard was not paying the correct hog premiums based on market weight. SPI aided CN in its lawsuit against Seaboard, in part by providing records of hog weights, and Burkdoll gave deposition testimony in the case. According to Burkdoll's declaration, he was assured by unknown counsel of CN that CN would pay SPI for the hogs that had been weighed "light." However, Mike Croucher, manager and partial owner of SPI, stated in sworn deposition testimony that there was never any agreement between SPI and CN for any reimbursement or reward based on SPI's cooperation in the Seaboard suit. SPI does admit that there was no written agreement between plaintiffs and defendants for any kind of compensation or reimbursement for any assistance SPI provided in the Seaboard litigation.
Beginning in 1997, SPI and CN engaged in negotiations concerning a possible nursery project. The parties discussed land for the nursery and drafted a contract. Prior to the signing of the contract, however, CN informed SPI it was no longer interested in the nursery project. SPI incurred preliminary expenses on the pending nursery contract, but admits that there was no agreement that defendants would pay for preliminary work on the nursery. After CN told SPI it was no longer interested in the nursery, CN stated that, "we have every intention to be present at the public hearing on December 8 and see this permitting process through to the end. Whether it ever becomes a useful project to us, Consolidated Nutrition or anyone else is beside the point at this time."
Plaintiffs bring this lawsuit alleging breach of contract, fraud, negligent misrepresentation and breach of duty of good faith and fair dealing. Plaintiffs Sunflower Central and C C were not parties to the contracts with defendants, but join in the breach of contract and breach of duty of good faith and fair dealing claims. Only SPI brings the claims for fraud and negligent misrepresentation. Not only were Sunflower Central and C C not parties to the contracts, but there was also no written assignment of any of SPI's obligations under the Agreement to either Sunflower Central or C C. Section 10.0 of the seven-year contract provides that: "[t]he parties understand and acknowledge that any assignment of this contract requires the mutual consent of the parties.
III. Discussion
A. Breach of Contract / Early Termination Claim (Count III)
In plaintiffs' summary judgment motion, plaintiffs seek a determination from this Court that the contract clause relating to the duration of the contract between CN and SPI is ambiguous, and that, parol evidence should be admissible to prove the duration the parties intended. Defendants have also moved for summary judgment on this issue, although defendants assert that the contract is unambiguous and contained a single term of seven years, which expired in December 2002, when defendants removed feeder pigs from plaintiffs' facilities. Thus, according to defendants, plaintiffs' early termination claim must fail as a matter of law.
The construction and effect of contracts "is a question of law to be determined by the court." The interpretation of an unambiguous contract is a judicial function. If the language of the contract is ambiguous, however, evidence is admissible to determine the intent of the parties to the contract, which is an issue of fact. Whether or not the language of a contract is ambiguous is a question of law for the court to resolve.
First Hays Banshares, Inc. v. Kansas Bankers Sur. Co., 244 Kan. 576, 769 P.2d 1184, 1191 (1989).
Missouri Pac. R. Co. v. Kansas Gas Elec. Co., 862 F.2d 796, 799 (10th Cir. 1998).
See Wood River Pipeline Co. v. Willbros Energy Servs. Co., 241 Kan. 580, 738 P.2d 866, 869 (1987) (quoting Hall v. Mullen, 234 Ran. 1031, 678 P.2d 169 (1984)).
Garland v. Metro. Life Ins. Co., 935 F.2d 1114, 1120 (10th Cir.), cert. denied 502 U.S. 1020 (1991); Simon v. Nat'l Farmers Org., Inc., 250 Ran. 676, 829 P.2d 884, 888 (1992).
To be ambiguous, the contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from the natural and reasonable interpretation of its language. An ambiguity does not appear until application of pertinent rules of interpretation to the face of the instrument leaves it generally uncertain which one of two or more meanings is the proper meaning. A written contract is not ambiguous unless two or more meanings can be construed from the contract provisions themselves. The Court is to use common sense and not to strain to create an ambiguity in a written instrument when one does not exist. The fact that the parties do not agree over the meaning of terms does not in and of itself prove that the contract is ambiguous.
Brumley v. Lee, 265 Ran. 810, 963 P.2d 1224, 1226 (1998).
Hart v. Sprint Communications Co., L.P., 872 F. Supp. 848, 854 (D. Ran. 1994); Allied Mut. Ins. Co., v. Moeder, 48 P.3d 1, 4 (2002).
Albers v. Nelson, 248 Kan. 575, 809 P.2d 1194, 1197 (1991).
Eggleston v. State Farm Mut. Auto. Ins. Co., 21 Kan. App. 2d 573, 906 P.2d 661, 662, rev. denied 257 Kan. 1091 (1995).
Ryco Packaging Corp. v. Chapelle Int'l, Ltd., 23 Kan. App. 2d 30, 926 P.2d 669, 674 (1996), rev. denied 261 Kan. 1086(1997).
Plaintiffs argue that the duration of the contract is ambiguous. Section 2.0 of the seven-year contract provides: "This contract shall be in effect for a term of seven (7) years commencing upon the first delivery of feeder pigs, unless sooner terminated by default. During the seven (7) year period, this contract can only be terminated by default as hereinafter provided." Additionally, section 1.0 of the seven-year contract states that SPI "agrees to dedicate for the term of this contract, the finishing barns legally described on Exhibit "A" attached hereto, solely to the purpose of growing pigs pursuant to the terms of this contract." In turn, exhibit A designates eighteen separate barns with initial availability dates ranging in chronological order from December 1, 1995 to October 31, 1996. The gist of plaintiffs' argument is that because the contract required CN to deliver pigs on many different occasions, the contract duration is ambiguous.
An analysis of the plain terms of the seven-year contract reveals that it is not ambiguous. Although plaintiffs suggest that the varying barn availability dates support their interpretation that the contract was to terminate on a barn-by-barn basis, so that many different seven year periods were contemplated by the parties, the contract does not support such an interpretation. Plaintiffs emphasize exhibit A to the contract that designates eighteen barns with differing initial availability dates, yet section 1.0 of the contract which incorporates exhibit A clearly provides that SPI is to dedicate its barns for a singular "term of this contract."
Moreover, section 2.0 of the contract provides for a "term of seven (7) years commencing upon the first delivery of feeder pigs" and further states that "[d]uring the seven (7) year period, this contract can only be terminated by default as hereinafter provided." Only a single "term of seven years" and "seven year period" are mentioned in the section of the contract specifically addressing its term. The contract never refers to multiple terms, but consistently refers to a single duration. Thus, on its face, the contract unambiguously refers to a single term of duration of seven years, which began upon the first delivery of feeder pigs.
Nor is plaintiffs' argument (made for the first time in their reply brief) that exhibit B to the seven-year contract makes it ambiguous, persuasive. Exhibit B states that CN shall pay SPI "in twelve (12) monthly installments a base fee per annum of 48.60 per annum per pig space of 7.8 square feet per head for the term of this agreement commencing the first month following [d]elivery of pigs to the facility." Plaintiffs argue that the term "the facility" is "nowhere defined in the Agreement," and is ambiguous, particularly because section 3.0 of the contract refers not to facility, but to facilities. According to plaintiffs, "the language meant by the parties in Ex. B, to which the "term" in Paragraph 2.0 applies, was actually a facility or each facility." However, the express language of exhibit B belies this interpretation because exhibit B refers to the delivery of pigs to the facility for the term of this agreement. As discussed, the term of the agreement is clearly defined in section 2.0 of the agreement, conveniently styled "Term of Contract," as a seven year period commencing on the first delivery of feeder pigs. Moreover, exhibit B is simply a payment schedule for the barns as they were built and it cannot override the clear durational language expressed by the parties in section 2.0 of the contract.
Generally, the Court does not even entertain arguments made for the first time in a reply brief. See Thurston v. Page, 931 F. Supp. 765, 768 (D. Kan. 1996). However, because plaintiffs are confronted with summary judgment and initially argued that the contract was ambiguous, albeit not due to exhibit B, the Court will address plaintiffs' new argument.
Interestingly, plaintiffs devote only one paragraph of analysis in their motion for partial summary judgment discussing the ambiguity of the seven-year contract. Instead, plaintiffs improperly rely on extrinsic evidence to support the contention that the parties intended the contract to run on a barn-by-barn basis. It is well-settled, though, that the court is to look at the four corners of a contract to determine the intent of the parties, and only after a contract is shown to be ambiguous on its face, may a court look to parol evidence in interpreting the contract. Hence, plaintiffs' argument concerning the intent of the parties based on extrinsic evidence is simply irrelevant to the initial ambiguity determination.
When faced with summary judgment, plaintiffs' merely refer the Court to the reasons discussed in plaintiffs' initial motion for partial summary judgment that the contract is ambiguous, rather than providing the Court with additional briefing.
See Decatur County Feed Yard, Inc. v. Fahey, 266 Kan. 999, 974 P.2d 569, 575 (1999); Kay-Cee Enter., Inc. v. Amoco Oil Co., 45 F. Supp.2d 840, 843 (D. Kan. 1999).
Moreover, if an unambiguous contract on its face purports to be complete, that is, if it contains such language as imports a complete legal obligation between the parties, it is complete and parol evidence tending to vary the terms of the contract is inadmissible. Section 11.0 of the seven-year contract provides that "[t]he foregoing constitutes the entire agreement of the parties." Thus, the seven-year contract is, by its own terms, complete. Because the contract clearly refers to a single seven year term of duration, and constitutes the entire agreement of the parties, parol evidence tending to vary the explicitly expressed duration is inadmissible.
Lawrence v. Sloan, 201 Kan. 270, 440 P.2d 626, 628-29 (1968); see also Simon v. Nat'l Farmers Org., Inc., 250 Kan. 676, 829 P.2d 884, 887-88 (1992).
Plaintiffs also suggest that extrinsic evidence is admissible under the fraudulent inducement exception to the parol evidence rule. The "exception permits a party to introduce evidence of fraudulent representations of one party on which the other party relied to its detriment." Extrinsic evidence of fraud cannot be used to contradict or vary the terms of a written contract, but can be used to merely show that no binding contract was ever made. Additionally, parol evidence is inadmissible and the exception does not apply "when the alleged fraud concerns a promise or representation directly at variance with the terms of the written instrument."
Ramada Franchise Sys., Inc. v. Tresprop, LTD., 188 F.R.D. 610, 613-14 (D. Kan. 1999) (applying Kansas law); Culp v. Bloss, 203 Kan. 714, 457 P.2d 154, 157 (1969).
Miles Excavating, Inc. v. Rutledge Backhoe Septic Tank Servs., Inc., 23 Kan. App. 2d 82, 927 P.2d 517, 518 (1997); Edwards v. Phillips Petroleum Co., 187 Ran. 656, 360 P.2d 23, 26 (1961) ("From the time of Cicero until now it has been the law that fraud vitiates contracts — vitiates everything it touches. . . ."); Flight Concepts Ltd. Partnership v. Boeing Co., 819 F. Supp. 1535, 1543 n.l (D. Ran. 1993) (plaintiff's fraudulent inducement argument "appears to be related to the plaintiffs' assertion that the presence of fraud allows the use of parol evidence to interpret the terms of the License Agreement. However, parol evidence in this context is ordinarily used to demonstrate the nonexistence of a binding contract. A contract which is fraudulently induced is usually declared void.") (citations omitted).
Jack Richards Aircraft Sales, Inc. v. Vaughn, 203 Ran. 967, 457 P.2d 691, 696 (1969).
At first glance, plaintiffs' argument appears persuasive because plaintiffs have alleged fraud in their Complaint. But, in this instance, plaintiffs are not asking the Court to review parol evidence to show that no contract was ever made. Nor do plaintiffs ask this Court to declare the contract void. Rather, plaintiffs admit that the contract is "valid and enforceable." Indeed, plaintiffs' other breach of contract claims depend upon the legitimacy of the contract. Plaintiffs impermissibly ask the Court to resort to parol evidence to interpret a provision of the seven-year contract, not to show that the contract is void because it was induced by fraud, but rather to show that the contract is ambiguous based upon the intent of the parties regarding the contract's duration. Merely pleading fraud cannot open the door to the fraudulent inducement exception, particularly when plaintiffs' parol evidence regarding duration is at variance with the unambiguous contract provisions. Moreover, as discussed infra, plaintiffs have no actionable fraud claims. Hence, plaintiffs' fraudulent inducement argument is simply inapposite.
In sum, the duration of the contract is not ambiguous; the contract plainly refers to a single term of duration of seven years, which began upon the first delivery of feeder pigs. Defendants suggest they are entitled to summary judgment because the first delivery of feeder pigs occurred on December 8, 1995, and the contract then terminated seven years from that date, in December 2002, when defendants removed all its pigs from plaintiffs' facilities. However, December 8, 1995 is the first delivery of pigs to a facility described in exhibit A to the one-year contract, not to the seven-year contract at issue. Although not clarified by either of the parties, it appears that the first delivery to a barn described in the seven-year contract did not occur until January 20, 1996. Thus, defendants claim that the seven-year contract terminated in December 2002, seven years from the first delivery of feeder pigs, is misplaced.
Possibly realizing that the first delivery date defendants relied upon was to a barn described not in the seven-year contract, but in the one-year contract, defendants argue that the two contracts were merged so that the duration of the seven-year contract began upon the first delivery of pigs to any of the barns listed in either contract. However, "[m]odifications must comply with the modification terms set forth in the contracts they purport to modify." Both the seven-year contract and the one-year contract state in sections 11.0: "[n]o modification of any of the terms or conditions contained herein may be made except by subsequent written document signed by both parties." Defendants have not provided the Court with any written documentation required by sections 11.0 showing that the contracts were merged. Thus, defendants are not entitled to summary judgment on plaintiffs' early termination claim.
Wayman v. Amoco Oil Co., 923 F. Supp. 1322, 1340 (D. Ran. 1996).
B. Miscellaneous Breach of Contract Claims (Count III) and Breach of Duty of Good Faith and Fair Dealing Claims (Count IV)
Plaintiffs assert that defendants breached the contract and the duty of good faith and fair dealing by not compensating SPI for any recovery received by defendants as a result of their lawsuit against Seaboard, and by providing substandard feed and pigs throughout the duration of the contract. Defendants respond that there was never an agreement to compensate SPI with the proceeds of the Seaboard litigation. Further, defendants argue that plaintiffs' bad feed and pig claims arising before January 30, 1998 are barred by the statute of limitations, that no provision of the agreement regarding substandard pigs was breached, that there is no evidence that the nutritional specifications for feed were breached, and that plaintiffs did not comply with the default provisions of the contract.
1. Seaboard Litigation
Because defendants had no agreement with plaintiffs regarding the Seaboard lawsuit, defendants assert that plaintiffs' claims for a portion of the recovery from the Seaboard lawsuit based on a breach of good faith and fair dealing theory must be denied. Kansas law implies the duty of good faith and fair dealing in almost every contract. That duty does not increase, amend or otherwise modify the express terms of obligations of a contract. Instead, the duty of good faith and fair dealing is derivative in nature in that it does not supply new contract terms, but grows out of existing ones.
Bonanza, Inc. v. McLean, 242 Kan. 209, 747 P.2d 792 (1987).
Pizza Mgmt., Inc. v. Pizza Hut, Inc., 737 F. Supp. 1154, 1179 (D. Kan. 1990).
Kindergartners Count, Inc. v. DeMoulin, 249 F. Supp.2d 1233, 1243 (D. Ran. 2003).
Plaintiffs admit that there was no provision in any of the parties' contracts pertaining to the Seaboard lawsuit. And, the only support provided by plaintiffs for this claim is Burkdoll's affidavit, which states he had an agreement between himself and unidentified counsel for defendants that SPI would be paid for Seaboard's alleged inaccurate weighing of pigs. Mike Croucher, partial owner and manager of SPI, however, previously testified under oath that there was no agreement that SPI would be reimbursed or rewarded for its involvement in the Seaboard case. As previously discussed, the Court has disregarded this self-serving portion of Burkdoll's affidavit. Because plaintiffs have not shown there was any agreement that they were to share in the proceeds of defendants' lawsuit against Seaboard, plaintiffs' breach of contract and breach of duty of good faith and fair dealing claims fail as a matter of law.
2. Substandard Pigs and Feed
Defendants argue that the statute of limitations has expired on some of plaintiffs' claims for bad pigs and feed. Under Kansas law, the statute of limitation for breach of contract claims based on written contracts is five years. The five-year statute of limitations period also applies to claims for breach of the duty of good faith and fair dealing, where as here, the claims are based on provisions in a written agreement. A cause of action for breach of contract accrues at the time of the breach, "irrespective of any knowledge on the part of the plaintiff or of any actual injury it causes." Thus plaintiffs' claims for poor pigs and feed must have accrued after January 30, 1998, five years before this lawsuit was filed. Plaintiffs freely admit that some of their claims accrued before January 30, 1998, but stress that defendants delivered substandard pigs and feed after that date as well. Consequently, summary judgment must be entered on plaintiffs' breach of contract and breach of duty of good faith and fair dealing claims which accrued prior to January 30, 1998.
id.; K.S.A. § 60-512; Turner and Boisseau, Inc. v. Nationwide Mut. Ins. Co., 944 F. Supp. 842, 846 (D. Kan. 1996) (discussing the statute of limitations for oral and written contracts.); Zenda Grain Supply Co. v. Farmland Indus, Inc., 20 Kan. App. 2d 728, 894 P.2d 881, 891 (1995) (same).
Riggs v. Boeing Co., 12 F. Supp.2d 1215, 1217 (D. Kan. 1998).
Additionally, defendants urge that summary judgment must be granted on plaintiffs' breach of contract and breach of duty of good faith and fair dealing claims related to substandard pigs because the contract did not include quality standards for the pigs. Instead, the contract allowed the plaintiffs to reject any pigs that they believed to be substandard. The contract also required defendants to "anticipate the number of pigs that will be rejected by [plaintiffs] and add the appropriate number of pigs to accommodate maximum unit size." Plaintiffs have shown that when they attempted to reject an entire load of pigs, defendants told plaintiffs to keep the pigs until an agreement could be reached for SPI to accept the pigs. Thus, plaintiffs have put forth some material facts showing that defendants breached the contract by not allowing plaintiff to unconditionally reject substandard pigs, and summary judgment on this claim must be denied.
Defendants similarly suggest that plaintiffs' breach of contract claims for poor feed must fail. The contract provided that "Supersweet" feed was to be used and further stated that: "[defendants] warrant that all feed delivered to [plaintiffs'] facility to be fed to [defendants] pigs shall be of suitable quality and appropriate nutrition to grow healthy market hogs capable of achieving market hog premiums and feed conversion premiums described in Ex. B." According to defendants, because the contract allowed plaintiffs to reject bad feed, and plaintiffs failed to reject such feed, plaintiffs' claims must fail. However, the contract also provided that the feed would be of suitable quality to allow plaintiffs to achieve premiums on the hogs. Plaintiffs have demonstrated that they complained about substandard feed, for instance, because there was dog food in the pig ration. Therefore, the Court finds that material facts remain regarding whether defendants failed to supply suitable pig feed, even if plaintiff failed to reject the feed, and summary judgment is improper on these claims.
Defendants argue that plaintiffs never issued a single default notice pursuant to the contract regarding inferior pigs or feed, and that issuing such a notice was a precondition to filing a breach of contract suit. Section 8.0 of the seven-year contract includes a default provision:
Notice of Default: In the event of a default, the non-defaulting party must provide 15 days of written notice to the other of default. In the event that the default is not cured within 15 days then in addition to the option of terminating this agreement, the non-defaulting party shall have all remedies that may exist at law or in equity, including the remedy of specific performance.
Defendants stress that plaintiffs never issued a "default notice." But, plaintiffs provided defendants with numerous letters and a detailed report explaining that the pigs and feed were substandard and itemizing damages. Plaintiffs' communications with defendants need not be titled "default notices" in order to provide notice to defendants as required by the contract. Nor does the contract prescribe the form of proper notice, except that the notice must be in writing. Because plaintiffs have supplied defendants with written notice of default, and it has been more than fifteen days since plaintiffs' notice, plaintiffs have complied with section 8.0, and summary judgment on this ground is denied.
C. Fraud (Count I) and Negligent Misrepresentation (Count II) Claims
Plaintiff SPI asserts that defendants committed fraud by misrepresenting their commitment to the swine business. Specifically, SPI claims defendants falsely represented that: 1) they were committed to the Seaboard contract to entice CN to build facilities; they had a Purchase Agreement with Seaboard to provide 300,000 market hogs and a 15,000 sow farm; 2) they needed hog finishing facilities immediately and new construction should commence as soon as possible; and 3) they would pay SPI according to the contracts' terms so that the cost of constructing the facilities would be recovered during the term of the contracts, intending that SPI rely upon such representations in providing and building its facilities. In addition, plaintiffs' factual contentions in the Pretrial Order contain two additional misrepresentations: 1) that CN has "significant financial resources: its holdings include Supersweet and Master MixFeed Companies; Consolidated Nutrition is in turn owned 50% by AG Processing Inc. and 50% by Archer Daniels Midland;" and 2) CN has "a substantial financial involvement in the overall project via the agreement with Seaboard and investment in the sow unit, and thereby must maintain the integrity of the marketing contract offered to local producers." These representations form the basis of both SPI's fraud and negligent misrepresentation claims.
Additionally, SPI alleges fraud through silence predicated on defendants' omitting to state: 1) they did not and would not ever use all the pig spaces they were asking SPI to build; 2) the SPI contract price was too expensive to defendants and would be renegotiated or terminated; 3) they had no intention of honoring the contracts during their full terms; 4) the contracts were signed by CN without review and study by the appropriate CN employees; and 5) they were desperate to find someone who could build barns and handle pigs so they would not be penalized by Seaboard.
Defendants argue that summary judgment is proper on all of SPI's fraud and misrepresentation claims because: 1) the claims are barred by the statute of limitations; 2) defendants had no duty to disclose the information allegedly omitted in plaintiffs fraud by silence claim; 3) the claims are precluded by the contract action; and 4) SPI has failed to establish the requisite elements of fraud and negligent misrepresentation.
1. Statute of Limitations
In Kansas, the statute of limitations for both a fraud and negligent misrepresentation action is two years. In general, for purposes of the two-year limitation period, a cause of action does not accrue until the act giving rise to the cause of action first causes substantial injury, or, if the fact of injury is not reasonably ascertainable until some time after the initial act, the two-year period does not commence until the fact of injury becomes reasonably ascertainable to the injured party. In addition, a cause of action for fraud is not deemed to have accrued until the fraud is discovered, or the "time of actual discovery or when, with reasonable diligence, the fraud could have been discovered." The critical information is knowledge of the fact of injury caused by the fraud or misrepresentation, not the extent of the injury. When the evidence is in dispute as to when substantial injury occurs or when it becomes reasonably ascertainable, the issue is for determination by the trier of fact.
K.S.A. 60-513(a)(3) (4); Whittenburg v. L.J. Holding Co., 830 F. Supp. 557, 562 (D. Kan. 1993).
Augusta Bank Trust v. Broomfield, 231 Kan. 52, 643 P.2d 100, 108 (1982).
Bryson v. Wichita State Univ., 19 Kan. App. 2d 1104, 880 P.2d 800, 803 (1994).
Whittenburg, 830 F. Supp. at 562.
SPI initially filed this lawsuit on January 30, 2003, so CN's fraud and misrepresentation claims must have accrued after January 30, 2001, or the claims are time-barred. But, many of the alleged misrepresentations were made prior to the execution of the contracts on October 30, 1995. SPI must therefore show that it did not discover the fraud, or could not have discovered the fraud (or the misrepresentations were not reasonably ascertainable) until after January 30, 2001. SPI simply cannot do this with regard to several of defendants' representations.
SPI alleges that defendants falsely represented their commitment to provide 300,000 hogs pursuant to the Seaboard Agreement by stating that they had a Purchase Agreement with Seaboard. Additionally, SPI states that defendants' representation that "CN has a substantial financial interest in the Seaboard Agreement and must maintain the integrity of the contract" was false. The Seaboard Agreement was terminated on August 14, 1998, well over two years before this action was filed. Moreover, defendants have shown that SPI knew the Seaboard Agreement was terminated in 1999. Thus, the defendants' lack of commitment to the Seaboard Agreement was known to SPI at least by 1999, and SPI's fraud and misrepresentation claims relating to the Seaboard Agreement are time-barred. Summary judgment must be granted on these claims.
The limitations period on the remaining alleged misrepresentations, however, has not expired. SPI has alleged that defendants misrepresented that they needed hog finishing facilities immediately so that new construction should commence as soon as possible; that defendants would pay SPI according to the contracts' terms so that the cost of constructing the facilities would be recovered during the term of the contracts; that CN had a 15,000 sow farm; and that CN had significant financial resources. These representations refer not to the Seaboard Agreement, but to the contracts between SPI and defendants.
SPI alleges it was "primarily and irrevocably injured by defendants' fraud when defendants prematurely terminated the contract in December of 2002," and at this point it suffered substantial injury. Therefore, according to SPI, its claims are timely because they were filed within two years of December 2002. Defendants contend that SPI had actual knowledge of the fraud by 2000, when SPI knew that defendants were not committed to the contracts with SPI, and that defendants were "looking for ways to void the contract or terminate it prematurely." Knowledge that defendants were investigating ways to avoid the contract is not, however, knowledge that the contract would indeed be voided. SPI could not have known that defendants would breach the contract until at the earliest, February 2002, when defendants sent SPI a letter stating their understanding of the contract's termination date, or December 2002, when defendants removed all their hogs from plaintiffs' facilities. In any event, SPI's fraud claims relating to its contract with defendant are timely.
2. Duty to Disclose — Fraud by Silence
Defendants argue that SPI's fraud by silence claim must fail because there was no duty to disclose these facts in arms-length business negotiations, nor was there any relationship giving rise to a duty to disclose. A party bringing a fraud by silence claim is required to show, among other things, that the defendant was under an obligation to communicate material facts to the plaintiff. "A duty to disclose arises in two situations: (1) a contracting party who has superior knowledge, or knowledge that is not within the reasonable reach of the other party, has a legal duty to disclose information material to the bargain; and (2) parties in a fiduciary relationship must disclose material information to one another." Special knowledge
PIK 3d 127.41 ; Zhu v. Countrywide Realty Co., 165 F. Supp.2d 1181, 1202 (D. Kan. 2001).
Zhu, 165 F. Supp.2d at 1202.
To prove defendants had a legal duty to disclose information, plaintiffs must demonstrate that defendants had some special knowledge that resulted in a disparity of bargaining power or of expertise. SPI argues that there was a disparity in bargaining power because plaintiffs were family ranchers who simply relied upon what they were told about the Seaboard agreement, but offers no facts to support such a disparity other than that plaintiffs were family businesses. The mere fact that plaintiffs are family farmers does not establish a disparity in bargaining power, particularly when SPI admitted that during negotiations with defendants, it held a strong negotiating position, and when plaintiffs were represented by counsel throughout the duration of the formation of the contract. Nor can a duty to disclose be found because of a disparity in expertise. Indeed, it was SPI that had significantly more experience in the hog business than defendants. Thus, plaintiffs have failed to show that defendants were under an obligation to disclose facts to SPI based on special knowledge.
DuShane v. Union Nat'l Bank, 223 Kan. 755, 576 P.2d 674, 679 (1978).
Fiduciary Duty
SPI has also not established that a fiduciary duty existed between the parties such that defendants were under a duty to disclose material facts. Fiduciary relationships are never presumed, and the burden of proof is on the party asserting that such a relationship exists. Parties negotiating and entering into arms length contractual negotiations owe no fiduciary duties to one another. SPI has not suggested that the parties formed a fiduciary relationship and the parties were engaged in arms length negotiations. Thus, no duty to disclose existed. Because SPI has failed to show that defendants were under an obligation to communicate material facts, its fraud by silence claim fails as a matter of law.
Appleman v. Kansas-Nebraska Natural Gas, 217 F.2d 843, 848 (10th Cir. 1995) (applying Kansas law).
Britvic Soft Drinks Ltd. v. ACSIS Tech., Inc., 265 F. Supp.2d 1179, 1190 (D. Kan. 2003).
3. SPI's Fraud Claim is Barred by the Contract Action
Defendants argue that SPI's fraud claim is not actionable because it is "merely a breach of contract claim dressed up in tort clothing" and nearly all of plaintiffs supposed fraud damages are in fact contract damages. When parties contemplate a remedy in the event of a breach of contract, the bargained-for existence of a contractual remedy displaces the imposition of tort duties and default consequences. Nevertheless, a party may be liable in tort for breaching an independent duty toward another, even where the relationship creating such a duty originates in the parties' contract. A tort claim must be independent of the contract claim and a fraud claim must "relate to preexisting or present fact; statements, or promises about only future occurrences are not actionable."
Universal Premium Acceptance Corp. v. Oxford Bank Trust, 277 F. Supp.2d 1120, 1129 (D. Kan. 2003).
Id. at 1129-30; Burcham v. Unison Bancorp, Inc., 276 Ran. 393, 77 P.3d 130, 145 (2003).
Universal Premium Acceptance Corp., 277 F. Supp.2d at 1129.
SPI contends that because its damages flow not only from defendants' breach of contract, but also from defendants' misrepresentations about their commitment to Seaboard, it has shown an independent tort and may maintain both a fraud and contract action. At the outset, the Court notes that it has already determined that any misrepresentations made by defendants regarding the Seaboard contract are barred by the statute of limitations.
The fraudulent statements regarding the SPI contract, however, are not barred by the limitations period; and the Court must determine whether SPI has stated a cause of an action for an independent tort. SPI alleges that defendants misrepresented: the need for hog finishing facilities; that they had a 15,000 sow farm and significant financial resources; and that they would pay SPI according to the contract's terms so that SPI would recover the cost of constructing the hog finishing facilities, all in order to induce SPI to enter the contract. SPI contends that they relied on these statement in entering into the agreement. SPI's claim, then, "does not relate to the breach of the agreement, but rather is based upon separate facts which, if proved, would establish fraudulent inducement to enter the contract." Thus, SPI has alleged a tortious act sufficiently independent of those acts which give rise to a breach of contract claim.
See Atchison Casting Corp v. Dofasco, Inc., 889 F. Supp. 1445, 1462 (D. Kan. 1999).
Defendants argue that nearly all of the SPI's damages are simple contract damages which do not arise independent of the agreement. According to defendants, SPI's fraud claim is subsumed within the breach of contract claim. But, it is not at all clear that SPI's damages for breach of contract will give rise to the same damages as its claims of fraudulent inducement. SPI seeks not only the value of breached contract provisions based on the fraudulent inducement, but also the difference in value between the contracts as represented and the actual payments received. Moreover, under Kansas law, a claim for fraud in the inducement is actionable as an independent tort even where actual damages for fraud are duplicative of contract damages. Consequently, the Court cannot say that no genuine issues of material fact exist regarding whether SPI's fraud claim gave rise to damages in addition to those for breach of contract.
Id. at 1463; Equitable Life Leasing Corp. v. Abbick, 243 Kan. 513, 757 P.2d 304, 307 (1988) (holding that an award of punitive damages was proper where fraudulent inducement was proven even though an award of actual damages on the fraud claim was duplicative because there was no requirement of additional injury).
4. SPI's Fraud and Misrepresentation Claims Fail Substantively
Defendants argue that SPI's fraud and misrepresentation claims fail because SPI has not established the requisite elements of the claims. Specifically, defendants assert that: SPI has failed to show any misrepresentations; the representations concerned future action; the representations were true; and SPI did not rely on the statements to their detriment.
The necessary elements of fraud are: 1) that the false representations were made as a statement of existing and material fact; 2) that the representations were known to be false by the party making them, or were recklessly made without knowledge concerning them; 3) that the representations were intentionally made for the purpose of inducing another party to act upon them; 4) that the other party reasonably relied and acted upon the representations made; and finally, 5) that the other party sustained damage by relying upon them. "The elements of negligent misrepresentation are similar to those of a claim for fraud, except that a negligent misrepresentation claim does not require proof that the defendant knew the statement was untrue or was reckless as to whether the statement was true or false." Instead, a negligent misrepresentation claim "merely requires proof that the defendant failed to exercise reasonable care or competence to obtain or communicate true information." SPI has not shown any misrepresentations
PIK Civ.3d 127.40; Vondracek v. Mid State Co Op, Inc., 32 Kan. App. 2d 98, 79 P.3d 197, 200 (2003); Nordstrom v. Miller, 227 Kan. 59, 605 P.2d 545, 551-52 (1980).
Indy Lube Investments, L.L.C. v. Wal-Mart Stores, Inc., 199 F. Supp.2d 1114, 1122 (D. Ran. 2002); Mahler v. Keenan Real Estate, Inc., 255 Ran. 593, 876 P.2d 609, 616 (1994).
Indy Lube Investments, 199 F. Supp.2d at 1122.
Defendants argue that summary judgment must be granted on plaintiffs damage claims for a nursery project and lagoon expenses because SPI has failed to plead a single misrepresentation or omission concerning these expenses. SPI did not respond to defendants' argument. It is obvious that, in order to sustain either a fraudulent or a negligent misrepresentation claim, a plaintiff must show that a false representation of material fact was made. But SPI has not even pleaded a misrepresentation regarding nursery or lagoon expenses. The Pretrial Order, which is the final binding pleading in this case, lists several "misrepresentations" and "omissions," none of which mention either the nursery or the manure lagoons. The only reference to a nursery or a manure lagoon appears in SPI's request for damages. Because SPI has not even pleaded a misrepresentation regarding these expenses, SPI has obviously not shown that genuine issues of material fact exist regarding these damages. Thus, defendants are entitled to judgment as a matter of law on SPI's claims related to the nursery and lagoon expenses.
See PIK Civ.3d 127.40 (fraud); PIK Civ.3d 127.43 (negligent misrepresentation).
It is settled that "[t]he pretrial order controls the subsequent course of the action, and the trial court need not consider any matter that is not embodied in it." Gardner v. Safeway Stores, Inc., 99 F.R.D. 258, 260 (D. Ran. 1983).
The misrepresentations were merely promises of future action
Defendants assert that five of SPI's alleged misrepresentations were statements regarding future intent and are not actionable. SPI did not respond to defendants' assertion. A valid fraud claim requires a false representation that was made as a statement of material past or present fact. Statements or promises about future occurrences are not actionable as fraud. Likewise, a negligent misrepresentation claim may only be based on a "misrepresentation of pre-existing or present fact." A "misrepresentation of an intention to perform an agreement" will not sustain a negligent misrepresentation claim; otherwise, such a claim would arise in every breach of contract action." Thus, in general, representations are only actionable in tort when they relate to "factual, commercial information, not to statements of future intent."
Edwards v. Phillips, 187 Kan. 656, 360 P.2d 23, 26 (1961); see also Vondracek v. Mid State Co Op, Inc., 32 Kan. App. 2d 98, 79 P.3d 197, 200 (2003) (statement of existing and material fact).
Zhu v. Countrywide Realty Co., 165 F. Supp.2d 1181, 1203 (D. Kan. 2001).
Indy Lube Investments, L.L.C. v. Wal-Mart Stores, Inc., 199 F. Supp.2d 1114, 1123 (D. Kan. 2002).
Id.; Eckholt v. Am. Bus. Info., Inc., 873 F. Supp. 526, 632 (D. Kan. 1994) ("To recognize a claim for negligent promise . . . would be to endow every breach of contract with a potential tort claim for negligent promise.").
Zhu, 165 F. Supp.2d at 1206.
A limited exception to the general rule that a fraud claim may not be based on statements of future intent, allows a fraud claim to proceed if a plaintiff can show by clear and convincing evidence that, at the time the promise was made, the promisor intended not to perform the promised action. Where a claim of fraud is predicated on a statement concerning future events, a plaintiff must prove more than mere nonperformance to show fraudulent intent. "The gravamen of such a claim is the existence of other circumstances of substantial character which support an inference of wrongful intent at the time of making the representation." The exception does not apply to negligent misrepresentation claims.
Edwards v. Phillips, 187 Kan. 656, 360 P.2d at 26.
Zhu, 165 F. Supp.2d at 1204.
Id.
Id. at 1206.
As defendants argue, several of SPI's misrepresentations are not statements of present or past fact, but rather are merely representations of defendants' future intentions. The statements are:
1. Defendants represented that they "were committed to the [Seaboard] contract." Pretrial Order § VII.A.2.a.
2. Defendants represented that they "would pay SPI according to the contracts' terms." Pretrial Order § VII.A.2.d.
3. Defendants failed to state that they "would never use all the pig spaces they were asking SPI to build." Pretrial Order § VII.A.2.e.
4. Defendants failed to state that the contract price "would need to be renegotiated or terminated." Pretrial Order § VII.A.2.f.
5. Defendants failed to state that they "had no intention of honoring the contract during the full term of the contract." Pretrial Order § VII.A.2.g.
All of these statements are of future intent and SPI has not suggested that at the time the statements were made, defendants intended not to honor them. Therefore, summary judgment must be granted on SPI's fraud and misrepresentation claims related to defendants' future intentions. The misrepresentations were either true or SPI did not justifiably rely upon them.
Defendants urge that the remaining misrepresentations alleged are not actionable because the statements were either true when made, or SPI did not rely upon them to its detriment. To state a claim for fraud, negligent misrepresentation, or fraud by silence, a plaintiff must establish that he justifiably relied upon the defendant's misrepresentation or omission to his detriment. The plaintiff's reliance must be "reasonable, justifiable and detrimental."
Id. at 1201 (fraud and fraud by silence require justifiable reliance); Eckholt v. Am. Bus. Info., Inc., 873 F. Supp. 510, 518 (D. Kan. 1994) ("To prove its claims of fraudulent and negligent misrepresentation, [plaintiff] must demonstrate that its reliance was reasonable, justifiable and detrimental.").
The undisputed facts demonstrate that many of the misrepresentations of material fact alleged by SPI were either true when made, or not relied upon by SPI. The alleged misrepresentations include:
1. Defendants had entered into a contract with Seaboard to provide them with 300,000 pigs. Pretrial Order § VII.A.2.a.
2. Defendants had a 15,000 unit sow farm. Pretrial Order § VII.A.2.a.
3. Defendants had entered into a long-term Hog Purchase Agreement with Seaboard which necessitated a substantial commitment to hog finishing facilities. Pretrial Order § VII.A.2.b.
4. Defendants needed SPI's barn facilities immediately and new construction should commence as soon as possible. Pretrial Order § VII.A.2.C.
5. Defendants failed to state that the "contract price was too expensive" for defendants. Pretrial Order § VII.A.2.f.
6. Defendants failed to state that "the contracts were signed by CN, without review and study by appropriate employees at CN." Pretrial Order § VII.A.2.h.
7. Defendants failed to state that they "were desperate to find someone who could build barns and handle pigs so they would not be penalized by Seaboard." Pretrial Order § VII.A.2.i
8. CN has significant financial resources; its holding include Supersweet. CN is owned 50% by AGP and 50% by ADM. Pretrial Order § V.I., p. 8.
9. CN has a significant financial involvement in the overall project via the agreement with Seaboard and investment in the sow unit and therefore must maintain the integrity of the marketing contract offered to local producers. Pretrial Order § V.I., p. 8.
Statements one and three are indisputably true and cannot form the basis of SPI's tort claims. SPI admits that it knew that defendants had a long-term contract with Seaboard to provide 300,000 hogs per year. SPI argues that these statements were misrepresentations because defendants "wanted out of the contract almost from its inception." However, it cannot be disputed that at the time defendants made the statements concerning the Seaboard contract, the statements were true. The fact that SPI now believes defendants were not committed to the contract does not counter the fact that a contract existed. Because statements one and three are true, SPI's claims for fraud, fraud by silence, and negligent misrepresentation based on these statements must fail.
SPI has demonstrated that statement two was false, but has not shown that it relied upon this representation to its detriment. As SPI asserts, the 15,000 sow level at Bell West was never achieved and Bell West was only able to provide defendants with 5,000 sows. SPI argues that the Bell West facility did not produce the necessary feeder pigs or finishers to fulfill the Seaboard contract. However, the Bell West facility was capable of providing all the feeder pigs that SPI would need for the life of its contracts with defendants, and defendants never represented that the Bell West facility was intended to fully supply the Seaboard contract. Moreover, it is difficult to comprehend how SPI relied on this statement to its detriment, considering that defendants were able to fill SPI's barns to capacity from October 1995 to December 2002. Because SPI has not shown that it relied to its detriment on the statement regarding defendants' 15,000 sow farm, defendants' summary judgment motion on SPI's tort claims related to this misrepresentation must be granted.
Statements four and seven are obviously inconsistent. First, SPI alleges that defendants misrepresented that they needed SPI's barn facilities immediately and that new construction should commence as soon as possible. At the same time, SPI asserts that defendants failed to state that they were desperate to find someone who could build barns and handle pigs so they would not be penalized by Seaboard. If defendants were indeed desperate to find someone who could build barns, how could defendants' statement that they needed barn facilities immediately be an untrue fact? Moreover, as SPI states, "SPI got a good [contract] price because it needed to secure long term financing to build barns and CN was in desperate need of facilities.'" Defendants' desperation, then, resulted in a favorable contract price for SPI, and there was no detrimental reliance. Consequently, summary judgment must be granted on statements four and seven.
Confusingly, SPI has also alleged that defendants failed to disclose that the contract price was too expensive to Defendants. SPI knew, however, that the price under the contract was higher than prices in the industry at the time the contract was signed. Moreover, SPI could not have relied to its detriment on this omission. Rather, because the contract price was high, SPI benefitted financially from any omission. SPI's claim that it was defrauded into accepting too much money belies common sense. Consequently, no tort claims will lie based on the omission that the contract was too expensive.
SPI alleges fraud on defendants' failure to state that "the contracts were signed by CN, without review and study by appropriate employees at CN." However, SPI has not demonstrated that it relied to its detriment on this omission. Rather, SPI has admitted that it was not concerned who reviewed or studied the contract. Because SPI admittedly did not rely to its detriment on the alleged omission, it is not actionable and summary judgment must be granted on SPI's misrepresentation claims related to this omission.
Additionally, SPI alleges that defendants misrepresented that "CN has significant financial resources; its holdings include Supersweet. CN is owned 50% by AGP and 50% by ADM." However, SPI has admitted that "CN had significant financial resources." SPI simply asserts that defendants were not committed to using the resources, but this does not controvert the fact that CN admittedly had significant financial resources. Because the undisputed facts establish that defendants' statement was truthful when made, summary judgment must be granted on this claim.
Finally, SPI alleges that defendants' representation that they had a "substantial financial involvement in the overall project via the agreement with Seaboard and investment in the sow unit and therefore must maintain the integrity of the marketing contract offered to local producers" was false. According to SPI, "CN's plan was just the opposite, they did not seek to maintain the integrity of the contract, and rather embarked upon a course to avoid the Seaboard and related Agreement." As defendants state, a representation of "substantial financial involvement" is not a statement of fact, but rather is more akin to puffing, or opinion. Moreover, defendant's intention to maintain the integrity of the contracts, refers to a future intention or action and, like many of SPI's other alleged misrepresentations, may not be the basis of actionable fraud either because it is not a then-existing statement of fact.
Timi v. Prescott State Bank, 220 Kan. 377, 553 P.2d 315, 325 (1976) ("To constitute actionable fraud the representation must relate to past or present fact, as opposed to mere opinions or puffing or promised actions in the future."); VNA Plus, Inc. v. Apria Healthcare Group, Inc., 29 F. Supp.2d 1253, 1265-66 (D. Kan. 1998). ("Puffing of wares, sales propaganda, and other expressions of opinion are common, are permitted, and should be expected. Those in the marketplace should recognize and discount such representations when deciding whether to go through with a transaction."); Searls v. Glasser, 64 F.3d 1061, 1066 (7th Cir. 1995) (statements that a company would not "compromise its financial integrity," had a "commitment to create earnings opportunities," and that these "business strategies would lead to continued prosperity" were "precisely the type of puffery that this and other circuits have consistently held to be inactionable.").
D. Claims Made by Sunflower Central and C C
Because plaintiffs Sunflower Central and C C were not parties to the contracts between defendants and SPI, defendants argue that Sunflower Central and C C may not bring an action for breach of contract and breach of duty of good faith and fair dealing. Plaintiffs respond that Sunflower Central and C C were assignees or third-party beneficiaries under the contracts and may properly file suit.
Sunflower Central and C C do not join in Count I for fraud, or Count II for negligent misrepresentation.
The contract provided that "any assignment of this contract requires the mutual consent of the parties." Defendants assert that they never consented to the assignment of the contract, and more importantly, no written assignment was ever made. Plaintiffs urge that because defendants knew plaintiffs were family farmers, there was mutual consent, and that there need not be a written assignment under the contract. The statute of frauds, however, requires that an assignment of a contractual obligation that cannot be performed within a year be in writing. Here, the contract undisputably could not be performed within a year; plaintiffs admit the contract had at least a seven-year duration. Thus, even if the parties' agreement did not require the assignment of the contract to be in writing, Kansas law does. Moreover, plaintiffs have not supplied a single "fact" showing that there was mutual consent of the parties for an assignment. Consequently, Sunflower Central and C C are not assignees under the contract.
K.S.A. 33-106; Carson v. Chevron Chem. Co., 6 Kan. App. 2d 776, 635 P.2d 1248 (1981) (Assignment of a contract valid where the contract could be completed within a one-year period); see also 6 Am.Jur.2d Assign. § 122 (2003) ("When the statute of frauds applies or there is a statutory requirement that the creation of an interest must be evidenced by a writing, the general rule is that an assignment must also be in writing."); Johnson County Bank v. Ross, 28 Kan. App. 2d 8, 13 P.3d 351, 353 (2000) ("No particular words or special form of words are necessary to effect an assignment in the absence of statutory provisions prescribing a particular mode or form.").
Plaintiffs also allege that Sunflower Central and C C are proper parties as intended beneficiaries of the contract between SPI and defendants. Under Kansas law, to be a third-party beneficiary to a contract, the contract must be made for the third-party's benefit. "Contracting parties are presumed to act for themselves and therefore an intent to benefit a third person must be clearly expressed in the contract." Before reaching the issue of whether a third-party may directly enforce a contract from which it would benefit, the third-party must show the existence of a provision in the contract that operates to its benefit.
United States v. United Servs. Auto. Ass'n, 968 F.2d 1000, 1001 (10th Cir. 1992) (citing Fasse v. Lower Heating Air Conditioning, Inc., 241 Kan. 387, 736 P.2d 930, 932 (1987)).
Hossain v. Rauscher Pierce Refsnes, Inc., 15 Fed. Appx. 745, 748 (10th Cir. 2001) (citing Fasse v. Lower Heating Air Conditioning, Inc., 241 Kan. 387, 736 P.2d 930, 932 (1987)).
United Servs. Auto Ass'n, 968 F.2d at 1002 (citing Hartford Fire Ins. Co. v. W. Fire Ins. Co., 226 Kan. 197, 597 P.2d 622, 632 (1979).
The only evidence plaintiffs put forth that Sunflower Central and C C were intended third party beneficiaries is that plaintiffs were family farmers and a C C barn was mentioned in the one-year contract. But, plaintiffs allege defendants breached the seven-year contract, which never mentions C C nor Sunflower Central. Because plaintiffs have supplied no facts showing that the seven-year contract was made for the benefit of C C or Sunflower Central, these entities are not proper plaintiffs. Summary judgment on the breach of contract and breach of duty of good faith and fair dealing claims related to C C and Sunflower Central must be granted.
V. Conclusion
In sum, the Court denies plaintiffs' motion for partial summary judgment. The Court grants in part and denies in part defendants' motion for summary judgment. The Court denies defendants' motion for summary judgment on plaintiffs' breach of contract/early termination claim. The Court further denies defendants' motion for summary judgment on plaintiffs' claims for breach of duty of good faith and fair dealing related to substandard feed and pigs, which accrued after January 30, 1998, but grants defendants motion for summary judgment on plaintiffs' breach of duty claims related to the Seaboard litigation. The Court additionally grants defendants' motion for summary judgment on plaintiffs' claims of fraud, fraud by silence and negligent misrepresentation. Finally, the Court grants defendants' motion with regard to all claims by Sunflower Central and C C.
IT IS THEREFORE ORDERED BY THE COURT that Plaintiffs' motion for partial summary judgment (Doc. 84) is DENIED.
IT IS FURTHER ORDERED BY THE COURT that Defendants' Motion for Summary Judgment (Doc. 85) is GRANTED IN PART and DENIED IN PART.
IT IS SO ORDERED.