Scoular Company, The v. Ceres Global AG Corp. et al

Filing 152

MEMORANDUM OPINION AND ORDER denying 120 Defendants' Motion to Exclude Expert Testimony; denying 125 Defendants' Motion for Summary Judgment (Written Opinion) Signed by Chief Judge John R. Tunheim on 08/16/2017. (JMK)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 14-1881 (JRT/HB)

THE SCOULAR COMPANY,
Plaintiff,

MEMORANDUM OPINION
AND ORDER

v.
CERES GLOBAL AG CORP. and
RIVERLAND AG CORP.,
Defendants.

Peter M. Lancaster, DORSEY & WHITNEY LLP, 50 South Sixth Street,
Suite 1500, Minneapolis, MN 55402, for plaintiff.
Jeffrey R. Mulder and Daniel R. Olson, BASSFORD REMELE, 100
South Fifth Street, Suite 1500, Minneapolis, MN 55402, for defendants.

Plaintiff The Scoular Company (“Scoular”) brings this action against Defendants
Ceres Global Ag Corp. (“Ceres”) and Riverland Ag Corp. (“Riverland”) (collectively
“Defendants”). Scoular’s claims stem from a planned deal under which it would partially
own and operate a grain storage and transit point on the North Dakota-Canada border.
Following more than a year of negotiations and several tentative agreements, Ceres
changed course and decided to complete the project with its subsidiary Riverland instead.
Scoular alleges claims of breach of contract, tortious interference with contract,
promissory estoppel, and unjust enrichment based on Defendants’ handling of the project.
Defendants now move for summary judgment and to exclude the opinions of
Scoular’s damages expert. Because the Court rejects Defendants’ interpretations of the

31

contracts at issue and because the Court finds no absolute parent-subsidiary privilege
implicated by Scoular’s tortious interference with contract claim, the Court will deny
Defendants’ motion for summary judgment. Also, the Court will deny Defendants’
motion to exclude, finding the opinions of Scoular’s damages expert are not irrelevant,
unreliable, or so factually unsupported as to warrant exclusion.

BACKGROUND
Scoular is an “agricultural marketing company” that “manag[es] commodity
supply-chain risk for customers in food, feed, and renewable fuel markets.” (Am. Compl.
¶ 2, July 24, 2014, Docket No. 9.) Ceres is a “financial assets management firm with
focus on grain storage and handling and commodity logistics.” (Id. ¶ 3.) Riverland is
Ceres’s wholly owned subsidiary, and “[a]mong other activities, [it] has owned and
operated ten or more grain elevators.” (Id. ¶ 4.)
Ceres owns a piece of land in Northgate, Saskatchewan, and adjacent land in
North Dakota. (Id. ¶ 13.) Ceres sought to develop the site for “increased north-to-south
flow of Canadian grain, railway facilities for transport of crude oil production, and
transfer facilities for such related products as frac sand, pipe, and aggregates.” (Id.
¶¶ 14.) “The border crossing site is unique for its proximity to Canadian oil and grain
production.” (Id. ¶ 13.)
In summer 2012, Ceres and Scoular began negotiations regarding a plan to
develop the site, referred to generally as “Northgate.” (See Decl. of Jeffrey R. Mulder
(“Mulder Decl.”), Exs. 1, 2, Sept. 30, 2016, Docket No. 128.) In August 2012, Ceres

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proposed forming jointly-owned companies to construct and operate the site. (See id.,
Ex. 3.) Scoular responded with support for a joint company, but requested to be the
exclusive operator at the site.

(Id., Ex. 4; see also Decl. of Peter M. Lancaster

(“Lancaster Decl.”), Ex. C at 30:8-12, Oct. 21, 2016, Docket No. 135 (stating that
Scoular consistently communicated it wanted to be the sole operator of the site).) The
parties exchanged draft memoranda of understanding in fall 2012. (Mulder Decl., Exs. 5,
6.)

I.

THE TERM SHEET
On November 15, 2012, the parties executed a document titled Term Sheet –

Project Corus (the “Term Sheet”). (Aff. of Michael Detlefsen (“Detlefsen Aff.”), Ex. A
(“Term Sheet”), Aug. 7, 2014, Docket No. 14.) The Term Sheet provides some of the
terms of the parties’ understanding, but it contemplates the execution of a more detailed
agreement at a later date. (See, e.g., id. at 2 (“The respective rights and duties of Scoular
and Port[C]o 1 . . . will be incorporated into the Unanimous Shareholders Agreement . . .
or set forth in a Management and Development Agreement . . . .”); id. at 4 (stating that
“[t]he Parties will negotiate in good faith a Unanimous Shareholder’s Agreement . . .
relating to PortCo containing provision that are normal and customary” regarding several
issues).) The Term Sheet states that “[e]stablishment and funding of PortCo and the

1

PortCo refers to the entity Ceres and Scoular would create together to develop the site.
(Term Sheet at 2.)

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Grain Facility [would] be conditional on,” among other things, “[n]egotiation and
execution of definitive agreements” between the parties. (Id. at 5.)
In a section titled “Non-Binding,” the Term Sheet states:
The Parties agree that this term sheet reflects the serious intention of the
Parties to take the steps needed in order to enter into the Definitive
Agreements. Notwithstanding, except for the “Confidentiality” and
“Exclusivity” provisions contained herein, which shall be binding on the
Parties, this term sheet shall not constitute any binding agreement of the
Parties, does not constitute a partnership, joint venture, co-marketing or
principle-agent agreement or other binding obligation between the Parties,
and shall not obligate any of the Parties to enter into any transaction in
connection with the Project or any of the documents contemplated herein.
If for any reason whatsoever the Parties fail to execute the Definitive
Agreements, no Party will be entitled to make any claim to the others as a
consequence of the failure by the Parties to reach an agreement.
(Id. at 6.) The exclusivity section states:
Ceres agrees that it will not entertain proposals or enter into discussions
with parties other than Scoular pertaining to the development of a grain
facility on the Northgate Land for a period coterminous with the Term of
this term sheet.
(Id.) Following further negotiations, the parties executed a Term Sheet Addendum on
February 1, 2013. (Id. at 9-11.) The Addendum altered some details of the Term Sheet,
but did not alter the binding and non-binding aspects of the Term Sheet. (See id.)
Contemporaneous records suggest Scoular recognized the generally nonbinding
nature of the Term Sheet. Soon after the Addendum was executed, Ceres issued a press
release discussing the deal. (Mulder Decl., Ex. 7 at Scoular012789-91.) Scoular’s Chief
Operating Officer, Robert Ludington, forwarded the press release to Scoular’s board of
directors stating that he “want[ed] to assure the Board the management team ha[d] not

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committed to anything,” that they “ha[d] a signed term sheet and [were] working towards
definitive documents but ha[d] made no financial commitments and Ceres [was] perfectly
aware that Scoular’s Board of Directors must give it’s [sic] approval before any
commitment is made.” (Id. at Scoular012788.)

II.

THE SIDE LETTER
In May 2013, while continuing to negotiate on final agreements, the parties

entered into a side agreement, referred to as the “Side Letter,” in order to fund and begin
mass grading at Northgate. (See Mulder Decl., Exs. 17-19.) The parties executed the
Side Letter on May 31, 2013. (See Detlefsen Aff., Ex. B (“Side Letter”).) Under the
Side Letter, Ceres and Scoular would share the costs of the mass grading project. (Id. at
13.)
According to Scoular, its injection of cash at this time was crucial because Ceres
lacked funds. (See Lancaster Decl., Ex. E at 79:17-80:7 (Ludington noting that he
became “aware that Ceres wasn’t able to fund [the] prework”).) It appears that Ceres did
not secure a line of credit until December 2013 at the earliest, and possibly as late as June
2014. (See id., Ex. D at 29:11-24, 37:10-23; id. Ex. H at 281.)
In order to “secure” Scoular’s investment in the project, the Side Letter gave
Scoular a right of first refusal. (See Mulder Decl., Ex. 18 at SCOULAR028124; Side
Letter at 13-14.) The right of first refusal required Ceres to notify Scoular “if Ceres or an
affiliate thereof . . . proposes to enter into any binding commitment with any party other
than Scoular . . . , without Scoular’s prior consent, to design, build and/or operate any

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grain facility or other facility” at Northgate for three years from the date of the Side
Letter. (Side Letter at 13.) Scoular then could choose to enter into the same commitment
with Ceres within thirty days of the notice – at a reduced price to Scoular due to its
existing investment in grading costs. (Id. at 14.) If Scoular declined, Ceres could enter
into the commitment with the third party within ninety days after the expiration of
Scoular’s thirty-day option period. (Id.)
The Side Letter also contains a provision entitled “Reimbursement,” which states
that
[within the three-year period,] if Ceres constructs or causes to be
constructed . . . any improvement that is substantially inconsistent with the
Green Design and/or the Term Sheet, then Scoular is entitled, by delivering
notice thereof to Ceres (the “Reimbursement Notice”), to be reimbursed
the Shared Costs paid by Scoular from the Effective Date until the date of
the Reimbursement Notice (excluding amounts paid as a result of the
negligent act or omission or willful misconduct of Scoular, or a breach of
this Agreement by Scoular), and thereafter Scoular shall be relieved of any
responsibility for all Shared Costs.
(Id. at 14.)
Finally, the Side Letter includes the following provision regarding liability:
No Liability for Other’s Negligence. Notwithstanding anything contained
herein to the contrary, no Party shall be liable to the other Party for any and
all costs, expenses, liabilities and damages arising out of the negligent act
or omission or willful misconduct of such other Party; nor shall either Party
be liable to the other for costs, expenses, liabilities or damages arising out
of a breach of the [mass grading contract] (unless such breach results from
an act or omission caused or agreed to by Scoular) or of this Agreement by
such Party.
(Id. at 15.) Pursuant to the Side Letter, Scoular contributed 3,899,146 Canadian dollars
to grading costs for Northgate. (Mulder Decl., Ex. 10 at 177:25-181:5.)

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III.

CHANGES TO THE NORTHGATE DEAL
In July 2013, Ceres’s board voted for a change in management. (See id., Ex. 22.)

Scoular describes this change in management as a takeover by James Vanasek, and
Scoular contends that Vanasek persuaded the new Ceres board to replace Scoular with
Riverland. (See Lancaster Decl., Ex. A at 69:5-72:24; id., Ex. H at 232 (Vanasek in a
December 2013 email, stating, “I ask again, so why would we want to give this up to
Scoular?????”).) On the other hand, Ceres contends that Scoular attempted to negotiate a
better deal after the management changes, in September and October 2013. (See, e.g.,
Mulder Decl., Ex. 23 (September 2013 letter in which Scoular proposes “a different
approach” to the Northgate deal); id., Ex. 24 (October 2013 correspondence discussing
changes in circumstances and Scoular’s wish for additional ownership); see also id.,
Exs. 25, 26.) On December 2, 2013, Scoular sent a signed second addendum to the term
sheet dated November 21, 2013 (the “November 2013 Addendum”). (See Mulder Decl.,
Ex. 27.)
Scoular contends that it had no reason to suspect that Ceres would consider
completing Northgate with Riverland.

During initial negotiations, Ceres understood

Scoular wanted to be the sole operator of the facility and that Riverland would not be
involved. (See Lancaster Decl., Ex. C at 38:9-40:6.) Riverland was having financial
trouble at the time, and eventually Ceres liquidated Riverland’s assets. (Id. at 43:7-45:2.)
Ceres C.E.O. Michael Detlefsen testified that “Riverland was not able to fill” the
necessary role at Northgate, and he shared this view with Scoular. (Id. at 190:3-12.)

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Thus, Scoular contends that it reasonably concluded that it would not face competition
from Riverland. (See Lancaster Decl., Ex. E at 40:16-41:20 (stating that Riverland was
“out of any picture at all of being a part of the grain facility except being a customer” and
noting that Riverland was put up for sale during negotiations); id. at 71:2-72:20
(Ludington stating that Ceres made clear Riverland would not be involved in Northgate
prior to the execution of the Term Sheet Addendum in February 2013).) Ludington also
testified that in Scoular’s industry, it was normal to rely on oral assurances. (Id. at
101:18-25 (“The business that Scoular is in, we do $6 billion of sales all over the phone
followed up by contracts and things.”).) 2
An email from November 22, 2013, shows Ceres’s concern over declining to deal
with Scoular prior to determining the viability of a plan with Riverland. (Id., Ex. H at
60.) At a meeting on November 27, 2013, Ceres’s board discussed the possibility of
Riverland taking over as operator of Northgate, and the meeting minutes note that
Riverland and Detlefsen planned to “prepare an in-depth analysis of [Riverland] building
and operating the grain facility at Northgate.” (Id. at 455-56.) Then, in early December
2013, Ceres’s new board declined to adopt the November 2013 Addendum and expressed
that they would study whether to enter a deal with Scoular or not; in response, Scoular

2

Scoular devotes space in its brief to argue that since it filed this action Ceres has
attempted obscure the facts regarding Riverland’s involvement with Northgate and the
opportunities Ceres provided Scoular during the relevant time period. (See Pl.’s Opp’n to Defs.’
Mot. for Summ. J. at 16-19, Oct. 21, 2016, Docket No. 134.) However, Ceres does not rely on
those actions or that argument in this summary judgment motion, and therefore, the Court need
not consider Scoular’s allegations at this time.

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rescinded its execution of the document. (Mulder Decl., Ex. 10 at 127:5-129:18; id.,
Ex. 28.)
During the next few months, discussions continued within Ceres and Riverland
regarding replacing Scoular with Riverland. (See Lancaster Decl., Ex. H at 136 (internal
Ceres email from December 12, 2013, considering Riverland and stating “the
replacement margins look pretty compelling); id., Ex. C at 90:20-91:5 (discussing “a
process with the Riverland team to put together an alternative plan in preparation for [the]
January [2014 board] meeting”).)

On January 6, 2014, Riverland held an internal

“[g]roup discussion to define the pros and cons of Riverland operating Northgate versus
Scoular.” (Id., Ex. H at 65.)
On January 22, 2014, Ceres’s board heard from both Ceres and Riverland officials
about their options for Northgate. (See id. at 314-16; id., Ex. C at 99:18-100:11.) The
Ceres board decided to complete the Northgate project internally through Riverland and
directed Detlefsen to notify Scoular. (Id., Ex. H at 315-16.) Detlefsen met with Scoular
on January 28, 2014, “and delivered the message that the Ceres Board ha[d] decided to
proceed with Riverland building and operating Northgate . . . instead of Scoular,” after
which “Scoular was a bit shocked.” (Id. at 73.) According to Ludington, Detlefsen
represented at the meeting that “in [Ceres’s] opinion [Ceres was] not obligated under the
mass grading contract to pay [Scoular] back”; Ludington then “questioned [Ceres’s]
integrity to even suggest that [Ceres] not pay [Scoular] back” and also “[q]uestioned their
integrity in changing the deal.” (Id. at 201.) On January 31, 2014, Detlefsen sent
Ludington a draft termination and settlement agreement. (Mulder Decl., Ex. 29.)

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On February 12, 2014, Ceres issued a press release stating that it “terminated its
arrangements and ongoing discussions with [Scoular] with respect to” Northgate, and that
it “plan[ned] to use its 100% owned subsidiary, [Riverland], to bring in-house the design
and development of the proposed Northgate grain elevator.” (Lancaster Decl., Ex. H at
255.)

The next day, Ceres sent Scoular an email that terminated prior agreements

between the parties, provided its view that completing the project internally did not
implicate Scoular’s right of first refusal, and gave Scoular two options: receive
reimbursement in exchange for termination of the Side Letter (and the right of first
refusal) or receive nothing. (Mulder Decl., Ex. 30.) 3 Scoular responded by filing this
action on June 11, 2014.
Scoular brings the following claims: breach of the Term Sheet against Ceres,
breach of the Side Letter against Ceres, tortious interference with contract against
Riverland, promissory estoppel against Ceres, and unjust enrichment against both Ceres
and Riverland. (Am. Compl. ¶¶ 51-86.) Defendants move for summary judgment on all
of Scoular’s claims and to exclude the opinions of Scoular’s damages expert,
Dr. Timothy Nantell.

3

Vanasek stated in a late February 2014 email to a Ceres board member: “Anything
besides telling [Scoular] to drop dead, sign the release and we will give you your $4 million back
is a complete nonstarter for me.” (Lancaster Decl., Ex. H at 238.)

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ANALYSIS
I.

MOTION FOR SUMMARY JUDGMENT
A.

Standard of Review

Summary judgment is appropriate where there are no genuine issues of material
fact and the moving party can demonstrate that it is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the
lawsuit, and a dispute is genuine if the evidence is such that it could lead a reasonable
jury to return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). A court considering a motion for summary judgment must view the facts in
the light most favorable to the non-moving party and give that party the benefit of all
reasonable inferences to be drawn from those facts. Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587-88 (1986). Summary judgment is appropriate if the
nonmoving party “fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of
proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

B.

Breach of the Term Sheet

Ceres argues that Scoular’s breach of contract claim based on the Term Sheet fails
because the Term Sheet is unenforceable. Both parties agree that Ontario law applies to
this claim. (See Term Sheet at 6.)
Ceres contends that the Term Sheet is unenforceable because it is merely an
agreement to agree. See Bawitko Invs. Ltd. v. Kernels Popcorn Ltd., 1991 CanLII 2734 at

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13 (Can. Ont. C.A.). Both parties recognize that the Term Sheet’s description of the
Northgate project is not final.

The Term Sheet contemplates future definitive

agreements, and thus, it is not a binding contract with regard to the deal as a whole.
Scoular’s breach of contract claim, however, is based on the portions of the Term Sheet
that are explicitly binding – the exclusivity and confidentiality provisions. As discussed
above, the portion of the Term Sheet titled “Non-Binding” states that the Term Sheet
does not create an obligation between the parties, “except for the ‘Confidentiality’ and
‘Exclusivity’ provisions contained herein, which shall be binding on the Parties.” (Term
Sheet at 6.)
Ceres argues that to be binding a contract must disclose all essential terms –
implying that the Term Sheet could not be binding in any respect unless it set out all
details of the relationship between the parties.

The cases Ceres cites involve

contemplated agreements, in which the parties agreed on some terms, but the deal never
came to pass; none of them involve a signed agreement stating therein that some of the
terms are to be binding as of the date of execution. See Enticor Props. Inc. v. Quik-Run
Courier Ltd., [2005] O.J. No. 530, paras. 4-5 (Can. Ont. C.A.) (QL) (finding a lease offer
was not an enforceable contract where it stated that it would be void if no formal lease
was executed within a certain amount of time); Bawitko Invs. Ltd., 1991 CanLII 2734 at
13-14 (finding no enforceable contract where parties had orally agreed to some terms, but
never reached a full agreement or executed a written contract); Exch. Corp. Can. v.
Swytch Delivery Sols. Inc., [2007] O.J. No. 3008, paras. 8-9 (Can. Ont. Sup. Ct. J.) (QL)
(finding no enforceable contract where a party had only “discussed many times [its]

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intention to use [the other party] as its exclusive supplier” once another contract expired,
but had never entered into any written contract or agreement providing as much). This is
not a case where the parties only agreed on several terms that they contemplated would
form part of a future agreement. The Term Sheet sets out the parties’ intentions for a
future agreement, but it distinguishes those future terms from the exclusivity and
confidentiality provisions, which the Term Sheet states were binding on the parties upon
execution of the Term Sheet.
Thus, the Court will deny Ceres’s motion with regard to this claim because the
Term Sheet specifies that several of its provisions are binding, and Ceres makes no
alternative arguments.

C.

Breach of the Side Letter

Ceres argues that Scoular’s breach of contract claim based on the Side Letter fails
for two independent reasons: (1) an agreement between Ceres and Riverland would not
trigger Scoular’s right of first refusal under the Side Letter, and (2) Scoular waived its
right to recover damages under the Side Letter. 4 The parties agree that Ontario law
applies to this claim. (See Side Letter at 15.)

4

Ceres also notes that it disputes that Ceres and Riverland ever entered into a contract,
but, acknowledging that factual issues remain on that issue, Ceres assumes that there was a
contract for the purposes of the present motion. (See Mem. of Law in Supp. of Defs.’ Mot. for
Summ. J. at 16, Sept. 30, 2016, Docket No. 127.)

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1.

Right of First Refusal

The parties disagree on the scope of Scoular’s right of first refusal and whether or
not the agreement between Ceres and its subsidiary, Riverland, implicates that right. As
discussed above, Ceres’s duty to notify Scoular arises “if Ceres or an affiliate thereof . . .
proposes to enter into any binding commitment with any party other than Scoular . . . ,
without Scoular’s prior consent, to design, build and/or operate any grain facility or other
facility for the conduct of Grain Activities on the Project Lands.” (Side Letter at 13.)
Both parties argue that this plain language supports their interpretation of the contract.
Ceres argues that the mention of “Ceres or an affiliate thereof” means that the
right of first refusal only applies to agreements between Ceres and non-affiliated third
parties. But the “or an affiliate thereof” language expands the first part of the sentence,
which describes whose conduct could implicate the provision; thus, under a plain reading
of the provision, the addition of “or affiliates” expands the scope of that clause rather
than limiting it – both Ceres and Riverland (as Ceres’s “affiliate”) are barred from
entering into a binding agreement “with any party other than Scoular” to construct or
operate Northgate without notifying Scoular.
Ceres suggests that a right of first refusal always excludes internal or non-arm’s
length transactions. For support, Ceres cites the generic definition of “right of first
refusal.” Right of First Refusal, Black’s Law Dictionary (10th ed. 2014) (“A potential
buyer’s contractual right to meet the terms of a third party’s higher offer.”). But here, the
contract defines the right of first refusal at issue, and thus, the terms of the contract
govern. See Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, para. 57 (Can.)

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(“The interpretation of a written contractual provision must always be grounded in the
text and read in light of the entire contract.”); Gross Realty Grp. v. Shoppers Realty Inc.,
2014 ONSC 6855, para. 31 (Can.) (“The clause makes sense in its words and in the
contemporaneous circumstances. There is no need to go further.”); cf. Offshore Drilling
Co. v. Gulf Copper & Mfg. Corp., 604 F.3d 221, 226 (5th Cir. 2010) (looking to
dictionary definitions to determine the plain meaning of terms only “[b]ecause the terms
[were] not defined in the contract”).
The Canadian cases the parties cite involving rights of first refusal do not suggest
otherwise. Both parties discuss GATX Corp. v. Hawker Siddeley Can. Inc., 1996 CanLII
8286 (Can. Ont. Gen. Div.). 5 The court in GATX dealt with an internal transfer of shares
that would enable a takeover of those shares by a third party, which if done directly
would have implicated the right of first refusal. Id. para. 45. As Ceres notes, the GATX
court found that the internal transfer would have been proper under the agreement, if not
for the agreement to then sell to a third party. Id. paras. 66-67. However, the contract
language at issue in GATX explicitly excepted internal transfers from the right of first
refusal, and thus, GATX does not stand for the proposition that all rights of first refusal
only apply to deals with non-affiliates. See id. paras. 14-16 (quoting contract language
stating that “[t]he transfer of common shares by either party to another corporation which
is affiliated with . . . either of the parties” did not implicate the right of first refusal and

5

See also Transamerica Life Can. Inc. v. ING Can. Inc. (2003), 68 O.R. 3d 457, para. 53
(Can. Ont. C.A.) (citing GATX, 1996 CanLII 8286).

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describing record evidence of one party requesting this exception). Moreover, the GATX
court looked beyond that initial transfer, to the function of the entire agreement, and
stated that “the grantor of a right of first refusal must act reasonably and in good faith in
relation to that right, and must not act in a fashion designed to eviscerate the very right
which has been given.” Id. paras. 69, 71.
Additionally, Scoular cites one Ontario case in which the court found a non-arm’s
length entity was a “third party” under the applicable right of first refusal. In Apex Corp.
v. Ceco Developments, Ltd., the court found that a corporation (Apex One) that
reorganized and transferred its assets to a different corporation (Apex Two) violated a
right of first refusal, even though everything remained the same in the corporation and it
was not an arms-length transaction. 2005 ABQB 656, paras. 25-28 (Can.). The court
stated:
Apex Two is a separate legal person from Apex One. It is therefore a third
party to the contract, albeit an associated, non-arm’s length corporation.
Had Apex intended to exclude non-arm’s length transactions from the [right
of first refusal] it could have negotiated for such an exclusion. It did not.
Accordingly, [the court] conclude[s] that the term “third party” as it appears
in the [right of first refusal] includes non-arm’s length entities.
Id. para. 28. 6

6

Scoular also cites Ont. Inc. v. Lenco Inv. Ltd., in which the court declined to adopt a
landlord’s interpretation of the lease because it would “render[] the right afforded to the tenant
under the right of first refusal valueless,” it would “fail[] to accord any meaning to a key
provision of the lease and [would be] inconsistent with the landlord’s obligation of good faith
dealings with the tenant.” 2014 ONCA 903, para. 11 (Can.).

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In this case the Court need not find that Riverland is a “third party”; it need only
find that Riverland is “a party other than Scoular.” If the parties meant to allow for an
agreement between Ceres and an affiliate without triggering Scoular’s right of first
refusal, they could have described the right to apply to “any party other than Scoular or
an affiliate.” 7 But they did not. This choice is particularly telling in light of the fact that
the Term Sheet includes several specific references to Riverland, supporting the idea that
at the time of contracting, the parties understood the distinct roles of Ceres, Scoular, and
Riverland at Northgate. (See Term Sheet at 4 (including a section entitled “Riverland
Ag” that states Scoular would give Riverland priority consideration for some deals at
Northgate).) Accordingly, the Court finds that the Side Letter means what it says – the
right of first refusal is implicated by a deal between Ceres and “any party other than
Scoular,” including Riverland.
Ceres also argues that an agreement with Riverland would not implicate the right
of first refusal based on a later portion of the agreement that allows either party to assign
their rights and obligations to “their respective affiliates.” (Side Letter at 15.) Ceres
argues that, under this provision, Ceres could have assigned its rights to Riverland, and
thus, the right of first refusal was not implicated by an agreement between the two
parties. The Court finds this argument unpersuasive. Even assuming Ceres could have
assigned its rights and obligations to Riverland, that ability would not negate Scoular’s

7

Ceres would also have a better argument if the contract stated the right of first refusal
applied upon agreement with “any party other than Scoular or Ceres” or even “any third party
other than Scoular.”

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right to be notified of a deal to operate Northgate. The Side Letter contemplates Ceres as
part financer and owner, and Scoular as part financer and operator, and Ceres assigning
its role to an affiliate would not allow it to avoid Scoular’s rights under the agreement.
The Side Letter did not give Ceres a right to operate Northgate, and thus, Ceres assigning
its own rights under the contract would not preclude Scoular’s claim.
Overall, the Court finds that Scoular’s right of first refusal applies to a deal with
any party other than Scoular, including Riverland, and therefore, Scoular has alleged a
breach of the Side Letter.

2.

Exclusive Damages Provision

Second, Ceres argues that, even if it breached Scoular’s right of first refusal,
Scoular waived its right to recover damages by failing to employ the Side Letter’s
exclusive damages provision.
Ceres relies on a combination of two provisions in the Side Letter to reach this
conclusion. Ceres contends that the reimbursement provision found in paragraph 4 of the
Side Letter provides a remedy for breach of the Side Letter. Under that provision,
Scoular could recover its share of the costs after delivering a Reimbursement Notice “if
Ceres constructs or causes to be constructed on the Project Lands any improvement that
is substantially inconsistent with the . . . Term Sheet.” (Id. at 14.)
Ceres then argues that paragraph 7 of the Side Letter, entitled “No Liability for
Other’s Negligence,” renders the reimbursement provision the exclusive source of
damages under the contract. (See id. at 15.) Paragraph 7 states, “[n]or shall either Party

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be liable to the other for costs, expenses, liabilities or damages arising out of a breach of
the [mass grading contract] . . . or of this Agreement by such Party.” (Id. at 15.) Ceres
argues that this provision precludes any other damages for breach of the agreement, and
therefore, Scoular’s sole remedy would have been to follow the reimbursement
provision’s procedure and submit a Reimbursement Notice, prior to May 31, 2016, to
receive its costs. (See id. at 14.)
However, Ceres ignores the fact that, if read as to preclude any damages for a
breach of the agreement as Ceres proposes, the damages limitation would leave no
remedy for breach of the – admittedly binding – right of first refusal. Ceres argues that
the damages limitation would not preclude recovery under the reimbursement provision
because it describes a specific remedy, rather than purporting to be a remedy for a breach
of contract. But the reimbursement provision only addresses reimbursement for specific
conduct – allowing recovery only “if Ceres constructs or causes to be constructed on the
Project Lands any improvement that is substantially inconsistent with the Green Design
and/or the Term Sheet.” (Id.) Thus, the reimbursement provision does not specifically
provide a remedy for a breach of the right of first refusal under Ceres’s interpretation.
Scoular offers its own interpretation, arguing that the damages limitation provision
in the Side Letter is in fact significantly narrower than Ceres lets on. Scoular notes that it
proposed the language for this provision in order to avoid being liable to a third party for
Ceres’s actions based on its funding of the grading work. (See Mulder Decl., Ex. 19.)
Scoular contends that the two clauses in the damages limitation contain parallel language,
which suggests that the final clause only limits liability by one party for the breach of

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another; it does not limit a party’s liability for its own breach. Scoular relies on the
following parallel language:
Notwithstanding anything contained herein to the contrary, no Party shall
be liable to the other Party for any and all costs, expenses, liabilities and
damages arising out of the negligent act or omission or willful misconduct
of such other Party; nor shall either Party be liable to the other for costs,
expenses, liabilities or damages arising out of a breach of the [mass grading
contract] (unless such breach results from an act or omission caused or
agreed to by Scoular) or of this Agreement by such Party.
(Side Letter at 15 (emphasis added).) The “other Party” and “such other Party” in the
first clause clearly refer to the same party, and Scoular argues that the second clause
borrows from the first, using shorthand for the same meaning – the “other” and “such
Party” in the second clause both refer to the breaching party. Thus, Scoular views the
second clause as similarly limiting damages of one party to the breaching party. Scoular
contends that its view is also consistent with the rules of grammar because “such Party” –
a backward-looking pronoun – would be placed as close as possible to the noun phrase to
which it refers. (See Decl. of Peter M. Lancaster, Ex. I at 446, Oct. 21, 2016, Docket
No. 136.)
The Court finds that Scoular’s proposed interpretation is most consistent with the
language of the Side Letter and most adequately gives effect to the right of first refusal.
Thus, the Court adopts Scoular’s interpretation and finds that, given the context and the
document as a whole, the limitation provision does not preclude the harmed party from
seeking damages for a breach of contract from the breaching party. Accordingly, the
Court will deny Defendants’ motion with regard to Scoular’s breach of contract claim
based on the Side Letter.

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D.

Tortious Interference with Contract

Defendants next seek summary judgment on Scoular’s claim against Riverland for
tortious interference with contract. Defendants argue that even if there was a breach of
contract, Scoular’s tortious interference with contract claim fails because of the parentsubsidiary privilege. 8 The parties appear to agree that Minnesota law applies to this
claim. Generally, “a party cannot interfere with its own contract.” Nordling v. N. States
Power Co., 478 N.W.2d 498, 505 (Minn. 1991).

Some courts have extended this

principle to establish a parent-subsidiary privilege, under which a parent and wholly
owned subsidiary cannot interfere with each other’s contracts. See, e.g., Servo Kinetics,
Inc. v. Tokyo Precision Instruments Co., 475 F.3d 783, 800-02 (6th Cir. 2007) (finding no
tortious interference where parent owned ninety-eight percent of the other company and
there was sufficient evidence to pierce the corporate veil).
Overall, the Court finds the law unclear regarding whether a parent-subsidiary
privilege exists and would apply in this instance – where a subsidiary is accused of
interfering with a contract between its parent and a third party. Almost all of the cases
cited by Defendants apply the privilege to protect a parent’s interference with a
subsidiary’s contract and do not discuss whether the same result would occur if the roles

8

Defendants also argue that Scoular’s tortious interference with contract claim fails
because there was no breach of contract, for the same reasons discussed in the prior sections.
See Kallok v. Medtronic, Inc., 573 N.W.2d 356, 362 (Minn. 1998) (stating that intentional
procurement of a breach of a contract is required for a tortious interference claim). As discussed
above, the Court finds Defendants are not entitled to summary judgment on Scoular’s breach of
contract claim, and thus, the Court rejects this argument.

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were reversed. See Boulevard Assocs. v. Sovereign Hotels, Inc., 72 F.3d 1029, 1036
(2d Cir. 1995) (“Courts in other states have uniformly found that a parent company does
not engage in tortious conduct when it directs its wholly owned subsidiary to breach a
contract that is no longer in the subsidiary’s economic interest to perform.”); Canderm
Pharmacal, Ltd. v. Elder Pharm., Inc., 862 F.2d 597, 601 (6th Cir. 1988) (finding a parent
company was privileged to interfere in a contract between a subsidiary and a third party
because the parent was “in effect, the same entity” as its subsidiary”); see also Culcal
Stylco, Inc. v. Vornado, Inc., 103 Cal. Rptr. 419, 421 (Cal. Ct. App. 1972) (discussing the
differing interests a parent and a subsidiary have in each other). 9
Defendants provide only one case in which a court dismissed a tortious
interference claim against a subsidiary – from the Fifth Circuit applying Texas law. See
Deauville Corp. v. Federated Dep’t Stores, Inc., 756 F.2d 1183, 1197 (5th Cir. 1985)
(finding a wholly owned subsidiary did not tortiously interfere with a parent company’s
contract because the parent controlled the subsidiary’s operations and the subsidiary’s
profits went to the parent, and thus, the parent’s and the subsidiary’s “interests were so
closely aligned that [the court had] difficulty even recognizing their separate identities for

9

Scoular also cites United States v. R.J. Zavoral & Sons, Inc., in which the court found,
“Cases recognizing [the parent-subsidiary] privilege . . . are limited to situations where a parent
company interferes with a contract of its wholly owned subsidiary.” 894 F. Supp. 2d 1118,
1128 (D. Minn. 2012). But considering the context, the court in that case was contrasting the
defendant’s partial ownership in a joint venture with the wholly owned subsidiaries in prior
cases, and thus, the court did not hold that the party whose contract was interfered with must be a
subsidiary rather than a parent. Id. That said, R.J. Zavoral may suggest that the privilege does
not apply where the interfering party is not the sole owner of the other party.

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the purpose of [tortious interference] analysis”). 10 Thus, the Court finds no consensus
establishing a subsidiary’s privilege to interfere with the contracts of its parent.
Moreover, the rationale behind cases recognizing some form of a parentsubsidiary privilege is not entirely consistent. Some cases focus on the parent’s interest
in the subsidiary as justifying its interference, e.g., James M. King & Assocs., Inc. v. G.D.
Van Wagenen Co., 717 F. Supp. 667, 680-81 (D. Minn. 1989) (collecting cases and
referring to the privilege as “the ‘superior financial interest privilege’”), which may not
apply as strongly in reverse. In contrast, other cases have used broader language about
the “identity of interests” between a subsidiary and a parent. E.g. Waste Conversion Sys.,
Inc. v. Greenstone Indus., Inc., 33 S.W.3d 779, 781-82 (Tenn. 2000).
Due to the underlying rationale for such a privilege and the dearth of caselaw
applying a parent-subsidiary privilege in the manner Defendants seek , the Court finds no
indication that an absolute privilege exists under Minnesota law preventing a tortious
interference claim based on Riverland’s alleged interference with Ceres’s contract with
Scoular. Because Defendants make no other argument with regard to this claim, the
Court will deny Defendants’ motion with regard to Scoular’s tortious interference with
contract claim.

10

Defendants also cite Starcom, Inc. v. U.S. Telecom, Inc., a federal case in which the
court extended the privilege to actions between subsidiaries of a common parent. No. 87-2540V, 1991 WL 279291, at *3 (D. Kan. Dec. 11, 1991). The Starcom court relied on a Supreme
Court case, Copperweld Corp. v. Independence Tube Corp., holding that a parent company and
its wholly owned subsidiary were “incapable of conspiring with each other for purposes of § 1 of
the Sherman Act.” 467 U.S. 752, 777 (1984). The Court in Copperweld Corp., however, noted
that it was reaching only the “narrow issue squarely presented.” Id. at 767.

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E.

Equitable Claims

Defendants also seek summary judgment on Scoular’s equitable claims. The
parties agree that Minnesota law applies to these claims.
Defendants first argue that Scoular’s claims for unjust enrichment and promissory
estoppel fail because there is a valid contract between the parties. “A party may not have
equitable relief where there is an adequate remedy at law available.” See Servicemaster
of St. Cloud v. GAB Bus. Servs., Inc., 544 N.W.2d 302, 305 (Minn. 1996). Under
Minnesota law, “[w]here an express contract exists, there can be no implied [in law]
contract with respect to the same subject matter.” Ventura v. Titan Sports, Inc., 65 F.3d
725, 730 (8th Cir. 1995) (quoting Reese Design v. I-94 Highway 61 Eastview Ctr. P’ship,
428 N.W.2d 441, 446 (Minn. Ct. App. 1988)). However, “if an existing contract does not
address the benefit for which recovery is sought, [equitable relief] is available regarding
those items about which the contract is silent.” Id.
Scoular contends that both of its equitable claims are unrelated to the limited
rights provided in the contracts, which involve exclusivity, confidentiality, and the right
of first refusal. Instead, the equitable claims are based on Scoular’s allegations that Ceres
misled it into investing in Northgate, with assurances that Riverland would not be
involved in operations and that Scoular would receive a benefit. (See Am. Compl. ¶¶ 7086.) The Court finds Scoular’s argument persuasive. Considering the limited scope of
the applicable contracts, the Court finds that Scoular’s equitable claims are not barred by
the existence of several narrow contractual rights.

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Defendants also argue Scoular’s unjust enrichment claim fails because Scoular has
not provided evidence of illegal or unlawful conduct. See First Nat’l Bank of St. Paul v.
Ramier, 311 N.W.2d 502, 504 (Minn. 1981) (“[U]njust enrichment claims do not lie
simply because one party benefits from the efforts or obligations of others, but instead it
must be shown that a party was unjustly enriched in the sense that the term ‘unjustly’
could mean illegally or unlawfully.”). But, in addition to illegal or unlawful activity,
“[a]n action for unjust enrichment may be based on failure of consideration, fraud,
mistake, and situations where it would be morally wrong for one party to enrich himself
[or herself] at the expense of another.” Anderson v. DeLisle, 352 N.W.2d 794, 796
(Minn. Ct. App. 1984). In Anderson, the court noted that “there was no mistake or fraud
by the” defendants, but that they “stood silent and watched [the plaintiff] make extensive
improvements to their property” and “contracted to retain those improvements upon
default knowing that . . . there was little or no chance [the plaintiff] could perform under
the contract.” Id. Under those circumstances, the court found that a “jury reasonably
could find that equity and good conscience require[d] [the defendants] to compensate [the
plaintiff] for the improvements.” Id. In this case, construing the facts in Scoular’s favor,
one could find that Defendants’ misrepresentations and assurances, while Scoular
invested time and money into the project, similarly support a finding that in “equity and
good conscience,” Scoular should be compensated.
Accordingly, the Court rejects Defendants’ arguments that Scoular’s contractual
rights preclude any equitable claims at this stage in the proceedings and that Scoular has

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not alleged facts supporting its unjust enrichment claim. The Court therefore will deny
Defendants’ motion for summary judgment with regard to Scoular’s equitable claims.

F.

Lost-Profit Damages

Defendants argue that the Side Letter and Term Sheet prohibit recovery of lost
profit damages under both the breach of contract and tortious interference claims.11
Defendants’ arguments rely on the Side Letter’s damages limitation provision, which
Defendants argue precludes any damages aside from those described in the
reimbursement provision.

As discussed above, the Court rejects Defendants’

construction of the limitation and finds instead that the provision limits damages to the
breaching party but does not excuse damages owed by the breaching party. The Court
therefore finds that the Side Letter damages limitation does not bar lost profit damages.
Defendants also point to a provision in the Term Sheet, which states, “If for any
reason whatsoever the Parties fail to execute the Definitive Agreements, no Party will be
entitled to make any claim to the others as a consequence of the failure by the Parties to
reach an agreement.” (Term Sheet at 6.) The Court finds that this provision only
emphasizes the non-binding nature of much of the Term Sheet; it does not disclaim
damages under the binding portions of the contract.
Accordingly, the Court will deny Defendants’ motion with regard to lost profit
damages.
11

Defendants also argue that lost-profit damages are unavailable for an unjust enrichment
or promissory estoppel claim, but Scoular agrees and states that it is not seeking lost-profit
damages under those claims. Thus, the Court need not consider the argument.

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II.

MOTION TO EXCLUDE EXPERT TESTIMONY
Defendants also move to exclude several opinions from Scoular’s damages expert,

Dr. Timothy Nantell. Nantell is “an emeritus professor of finance at the Carlson School
of Management at the University of Minnesota.” (Decl. of Dr. Timothy J. Nantell
(“Nantell Decl.”) ¶ 1, Oct. 21, 2016, Docket No. 138.) Nantell has a Ph.D. in Finance
from the University of Wisconsin, and he has previously served as Chair of the Finance
Department, Associate Dean of Faculty Affairs, and Acting Dean at Carlson School of
Management. (Decl. of Daniel R. Olson (“Olson Decl.”), Ex. 1 ¶ 2, Sept. 30, 2016,
Docket No. 123.) Nantell has never been employed in the private sector or the grain
industry. (Olson Decl., Ex. 3 (“Nantell Dep.”) at 9:23-10:1, 10:24-11:1.) 12
Nantell estimates Scoular’s lost profits as $66,777,782. (Olson Decl., Ex. 1 tbl.A.)
Nantell arrived at this estimate after “approximately 140 hours of effort reviewing dozens
of documents, public information, and deposition testimony, interviewing five members
of Scoular’s management team, and building almost 300 lines of analysis for ten years
across nine tables.”

(Nantell Decl. ¶ 4.)

Nantell also reviewed “multiple financial

models developed by Scoular as part of its normal business analysis,” including the final
model developed by Scoular in November 2013, which “contained around 40 analysis
12

Defendants note that Nantell’s testimony was excluded from trial at least one time in a
past case, but the exclusion was based on the court’s rejection of one of the underlying legal
theories. (Nantell Dep. at 16:17-17:14); see Hexamedics, S.A.R.L. v. Guidant Corp., No. 002532, 2003 WL 21012179, at *5 (D. Minn. Apr. 30, 2003) (finding “the model [used in Nantell’s
expert report] d[id] not fit the facts of t[he] case” because it included an assumption based on a
claim that the court dismissed on summary judgment). Nantell has been retained as an expert
more than fifty times over forty-five years. (Nantell Dep. at 15:5-10, 16:4-9.)

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sheets (Excel worksheets) covering roughly ten years and often running to dozens of lines
of analysis.” (Id.)
Defendants note that Nantell relies on several assumptions, including: Scoular’s
board would have approved the $47.3 million investment into Northgate in 2014;
Northgate would have started to generate Earnings Before Income Taxes, Depreciation,
and Amortization (“EBITDA”) of $9.2 million in 2016; Northgate would operate at full
capacity by 2018; and Scoular would have continued to invest in GrainCo and would
have increased its ownership share over time. (See Olson Decl., Ex. 1 ¶ 104.) Nantell
explicitly acknowledges these assumptions in his report. (Id.) Scoular also notes that
Nantell’s estimate of EBITDA between $9 and $16 million is lower than Ceres’s internal
calculation of over $16 million. (Compare id. tbl.B, with Olson Decl., Ex. 2 ¶¶ 32-33.)
Defendants note there is a significant difference between Nantell’s projections and
some of Scoular’s internal projections. Scoular’s last internal projections anticipated a
loss of between $2.145 and $9.5 million. (See Nantell Dep. at 118:4-11.) Nantell later
directed Scoular to update and add to the figures underlying those projections. (Id. at
27:11-28:18; Olson Decl., Exs. 6, 7.) Scoular contends that the difference in estimates
make sense because Scoular’s prior internal estimates did not account for the entire value
of the deal. (Nantell Dep. at 118:4-18 (stating that Scoular’s internal projections were
“not intended to be anywhere near a complete accounting of [Northgate’s] strategic

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value”); id. at 154:14-20 (stating Scoular’s internal projections “were not estimating the
complete value”); see also Nantell Decl. ¶¶ 7, 10.) 13
Finally, Nantell acknowledges that he did not consider Northgate’s actual
performance, under Ceres’s management, to reach his opinions, reasoning that this
information was not relevant to calculate Scoular’s damages because Northgate “wasn’t
being run by Scoular.” (Nantell Dep. at 24:18-25:22.)

A.

Standard of Review

Federal Rule of Evidence 702 governs the admissibility of expert testimony and
provides the following:
A witness who is qualified as an expert by knowledge, skill, experience,
training, or education may testify in the form of an opinion or otherwise if:
(a) the expert’s scientific, technical, or other specialized knowledge will
help the trier of fact to understand the evidence or to determine a fact in
issue;
13

According to Nantell, the Northgate deal involved two components: (1) “the
Origination component, which referred to the business opportunity located at Northgate due to
originating the flow of grain from Canada to Scoular,” and (2) “the Strategic component, which
referred to the business opportunities ‘downstream’ from the Northgate location” such as “all of
the ways in which Scoular . . . would be able to use the originated grain . . . to add value to the
company’s distribution network.” (Nantell Decl. ¶ 5.) Nantell contends that the origination
component mainly involved “identify[ing] the magnitude of the investment required to reach the
purpose for which the investment was undertaken: the value of the Strategic component.”
(Id. ¶ 7.) According to Nantell, Scoular’s internal models included only the origination
component because Scoular “had become increasingly comfortable” in thinking that the strategic
value would greatly outweigh the investment required for the origination component. (Id. ¶ 8.)
Additionally, “[b]ecause Scoular is not a public company, it fe[lt] no need to try to provide the
public complete projections of the value of its investments. Instead, its analysis [was] for
internal purposes alone, and primarily constitute[d] a simple go/no-go analysis.” (Id. ¶ 9.) A
January 2013 email from Ludington supports this conclusion: Ludington stated that in its
internal projections, Scoular had not fully projected “growth in strategic value” and that “there
[were] numerous strategic value components that [Scoular] ha[d] not factored in.” (Lancaster
Decl., Ex. H at 196.)

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(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts
of the case.
Fed. R. Evid. 702. The district court has a gate-keeping obligation to make certain that
all testimony admitted under Rule 702 satisfies these prerequisites and that “any and all
scientific testimony or evidence admitted is not only relevant, but reliable.” Daubert v.
Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993). The proponent of the expert
testimony has the burden of establishing by a preponderance of the evidence that the
expert is qualified, that his or her methodology is scientifically valid, and that “the
reasoning or methodology in question is applied properly to the facts in issue.” Marmo v.
Tyson Fresh Meats, Inc., 457 F.3d 748, 757-58 (8th Cir. 2006). The reliability and
relevance inquiry is “designed to ‘make certain that an expert, whether basing testimony
upon professional studies or personal experience, employs in the courtroom the same
level of intellectual rigor that characterizes the practice of an expert in the relevant
field.’” Id. at 757 (quoting Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999)).
“[T]he trial judge must have considerable leeway in deciding in a particular case
how to go about determining whether particular expert testimony is reliable.” Kumho
Tire, 526 U.S. at 152. However, the Eighth Circuit has held that “[c]ourts should resolve
doubts regarding the usefulness of an expert’s testimony in favor of admissibility.”
Marmo, 457 F.3d at 758. “As a general rule, the factual basis of an expert opinion goes
to the credibility of the testimony, not the admissibility, and it is up to the opposing party
to examine the factual basis for the opinion in cross-examination.” Loudermill v. Dow

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Chem. Co., 863 F.2d 566, 570 (8th Cir. 1988). “Only if [an] expert’s opinion is so
fundamentally unsupported that it can offer no assistance to the jury must such testimony
be excluded.” Bonner v. ISP Techs., Inc., 259 F.3d 924, 929-30 (8th Cir. 2001) (quoting
Hose v. Chi. Nw. Transp. Co., 70 F.3d 968, 974 (8th Cir. 1995)).

B.

Reliance on Scoular’s Projections

Defendants first argue that Nantell’s opinions should be excluded because he
failed to independently test some of the data provided by Scoular, which they argue
renders Nantell’s opinions unreliable. Defendants point to three particular sets of facts or
data for which Nantell relied on Scoular’s representations: (1) grain volume projections,
(2) margin estimates, and (3) BNSF Railway Company (“BNSF”) development funds.
First, Defendants note that Nantell admitted in his deposition that he did not
“independently research or analyze” the grain volume projections, and that “in the end
these are the estimates from the experts within Scoular.” (Nantell Dep. at 113:2-12.)
But Nantell did “set the standards [Scoular would] use[] in terms of how conservative
they should be” and also “discussed the sources and the basis of [the grain volume
projections] with them.” (Id. at 113:7-10.) Defendants contend that this is worrisome
because Scoular’s grain volume projections were higher than those reflected in
contemporaneous documents, based on the inclusion of two commodities not previously
contemplated by the parties. (See id. at 111:23-112:4.) Also, Defendants contend that
the projections conflict with changes in market conditions, including the decrease in

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Saskatchewan’s grain production since the time of the projections. (See id. at 112:21113:1.)
Second, Nantell relied on Scoular’s representations regarding margin estimates.
Defendants argue that Scoular’s margin estimates derive from a different region in
Canada, and that Nantell failed to conduct any independent analysis into whether the
margins would be comparable between the regions.

(See id. at 115:21-116:11

(acknowledging that different regions would not necessarily have the same margin); id. at
117:5-8, 126:23-127:9 (admitting that he relied on Scoular’s margin estimates, but noting
that he provided parameters for how conservative they should be).) Defendants asked
specifically about one projection regarding durum wheat, which seemed in conflict with
the actual loss in the prior year. (Id. at 127:10-128:4.) Defendants asked whether that
perceived inconsistency prompted Nantell to “probe at all any of the other margins,” to
which Nantell responded that he had conversations with Scoular personnel about the
durum wheat projection, but determined that the prior year had been unique because
“there were some fraud issues.”

(Id. at 128:5-15.)

Nantell specifically considered

whether the prior year’s loss had reflected a change in “the long-term estimates for the
margins in this business[,] and after some discussion[, he] was satisfied that it hadn’t.”
(Id.)
Finally, Nantell accepted Scoular’s representation that BNSF would waive a
requirement that a facility be built by a certain date and would pay $7.5 million in
development funds even if the project was delayed by a few months. (Id. at 179:2-21.)
Nantell admitted that he took Scoular’s word that its “working relationship” with BNSF

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meant that Scoular was legitimately unconcerned that BNSF would strictly enforce that
part of the agreement over just a few months of delay. (Id. at 179:7-180:6.)
Defendants contrast Nantell’s acceptance of Scoular’s figures on these issue with
his rejection of some of Scoular’s other forecasts or models, including Scoular’s discount
rate and working capital. (Id. at 123:25-124:9.) But the fact that Nantell did not accept
all of Scoular’s data and figures suggests that he was considering the validity of Scoular’s
data and rejecting that which he found unsupported. Nantell also states that he had
reasons for trusting Scoular’s estimates, including the following: Nantell found Scoular
had a “history of conservative estimates”; Nantell encouraged Scoular’s personnel to
perform their analysis to a standard “consistent with [Nantell’s] goal of setting an
estimate of damages to a reasonable degree of professional certainty,” and interviewed
them to ensure they did so; and Nantell confirmed Scoular’s volume estimates by
comparing them to prior estimates by Scoular and Defendants. (Nantell Decl. ¶ 11.)
Defendants argue that Nantell’s reliance on Scoular’s projections without
independent verification renders Nantell’s opinions unreliable.

Reliance on internal

documents or projections does not render an expert opinion per se unreliable.
Cf. Supervalu, Inc. v. Associated Grocers, Inc., No. 04-2936, 2007 WL 624342, at *6
(D. Minn. Jan. 3, 2007) (“Expert witnesses routinely rely on financial and accounting
information provided by parties in support of their analysis.”). The question is whether
the internal projections that Nantell relied upon provide a reasonable factual basis for his
opinions. US Salt, Inc. v. Broken Arrow, Inc., No. 07-1988, 2008 WL 2277602, at *1
(D. Minn. May 30, 2008). (“Although the law does not require mathematical certainty in

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the proof and calculation of lost profits, it requires evidence of definite profits grounded
upon a reasonable factual basis.”).
Both parties discuss US Salt, in which the court excluded expert testimony on lost
profits, finding the testimony unreliable because the expert could not “identify a reliable
factual basis for his opinions.” 2008 WL 2277602, at *2. In that case, the expert “relied
almost exclusively on the assumptions and estimates provided by U.S. Salt’s president
and owner” and “did nothing to investigate the market conditions . . . or verify the
estimates in his reports despite the fact that U.S. Salt’s sales projections and goals were
based on vague and speculative information.” Id. at *1. The expert did not know who
had prepared the documents he relied upon and never talked with that person about the
documents. Id. at *2. The court found that the expert “ha[d] not formed an opinion as to
U.S. Salt’s lost profits,” but rather “he ha[d] simply adopted [U.S. Salt’s owner’s]
opinion as to U.S. Salt’s expected sales and the nature of the market.” Id. Finally, the
court’s finding that the underlying projections were “speculative at best” and “nothing
more than optimistic projections” also likely played a role in its decision. See id. at *1-2.
As in US Salt, reliance on internal estimates or projections may not be reasonable
where the underlying projections are suspect or the expert does not make an effort to
consider their reliability. 2008 WL 2277602, at *1-2. But in this case, Nantell conversed
with Scoular personnel about the data and methods they employed, he challenged data
provided by Scoular when he felt it necessary, and he gave supporting reasons for his
decision to trust the particular data he relied upon. Based on this evidence, the Court
finds Nantell’s reliance on Scoular’s data and representations does not render his

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opinions unreliable.

Defendants may still raise challenges to the factual basis of

Nantell’s opinions on cross-examination, as these challenges go to credibility rather than
admissibility.

C.

Reliance on November 2013 Proposed Term Sheet

Defendants challenge Nantell’s decision to use in his report terms collected from
various draft agreements and communications, rather than relying solely on the Term
Sheet, Term Sheet Addendum, and Side Letter, which were executed by both parties.
Specifically, Defendants challenge Nantell’s decision to include some terms from the
November 2013 Addendum, which Ceres never signed. (See Nantell Dep. at 38:1-9,
163:10-15; Olson Decl., Exs. 4, 5.) When asked whether he “picked and chose from
various documents and compiled what [he] believed to be what the parties’ agreements
were with respect to Northgate,” Nantell responded that he understood his “job as an
expert [was] to look at the mounds of data and say what needs to be gathered . . . to
produce a reasonable estimate of damages.” (Nantell Dep. at 169:16-170:7.)
Defendants contend that Nantell’s discussion based on hypothetical terms never
agreed to by both parties renders Nantell’s opinions unrelated to the facts and, therefore,
Defendants contend they should be excluded as irrelevant under Daubert. See Daubert,
509 U.S. at 591 (“Expert testimony which does not relate to any issue in the case is not
relevant and, ergo, non-helpful.” (citation omitted)); see also Grp. Health Plan, Inc. v.
Philip Morris Inc., 188 F. Supp. 2d 1122, 1134 (D. Minn. 2002) (finding an expert’s

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“causation and damages model [was] precariously built on a foundation of assumptions
and speculation”).
In this case, however, the duty Ceres supposedly breached was to respect
Scoular’s right of first refusal and right to exclusivity.

Nantell was tasked with

determining the value of the lost opportunity, where both parties agree that they never
reached a full binding agreement on the terms of their deal, and the terms in the Term
Sheet and Term Sheet Addendum were incomplete. Thus, Nantell was not bound to the
tentative terms discussed in those documents. While Ceres never signed the November
2013 Addendum, Ceres was involved in negotiating its terms and there is some indication
that Ceres almost signed it or would have signed it if Ceres had not decided to explore
using Riverland in place of Scoular. (See Lancaster Decl., Ex. H at 112 (stating, in an
email from Ludington to Detlefsen: “I realized neither of us signed these agreements last
week,” which implies that the parties had previously discussed and possibly agreed on the
terms).)
Accordingly, the Court will deny Defendants’ motion because Nantell’s opinion
about the deal the parties likely would have agreed to, based on a review of many
documents in this case, is not irrelevant.

D.

Determination of Lost Profits into the Future

Finally, Defendants challenge Nantell’s lost profit analysis as too speculative
because it considers lost profits many years into the future. Under Nantell’s analysis, the
majority of Scoular’s lost profits would not occur until 2025, when Nantell projected that

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Scoular would have earned $57.875 million.

(Olson Decl., Ex. 1 tbl.A.)

Scoular

contends that Nantell’s analysis is consistent with the deal the parties contemplated,
which they intended to be long term.

(See Lancaster Decl., Ex. E at 24:17-25:4

(Ludington stating Scoular’s operation of Northgate “would have been . . . in the forever
category in terms of time. If we were going to build a business around a grain asset, we
want to be there forever. It becomes a part of our network”).)
Defendants contend that Nantell’s estimate for lost profit damages is too
speculative to be reliable because it is based on a new project. See Hammann v. 1-800
Ideas.com, Inc., 455 F. Supp. 2d 942, 948 (D. Minn. 2006) (“Damages for lost profits,
especially for a relatively new business venture, must be supported by specific, concrete
evidence, not by mere ‘speculation and conjecture.’” (citation omitted)). Defendants cite
Leoni v. Bemis Co., in which the Minnesota Supreme Court noted that often “proof of
loss of profits in a new business is too speculative to be the basis for recovery,” 255
N.W.2d 824, 826 (Minn. 1977) (quoting Village of Elbow Lake v. Otter Tail Power Co.,
160 N.W.2d 571, 574 (Minn. 1968)), due to “the fact that, lacking a history of profits,
new businesses rarely have evidence upon which an award of damages may be based
with the requisite degree of certainty,” id. The Leoni court noted, however, that while “it
is more difficult to prove loss of prospective profits to a new business than to an
established one, the law does not hold that it may not be done”; rather, the general rule
that one can recover “so long as there is proof of a reasonable basis upon which to
approximate the amount” controls. Id. at 826. Applying this rule, the court awarded lostprofit damages in the context of a relatively new operation in a specific region based on

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the plaintiff’s brief history of initial sales in the region and his successful sales record
from other parts of the country. Id.
Some courts have also excluded damages analyses where the expert projected
damages far into the future when there was no indication the parties contemplated that the
contract or relationship would extend for such a duration. See Cole v. Homier Distrib.
Co., 599 F.3d 856, 866 (8th Cir. 2010) (finding that “lost-profit damages cannot rest upon
mere speculation” and affirming an expert’s exclusion where the expert’s twenty-fiveyear damage term was speculative because the parties could terminate the contract with
ninety-days’ notice and there was no indication it would continue for twenty-five years);
Meterlogic, Inc. v. KLT, Inc., 368 F.3d 1017, 1019 (8th Cir. 2004) (affirming exclusion of
expert where the expert extended a two-year contract out ten years and assumed
exclusivity where it was not guaranteed).
The cases Defendants cite, however, are factually distinct from this one. Here, the
Northgate project was meant to last for a long period, with significant investment and a
long-term payoff. And like the new regional operation in Leoni, while the Northgate
project would have been new, Scoular has similar projects and networks elsewhere in the
country on which Nantell could rely. The Court finds Nantell’s damages opinion is
sufficiently grounded in the facts of the case to be helpful to the jury, and therefore, the
Court will deny Defendants’ motion.

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ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.

Defendants’ Motion to Exclude Expert Testimony [Docket No. 120] is

DENIED.
2.

Defendants’ Motion for Summary Judgment [Docket No. 125] is DENIED.

DATED: August 16, 2017
at Minneapolis, Minnesota.

__________s/John R. Tunheim__________
JOHN R. TUNHEIM
Chief Judge
United States District Court

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