7th Circuit rules for egg supplier in spoiled contract case

Despite a buyer’s ruffled feathers, the 7th Circuit Court of Appeals has upheld judgment for an egg supplier in a contractual dispute. Further, the appellate panel remanded for the calculation of interest and fees resulting from the cracked relationship.

The 7th Circuit ruled for egg supplier Rembrandt Enterprises Inc. in a 43-page opinion handed down Thursday in Rexing Quality Eggs v. Rembrandt Enterprises, Inc. v. Joseph L. Rexing, et al., 20-1726, -1727.

Rembrandt in 2016 entered into an agreement with Rexing Quality Eggs providing that Rexing would purchase 12 loads of eggs weekly. Rembrandt would source its eggs from farms in Tipton, Missouri, though the agreement noted “Rembrandt has the right to source certain loads from other locations” during a designated “ramp-up” period ending Feb. 12, 2017. The agreement also provided that it would be governed by Iowa law.

Almost immediately, Rexing was dissatisfied with the quality of eggs it was purchasing. Then in January 2017, a sickness began to sweep through the chickens in Tipton, so between April and June, Rembrandt supplied eggs from outside of Tipton with more frequency.

Meanwhile, Rexing had hatched a plan to resell eggs to Hickman’s Family Farm, which would sell the eggs to a retailer. However, the parties never signed an agreement, and Hickman’s ultimately stopped purchasing from Rexing. Rexing told Rembrandt it would need to cancel orders, but Rembrandt insisted Rexing had to accept full loads unless the supplier could find another buyer.

Even so, Rexing began refusing loads. Rembrandt sent a letter requesting assurances that Rexing would accept egg loads, but Rexing replied by claiming the eggs it had received had violated warranties. Rexing also claimed its refusal to accept more loads was excused under a force majeure clause.

Rembrandt was able to sell all but 65 loads of eggs, and those 65 loads were invoiced to Rexing under the terms of the agreement. Rexing, however, refused to pay.

Instead, Rexing filed a state-court action, later removed to federal court, seeking declaratory judgment that it was excused from purchasing Rembrandt’s eggs under the force majeure clause, and that its refusal was justified because Rembrandt had violated express warranties. Rembrandt filed a counterclaim for breach of contract and requested damages, attorney fees and interest.

The Indiana Southern District Court granted summary judgment to Rembrandt with respect to liability but denied it as to the amount of damages. At trial on damages, the jury returned a verdict for Rembrandt in the amount of $1,268,481 in resale damages and $193,752 in market damages.

After the verdict, Rexing did not make a motion for judgment as a matter of law and did not seek a new trial. For its part, Rembrandt sought $420,798.39 in prejudgment interest, pointing to a provision of the agreement charging 1% interest per month for past-due payments.

However, the district court determined that provision violated Iowa’s usury law and did not fall under Iowa’s Business Credit Exception covering “[a] person borrowing money or obtaining credit for business or agricultural purposes.” Ultimately, the court entered judgment for Rembrandt in the amount of $1,522,302.61.

Rexing appealed the judgment in favor of Rembrandt while Rembrandt cross-appealed and challenged the denial of its request for attorney fees and interest. The 7th Circuit panel affirmed as to Rexing’s appeal but reversed in Rembrandt’s favor on its cross-appeal.

“The district court properly concluded that the resale remedy under Iowa’s version of the Uniform Commercial Code … was the appropriate mechanism for calculating Rembrandt’s damages,” Judge Kenneth Ripple wrote Thursday. “Moreover, Rexing waived its arguments challenging the jury’s damage award by not presenting them to the district court in a postverdict motion.

However, “Rembrandt is correct that the parties’ agreement fell within the ‘Business Credit Exception’ to Iowa’s usury statute … . We therefore reverse the district court’s denial of Rembrandt’s request for interest and fees, and we remand for further proceedings on these matters,” Ripple wrote.

“At bottom, Rexing is attempting to create an exception to the UCC’s resale remedy that is not tethered to the statutory language, the official comments, or the case law,” the 7th Circuit panel held. “Contrary to Rexing’s assertions, the resale remedy is available for contracts involving future sales of fungible products, and the seller may recover its damages as long as ‘every aspect of the sale including the method, manner, time, place and terms [is] commercially reasonable.’ Iowa Code § 554.2706(2).

“The question whether Rembrandt acted in a commercially reasonable manner following Rexing’s repudiation was submitted to the jury. The jury found in favor of Rembrandt, and Rexing has not challenged the jury’s finding on appeal.

As for Rembrandt’s cross-appeal, the 7th Circuit found the interest provision of the agreement equated to an extension of credit because Rembrandt was forbearing payment in full in exchange for the payment of interest. Thus, the provision fell within the usury exception for “borrowing money or obtaining credit for business or agricultural purposes,” the panel ruled, citing State ex rel. Turner v. Younker Bros. Inc., 210 N.W.2d 550, 555 (Iowa 1973).

“Because Paragraph E meets the requirements of the Business Credit Exception, we therefore reverse the district court’s judgment denying Rembrandt contractual interest on the verdict,” Ripple conclude. “The district court’s determination that the Purchase Agreement was usurious also formed the basis for its denial of attorneys’ fees and costs. We therefore remand the case to the district court for both the calculation of contractual interest and further consideration of Rembrandt’s motion for attorneys’ fees.”

Thursday’s opinion marked the second time the 7th Circuit has ruled for Rembrandt. In March 2020, the appellate court ruled for the supplier on Rexing’s claims in a second action for unreturned material and other losses.

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