Opinion
Case No. 8:00CV639
May 7, 2002
MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on cross-motions for summary judgment filed by the Plaintiffs Jack and Ellie Kasbergen, doing business as Cache Creek Dairy, (Filing No. 42) and by the Defendant, Cache Commodities, Inc. (Filing No. 44). The issues have been fully briefed, and the parties have offered evidence in support of their respective motions and in opposition to the cross-motions (Filing Nos. 43, 45, 47, and 48). For all the reasons provided in this memorandum, I find that neither party is entitled to summary judgment on all claims because genuine issues of material fact remain to be determined by the trier of fact.
Jack and Ellie Kasbergen commenced this action by filing a Complaint on December 28, 2000, alleging that Defendant Cache Commodities, Inc. ("CCI") is in default in the payment of a loan as evidenced by the promissory note owned by the Kasbergens. The Kasbergens claim that they are entitled to immediate payment of the unpaid principal balance in the amount of $143,703.80, plus interest. CCI claims that it made a final payment of $20,350.99 in September 2000, in satisfaction of its obligations under the note, but the Kasbergens returned the $20,350.99 check to CCI because they believed that the check did not represent the "final payment" as memorialized on the face of the check. The crux of the dispute is whether CCI was entitled to offset $119,163.63, against the amount CCI owed on the note.
Undisputed Factual Background
There are at least three interested entities in this action, although not all of them are parties. The Kasbergens are a married couple who run a dairy operation. For several years, they conducted business with Eades Commodities, Inc., a business that provided animal feed products, specializing in the dairy industry. Eades Commodities was based in Nebraska ("Eades Commodities") until March 2000, when it ceased doing business. As part of its business, Eades Commodities made a feed prepayment program available to its customers. It worked this way: in exchange for a customer's prepayment of all the anticipated feed purchases for an upcoming year, Eades Commodities would discount the price of feed or provide an account credit on each month's prepayment balance. In connection with this program, the Kasbergens sent a check in the amount of $1,572,806.91 to Eades Commodities in January 2000. Filing 43, Eades Aff. at ¶ 5.
The check was received by Robert V. Eades, Jr. ("Eades"), the president of Eades Commodities. When he received the check, he did not have an existing contract with the Kasbergens. In keeping with prior practice, Eades was authorized to use the funds to pay other vendors on behalf of the Kasbergens. Eades deposited the check in a money market account of "Eades Commodities FBO Cache Creek Dairy." Id. at ¶ 7. In order to perform under the prepayment program and provide the Kasbergens with an account credit on each month's prepayment balance, Eades decided to make a loan of some of the funds to reliable borrowers, in this case CCI.
Eades Commodities and CCI had occasion to do business together for several years before 2000, in the roles of both vendor and customer. In January 2000, Eades asked CCI President Rodney Curtis if CCI wanted a loan. Curtis wanted the loan, and on or about January 24, 2000, Eades drew a check made payable to CCI in the amount of $600,000 from an account established by Eades for Goldnsilver.Com, Inc, another company for which Eades served as President. Filing No. 43, Eades Aff. at ¶ 12. The funds were deposited in a CCI account, and on January 31, 2000, in exchange for the loan, Curtis executed two promissory notes, one in the amount of $50,000, and the other in the amount of $550,000. In each of the notes, CCI is identified as the "Borrower;" and in each of the notes Goldnsilver.Com, Inc. is identified as the "Lender." Filing No. 43 at Appendices F and G. However, after identifying Goldnsilver.Com as the "Lender," the $550,000 note provides "f/b/o Cache Creek Dairy . . ." — a phrase that is omitted from the $50,000 note. Also on January 31, 2000, Curtis asked Eades to execute an "Amendment to Promissory Note." Filing No. 43, Appendix I. The Amendment states that in lieu of monthly cash payments on the $50,000 promissory note, Goldnsilver would allow CCI to apply the amount due against any balance from Eades Commodities' open account with CCI that was more than 30 days old. Eades executed the Amendment.
Initially, Eades thought CCI would execute one note in the amount of $600,000, but when CCI expresssed its desire to have a separate note that would constitute security for Eades Commodities' account with CCI that was in arrears, Eades agreed.
On February 14, 2000, Eades learned that his financial institution was terminating Eades Commodities' line of credit which effectively put Eades Commodities out of business. Eades informed Curtis of this development some time before February 23, 2000. At the time, Eades Commodities owed CCI approximately $209,367. On February 23, 2000, seeking to protect CCI from Eades Commodities' financial problems, Curtis sent to Eades the Set Off Agreement.
The Set Off Agreement states in its entirety:
SET OFF AGREEMENT
WHEREAS, Robert V. Eades, Jr. [text deleted and initialed with "RVE"], said Robert V. Eades, Jr. does now further hereby agree that CCI may offset any indebtedness or obligation owed by CCI to Robert V. Eades, Jr. or any business or entity of which he is a shareholder, director or officer, including specifically Eades Commodities Co., and Goldnsilver.Com, Inc. in satisfaction of all or any portion, of any indebtedness owed by Robert V. Eades, Jr., Eades Commodities Co., or Goldnsilver.Com, Inc., to CCI. The undersigned represents that this Agreement is made with the authorization of the governing bodies of the afore-referred businesses and entities. Robert V. Eades, Jr. hereby revokes any agreements to the contrary and acknowledges the revocation by CCI of any agreement contrary to this Agreement.
Dated this 23 day of February, 2000. Robert V. Eades, individually and in his representative capacity.
The text deleted by Robert Eades before he faxed the Agreement back to Curtis stated: "has personally guaranteed the payment of accounts and indebtedness owing to Cache Commodities, Inc., a Utah Corporation ("CCI"),".
Filing No. 45 at Tab 3. After Curtis and Eades discussed the Set Off Agreement, Eades deleted a portion of the text that he believed sought to make him personally liable on the loan, then he dated it and signed it.
In March 2000, CCI informed Eades that it was setting off approximately $119,000 of Eades Commodities' debt to CCI against the amount due on the promissory notes. Eades transferred the promissory note that is the subject of the Complaint to the Kasbergens on or about April 6, 2000. The Indorsement and Transfer of Promissory Note states:
For value received, the attached Promissory Note dated January 31, 2000, wherein Cache Commodities, Inc., is identified as the "Borrower" and Goldnsilver.Com, Inc., is identified as the "Lender" and wherein the principal sum is specified to be Five Hundred Fifty Thousand Dollars ($550,000), is hereby indorsed and transferred to Jack Kasbergen and Ellie Mae Kasbergen, dba Cache Creek Dairy, 31870 County Road 27, Woodland, CA 95695.
Filing No. 45, Tab 6. The Indorsement is dated 4-6-2000 and signed by Robert V. Eades as President of Goldnsilver.Com, Inc.
CCI made its April payment and all subsequent payments on the $550,000 note directly to the Kasbergens. At the end of September, CCI made what Curtis considered to be the final payment on the $550,000 note. The Kasbergens observed the check's notation: "final payment and fully satisfies obligations," and because they believed that CCI owed more on the note than was paid by this "final payment," the Kasbergens returned the check to CCI. By letter dated October 11, 2000, the Kasbergens notified CCI that due to CCI's default on the loan payments, the Kasbergens were exercising their right to demand the entire unpaid balance plus interest due. Kasbergen Aff. at ¶ 7.
Summary Judgment Standard
Summary judgment is "properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The proponent of a motion for summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 322 (quoting Fed.R.Civ.P. 56(c)). The proponent need not, however, negate the opponent's claims or defenses. Id. at 324-25.
In response to the proponent's showing, the opponent's burden is to "come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (quoting Fed.R.Civ.P. 56(e)). A "genuine" issue of material fact is more than "some metaphysical doubt as to the material facts." Id.
"[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "If the evidence is merely colorable . . . or is not significantly probative . . . summary judgment may be granted." Id. (citations omitted). In addition, "the mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment. . . . Instead, `the dispute must be outcome determinative under prevailing law.'" Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992) (citation omitted) (quoting Holloway v. Pigman, 884 F.2d 365, 366 (8th Cir. 1989)).
The Court's function is not to weigh the credibility and persuasiveness of evidence in the context of a motion for summary judgment. Kampouris v. St. Louis Symphony Soc., 210 F.3d 845, 847 (8th Cir. 2000). Nevertheless, if testimony has been irrefutably contradicted by documentary evidence, or the testimony is otherwise inherently incredible, it need not be credited even for purposes of a motion for summary judgment. Walker v. Peters, 863 F. Supp. 671, 672-73 (N.D.Ill. 1994).
ANALYSIS
The Kasbergens' motion for summary judgment is based on the language of the promissory note for the $550,000 loan. That promissory note identifies CCI as the Borrower and is payable "to the order of Goldnsilver.Com, Inc., a Nebraska corporation (herein, together with all subsequent holders of this promissory note (this `Note'), called `Lender' f/b/o Cache Creek Dairy, . . ." Kasbergen Aff. at ¶ 13. In the Kasbergens' brief in support of their motion for summary judgment, however, the Kasbergens acknowledge that the gravamen of this case is whether the Set Off Agreement between Eades and CCI is enforceable. The parties to this action performed without dispute under the terms of the $550,000 note until CCI made what it considered to be its final payment. The Kasbergens returned CCI's "final" payment, believing that CCI owed much more to them under the note. The difference between what the parties believe to be the outstanding balance on the note relates directly to the validity of the Set Off Agreement.
The Nebraska Supreme Court's basic rules of contract construction were recently summarized.
In interpreting a contract, we must first determine, as a matter of law, whether the contract is ambiguous. Estate of Stine v. Chambanco, Inc., 251 Neb. 867, 560 N.W.2d 424 (1997). . . . A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings. Estate of Stine v. Chambanco, Inc., supra. A determination as to whether ambiguity exists in a contract is to be made on an objective basis, not by the subjective contentions of the parties; thus, the fact that the parties have suggested opposing meanings of the disputed instrument does not necessarily compel the conclusion that the instrument is ambiguous. Id. If a contract is ambiguous, the meaning of the contract is a question of fact, and a court may consider extrinsic evidence to determine the meaning of the contract. Plambeck v. Union Pacific RR. Co., supra. In contrast, the meaning of an unambiguous contract is a question of law. Kropp v. Grand Island Pub. Sch. Dist. No. 2, 246 Neb. 138, 517 N.W.2d 113 (1994). When a contract is unambiguous, the intentions of the parties must be determined from the contract itself. Id.; Properties Inv. Group v. Applied Communications, 242 Neb. 464, 495 N.W.2d 483 (1993).Ruble v. Reich, 259 Neb. 658, 664-65, 611 N.W.2d 844, 849-850 (2000). The Nebraska Supreme Court has also held that "A court is not free to rewrite a contract or to speculate as to terms of the contract which the parties have not seen fit to include." Kropp v. Grand Island Pub. Sch. Dist. No. 2, 246 Neb. 138, 517 N.W.2d 113 (1994).
The parties agree that the Set Off Agreement is unambiguous, but they assign different and conflicting interpretations to it. The Kasbergens argue that there is nothing in the language of the Agreement that allows Eades to act in anything other than his individual capacity. They contend that the Agreement distinguishes clearly between actions that Eades may take in his individual capacity and those actions that Eades may take as "the undersigned" in his "individual and representative capacity." According to Plaintiff's construction of the Agreement, the governing bodies of Eades' businesses and entities have authorized Eades to act in his individual capacity, but these businesses and entities have not authorized Eades to act on behalf of the business and entities. The Kasbergens contend that they are entitled to summary judgment as a matter of law because their interpretation of the Set-Off Agreement, if accepted by the Court, would preclude CCI from deducting any amount of debt owed by Eades Commodities to CCI against CCI's obligation under the $550,000 note.
The Kasbergens' interpretation of the contract requires consideration of each sentence of the Agreement in isolation from the other sentences. This approach, however, is directly contrary to a basic rule of contract construction, that a contract must be viewed as a whole in order to construe it. See Bachman v. Easy Parking of America, 252 Neb. 325, 562 N.W.2d 369 (1997); Baker's Supermarkets v. Feldman, 243 Neb. 684, 502 N.W.2d 428 (1993). Moreover, this piecemeal analysis makes for an unreasonable interpretation of the contract. The Kasbergens ask the Court to conclude that Goldnsilver.Com and Eades Commodities, Inc. authorized Eades to act in his individual capacity. Such a conclusion defies common sense and is not reasonable given the plain and ordinary meaning of the language in the Agreement. The Court is not inclined to agree with this tortured interpretation.
CCI agrees that the Agreement is unambiguous on its face, but CCI's interpretation of the Agreement is that Eades authorized CCI to offset any debt that Eades, or Eades Commodities, or Goldnsilver.Com owed to CCI against any amount CCI owed to Goldnsilver.Com. CCI maintains that the language of the Agreement is clear, and that the plain and ordinary meaning of the contract terms demonstrates that it is entitled to summary judgment as a matter of law. The language allows CCI to offset any debt owed to it by "Robert V. Eades, Jr. or any business or entity of which he is a shareholder, director or officer, including specifically Eades Commodities Co., or Goldnsilver.Com., Inc." The Court agrees with the parties that the Agreement is unambiguous. The Set Off Agreement's meaning, therefore, shall be determined as a matter of law. The Court rejects the interpretation assigned to it by the Kasbergens and agrees with the interpretation espoused by CCI. The Kasbergens' interpretation would require piecemeal analysis in contravention of a basic tenet of contract construction, and it would have this Court ignore the plain meaning of the Agreement and lead to an absurd result.
CCI's interpretation of the Set Off Agreement is reasonable. The Agreement plainly permits CCI to offset money owed to it by Eades, Eades Commodities and Goldnsilver.Com against its own debt to Goldnsilver.Com. The language is broad and inclusive. This meaning is also consistent with the actions of the parties to the contract and the circumstances surrounding the negotiations. Curtis was put on notice by February 23, 2000, that Eades Commodities had lost its line of credit and was likely to go out of business. The Set Off Agreement was a way to ensure that CCI would be paid for the products and services that it had previously provided to Eades Commodities. While Eades Commodities and Goldnsilver.Com are apparently separate corporate entities, there is no denying that they are both closely tied to Robert V. Eades, Jr., who is connected to them in various capacities such as founder, president, or shareholder. It makes sense that Curtis sought to bind Eades, Eades Commodities and Goldnsilver.Com to the Set Off Agreement.
For example, Eades Commodities' letterhead states at the bottom of the page, "Grains and Grain Products Gold and Silver Bullion Foreign Currencies" and provides the local address in Omaha, Nebraska, and an e-mail address of "www.goldnsilver.com." Filing No. 43 at Appendix A.
Unfortunately, the Court's determination that the Set Off Agreement is unambiguous does not resolve the issues presented in this case. Accordingly, the Court finds that neither party is entitled to summary judgment as a matter of law. Whether Goldnsilver.Com and CCI intended to make Cache Creek Dairy a third party beneficiary of the $550,000 promissory note by including the "f/b/o" designation after identifying the Lender is a genuine issue that turns on material facts that are in dispute. A recent Nebraska Court of Appeals case stated:
[O]ne is a third-party beneficiary of a contract only if the other parties entered into the contract for the purpose of benefitting the third party. In order for those not named as parties to the contract to recover thereunder as third-party beneficiaries, it must appear by express stipulation or by reasonable intendment that the rights and interests of such unnamed parties were contemplated and provision was made for them. See Properties Inv. Group v. Applied Communications, 242 Neb. 464, 495 N.W.2d 483 (1993). The rights of a third-party beneficiary depend upon, and are measured by, the terms of the contract between the promisor and the promisee. Id.John Day Co. v. Alvine Associates, Inc., 1 Neb. App. 954, 959, 510 N.W.2d 462, 465 (Neb.App. 1993). The Nebraska Court has also stated that "a contract made for the benefit of a third party with the third party's knowledge ordinarily cannot be changed without the third party's approval." Whorley v. First Westside Bank, 240 Neb. 975, 977-978, 485 N.W.2d 578, 581 (Neb. 1992) (citations omitted).
The evidence relative to Cache Creek Dairy's potential status as a third-party beneficiary is conflicting. For example, CCI's Curtis has stated:
Mr. Eades did not inform me in January, 2000, that ECC had received feed prepayment from a dairy in connection with his loan solicitation. When CCI borrowed the $600,000.00[,] I did not know the identity of Cache Creek Dairy. I believed it was one of Mr. Eades many business entities. Mr. Eades did not disclose to me, until after the Set Off Agreement had been signed and delivered to CCI, the identity of Cache Creek Dairy and that he or ECC had apparently received the funds loaned to CCI under a prepayment arrangement with Cache Creek Dairy.
Curtis Aff. at 13 and 14. On the other hand, Eades' testimony is that he told Curtis at the time he offered to make the loan that the loan was being made from feed prepayment monies that Eades had received from an Eades Commodities customer. Eades has also stated that on January 31, 2000, in connection with the preparation of the promissory notes, Eades identified Cache Creek Dairy to Curtis as the source of the feed prepayment which was used to make the loan to CCI. Filing No. 43, Eades Aff. at ¶ 15.
Depending on the factual determinations related to these issues, Cache Creek Dairy may or may not be found to be a third-party beneficiary of the $550,000 note. If the Cache Creek Dairy is found to be a third-party beneficiary, the Set Off Agreement may be an invalid modification of the Cache Creek Dairy's rights under the note. If the Cache Creek Dairy is not found to be a third-party beneficiary, then the Set Off Agreement will likely bind the Kasbergens, and absent evidence establishing some type of fraud in the inducement, CCI's set off will likely be found to be valid.
Because material facts that will determine these genuine issues are in dispute, neither party is entitled to summary judgment as a matter of law. For these reasons,
IT IS ORDERED:
1. Plaintiffs' Motion for Leave to File Reply Brief (Filing No. 49) is granted and the brief received;
2. Plaintiffs' Motion for Summary Judgment (Filing No. 42) is denied; and
3. Defendant's Motion for Summary Judgment is granted in part and denied in part. The Defendant's motion is granted only to the extent the Court concludes (a) that the Set Off Agreement is unambiguous, and (b) that the Set Off Agreement permits CCI to offset money owed to it by Eades, Eades Commodities and Goldnsilver.Com against its own debt to Goldnsilver.Com, but Defendant's motion is denied in all other respects, specifically including whether the Set Off Agreement is enforceable against the Plaintiffs doing business as Cache Creek Dairy (Filing No. 44).