Summary of a Recent
Judicial Development in
Production Contracts

Growers Challenge Terms of Sugar Beet Production Contract
and Conduct of Cooperative

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Bybee Farms LLC v. Snake River Sugar Co., No. CV-06-5007-FVS, 2008 WL 4454054 (E.D. Wash. Sept. 29, 2008), the United States District Court for the Eastern District of Washington held that plaintiff sugar beet farmers were entitled to bring claims for promissory estoppel, breach of implied covenant of good faith, and conversion against the cooperative which contracted with them to purchase their beets.

Background

Snake River Sugar Company, a cooperative that purchased sugar beets from its member growers and sold them to its sister company for processing and marketing, required its members to sign a grower agreement to grow and sell a certain amount of sugar beets that provided for penalties in case they failed to meet the contractual requirements. Id. at *1. Originally, the agreement required members to deliver sugar beets from one acre of land per share of cooperative stock owned each year, but when Snake River started purchasing more sugar beets than it could profitably process and sell, it amended the agreements and reduced the amount of acreage its members were allowed to use. Id. at *1-2. The plaintiffs alleged that Snake River's agent offered to buy their membership shares at a reasonable price in exchange for them not to plant sugar beets the following year. Id. at *4. The agent felt that the shares were worth $800 each, but the plaintiffs thought they were worth $1000, and so in an attempt to get a higher price they threatened to plant sugar beets if Snake River did not agree to $1000 per share. Id. The deal was unsuccessful, but the plaintiffs ceased production of sugar beets anyway, and Snake River levied penalties against them for failure to comply with the terms of its grower agreement. Id. The plaintiffs brought an action to enforce the alleged buyout offer and to recover their losses. Id. at *5.

Arguments

Plaintiffs argued that they were entitled to recover for their losses incurred in reliance upon Snake River's promise to buy their cooperative stock for a reasonable price, under the theories of promissory estoppel and unjust enrichment. Id. at *5-6, *9. Plaintiffs also argued that the defendant breached its implied duty of good faith and fair dealing by improperly prohibiting the growing of sugar beets and making disingenuous offers to purchase their shares. Id. at *10. In addition, plaintiffs brought claims for conversion and for violations of the Agricultural Fair Practices Act (AFPA). Id. at *15-16. Defendant argued that its agents' and board of directors' conduct in reducing production acreage and pressuring the plaintiffs to sell their shares, and its subsequent actions concerning that failed transaction, were justified and reasonable under the circumstances. Id. at *11-16, *18.

Analysis and Holdings

The court noted that there was a question of whether the plaintiffs were allowed to bring a promissory estoppel claim, as it appeared that their remedy was to bring a claim for breach of a unilateral contract instead, but reserved ruling on the issue until the parties had submitted memoranda. Id. at *6. Analyzing the claim, the court found that a jury could find the plaintiffs' witness credible, and therefore Snake River could potentially be estopped from backing out on its deal with the plaintiffs pursuant to the doctrine of promissory estoppel. Id. at *7-9. The court found that the plaintiffs' unjust enrichment claim failed, however, because each of the alleged benefits received by Snake River (reduced production of sugar beets, reduced freight costs, and forfeiture of stock) were addressed by an express contract such as the grower agreement. Id. at *9. The court explained that when a party is bound by the provisions of a valid, express contract, he "may not disregard the same and bring an action on an implied contract relating to the same matter, in contravention of the express contract." Id. The court also concluded that several instances of questionable conduct pointed out by the plaintiffs were collectively sufficient to create a jury issue with respect to whether Snake River acted in bad faith, and that because the parties disputed the validity of a forfeiture provision in their contracts, Snake River was not entitled to summary judgment on the conversion claim. Id. at *14, *15. The court further found that pressuring the plaintiffs to sell their stock did not amount to coercion in violation of the AFPA, and that that a rational jury could conclude that Snake River's alleged breaches of contract were not material. Id. at *16, *18.

The case was decided on September 29, 2008.