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Rexing Quality Eggs v. Rembrandt Enterprises, Inc.

United States District Court, S.D. Indiana, Evansville Division

December 21, 2018

REXING QUALITY EGGS, Plaintiff,
v.
REMBRANDT ENTERPRISES, INC., Defendant. REMBRANDT ENTERPRISES, INC., Counter Claimant,
v.
REXING QUALITY EGGS, LEO R. REXING, DYLAN REXING, JOSEPH L REXING, Counter Defendants.

          ORDER

          HON. JANE MAGNUS-STINSON, CHIEF JUDGE

         In 2016, Rembrandt Enterprises, Inc. (“Rembrandt”) entered into an agreement to sell cage-free eggs to Rexing Quality Eggs (“Rexing”), the doing-business-as designation for Leo and Joseph Rexing's egg selling partnership.[1] The contract required Rembrandt to provide Rexing with approximately 3, 240, 000 eggs per week for one year, [2] subject to possible extensions. But cracks quickly formed in parties' relationship, which ultimately spoiled, leaving 16 weeks-worth of ordered eggs (over 50 million eggs) on Rembrandt's kitchen table. This lawsuit followed. Rexing alleges that its continued performance was excused and that Rembrandt sold deficient eggs. Rembrandt counterclaims, alleging that Rexing breached the contract by refusing egg shipments and repudiating the purchase agreement.

         Rembrandt's partial Motion for Summary Judgment, [Filing No. 71], currently pends before the Court. After unscrambling the hundreds of pages of briefing and exhibits filed by the parties, what remains is a relatively straightforward matter of contract interpretation. The contract and undisputed evidence demonstrate that Rexing's nonperformance was not excused by the change in economic demand, and that Rembrandt did not breach any express warranty. Rather, Rexing unilaterally terminated the contract after determining that the deal was not all that it was cracked up to be. However, Rembrandt's claim for summary judgment on damages does not even begin to penetrate the eggshell. The Court therefore GRANTS IN PART and DENIES IN PART Rembrandt's Motion.

         I.

         Legal Standard

         A motion for summary judgment asks the Court to find that a trial is unnecessary because there is no genuine dispute as to any material fact and, instead, that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). As the current version of Rule 56 makes clear, whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the asserted fact by citing to particular parts of the record, including depositions, documents, or affidavits. Fed.R.Civ.P. 56(c)(1)(A). A party can also support a fact by showing that the materials cited do not establish the absence or presence of a genuine dispute or that the adverse party cannot produce admissible evidence to support the fact. Fed.R.Civ.P. 56(c)(1)(B). Affidavits or declarations must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on matters stated. Fed.R.Civ.P. 56(c)(4). Failure to properly support a fact in opposition to a movant's factual assertion can result in the movant's fact being considered undisputed, and potentially in the grant of summary judgment. Fed.R.Civ.P. 56(e).

         In deciding a motion for summary judgment, the Court need only consider disputed facts that are material to the decision. A disputed fact is material if it might affect the outcome of the suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In other words, while there may be facts that are in dispute, summary judgment is appropriate if those facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir. 2005). Fact disputes that are irrelevant to the legal question will not suffice to defeat summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         On summary judgment, a party must show the Court what evidence it has that would convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., 325 F.3d 892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable factfinder could return a verdict for the non-moving party. Nelson v. Miller, 570 F.3d 868, 875 (7th Cir. 2009). The Court views the record in the light most favorable to the non-moving party and draws all reasonable inferences in that party's favor. Darst v. Interstate Brands Corp., 512 F.3d 903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary judgment because those tasks are left to the fact-finder. O'Leary v. Accretive Health, Inc., 657 F.3d 625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed.R.Civ.P. 56(c)(3), and the Seventh Circuit Court of Appeals has “repeatedly assured the district courts that they are not required to scour every inch of the record for evidence that is potentially relevant to the summary judgment motion before them, ” Johnson, 325 F.3d at 898. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension Plan, 614 F.3d 684, 691 (7th Cir. 2010).

         II.

         Procedural History

          This matter was first filed by Rexing on August 16, 2017 in state court. [Filing No. 1-1.] Rexing seeks a declaration that its continued acceptance of eggs was excused by the “significant and unexpected reduced consumer demand” for cage-free eggs and seeks damages for Rembrandt's alleged breach of express warranties as to the quality of the eggs. [Filing No. 1-1 at 3-4.] On September 9, 2017, Rembrandt removed the lawsuit to this Court. [Filing No. 1.]

         Rembrandt counterclaimed against Rexing on October 6, 2017, [Filing No. 9], and, with leave of court, [see Filing No. 18], amended its counterclaim to join Dylan, Joe, and Leo as Counterclaim Defendants, [Filing No. 15]. Rembrandt's operative pleading alleges that the Rexings breached the purchase agreement and a separate credit agreement, and seeks damages, attorney's fees, and interest as provided by the contracts. [Filing No. 15.]

         On August 7, 2018, Rembrandt filed its Partial Motion for Summary Judgment. [Filing No. 71.] Rembrandt seeks judgment in its favor as to Rexing's claims, which it argues fail as a matter of law. [Filing No. 71.] In addition, Rembrandt seeks affirmative judgment on its own claim for breach of the purchase agreement, arguing that the undisputed evidence demonstrates that it must prevail as a matter of law. [Filing No. 71.] Finally, Rembrandt argues that it has proven the amount of its damages as a matter of law. [Filing No. 71.] Rexing, on the other hand, did not cross-move for summary judgment, leaving Rembrandt's Motion as the only dispositive motion for the Court's consideration.

         III.

         Background

         The following factual background is set forth pursuant to the standards detailed above. The facts stated are not necessarily objectively true, but as the summary judgment standard requires, the undisputed facts and the disputed evidence are presented in the light most favorable to “the party against whom the motion under consideration is made.” Premcor USA, Inc. v. American Home Assurance Co., 400 F.3d 523, 526-27 (7th Cir. 2005). This recitation, moreover, is limited to the facts relevant to, and helpful for understanding, the Court's ultimate decision on the instant motion. Additional facts, particularly those argued by the parties to be relevant, are referenced as appropriate in the discussion of the parties' arguments.

         A. The Parties

         Rembrandt's chickens produce a lot of eggs, most of which Rembrandt dehydrates or liquifies before selling to other food product manufacturers. [Filing No. 89-3 at 2-7; Filing No. 89-3 at 18.] ¶ 2016, Rembrandt began expanding into the cage-free egg market due to rising demand for cage-free eggs. [Filing No. 89-3 at 15.]

         Joseph and Leo Rexing are brothers who own and have owned various agribusinesses. [Filing No. 74 at 4.] Among their enterprises is Rexing Quality Eggs, which is the unincorporated trade name under which Joseph and Leo Rexing have bought and sold eggs for over 20 years. [Filing No. 74 at 7; Filing No. 89-15 at 2.] Joseph's son, Dylan Rexing, was Vice President of Operations for Rexing Quality Eggs, though he neither received any of the partnership's profits nor shared in its losses. [Filing No. 73 at 4; Filing No. 89-13.] Dylan, then aged 25, conducted all negotiations with Rembrandt on behalf of Rexing, which were his first major negotiations for the sale of eggs. [Filing No. 73 at 12-13; Filing No. 74 at 8.] Before their contract with Rembrandt, the Rexings bought and resold eggs on the spot market, mostly to institutional and warehouse purchasers. [Filing No. 74 at 4-5.] They had never before engaged in a fixed-term commitment to buy eggs. [Filing No. 74 at 4.]

         B. Rembrandt and Rexing Discuss Potential Deals

         Rembrandt first came across Rexing in spring 2015 when it was searching for egg producers to fill its needs after it had lost most of its birds to the avian influenza epidemic. [Filing No. 89-5 at 3-4; Filing No. 89-5 at 44.] Initially, Rembrandt discussed with Dylan the possibility of hiring Rexing as a “contract manufacturer” (essentially a packaging middleman, never producing or owning the eggs) to grade and package cage-free eggs which would in turn be sold to Walmart. [Filing No. 73 at 13-14; Filing No. 89-5 at 46-47.] The Walmart deal never came to fruition. [Filing No. 73 at 14.]

         Talks between Rembrandt and Dylan then turned to two farms in Tipton, Missouri, where Rembrandt had entered into supply contracts for the production of eggs. [See Filing No. 89-2; Filing No. 73 at 14.] Under this proposal, Rexing would not act as a contract manufacturer, but would instead purchase the eggs from Rembrandt. [See, e.g., Filing No. 73 at 14; Filing No. 89-17.]

         C. The Contract

         Dylan and Rembrandt reached an agreement for Rexing to purchase at least one-year's worth of eggs, as memorialized in a contract dated September 2, 2016:[3]

         (Image Omitted)

[Filing No. 72-1 at 5-6.]

         In reaching these terms, the parties engaged in negotiations via telephone and email. Rexing sought, among other things, “a clause for use [sic] to get out of this contract based on poor performance.” [Filing No. 72-10 at 1 (email from Dylan dated August 23, 2016); Filing No. 72-11 at 1 (email from Dylan dated August 31, 2016, seeking a “[c]lause in the contract for immediate cancelation based on poor egg performance”).] The final contract contained no provision allowing for “immediate cancelation, ” but did contain the rejection provision of Exhibit A, excerpted above (in the paragraph beginning “In the event of any material breach . . . .”). A previous draft had omitted the language providing that “Rembrandt shall be responsible in the case of a rejected load, for reimbursing Purchaser for its cost . . . .” [Filing No. 72-12 at 7.]

         The parties also specifically negotiated the scope of the “Excess Loss” provision of Exhibit A, which as set forth above gives Rexing a certain credit (essentially a discount) for loads “in which excess of eight and a half percent (8.5%) of the Shell Eggs grade as restricts or losses.” [Filing No. 72-1 at 5-6.] One proposed version of the contract limited Rexing to a credit “so that the payment” for the deficient eggs would be “equal to the High Side Breaker Market.” [Filing No. 72-9 at 6.] Dylan responded as follows:

6.) Inspection/Grading: Rembrandt is Guaranteeing a 91.5% grade out to be able to be merchantable basically. If we come to a part where it gets over that amount or excessive, we want to make sure we are not on the short side of the stick. By that I mean, we would like to have Rembrandt pick up that product and give credit (If that makes sense).

[Filing No. 72-10 at 1.] Several days later, Dylan again wrote Rembrandt about his concerns, stating:

3.) Im going to need to go over the portion about losses over 8.5% tomorrow. Dad wants me to push some on this subject to come to a more defined answer. Reason being, if we pay Caldwell to grade these eggs for instance .15 cents/DZ and I am paying .85 from you and your guaranteeing me at least the high side of the breaker market we arc going to be losing here. How can we fix?

[Filing No. 72-11 at 1.] In its final version, the contract provided that Rembrandt would credit Rexing for excess losses so that Rexing would pay “equal to five cents back of the High Side Breaker Market” for such eggs. [Filing No. 72-1 at 6.]

         D. Contractual Performance

         At the time Rembrandt and Rexing executed the contract, Rexing intended to resell the eggs to Hickman's Family Farms, which would in turn resell the eggs to a large retailer. [Filing No. 73 at 13-14.] Rexing and Hickman's, however, only reached a nonbinding “letter of intent, ” [Filing No. 72-13 at 2], which ultimately never progressed into a long-term contractual relationship, [see Filing No. 72-4 at 13]. Without a long-term contract with Hickman's, Rexing had no alternative customer in line to purchase the significant quantity of eggs bought from Rembrandt. [Filing No. 73 at 9; Filing No. 74 at 11-13.]

         Rexing received its first shipment of eggs at the end of September 2016. [Filing No. 89-10 at 40.] After the “Ramp Up Period” agreed to by the parties, Rexing received 12 truckloads of eggs each week, as set forth in the purchase agreement. [Filing No. 78 at 3.] The quality of the initial loads was low.[4] [Filing No. 89-8 at 15-28.] Dylan sent Rembrandt emails on October 6 and October 25, complaining about the poor egg quality. [Filing No. 89-10 at 5-6.] Dylan visited the Tipton farms in that first month and reported that Rembrandt had not done “quality checks” on the eggs. [Filing No. 73 at 41.] Rembrandt also sent an employee to the Tipton farms who believed that there were “two main issues . . . [:] shell quality and equipment.” [Filing No. 89-6 at 37.] In response, the Tipton farms made several changes to the equipment and bird nutrition. [Filing No. 89-6 at 23-24; Filing No. 89-7 at 18-20.] Rembrandt also notified one of the two Tipton farms that it would begin charging for the farm's underperformance. [Filing No. 89-44.] On November 25, Dylan emailed Rembrandt complaining of continuing quality concerns: “Our contract calls for 91.5 quality which are running 81.64-82.64. This is 8.86-9.86 off of our numbers.” [Filing No. 89-10 at 6.]

         In January 2017, a Mycoplasma gallisepticum (“MG”) outbreak[5] hit the Tipton, Missouri area. [See Filing No. 89-26.] Emails sent in March 2017 reflected Rembrandt's concern that there was “something going on with the birds” at the Tipton farms. [Filing No. 89-45 at 2.] In April 2017, Rembrandt began to euthanize its birds at one of the Tipton farms, [Filing No. 89-27], and birds at both Tipton farms tested positive for MG, [Filing No. 89-46]. Egg quality issues remained pervasive from April to June 2017, when Rexing repudiated the contract. [See Filing No. 89-10 at 39-47.] During this time, Rembrandt also began supplying eggs from farms outside of Tipton with greater frequency. [Filing No. 78-6.] On April 4, 2017, internal Rembrandt emails expressed concern about ongoing quality problems, explaining that it “ha[d] known about” the problems for “quite some time.” [Filing No. 89-4 at 34.] As one email from the inventory control manager explained, “[Over a sample of ] 163 loads, a deduction [for below-standard quality] has been given for 69 of them. When I average the chex/loss [below-grade eggs] for ALL loads, I get 8.55%.” [Filing No. 89-4 at 34.]

         On May 20, 2017, Dylan emailed Rembrandt expressing his continued concern regarding the egg quality: “Im not taking full volume because quality is lacking and eggs are small at the other farms. As we change flocks, I dont have enough material to spread across 6 sites its just impossible.” [Filing No. 89-32 at 1 (misspellings in original).] In late May and early June, shipments were underperforming by over 20 percent, with several loads approaching and exceeding 30 percent under grade. [Filing No. 89-10 at 47.]

         Throughout the life of the contract, Rexing received invoices including proper discounts for underperforming loads, as required under the Excess Loss provision of the purchase agreement. [Filing No. 72-16 at 3-4; Fling No. 72-15; Filing No. 78 at 2.] Rexing, however, underpaid the invoices by miscalculating its discount. Rexing subtracted 10 cents from the breaker market price instead of the 5 cents set forth in the purchase agreement. In total, Rexing underpaid $60, 059.91. [Filing No. 72-27 at 2-4; Filing No. 73 at 30, 38; Filing No. 72-28 at 5.]

         On June 2, 2017, Dylan spoke with Mike Gidley of Rembrandt, and discussed the possibility of rejecting loads. [Filing No. 89-10 at 7.] Mr. Gidley told Dylan that Rexing could not reject loads under the terms of the purchase agreement. [Filing No. 89-10 at 7; Filing No. 89-34 at 1 (internal Rembrandt chat explaining that “we took a much closer look at our supply agreement, as well as your suggestion that Rexing was able to reject loads, ” and concluding that “we believe our contract is solid” and “Rexing does not have the right to reject loads”).]

         E. Repudiation of the Purchase Agreement

         In August 2016, when the Rexing-Rembrandt agreement was being finalized, Hickman's believed that it would be able and willing to purchase 11 loads from Rexing for one year, largely due to the demand from Costco, among other retail customers. [Filing No. 72-4 at 3-16.] However, as explained above, Rexing and Hickman's never reached a binding, long-term agreement. [Filing No. 73 at 13-14.] Thus, when Hickman's ramped up its own cage-free production, [Filing No. 72-4 at 12], and faced reduced demand for cage-free eggs, it ultimately stopped buying eggs from Rexing. [Filing No. 72-4 at 6-7; Filing No. 89-9 at 3.] Rexing unsuccessfully tried to find a replacement buyer. [Filing No. 89-14 at 2.]

         On May 24, 2017, Dylan emailed Rembrandt, explaining that Rexing would need to cancel orders due to decreased demand. [Filing No. 72-18 at 3.] Rembrandt responded that Rexing would need to take the full loads per the parties' agreement unless Rembrandt could find an alternative buyer. [Filing No. 72-18 at 1.] Unhappy with the situation, Dylan by email dated June 1, 2017 explained that he was “going to try and tell Rembrandt to pound sand, ” [Filing No. 72-19 at 1], and on June 2, Dylan discussed the possibility of rejecting loads and was told that Rexing could not do so, [Filing No. 89-10 at 7].

         After refusing several loads, on June 5, 2017 Dylan emailed Rembrandt, again stating that Rexing would not be able to take their full volume of eggs and writing: “Im sorry to have to put anyone through this, but the cage free business isnt what we were told it was going to be this time of year.” [Filing No. 72-20 at 1 (misspellings in original).] Following a conference call later that day, Rembrandt's Egg Sales Desk Manager emailed Rexing:

Joe and Dylan
Thank You for taking the time today to discuss the current Rexing cage free egg supply. Since our discussion, I noted that you had sent a notice that would stop our supply agreement from renewing for an additional year after the completion of the initial one year term. As you're aware, the supply agreement is still in effect through October 3, 2017, with the existing weekly purchase requirements of 12 loads per week.
As we discussed, Rembrandt does expect that Rexing comply with its supply agreement purchase obligations. Last week Rexing only took 8 full truckloads of cage free shell eggs, and as a result, Rembrandt is holding the remaining 4 loads for Rexing's account, and we need direction from you by the end of the day today as to whether we should continue to hold them or attempt to resell them, with any loss by Rembrandt (the difference between the contract price and what we're able to sell these containers for) being reimbursed to Rembrandt by Rexing. We also need to know today what to do with the 8 loads that you've told us you will not be taking next week.
I indicated that Rembrandt is willing to try to assist by referring possible opportunities to Rexing for sale, or we are open to suggestions you may have to try to resolve this. Given that our cooler space is full, we really need to hear ...

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