Hollifield Ranches, Inc. v. Tyson Fresh Meats, Inc.
Filing
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MEMORANDUM DECISION AND ORDER The Memorandum Decision and Judgment of the Bankruptcy Court are AFFIRMED. The Court will entertain a motion by Tyson for attorneys fees and costs on the appeal pursuant to Idaho Code § 12-120(3) and applicable local rules. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)
UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO
In re:
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HOLLIFIELD RANCHES, INC.
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Debtor.
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_________________________________)
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TYSON FRESH MEATS, INC., a
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Delaware corporation,
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Plaintiff/Appellee,
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vs.
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HOLLIFIELD RANCHES, INC., an
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Idaho limited liability company,
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Defendant/Appellant. )
_________________________________ )
Bankr. Case No. 10-41613-JDP
Adv. Case No. 12-08030-JDP
District Case No. 1:13-cv-00506-EJL
MEMORANDUM DECISION
AND ORDER
Pending before the Court in the above-entitled matter is Hollifield Ranches, Inc.
(Hollifield) appeal of the Memorandum of Decision and Judgment of the Bankruptcy
Court in Case No. 12-10030-JDP, Adversary Case No. 12-08030. Having fully reviewed
the record, the Court finds that the facts and legal arguments are adequately presented in
the briefs and record. Accordingly, in the interest of avoiding further delay, and because
the Court conclusively finds that the decisional process would not be significantly aided
by oral argument, this matter shall be decided on the record before this Court without oral
argument.
Memorandum Decision and Order - 1
BACKGROUND
Jurisdiction for this appeal is pursuant to 28 U.S.C. § 158. This case involves a
contractual dispute between Hollifield and Tyson Fresh Meats, Inc. (Tyson). Tyson
brought an adversary action for breach of contract on the part of Hollifield for failure to
pay damages associated with risk management losses incurred under the Tyson Fresh
Meats Cattle Feeding Agreement with Double H Cattle Co. (Agreement). Hollifield
counterclaimed that Tyson breached the contract by not following “reasonable and
customary” hedging practices for the cattle placed for feeding under the Agreement. The
Bankruptcy Court held a trial on the matter and determined the Agreement was not
ambiguous and Hollifield had breached the Agreement and Tyson was owed damages in
the amount of $958,442.43.
It is undisputed the parties entered a contract memorialized in the Agreement. The
sole portion of the Agreement challenged on appeal is the Risk Management section of
the Agreement which states:
TFM [Tyson] will be responsible for management of market risks through
the reasonable and customary use of hedging practices on the cattle placed
for feeding under this agreement, except in the event Double H [Hollifield]
requests different hedging practices at which time the parties shall mutually
agree as to what hedging practices to undertake hereunder. The gain/loss
resulting from the hedging activity will be included in settlement between
Double H Cattle Co. and TFM for each lot of cattle. In the event cattle are
delivered from multiple lots in any given week, the hedge revenue or cost
will be allocated to each lot on a dollars per head basis.
Specifically, it is the first sentence of this Risk Management section which is disputed as
Hollifield does not contest the gain/loss calculations for each lot of cattle as compiled by
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Tyson. Hollifield argues the sentence is ambiguous and should therefore be construed
against the drafter which was Tyson. Tyson maintains the contract is not ambiguous and
the Court should apply the contract using the plain meaning of the words.
ANALYSIS
The parties agree the Agreement is governed by Idaho law. Whether or not a
contract is ambiguous is a question of law. Melichar v. State Farm Fire and Casualty Co.,
152 P.3d 587, 591 (Idaho 2007). “A contract must be interpreted according to the plain
meaning of the words used if the language is clear and unambiguous.” Hill v. Am. Family
Mut. Ins. Co., 249 P.3d 812, 815 (Idaho 2011). When the contract is clear and
unambiguous, the meaning of it and the intent of the parties must be ascertained from the
plain meaning of the words used in the contract. Albee v. Judy, 31 P.3d 248,252 (Idaho
2011). “If, however, the contract is determined to be ambiguous, ‘the interpretation of the
document is a question of fact which focuses on the intent of the parties.’” Id. citing Ada
County Assessor v. Taylor, 861 P.2d 1215, 1218 (Idaho 1993). Stated another way, the
Court does not consider extrinsic evidence of the intent and understanding of the contract
by the parties unless the language of the contract is deemed as a matter of law to be
ambiguous. “Interpreting an unambiguous contract and determining whether there has
been a violation of that contract is an issue of law subject to free review.” Potlatch Educ.
Ass’n v. Potlatch School Dist. No. 285, 226 P.3d 1277, 1280 (Idaho 2010).
In this case, the Court agrees with the Bankruptcy Court that the Risk Management
section of the Agreement is unambiguous as a matter of law. “In the absence of
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ambiguity, the document must be construed in its plain, ordinary and proper sense
according to the meaning derived from the plain wording of the instrument.” C & G, Inc.
v. Rule, 25 P.3d 76, 78 (Idaho 2001). Further, the Court finds the disputed sentence in the
contract is not reasonably subject to conflicting interpretations. Hollifield agreed to
delegate the risk management of the volatile cattle market to Tyson, but Hollifield
retained the right to request different risk management practices to be employed if they
could be mutually agreed to by Tyson and Hollifield. Tyson had a duty to manage the
market risk via “reasonable and customary use of hedging practices.”
The Court finds the plain meaning of the terms “reasonable” and “customary” are
easily determined and do not make the language used in the Agreement ambiguous. The
term “reasonable” is not ambiguous. “Reasonable” means “fair, proper, or moderate
under the circumstances.” Black’s Law Dictionary 1379 (9th ed. 2009). “Customary”
means “[g]eneral rules and practices that have become the norm through unvarying habit
and common use.” Black’s Law Dictionary 442 (9th ed. 2009). In this case, the common
practice within the cattle industry is the relevant standard for “customary.”
The testimony from both sides established there a number of hedging practices that
are used within the cattle industry: short and long hedging, purchasing call options and
purchasing put options to name a few. Here Tyson’s policy was to only use short hedges
to manage sale price risk based on the breakeven calculations provided by Hollifield. The
Bankruptcy Court determined the credibility of the witnesses on the disputed fact of
whether Mr. Hollifield was advised of the Tyson hedging policy prior to entering the
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Agreement and determined Mr. Hollifield had been advised prior to entering the
Agreement that it was Tyson’s policy to only use short hedges to manage market risk.
Mr. Hollifield testified as to risk management practices he used regarding his cattle
business prior to entering into the contract with Tyson. However, Mr. Hollifield was not
determined to be an expert in the risk management practices used in the cattle industry.
Dr. Mintert was qualified as in expert in the risk management practices used in the cattle
industry and agreed there were several hedging practices used in the industry. Dr. Mintert
testified the use of only short hedges was a conservative approach but was a “reasonable
and customary” hedging practice used in the cattle industry. This expert opinion was not
rebutted by any other expert opinion.
The Court finds the contract did not require multiple or specific hedging practices
to be used by Tyson, only that the hedging practices used were reasonable and customary
for the cattle industry. The testimony in the record supports the Bankruptcy Court’s
finding that Tyson’s hedging practice of only using short hedges satisfied the this
standard.
Additionally, there was no evidence that Hollifield ever (and especially after the
selling prices of cattle started increasing dramatically) requested a different risk
management hedging practice be used by Tyson as provided for under the contract. No
request was made even though Hollifield was receiving gain/loss statements on each lot
of cattle and could see the market losses were increasing under the current risk
management hedging practices being employed by Tyson.
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Additionally, the Court does not find Hollifield’s interpretation of the contract to
be reasonable when Mr. Hollifield testified he believed Tyson controlled the hedging
tools that could be used unless Hollifield asked for a “non-customary” risk management
practices to be used under the contract. No where in the contract does it limit Hollifield’s
right to request a different type of heading practice to only non-customary hedging
practices (such as a “Texas Hedge”). The only limit to a different hedging practice
request is that both parties had to mutually agree to the different hedging practice. There
is no evidence in the record that if a request had been made, Tyson would not have agreed
to using another hedging practice such as put options to manage market risk. Mr.
Hollifield has a law degree and is a sophisticated business person who knows how to
request language be added to a contract in contract negotiations if that was truly his
understanding. Moreover, it would not make sense for Tyson to agree to a “noncustomary” risk management practices under the contract as that would not normally be
in the best interest of the other party to use hedging practices out of the norm for the
industry and thereby increase the overall risk to the other party.
Under the contract, Hollifield agreed to let Tyson manage the market risk on the
cattle. Mr. Hollifield testified he wanted Tyson to have the responsibility for risk
management so he could focus on the day-to-day cattle feeding operations. Dr. Mintert,
the cattle industry expert, testified Tyson used a conservative hedging approach.
“Conservative” does not mean such an approach was unreasonable or uncustomary.
Rather under the contract, Hollifield was free at any time during the contract to request
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other reasonable and customary risk management hedging practices (such as put options)
to be used. Hollifield did not make such a request and it is an unreasonable interpretation
of the unambiguous language that Tyson had to use hedging practices other than the
hedging practice it was using and made known to Mr. Hollifield unless requested by
Hollifield.
By its very nature, hedging acknowledges the risk of forecasting the market.
Hollifield reserved the right to request a different hedging practice, but did not exercise
that right. It is too late now with 20-20 hindsight, versus at the time, to request other
hedging tools should have been used by Tyson. Hindsight is not the basis for determining
what is “reasonable and customary.” Reliance on a reasonable and customary hedging
practice does not mandate a profit from the hedging technique used.
For these reasons, the Court finds under contract law in Idaho the Agreement was
not ambiguous and the risk management hedging practices used by Tyson were within the
“reasonable and customary use of heading practices” used by the cattle industry.
Therefore, the breach of the contract was by Hollifield, not by Tyson and the Judgment of
the Bankruptcy Court must be affirmed.
ORDER
IT IS ORDERED:
1. The Memorandum Decision and Judgment of the Bankruptcy Court are
AFFIRMED.
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2. The Court will entertain a motion by Tyson for attorneys fees and costs on the
appeal pursuant to Idaho Code § 12-120(3) and applicable local rules.
DATED: September 24, 2014
Honorable Edward J. Lodge
U. S. District Judge
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