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Scoular Co. v. Ceres Global Ag Corp.

United States District Court, D. Minnesota

August 16, 2017

THE SCOULAR COMPANY, Plaintiff,
v.
CERES GLOBAL AG CORP. and RIVERLAND AG CORP., Defendants.

          Peter M. Lancaster, DORSEY & WHITNEY LLP, for plaintiff.

          Jeffrey R. Mulder and Daniel R. Olson, BASSFORD REMELE, for defendants.

          MEMORANDUM OPINION AND ORDER

          JOHN R. TUNHEIM CHIEF JUDGE UNITED STATES DISTRICT COURT

         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 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 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 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 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 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.)

         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.) 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 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.)

         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.

         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 ...


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