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Roberts Enterprises Investments, Inc. v. Cow Creek Feeders, LLC

United States District Court, D. Kansas

October 31, 2018

ROBERTS ENTERPRISES INVESTMENTS, INC. d/b/a REI CATTLE COMPANY and AZ CATTLE FEEDING, LLC, Plaintiffs,
v.
COW CREEK FEEDERS, LLC, Defendant. Date Closed Lot Number AZ or REI Profit/Loss

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE

         This lawsuit arises out of a dispute regarding cattle financed and fed by Defendant Cow Creek Feeders, LLC (“CCF”) at its commercial feed yards. Plaintiffs Roberts Enterprises Investments, Inc., d/b/a REI Cattle Company (“REI”) and AZ Cattle Feeding, LLC (“AZ”), sued CCF alleging that it did not act in good faith or in a commercially reasonable manner in performing its obligations under the parties' agreements.[1] CCF counterclaimed alleging that REI and AZ failed to pay amounts owed under the parties' promissory notes. On October 16, 2018, this Court presided over a bench trial.

         REI and AZ terminated their relationships with their former legal counsel and declined to procure new counsel in this action despite admonitions from this Court that, as entities, they could not proceed pro se and would need to obtain counsel to proceed in this litigation. REI and AZ have not responded to Court deadlines, briefs, or other filings in this case, and they did not appear for the bench trial, despite having received notice thereof. Accordingly, the Court found REI and AZ in default on their claims and received evidence from CCF regarding its counterclaim against REI and AZ. The Court makes the following findings of fact and conclusions of law, and for the reasons discussed below, enters judgment (1) for CCF on REI's and AZ's claims, (2) for CCF on its counterclaim against REI, and (3) for AZ on CCF's counterclaim against AZ.

         I. Findings of Fact

         REI and AZ entered into a series of promissory notes in favor of CCF from February 2014 through October 2015, whereunder CCF provided partial financing for REI's and AZ's purchases of cattle as well as financing for feed costs associated with those cattle. CCF followed the same process for preparing and executing the promissory notes as to both REI and AZ. After the cattle came to the feedyard, CCF calculated how much either REI or AZ would owe for the cattle and feed and then prepared promissory notes accordingly. CCF mailed the notes to either REI or AZ for signature, and received the promissory notes signed on behalf of either REI or AZ via mail.

         Toward the beginning of CCF's dealings with REI and AZ, the cattle returned a profit. Eventually, however, the cattle began sustaining significant losses and the profits did not offset the losses. Although CCF sent invoices seeking payment on the outstanding balances, neither REI nor AZ paid CCF the outstanding amounts due under the applicable promissory notes. The following table depicts the profits or losses by cattle lot, and whether those lots were associated with AZ or REI:

Date Closed
Lot Number
AZ or REI
Profit/Loss
4/21/2016
4089
AZ
$5, 165.75
4/20/2016
5015
REI
$2, 110.60
4/20/2016
4103
AZ
$2, 072.59
5/11/2016
4172
REI
-$14, 093.44
6/3/2016
5061
REI
-$3, 275.58
6/3/2016
5003
REI
-$9, 134.67
6/9/2016
4098
AZ
$1, 092.33
7/16/2016
5032/5023
REI
-$24, 649.71
7/28/2016
4124
REI
-$8, 408.19
7/9/2016
4113
REI
$20, 250.71
8/1/2016
5065
REI
-$360.37
8/6/2016
5047
REI
$1, 481.13
9/2/2016
5066
REI
-$11, 256.76
9/2/2016
5024
REI
-$38, 585.80
9/2/2016
5050
REI
-$52, 094.88
9/7/2016
5017
REI
-$118, 497.65
9/7/2016
4061
AZ
$776.09
9/18/2016
5031
REI
-$8, 655.11
9/18/2016
4170
REI
-$78, 092.93
9/18/2016
4129
REI
-$9, 727.25
9/18/2016
5000
REI
-$104, 472.60
9/26/2016
4122
REI
$1, 147.92
9/26/2016
4164
REI
-$36, 950.77
9/26/2016
4174
REI
-$42, 883.73
10/18/2016
5023
REI
-$139, 837.63
10/18/2016
4109
REI
$9, 266.27
10/18/2016
5029
REI
-$46, 289.70
10/31/2016
5043
REI
-$123, 346.26
12/12/2016
5083
REI
-$30, 728.33
12/28/2016
4160
REI
-$6, 034.80
12/28/2016
5018
REI
-$47, 713.39
12/28/2016
5046
REI
-$81, 550.22
12/28/2016
5052
REI
-$3, 318.41
1/24/2017
5085
REI
-$95, 621.63
2/13/2017
5048
REI
-$16, 146.32
2/13/2017
5034
REI
-$113, 715.17
3/2/2017
5094
REI
-$15, 828.38
5/4/2017
5086
REI
-$36, 301.11
5/25/2017
5062
REI
-$47, 444.91
5/25/2017
5075
REI
-$48, 767.01

         CCF asks for judgment in its favor against REI and AZ in an amount equal to the outstanding principal, $1, 370, 419.32, as well as interest allegedly due on that amount. CCF did not present any evidence at trial as to how it calculated the requested interest or from where its entitlement to interest at the rate utilized derives.[2] The promissory notes include varying terms regarding interest, but do not appear to dictate any specific interest rate.

         II. Conclusions of Law

         CCF has not addressed which state's law governs its breach of contract claim. Federal courts sitting in diversity jurisdiction apply the forum state's choice of law rules. Kansas courts addressing conflict of law issues follow the Restatement (First) of Conflict of Laws (1934) (“Restatement (First)”), whereunder questions of interpretation are governed by the law of the state where the contract was formed and questions relating to the manner and method of performance are governed by the place of performance.[3] Here, the Court is without sufficient facts to determine which state's law applies to CCF's counterclaim, but under Kansas choice of law rules only three states' laws may apply to this dispute-Arizona, Kansas, or Oklahoma.[4] It is unnecessary to determine which state's law applies because the elements of a breach of contract claim do not vary significantly between the states whose law may apply, and application of each state's law leads to the same result.

         Under Arizona law, the elements of a breach of contract claim include “the existence of the contract, its breach and the resulting damages.”[5] Kansas requires the party asserting breach of contract to prove: (1) the existence of a contract between the parties, (2) consideration, (3) the non-breaching party's “performance or willingness to perform in compliance with the contract, ” (4) the other party's breach of the contract, and (5) that the non-breaching party suffered damage caused by the breach.[6] Finally, Oklahoma requires a party alleging breach of contract to show “(1) the formation of a contract, (2) breach of the contract, and (3) damages as a result of that breach.”[7]

         Here, CCF introduced evidence through Sandy Schemm that establishes the existence of contracts between CCF and REI. Ms. Schemm testified as to the details surrounding the parties' execution of the promissory notes, and CCF entered into evidence the applicable promissory notes supporting its claim for damages. REI received consideration for entering the promissory notes as it received financing relating to its cattle operations. CCF performed its obligations under the promissory notes and after it performed, REI failed to pay the amounts due to CCF. CCF also established that it suffered damages in the amount of $1, 370, 419.32 resulting from REI's breach. Because the evidence at trial demonstrates that CCF has established all of the elements of its breach of contract claim against REI-whether under Arizona, Kansas, or Oklahoma law-the Court enters judgment for CFF and against REI for the outstanding principal due from REI, $1, 370, 419.32.[8]

         CCF, however, has failed to demonstrate its entitlement to interest. While CCF testified at trial that it calculated interest on the outstanding principal balance at a rate of 6%, it did not provide any evidence regarding its right to interest at a rate of 6%. The promissory notes executed by REI do not identify a contractual interest rate of 6% and the evidence regarding CCF's calculation of interest does not provide the basis for utilizing a 6% interest rate. After the conclusion of the trial, CCF submitted an affidavit that attempted to explain its basis for calculating interest at a rate of 6%. Even if the Court considered the affidavit, CCF has not satisfied its burden to show a contractual entitlement to the claimed amount of interest.[9] CCF has the burden to establish what amount of interest, if any, it is contractually entitled to recover and it has failed to satisfy that burden.

         With regard to AZ, CCF has failed to carry its burden of proof to demonstrate that AZ breached any contract that it had with CCF or that AZ may be held liable for REI's breaches. CCF introduced evidence as to the formation and existence of promissory notes with AZ, but it has not shown that AZ breached those notes by failing to pay any balance due thereunder or that Defendant suffered any damages relating to those notes. Indeed, the evidence shows that the outstanding balance due to Defendant arises from losses sustained on lots associated with REI and relating to the promissory notes signed by REI. Defendant has offered no basis, ...


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