Summary of a Recent
Judicial
Development in
Production Contracts
Hog Contractor Breaches Duty of Good Faith in
Refusing to Offer Contract
Alison E. PeckNational AgLaw Center Graduate Assistant
In Roe v. Cargill, Inc., 333 F. Supp. 2d 808 (W.D. Ark. 2004), the Arkansas federal district court upheld an arbitrator's award that found defendant Cargill acted in bad faith when it refused to contract with the would-be purchaser of one of Cargill's contract grower's operations. The plaintiff, who was the original contract grower, had refused to accept hogs from Cargill after Cargill delivered diseased hogs. Id. at 811. The parties agreed to terminate their hog production contract without agreeing to the terms of the separation, and the plaintiff's suit against Cargill over the separation terms was ordered to arbitration under the parties' agreement. Id. at 811-12. When the plaintiff attempted to sell his farm to a qualified buyer, the buyer's financing was conditioned on Cargill issuing a letter of intent to enter into a hog production contract with the buyer; Cargill, however, refused to issue the letter of intent to avoid funding the plaintiff's litigation. Id. at 812. The arbitrator found that while the plaintiff breached the contract by refusing to accept additional hog deliveries from Cargill, Cargill agreed to an early termination instead of pursuing other remedies. Id. The arbitrator also found that Cargill breached the covenant of good faith and fair dealing by refusing to issue the letter of intent with the purpose of frustrating the plaintiff's action. Id. The arbitrator dismissed Cargill's argument that the duty of good faith could not extend beyond the termination of the contract, reasoning that the duty extended to settlement and litigation of a contract, id. at 814, including plaintiff's attempt to mitigate any damages by selling his farm, id. at 812-13. The award ordered Cargill to pay at least $580,000 to purchase the plaintiff's farm as an equitable remedy for the plaintiff's loss of the earlier sale. Id. at 813. The district court held that the arbitrator's decision was not an abuse of discretion and entered judgment confirming the award. Id. at 816.
The case was decided on April 20, 2004; this summary was posted Sept. 23, 2005.