Summary of a Recent
Judicial Development in
Cooperatives

Ag Coop Members' Damages
Reduced to Present Value

Randal Busby
National AgLaw Center Research Assistant

In an action for fraud and breach of contract brought by former members of an agricultural cooperative against the agricultural cooperative they were once members of, the Georgia Court of Appeals has ruled that the trial court erred in failing to reduce the plaintiffs' damages award by discounting equity accounts to present value. Gold Kist, Inc. v. Moody, 575 S.E.2d 509, 510-13 (Ga. Ct. App. 2002), cert. denied, (Ga. Feb. 24, 2003). See id.

The plaintiffs, former cooperative members, filed suit against Gold Kist, Inc. ("Gold Kist"), a Georgia agricultural cooperative, after Gold Kist assigned individual egg production contracts to another company. See id. at 510. Initially, the issue was "whether the plaintiffs were entitled to an immediate payment of all profits Gold Kist made in selling the plaintiffs' eggs or whether the co-op was entitled to retain a portion of the profits as 'notified equity,' and actually pay out those profits 20 years later." Id. This dispute resulted in several decisions and appellate reviews over a span of years. See id. Originally, the trial court ruled that Gold Kist was "contractually required to pay out all the profits to the plaintiffs . . . ." Id. (citing Gold Kist v. Wilson, 490 S.E.2d 466 (Ga. Ct. App. 1997), (Gold Kist III)). In Gold Kist III, the appeals court overturned and remanded the decision and held that

the trial court had erred in finding that Gold Kist should have paid the full face amount of the notified equity to the plaintiffs. But the [c]ourt affirmed the trial court's holding that the egg production contracts were for personal services, and thus that they could not be assigned without the plaintiffs' prior consent. Therefore, the plaintiffs were entitled to recover the profits they would have been paid absent the assignments.

Id.

Nevertheless, on remand, the trial judge reentered his original judgment justifying it by three alternative theories. See id. at 511 (citing Gold Kist v. Wilson, 542 S.E.2d 126 (Ga. Ct. App. 2000), (Gold Kist IV)). The appeals court reviewed the case again and found that the trial court had "exceeded its authority in entering additional findings of fact and conclusions of law to support the court's [original] damage calculation and had not followed the holding in Gold Kist III." Id.

Remanded once more, the case was assigned to another judge because the previous judge had become seriously ill. See id. The new judge "simply presumed that the original judge had already discounted the profits to present value based upon the theory that trial courts are presumed to faithfully and lawfully perform their duties and issued an award for the same damages." Id. Gold Kist appealed the trial court's decision to the Georgia Court of Appeals. See id.

On appeal for the fifth time, the appeals court first examined whether the trial court had erred in presuming that the original judge had followed the law. See id. Gold Kist argued that "the original judge never reduced the award to present value as directed by this [appellate] [c]ourt in Gold Kist III." Id. The court agreed and stated that the latter trial judge had erred when it presumed that the previous judge had followed the law. See id. This was because, as the court explained, "the original trial judge's error [was] apparent on the face of the record." Id.

The court further stated that the original judge's opinion had allowed the plaintiffs to retain all their profit, when it should have discounted the damages "to present value to account for the fact that most of the amounts in the equity accounts would not have been paid until the 20-year notified equity period had expired." Id. Consequently, the court stated that there should have been no dispute following their ruling in Gold Kist III and that "the awards should have been discounted to present value." Id.

The plaintiffs argued that footnote 4 in Gold Kist IV was inconsistent with the conclusion that the award had never been discounted because it "left open the possibility that the award had already been discounted." Id. at 511-12. Footnote 4 stated as follows:

For the purpose of clarification, we note that damages awarded for the breach of contracts pending at the time of the purported assignment . . . constituted lost future profits, and, as such, should be discounted to present value. In the event the trial failed to discount to present value the award of such profits . . . , the trial court should modify those awards on remand. Assuming the lost profits awards . . . the correct awards are obtained by subtracted the portion of each farmer's award (if any) awarded for past profits . . . and leaving the portion (if any) awarded for future profits . . . .

Id. at 512 (quoting Gold Kist IV, 542 S.E.2d at 129) (citations omitted).

The court disagreed and stated that the footnote made "clear that any award of notified equity must be discounted to present value." Id. (citing Gold Kist IV, 542 S.E.2d at 126). The court also stated that the issue of whether the prior award had been discounted was not before the court in Gold Kist IV as it was in Gold Kist III. See id. Thus, the court stated that footnote 4 was only an attempt to help the lower court make a final judgment and should not be interpreted as contradictory to Gold Kist III. See id. The court reversed and remanded the issue back to the lower court to enter a judgment consistent with Gold Kist III, "an award that reflects the value of the equity accounts discounted to present value." Id.

The court next considered whether the trial court had erred in failing to reduce the award of one of the plaintiffs, H.J. Murray, by the amount of $78,640.55. See id. Gold Kist asserted that "this portion of the award reflects the face value remaining in his notified equity account, and that this portion was overturned in Gold Kist III" The trial judge had previously awarded Murray tort damages for negligent advice received from Gold Kist that it would not sell the egg assets, and Gold Kist argued that his recovery should be limited to that amount. See id. Gold Kist alleged that prior to trial Murray had requested and received the return of his equity account, which was discounted to its present value in accordance with the cooperative's procedures. See id. (citing Gold Kist III, 490 S.E.2d at 466). The court stated that

[t]he original trial judge found that the face value of Murray's equity account was $106,636.37 and that he received $27,995.82 of that amount upon his request. Because the trial judge erroneously found that the plaintiffs were entitled to the full face value of the account, he determined that Murray was still due $78,640.55 from his equity account. The trial court also found that Murray was entitled to tort damages and awarded him total damages of $148,000. The trial judge's order makes clear that this total amount included the $78,640.55 he calculated as the remaining face value of Murray's equity account.

Id.

The court stated that Gold Kist had correctly noted the ruling in Gold Kist III that the plaintiffs were not entitled to recover the face value of their equity account. See id. Thus, the court concluded that Murray was not entitled to recover the $78,740.55 because he was only entitled to the present value of the account, which had already been paid at his own prior request. See id. The plaintiffs rebutted this argument, asserting that footnote 4 from Gold Kist IV was ambiguous. See id. at 512-13. Nevertheless, the court was unpersuaded and reiterated that Gold Kist IV had not addressed the issue and that the original judge had not discounted the previous award. See id. at 513. Therefore, the court determined that footnote 4 had no application in this case. See id.

The case was decided on November 20, 2002; this summary was posted July, 2003