Opinion ID: 4680221
Heading Depth: 1
Heading Rank: 2

Heading: Warranties: Rembrandt represents and

Text: warrants to Purchaser that all Shell Eggs sold to Purchaser pursuant to this Agree- ment will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as amended, and not be an article which may not be intro- duced into interstate commerce under the provisions of Section 404 or 405 of such act. NO OTHER REPRESENTATION OR WARRANTIES OF ANY KIND OR NATURE, WHETHER EXPRESS OR IMPLIED, OR OTHERWISE ARE MADE OR INTENDED BY REMBRANDT WITH RESPECT TO THE SHELL EGGS, AND REMBRANDT SPECIFICALLY DISCLAMS ANY WARRANTIES OF Nos. 20-1726 & 20-1727 7 MERCHANTABILITY OR FITNESS FOR A 9 PARTICULAR PURPOSE. Damages for breach of the Purchase Agreement were limited by Paragraph M, which stated: “Other Terms: In no event shall Rembrandt be responsible for any lost profits, or any special, indirect, incidental, consequential, or punitive damages, even if advised in advance of the possibility of such 10 damages.” The Purchase Agreement, however, provided for attorneys’ fees and costs to the prevailing party “in any 11 dispute arising under this Agreement. Finally, Exhibit A to the Purchase Agreement set forth the specifications for the type and quality of eggs to be supplied. The Purchase Agreement required that the average weight for each load be between forty-seven and fifty-two pounds, that the load would be inspected for quality and compliance by Rexing, and that Rexing would receive a discount for loads in which less than 91.5% of the eggs failed to 12 conform to specifications. 9 Id. at 2–3 (emphasis removed). 10 Id. at 3 (emphasis removed). The Purchase Agreement also provided that it should be governed and construed under Iowa law. See id. (para. L). 11 Id. (para. J). 12 Regarding quality, the Purchase Agreement provided: “With respect to each load of Shell Eggs, ninety-one and a half percent (91.5%) of such Shell Eggs shall grade out as Grade A, and specifically, no more than eight and one half percent (8.5%) of any load of Shell Eggs shall grade (continued … ) 8 Nos. 20-1726 & 20-1727 Rexing received its first shipment of eggs at the end of September 2016. After a “Ramp Up Period” agreed to by the parties, Rexing received twelve truckloads of eggs each week. Rexing was displeased with the quality of the initial shipments, and Dylan Rexing sent Rembrandt emails in October 2016, complaining of poor egg quality. Both Rexing and Rembrandt sent representatives to Tipton, the source of most of the eggs. Shell quality and equipment emerged as issues, and the Tipton farms made several changes to equipment and bird nutrition. However, as of November 2016, Rexing still was displeased with the percentage of eggs that were not meeting the quality specifications. 13 In January 2017, a Mycoplasma gallisepticum (“MG”) outbreak hit the Tipton area. Birds at the Tipton farms tested positive for MG, and, in April 2017, Rembrandt began to euthanize its birds at one of the Tipton farms. Between April and June 2017, Rembrandt began supplying eggs to Rexing from farms outside of Tipton with greater frequency. In late May and early June, shipments were underperforming by over twenty percent. Rexing’s invoices for these shipments included proper discounts for these underperforming loads. ( … continued) out as restricts or losses.” Id. at 5. Rexing was entitled to a price credit of up to ten percent for loads that did not meet these requirements. See id. 13 “MG is a bacterium which causes chronic respiratory disease in chickens.” R.110 at 12 n.5 (citing National Poultry Improvement Plan, U.S. Dep’t of Ag. (Apr. 11, 2017), https://www.aphis.usda.gov/aphis/ourfocus/ animalhealth/nvap/NVAP-Reference-Guide/Poultry/ National-Poultry-Improvement-Plan). Nos. 20-1726 & 20-1727 9 When Rexing signed the Purchase Agreement, it had intended to resell the eggs to Hickman’s Family Farms, which would in turn resell the eggs to a large retailer. Rexing and Hickman’s, however, never entered a formal agreement. After the Purchase Agreement was signed, Hickman’s both increased its own production and faced a decreased demand for cage-free eggs. Consequently, it stopped purchasing eggs from Rexing, and, in turn, Rexing notified Rembrandt that it would need to cancel orders due to decreased demand. Rembrandt responded that unless it could find another buyer, it expected Rexing to take the full loads as required by the Purchase Agreement. After refusing several loads, Dylan Rexing emailed Rembrandt on June 5, 2017, stating that Rexing would not be able to take their full volume of eggs. Two days later, counsel for Rembrandt sent a letter to Rexing demanding assurances that Rexing would accept egg loads in compliance with the terms of the Purchase Agreement. The letter “advised that Rembrandt intend[ed] to resell the shell eggs in the best manner available” and, if it did not receive assurances, would “consider all options, including permanently remov14 ing the flock supplying the shell eggs.” On June 9, 2017, counsel for Rexing responded to the demand for assurances. He expressed the opinion that the eggs Rembrandt had been supplying violated an express warranty of quality in the Purchase Agreement and that Rexing’s refusal to take more loads was excused through the Purchase Agreement’s force majeure clause. 14 R.72-24 at 2. 10 Nos. 20-1726 & 20-1727 Having failed to receive assurances from Rexing, Rembrandt attempted to resell the eggs. Rembrandt elected not to resell Rexing’s eggs on the national egg exchange because it was concerned that the market would be flooded and that prices would drop. Rembrandt informed the exchange, however, that it had supply available for interested buyers and eventually resold 133 of the remaining 198 loads through private sales. Eighty-two of those loads were sourced from Tipton farms, which resulted in the lowest 15 freight cost for the buyers. Rembrandt used the unsold, remaining sixty-five loads to satisfy its existing commitments to its liquid and powdered egg customers. For these sixty-five loads, Rembrandt invoiced Rexing for the difference between the contract price under the Purchase Agreement and “the actual market prices at which Rembrandt was 16 able to sell loads to third parties at the same time.” Rexing refused to pay the invoiced amounts. B. 1. Rembrandt’s summary judgment motion Rexing filed this action in Superior Court in Vanderburgh County, Indiana, asking that the court declare that it was excused from purchasing eggs from Rembrandt under the Purchase Agreement’s force majeure clause and that its repudiation was justified because Rembrandt had violated 15 Following Rexing’s repudiation, Tipton hens continued to be plagued with MG, and Rembrandt depopulated several barns at Tipton from July through September 2017. 16 R.78 at 5. Nos. 20-1726 & 20-1727 11 express warranties. Rembrandt removed the action to the district court on diversity grounds. Once in the district court, Rembrandt answered the complaint and filed a counterclaim, alleging both a count for breach of contract and a count for breach of a credit agreement and requesting dam17 ages, attorneys’ fees, and interest. Following discovery, Rembrandt moved for summary judgment on all counts of Rexing’s complaint, as well as on its counterclaim for breach of contract. The district court granted Rembrandt’s motion with respect to liability but denied Rembrandt summary judgment as to the amount of damages. The court first determined that Rembrandt had not breached any express warranty that the eggs would be sourced from the Tipton farms; consequently, its sourcing the eggs from alternative locations was not a valid basis for Rexing’s repudiation. Moreover, the court explained, even assuming it were a breach for Rembrandt to source eggs from outside of Tipton after the Ramp Up Period, Rexing would not have been excused from continued performance under the purchase agreement. Iowa’s UCC permits a buyer to cancel a contract “[w]henever non- conformity or default with respect to one or more installments substantially impairs the value of the whole contract.” Iowa Code § 554.2612(3). Rexing, however, [had] ma[de] 17 Rembrandt abandoned its cause of action for breach of the credit agreement prior to trial. See R.184 at 1–2. 12 Nos. 20-1726 & 20-1727 no showing or argument that having to spend more on delivery or packaging from certain lo- cations would impair in any way the value of the whole contract. At most, it may [have made] performance more expensive for Rex- ing, but cancellation [was] not permitted for 18 this reason. The court also concluded that Rexing could not have “rescinded the contract based upon a breach of the location term. Rescission,” the court explained, “is appropriate only where ‘(1) the injured party [is not] in default, (2) the breach [is] substantial and go [sic] to the heart of the contract, and 19 (3) remedies at law [are] inadequate.’” However, Rexing had not demonstrated a genuine issue of fact regarding these requirements because (1) “Rexing had underpaid for certain deliveries of eggs and was therefore in default,” (2) “any alleged breach did not reach the heart of the contract,” and (3) “any breach could … be remedied by damages for the in20 creased expense.” “In sum,” the court concluded, “any breach of the location term would not have excused Rexing’s 21 continued performance under the purchase agreement.” Moreover, the court observed that the only damages that Rexing would have incurred were for “shipping and packag18 R.110 at 22–23 (first alteration in original). 19 Id. at 23 (first, second, and fourth alterations in original) (quoting Clark v. McDaniel, 546 N.W.2d 590, 595 (Iowa 1996)). 20 Id. 21 Id. Nos. 20-1726 & 20-1727 13 22 ing.” However, not only did Paragraph M of the Purchase Agreement limit incidental and consequential damages, the Purchase Agreement provided that Rexing would receive a $0.05 discount per dozen for eggs sourced from outside of 23 Tipton, and Rexing had received this discount. After concluding that “Rembrandt [wa]s … entitled both to summary judgment on Rexing’s claim for a declaratory judgment that its performance was excused and to partial summary judgment on its own claim as to Rexing’s breach of the purchase agreement by refusing to accept loads it was 24 obligated to purchase,” the court addressed Rembrandt’s claims for damages. The court set forth the applicable damage provisions of Iowa’s version of the UCC, specifically Iowa Code §§ 554.2703, 554.2706, and 554.2708. Turning to the parties’ arguments, the court concluded that it could “be brief … because Rembrandt f[ell] short of establishing the 25 amount of its damages as a matter of law.” Specifically, it noted that, with respect to the damages related to resale, summary judgment was inappropriate because what consti- 22 Id. (internal quotation marks omitted). 23 The district court also rejected Rexing’s claim that its performance was excused based on the force majeure clause and commercial impracticability. See id. at 30–35. Rexing does not challenge those rulings on appeal. 24 Id. at 35. 25 Id. at 39. 14 Nos. 20-1726 & 20-1727 tutes a commercially reasonable resale is a question of fact 26 reserved for the jury. It did note, however, that summary judgment [wa]s not defeated merely because Rembrandt elected to source some loads from outside of Tipton. … [F]or purposes of Rembrandt’s resale remedy, the case law es- tablishes that fungible goods such as cage-free white eggs may be substituted as long as they are reasonably identified to the contract. Rea- sonable identification to the contract looks to the type and quality of the goods, and Rexing ma[de] no argument that the eggs sourced from outside Tipton were any different from the Tipton eggs. Therefore, Rembrandt was not precluded from substituting loads from other sources to calculate its damages pursuant to that remedy election, though whether the sales were commercially reasonable; whether Rem- brandt’s damages calculations properly ac- counted for “expenses saved in consequence of the buyer’s breach,” and whether Rexing was properly credited to the extent the resold loads fell beneath the threshold quality level re- 27 main[ed] at issue for trial. The parties therefore proceeded to trial on Rembrandt’s claim for damages. 26 Id. 27 Id. at 41 (citation omitted). Nos. 20-1726 & 20-1727 15 2. Pretrial and trial proceedings Prior to trial, Rembrandt moved in limine to prevent the jury from hearing testimony from Rexing’s expert, Dr. James Woods, that Rembrandt’s damage estimate was overstated because it included sales of non-Tipton eggs. Rembrandt argued that not only did Dr. Woods’s proposed testimony constitute an “improper legal conclusion,” but “the Court ha[d] already rejected this argument in its summary judgment Order”: The Court held that because the Rexings did not dispute that all cage-free white eggs are fungible, and Rembrandt was permitted to substitute cage-free eggs from any location up- on the Rexings’ repudiation. Additionally, pri- or to repudiation, the Rexings requested eggs from other [sic] on numerous occasions and knowingly accepted each delivery of 28 non-Tipton eggs. The district court denied the motion in limine as it related to general information about “site-sourcing,” noting that the evidence was relevant to the commercial reasonableness of 29 Rembrandt’s actions; however, it did grant the motion in limine with respect to Dr. Woods’s testimony because it believed that his testimony included legal conclusions. It explained that 28 R.144 at 3 (citation omitted). 29 R.180 at 38. 16 Nos. 20-1726 & 20-1727 [i]n multiple places in his report, Dr. Woods asserts what he believes to be the proper measure or formula for Rembrandt’s damages. Aside from the fact that the above assertions delve into matters of law, [his] formulas are different, or could be construed to be different, from the Court’s jury instructions. Iowa law 30 sets forth the measure of damages. A two-day trial was held in November 2019. At the close of Rembrandt’s case, Rexing moved for a directed verdict under Federal Rule of Civil Procedure 50(a). Rexing maintained that Rembrandt had failed to present any “credible” or “documented evidence” that the average case weights for the loads of eggs that Rembrandt resold were between for31 ty-seven and fifty-two pounds, as required by Exhibit A to the Purchase Agreement. Rexing noted that the jury would be instructed that “the eggs sold ha[d] to conform to the par32 ties’ contract.” Rexing submitted that, because there was no evidence that the eggs conformed to the terms of the Purchase Agreement, Rembrandt was “not entitled to damag33 es.” The district court denied Rexing’s motion. Prior to jury instructions and closing arguments, Rexing renewed its Rule 30 R.197 at 2 n.1 (citations omitted). 31 Trial Tr. II at 370. 32 Id. at 371. 33 Id. Nos. 20-1726 & 20-1727 17 50 motion without elaboration. The court again denied the 34 motion. The court then instructed the jury on the damages it could award for losses resulting from Rembrandt’s resale of Rexing’s eggs to other buyers. Specifically, the court instructed the jury that, in order to recover under the resale damages method, Rembrandt had to prove by a preponderance of the evidence: “One, the resales were made in good faith and in a commercially reasonable manner; Two, the eggs sold conformed to the parties’ contract; Three, Rembrandt provided Rexing Eggs reasonable notice under the 35 circumstances of Rembrandt’s intent to resell the eggs.” The jury also was instructed on the meaning of commercial reasonableness: “[A] resale is commercially reasonable if it was fair, done in good faith, and corresponds to commonly 36 accepted commercial practice.” Additionally, “[e]ach aspect of the resales must be commercially reasonable, includ37 ing the method, manner, time, place, and terms.” Finally, the court explained that, “[i]n making the resales, Rembrandt was permitted to depart from the terms and conditions of the original contract to the extent such departure 38 was ‘commercially reasonable’ in the circumstances.” 34 See id. at 385. 35 Id. at 394. 36 Id. 37 Id. at 394–95. 38 Id. at 395. 18 Nos. 20-1726 & 20-1727 Regarding Rembrandt’s losses resulting from eggs that it was unable to resell, the court instructed the jury that it could award Rembrandt damages established under “the 39 market price damages method.” According to this method, “Rembrandt’s damages [we]re the difference between the contract price and the market price at the time the eggs were 40 to be delivered to Rexing Eggs.” “The term ‘market price,’” the court continued, “means the cash sales price between a voluntary, willing seller who is not forced to sell, and a voluntary, willing buyer who is not forced to buy. It assumes a 41 buyer and seller are bargaining freely in the open market.” The jury returned a verdict in favor of Rembrandt for resale damages in the amount of $1,268,481 and market dam42 ages in the amount of $193,752. Following the verdict, Rexing did not make a motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b), nor did it move for a new trial under Federal Rule of Civil Procedure 59. 3. Posttrial Proceedings After Rembrandt prevailed at trial, it moved for attorneys’ fees, prejudgment interest, and costs. Specifically, Rembrandt sought $420,798.39 in prejudgment interest under Paragraph E of the Purchase Agreement which required payment within twenty-one days of the invoice date, and 39 Id. 40 Id. at 395–96. 41 Id. at 396. 42 See R.207. Nos. 20-1726 & 20-1727 19 made “[p]ast due invoices … subject to an interest charge of 43 one percent (1%) per month.” Following briefing on the motion, the district court asked for supplemental briefing on the application of Iowa’s usury 44 law to the Purchase Agreement. The parties filed their submissions, and, with the benefit of their views, the district court determined that Paragraph E violated Iowa’s usury law. It began its analysis by observing that Iowa Code § 668.13 provides that, “[i]f the interest rate is fixed by a contract on which [a] judgment or decree is rendered, the interest allowed shall be at the rate expressed in the contract, not 45 exceeding the maximum rate permitted under 535.2.” Applying the methodology set forth in § 535.2(3), the court concluded that the applicable default rate was 3.5%. The court then addressed whether the Purchase Agreement fell within the exceptions set forth in Iowa Code § 535.2. Among these is the “Business Credit Exception” that covers “[a] person borrowing money or obtaining credit for 46 business or agricultural purposes.” The court further explained that, assuming the Purchase Agreement did not fall within a statutory exception, Iowa law penalizes those who seek to enforce a usurious interest rate: 43 R.217 at 12 (first alteration in original) (quoting Purchase Agmt. at 2). 44 See R.243 at 2. 45 R.251 at 4 (alterations in original) (quoting Iowa Code § 668.13). 46 Id. at 6 (alteration in original) (quoting Iowa Code § 535.2(2)(a)(5)). 20 Nos. 20-1726 & 20-1727 If it is ascertained in an action brought on a contract that a rate of interest has been con- tracted for, directly or indirectly, in money or in property, greater than is authorized by this chapter, the rate shall work a forfeiture of eight cents on the hundred by the year upon the amount of the principal remaining unpaid up- on the contract at the time judgment is ren- dered, and the court shall enter final judgment in favor of the plaintiff and against the defend- ant for the principal sum remaining unpaid without costs, and also against the defendant and in favor of the state, to be paid to the treasurer of state for deposit in the general fund of the state, for the amount of the forfei- ture. If unlawful interest is contracted for the plaintiff shall not have judgment for more than the principal sum, whether the unlawful inter- 47 est is incorporated with the principal or not. Turning to the application of these provisions to the Purchase Agreement, the district court evaluated the case law cited by Rembrandt, but determined that the Purchase Agreement was unlike the arrangements in those authorities. The Purchase Agreement “did not call for a sale of goods on credit, rather it established a delayed payment mechanism due to the unique nature of the parties’ agreement,” specifically the right of Rexing to inspect the eggs and remit pay- 47 Id. at 5 (quoting Iowa Code § 535.5). Nos. 20-1726 & 20-1727 21 48 ment adjusted to the quality level of the load. Thus, the district court not only denied Rembrandt contractual interest, it also imposed the penalty for seeking usurious interest rates under Iowa Code § 535.5 and denied Rembrandt statutory interest, attorneys’ fees, and costs. Rexing appealed the judgment in favor of Rembrandt, and Rembrandt cross-appealed the denial of attorneys’ fees and interest.