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United Sugars Corporation v. U.S. Sugar Co., Inc.

United States District Court, D. Minnesota

April 2, 2015

United Sugars Corporation, Plaintiff,
v.
U.S. Sugar Co., Inc., Defendant.

David R. Crosby, Esq., Melanie A. Full, Esq. and Stinson Leonard Street, LLP, Minneapolis, MN 55402, counsel for plaintiff.

Nicolas J. Rotsko, Esq. and Phillips Lytle LLP, Buffalo, NY and Amy L. Schwartz. Esq., and Lapp, Libra, Thomson, Stoebner & Pusch, Minneapolis, MN, counsel for defendant.

ORDER

DAVID S. DOTY, District Judge.

This matter is before the court upon the motion for summary judgment by plaintiff United Sugars Corporations (United). Based on a review of the file, record, and proceedings herein, and for the following reasons, the court grants the motion in part.

BACKGROUND

This contract dispute arises out of the parties' fixed-price contracts for the delivery of sugar between 2010 and -. United is a cooperative owned by three sugar producers and refiners. United sells sugar produced by its members to industrial and retail customers in the United States. Defendant U.S. Sugar Co., Inc. (U.S. Sugar) purchases sugar from suppliers such as United and then packages the sugar for retail sale under private store labels.

The contracts at issue are dated October 26, 2010, June 2, 2011, and June 8, 2012. See Full Aff. Exs. D, F, G. Each contract includes the quarterly delivery period, the amount of sugar, and the price per cwt.[1] See id. The 2010 contract provided that U.S. Sugar would purchase 30, 000 cwt for each of the first two quarters of 2012 and 45, 000 cwt for the two last quarters of 2012, all at a price of $43.70 per cwt. See id. Ex. D, at 1. The 2011 contract obligated U.S. Sugar to purchase an additional 100, 000 cwt of sugar in the fourth quarter of 2012 at a price of $47.00 per cwt. Id. Ex. F, at 1. The 2012 contract obligated U.S. Sugar to purchase in - 63, 000 cwt (first quarter), 69, 000 cwt (second quarter), 78, 000 cwt (third quarter), and 90, 000 cwt (fourth quarter) at price of $42.35 per cwt. Id. Ex. G, at 1. It is undisputed that U.S. Sugar did not purchase any sugar in the fourth quarter of 2012 under the 2010 contract[2] or at any point in -.

U.S. Sugar CEO William McDaniel and United's Director of Sales, Gary Staples, have negotiated contracts between the parties since the mid-1990s. McDaniel Dep. at 29:15-18. McDaniel typically assessed the market to determine the desirable price and timing for future contracts. Id. at 29:21-30:2. He then contacted Staples, usually by email, and negotiated the prices and dates for each contract. See id. 33:9-17. Contract execution was often a formality, and in some cases the contract - a standard form agreement between the parties - was not signed. See, e.g., Full Aff. Ex. F. Neither party disputes the formation of the contracts at issue.

As is the case with natural commodities, the sugar supply dictates its price. When sugar is plentiful, its price declines; when the supply wanes, the price rises. Sugar prices fluctuated considerably between 2007 and 2013. See McDaniel Aff. Exs. A-C. For example, the price per cwt was $25.06 in 2007, $56.22 in 2011, and $27.44 in 2013. See id. Ex. C.[3] The contracts at issue, covering the 2012 and 2013 time period, contained fixed prices ranging from $42.35/cwt to $47.00/cwt. Full Aff. Exs. D, F, G. In April 2012, McDaniel told Staples that U.S. Sugar "bought too much sugar for this year north of $50" but acknowledged that U.S. Sugar's "United contracts are not the most harmful." Id. Ex. U, at 1. McDaniel then assured Staples that he intended to "honor all contracts" and that "[s]ometimes you just have to accept a loss in a commodity business." Id. at 2. Between April 2012 and June 8, 2012, the date of the last contract, McDaniel read reports indicating that conditions in 2012 could result in a bumper crop in 2013. See McDaniel Dep. at 42:18-45:5, 56:1-14; Full Aff. Exs. X, Y, Z. McDaniel nevertheless contracted with United for 300, 000 cwt of sugar at $42.35/cwt. Full Aff. Ex. G. As noted, actual pricing in 2013 dropped to $27.44/cwt. McDaniel Aff. Ex. C. On January 14, 2013, McDaniel sent a letter to Staples explaining that U.S. Sugar's survival was in jeopardy given the "50% decline in bulk sugar prices over the past year, with most of that decline occurring since our contracts were signed." Full Aff. Ex. EE. McDaniel then admitted that U.S. Sugar could not meet the terms of the contracts:

The bottom line is that, although U.S. Sugar wishes to honor your contracts, we cannot take delivery on the 2012 carryover and the - bookings on the schedule contemplated by the contracts. We do not have the sales volume and retail sell prices to do so, and we cannot pay costs that create unsustainable losses.

Id. He offered several possible alternatives to the existing contract terms including extending the performance period into -, purchasing additional sugar at a lower price to bring overall pricing closer to market prices, and forbearance on the 2012 carryover. Id. at 2. McDaniel estimated that U.S. Sugar could purchase all of the sugar under the contracts if the average delivered costs was $36.00/cwt. Id. Staples responded that United would be willing to agree to a blended price of $42.76 on all remaining amounts. Id. Ex. FF. McDaniel did not agree to the compromise. Id.

On May 31, 2013, United filed suit in state court, and U.S. Sugar timely removed. United brings claims for breach of contract and promissory estoppel. On July 3, 2014, U.S. Sugar filed an amended answer, which includes counterclaims alleging breach of contract, misrepresentation, mistake, unjust enrichment, and overpayment and recoupment. United now moves for summary judgment on its claims and U.S. Sugar's counterclaims.

DISCUSSION

I. Standard of ...


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