Iowa Federal District Court Denies Summary Judgment to Meat Processor in Producers’ Breach of Contract Action
Kristine A. Tidgren | February 5, 2014
Clasing v. Hormel Corp., No. C 12-3054, 2014 U.S. Dist. LEXIS 7048 (N.D. Iowa Jan. 21, 2014)
A federal district court in the Northern District of Iowa recently allowed two breach of contract claims to survive summary judgment in an action brought by two Iowa hog producers against a Minnesota meat processing company. The alleged breach of contract arose because of pricing and delivery changes the company implemented in response to 2008 Country-of-Origin Labeling (COOL) requirements.
The producers were hog finishers, purchasing weaner pigs and growing and finishing them to slaughter weight for sale to processors. In 2007, the producers entered into a one-year written agreement with the processing company under which they agreed to sell market hogs for slaughter to the company at a set price. The producers then entered into an agreement with a pig supplier in Canada, under which the producers agreed to purchase Canadian-born weaner pigs from the supplier.
When Congress passed the 2008 Farm Bill, which amended the 2002 Farm Bill’s mandatory COOL provisions, the Canadian pigs were re-designated as “Category B” (from multiple countries of origin) hogs, rather than “Category A” (from the United States only) hogs. To comply with COOL, the meat processing company was required to keep Category B hogs separate from Category A hogs. Based upon this change, the company sent a memorandum to its producers, explaining the requirements of COOL and the company’s new policies based upon COOL. The company’s representatives discussed with the producers the risk that the company would stop taking Category B hogs and provided to the producers contacts for U.S.- sourced weaner pigs. Shortly thereafter, the company sent the producers a letter providing that their written agreement would terminate at the end of 2008. The parties orally agreed, however, that the company would continue to accept the producers’ Category B hogs at the same base price provided in the written agreement “until further notice.”
After the United States Department of Agriculture published its final COOL regulations in January of 2009, the company began renegotiating its agreement with the producers for the purchase of Category B hogs. The company agreed to purchase the producers’ hogs, including excess hogs the producers had agreed to purchase from the Canadian supplier, through the end of 2009. An April 16, 2009, email, which the company sent to the producers, detailed the new terms and specified that they were developed after “much discussion and negotiation” between the parties. The email set forth a new lower price for the Category B hogs, which would take effect on May 3, 2009. It also set forth new, specific delivery terms and stated that the company would only continue to accept Canadian sourced pigs through December 15, 2009.
The producers began selling their hogs to the company at the new price after May 3, 2009. Although the producers formally protested the terms of the purported amendment on July 1, 2009, the producers purportedly continued to sell the hogs to the company at the new price through November of 2009.
In August of 2012, the producers filed a lawsuit in federal district court against the company, asserting, inter alia, that the company breached its oral agreement with the producers when it “unilaterally” reduced the price it paid to the producers and changed the delivery terms. The company filed a motion for summary judgment, alleging that the oral agreement only bound the company to pay the agreed price “until further notice” and that the April 16, 2009, email provided that “further notice.” The company also alleged that changing the delivery schedule was a regular part of its course of dealing with the producers and that it had made such changes under the written agreement as well. The company argued that it had never made a promise of a set delivery schedule to the producers. The producers resisted summary judgment, arguing that they had raised a genuine issue of material fact regarding whether they had agreed to the terms set forth in the April email. They alleged that the company had “extorted” the modifications and was liable to the producers for breaching the oral agreement.
In denying summary judgment to the company on the breach of contract claims, the court “with some reluctance” concluded that the producers had raised genuine issues of material fact as to the claims. The court found that questions existed as to whether the oral agreement required six months’ notice for an alteration of its pricing term and whether the producers had assented to the modification. The court also found a genuine issue of material fact as to whether the company had breached the delivery terms of the oral agreement by unilaterally implementing a fixed and inflexible schedule.
As a result of the summary judgment ruling, the case will proceed to trial.
The Agricultural Act of 2014, which just passed the Senate and will be signed into law, left intact the 2008 COOL provisions, which have pitted livestock packers against independent producers. In a January 27, 2014, letter to the ranking members on the House and Senate agriculture committees, groups including the American Meat Institute, the National Cattleman’s Beef Association, the National Chicken Council, the National Pork Producers Council, the National Turkey Federation, and the North American Meat Association, argued that COOL is a “broken program that has only added costs to our industries without any measurable benefit for America’s livestock producers.” On the other hand, RCALF and 98 other groups wrote the farm bill conferees to advocate the rejection of any changes to the COOL rules that did not provide consumers with additional and more accurate information about the source of their food.
When the Agricultural Act of 2014 is signed into law, COOL supporters will have won the latest round of debate.