Citations
- 280 F. Supp. 2d 1044
Full opinion text
MEMORANDUM AND ORDER RE: DEFENDANT DIVERSIFIED’S MOTION FOR SUMMARY JUDGMENT
WANGER, District Judge.
I. INTRODUCTION
Plaintiffs are fourteen dairy farms: Weststeyn Dairy 2; Joe Alamo, individually and dba Alamo Dairy; B & J Dairy; George TeVelde, individually and dba George TeVelde Dairy Farm; J & M Bet-tencourt & Sons Dairy; Larrybell & Son Dairy; Bob Marchy, individually and dba Marchy Dairy; Sleepy Hollow Certified Milk Co., a California corporation; Tony Garcia, individually and dba Tony Garcia Dairy; Case Van Steyn, individually and dba Van Steyn Dairy; Bruce Burroughs, individually and dba Vista Livestock Co.; George Plantenga, individually and dba Western Sky Dairy; Van Warmerdam Dairy, Inc., a California Corporation and Willy Creek Ranch. Thirteen dairies (hereinafter “Weststeyn”) with the exception of Willy Creek Ranch filed their complaint in state court on November 7, 2000. The case was removed by defendant Diversified Business Credit (“Diversified”) with the consent of defendant Eades Commodities Company (“Eades”) to the United States District Court of the Eastern District of California, Sacramento Division on December 8, 2000. On December 19, 2000, Judge Shubb transferred the case to the Fresno Division pursuant to Local Rule 3-120(b). Plaintiff Willy Creek Ranch (“Willy Creek”) filed its complaint in federal court on August 10, 2001. The cases were consolidated on November 26, 2001.
Plaintiffs sue Diversified and Eades on various claims arising out of the loss of approximately $1.1 million prepaid to Eades for cattle feed and subsequently taken by Eades’ primary lender, Diversified, to enforce its security interest in Eades’ accounts receivable or general intangibles. Plaintiffs allege conversion, unjust enrichment, intentional interference with contractual relations, intentional interference with prospective economic advantage, negligent interference with prospective economic advantage, and declaratory relief. Diversified moved for summary judgment on April 15, 2002, and revised its supporting memorandum of law on June 10, 2002. Willy Creek filed a separate opposition on June 24, 2002. Weststeyn filed a separate opposition on June 24, 2002, and also adopted and incorporated all of Willy Creek’s legal arguments and objections. Oral argument was heard on September 28, 2002.
II. STATEMENT OF FACTS
Undisputed Facts.
In 1989, Diversified, a Minnesota commercial lender, entered into a revolving line of credit agreement with Eades, a Nebraska cattle feed merchant. Walter Tomaszek Deck, Apr. 15, 2002, ¶ 2. Diversified secured its financing to Eades through a Credit and Security Agreement (“Security Agreement”) dated November 22, 1989, by which it took perfected security interests in Eades’ assets. Id. at ¶ 3 & Ex. A. Under Paragraph 3(a) of the Security Agreement, Eades granted Diversified a security interest in its inventory, documents of title, accounts receivable, equipment and fixtures, equity securities, general intangibles, and all proceeds and products, all defined as “Collateral.” Id. Paragraph 3(A) of the Security Agreement provides in pertinent part:
Grant of Security Interest. Borrower hereby assigns to Lender and grants Lender a security interest (collectively referred to as the “Security Interests”) in the property described below, as security for the payment and performance of each and every debt, liability and obligation of every type hereafter owed to Lender ... The Security Interests shall attach to the following property of Borrower (the “Collateral”), including all proceeds and products thereof:
RECEIVABLES: Each and every right of Borrower to the payment of money, whether such right to payment exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of overpayment of taxes or other liabilities, or other transaction or event, whether such right to payment is created, generated or earned by Borrower or by some other person whose interest is subsequently transferred to Borrower, whether such right is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens, security interests and guaranties) which Borrower may at any time have by law or agreement against any account debt- or or other person obligated to make any such payment or against any property of such account papers, bonds, notes and other debt instruments, and all rights to payment in the nature of general intangibles; all checking accounts, savings accounts and other certificates of depository accounts and all savings certificates and certificates of deposit maintained with or issued by Lender or any other bank or other financial institution.
GENERAL INTANGIBLES: All general intangibles of every type and description now owned or hereafter acquired by Borrower, including (without limitation) all present and future foreign and domestic patents, patent applications, trademarks, trademark applications, copyrights, trade names, trade secrets, shop drawings, engineering manuals, operating instructions, customer or supplier lists and contracts, licenses, permits, franchises, the right to use Borrower’s corporate name, and the goodwill of Borrower’s business.
Ex. A, ¶3^) (emphasis added). Eades agreed “to deposit in one or more special collateral accounts maintained for Lender at Firstier Bank, Omaha, Nebraska, or any other bank reasonably satisfactory to Lender and Borrower, all collections on accounts, contract rights, chattel paper and other rights to payment constituting Collateral, and all other cash proceeds of collateral, immediately upon receipt thereof, in the form received, except for Borrower’s endorsement when deemed necessary.” Id. at ¶ 3(c). The Security Agreement specified that “[ejxcept to the extent otherwise required by law, this Agreement and the transactions evidenced hereby shall be governed by the substantive laws of the State in which this Agreement is accepted by Lender.” Id. at ¶ 13. Diversified filed a financing statement with the Nebraska Secretary of State on November 27, 1989 to perfect its security interest and preserved its perfected status by filing a continuation statement on October 25, 1999. Tomasz-ek Decl. at ¶ 5. As of all the transactions in dispute, Diversified held a valid and perfected security interest of record in California in all Eades’ receivables and general intangibles.
Prior to March 2000, Eades supplied grain feed to dairies and other cattle operations throughout California, including Plaintiffs. Plaintiffs purchased cattle feed from Eades’, sometimes dealing with Eades directly, but most of the time dealing through brokers Wes Creswick and Stan Lawrence of Feed Services Company, Eades’ California agents. Eades offered a prepay program to provide customers an incentive to prepay for cattle feed. Customers who prepaid could get a discount of $2 a ton off the price of the commodity; alternatively, they could earn interest on their prepaid balance at the rate of 7% per year. Eades Dep. at 12:12-23, Ex. 5. The prepay program allowed Eades’ customers to prepay at the end of one year for feed to be delivered in the following year. A tax deduction was taken by the buyer for the full amount of the purchase, including for undelivered feed. As feed was needed throughout the following year, Eades shipped feed and the prepay deposit balance was reduced.
The contract of sale confirmation between each plaintiff and Eades called for delivery of a fixed amount of grain over a specified period of time at a fixed price, with certain terms and conditions specified on the reverse side of the contract. Eades Dep. at 6, Ex. 1 at 2. The sales agreement specified that “salesmen and brokers are not empowered to give contracts to bind the Seller.” An integration clause provided:
This contract constitutes the entire understanding between the parties hereto and no modification or amendment of this Contract shall be valid or binding unless agreed to by both parties and confirmed in writing by either parties to the other. THERE ARE NO ORAL AGREEMENTS OR WARRANTIES COLLATERAL TO BE AFFECTING THIS CONTRACT. Buyer agrees to be bound by the terms of this Contract in the event of any conflict in terms or conditions hereof with Buyer’s contract for such purchase.
Id.
Plaintiffs’ Contract Dealings With Eades
1. Alamo Dairy
Plaintiff Joe Alamo dba Alamo Dairy prepaid Eades for feed in 1999. Alamo Dairy took an expense deduction from income for tax purposes for the full amount of a prepayment in the year the contract was formed on the advice of its accountant. Joe Alamo Dep. at 14. Mr. Joe Alamo was primarily responsible for the dairy’s business dealings with Eades. Mr. Alamo testified he only spoke with Wes Creswick, who acted as a broker for Eades. Id. at 17, 20. Mr. Alamo testified regarding his conversations with Mr. Creswick:
Q: Did Mr. Creswick or any — or anybody else from Feed Services Company, did they ever tell you that your prepayment moneys would be held in trust?
A: Yes. I believe I recall a conversation with Wes about that.
Q: Did Wes use that specific language? A: Correct.
Q: Okay. When did Wes tell you that your prepayments would be held in trust?
A: I believe in March — it was after you guys had already had — it was after Eades bankruptcy, so-called bankruptcy, that he had said that Bob Eades had told him that our moneys were held in trust. And that’s about the extent of the conversation.
Q: But prior to that I take it Mr. Cre-swick never said the moneys would be held in trust; is that correct?
A: Correct.
Q: Did Mr. Creswick ever tell you that your prepayments would be segregated and held in a separate account at A.G. Edwards or any other financial institution?
A: Not that I can recall.
Q: And did he ever tell you what would be done with your money once it was received?
A: No.
Q: Did he ever promise you that it wouldn’t be used to pay other business expenses of Eades?
A: No.
Q: When you made the prepayments to Eades that you did at the close of ’99, were you concerned at all abut the risk of paying that money in advance?
A: At that time, no.
Id. at 18-19.
This testimony establishes that the subject of a trust did not arise until after the dispute arose, not when any contract was formed.
2. Vista Livestock
Plaintiff Bruce Burroughs dba Vista Livestock prepaid Eades for cattle feed from 1995 until 1999. Burroughs Dep. at 21. Vista Livestock dealt with Mr. Stan Lawrence, never directly with Eades. Id. at 20. As a matter of general business practice, it was Vista Livestock’s practice to deduct the full amount of the prepayments in the year the contract was made. Id. at 30. Besides the tax benefit of prepaying the current tax year for goods delivered, prepaying in advance permitted Vista Livestock to lock in a fixed per ton price for feed and a guaranteed quantity for the following year. Id. at 31. Vista Livestock selected the price discount rather than the seven percent interest and received a discount of $3 per ton. Id. at 32-33. Mr. Bruce Burroughs, who was primarily responsible for the dairy’s business dealings with Eades, testified as to his relationship with Eades:
Q: Okay. Did you and Mr. Lawrence ever discuss what would be done with your money once it was prepaid?
A: No.
Q: And did you ever discuss that subject with Bob Eades, Bob March, or anyone else from Eades Commodities?
A: No.
Q: So no one told you that your money would be held in trust; is that correct?
A: Yes, that is correct.
Q: Okay. That’s something that you assumed?
A: Yes.
Q: And no one told you that the prepay money that you — the prepays that you made at the close of ’99 would not be used to pay Eades’ other business expenses; is that correct?
A: No one — no one told us so, yes.
Q: Okay. And no one told you that the money that you prepaid would be segregated or held in a separate account? That’s something that you assumed; is that correct?
A: Yes.
Q: Did anyone from Eades or Mr. Lawrence tell you or anyone else ever discuss an A.G. Edwards account or tell you that your money was deposited with A.G. Edwards?
A: No.
Id. at 45-46.
This testimony establishes a trust was never discussed and no such agreement was formed. Tax deductions were taken for prepayments. A price discount was taken in lieu of interest on prepayments.
3. Tony Garcia Dairy
Plaintiff Tony Garcia dba Tony Garcia Dairy first prepaid Eades for feed in 1999 primarily for tax reasons. Tony Garcia Dep. at 10-11. Tony Garcia Dairy received seven percent interest on the prepaid balance. Id. at 21-22. Mr. Tony Garcia, who was principally responsible for running the Tony Garcia Dairy, testified he dealt with Eades through Mr. Stan Lawrence. Id. at 11, 30. Mr. Garcia testified regarding his discussions with Mr. Lawrence:
Q: Now, did you and Mr. Stan Lawrence ever discuss the subject of prepays?
A: Yes.
Q: Okay. And what would he tell you about the prepays?
A: Well, he told me about the interest.
Q: Okay.
A: And that’s basically it. Everything else is, I think, common knowledge as far as what the reason for prepayment is in the industry.
Q: Okay. Did Stan Lawrence, Bob Eades or anyone ever tell you that the money that you prepaid would be held in trust? Anyone ever tell you that?
A: No detail of that.
Q: Okay. Did they ever promise you that it wouldn’t be used to pay other business expenses?
A: No.
Q: Did they ever tell you that the moneys would be segregated or held in a separate account with A.G. Edwards or any other financial institution?
A: No.
Id. at 30.
No trust was ever discussed or formed.
4. Sleepy Hollow Certified Milk Co.
Plaintiff Sleepy Hollow Certified Milk Co., entered into a contract of sale with Eades for feed to be delivered between October 1999 through September of 2000. Max Herzog Dep. at 10. The contract was a fixed price prior to the prepay. Id. at 13. Sleepy Hollow Dairy prepaid Eades for cattle feed at the close of 1999. Id. at 12. Max Herzog, who was principally responsible for Sleepy Hollow’s business dealings with Eades, testified regarding his interactions with Eades and Mr. Stan Lawrence:
Q: Who did you speak with from Eades Commodities?
A: Approximately four years ago the owner Bob Eades stopped by just to meet me, just to talk general terms prior to the first year that I made prepayment, which would have been in 1998.
Q: Uh-huh.
A: One of their program brochures or the papers they sent out they told us to contact a Bob March -
Q: Uh-huh.
A: with his phone number and his extension. I called and discussed their program with him.
Q: Are those — were those the only two occasions that you communicated ■with anybody from Eades Commodities, four years ago and then once in ’98 with Bob March?
A: That four years ago was approximate. I don’t have that exact date, but I know I called Bob March in ’98 concerning 1999.
Q: Okay. Do you recall any other conversations with anybody from Eades?
A: No.
Q: Now, the conversation that you had with Bob Eades, did you discuss prepayments with him?
A: Not to the best of my knowledge.
Q: And how about the conversation that you had with Mr. March in ’98?
A: Definitely.
Q: Okay. And could you tell me in a little bit more detail what was discussed?
A: I called and asked him about the program.
Q: Uh-huh.
A: He explained it to me and said that these funds would be going into a trust and would not be an invoice for an expense until the feed was delivered.
Q: Is that something he just gratuitously told you, or did you ask him about that?
A: I asked.
Q: And did he use that specific word “trust”?
A: I don’t remember the specific word, but it was certainly implied that they were going into a trust.
Q: Do you recall what he said that led you to believe that?
A: I do not.
Q: Did he tell you that the moneys that you — or the prepayments that you made, did he tell you they’d be segregated and held in a separate trust account with A.G. Edwards or any other financial institution?
A: I don’t recall the exact words that he used. I have a note here that has a name on it A.G. Edwards, but I don’t know how it was used.
Q: Mr. Herzog, I believe when we left off we were discussing the communications that you’ve had with Eades and we started out talking about the communications that you had directly with personnel from Eades, either Bob Eades or Bob March. Do you recall that?
A: Yes.
Q: I’d like to move on and talk a little about the communications that you had through your broker. Were you — were you dealing with Eades also through Stan Lawrence?
A: Yes.
Q: Okay. How about a gentleman by the name of Wes Creswick? Did you have discussions with him as well?
A: Very seldom, only when Stan Lawrence was not available.
Q: Okay. And did he ever tell you that your prepayments that you made would be held in trust?
A: Yes.
Q: And when did Mr. Lawrence tell you that?
A: Is there a date on that? It looks like March the 1st of 2000.
Q: And was that the first time that he said that to you?
A: I believe so.
Q: Did he ever tell you that your prepayments would be held in a segregated account with A.G. Edwards or any other financial institution?
A: I don’t believe so.
Q: Did he ever promise that the prepayments wouldn’t be used to pay other business expenses of Eades?
A: Not directly. I assumed if they were in trust, they would not be.
Q: Did you ever talk to anybody from A.G. Edwards?
A: No.
Id. at 19-22.
Although the subject of a trust was discussed, the term was not used until March 2000. The witness “assumed” the funds “were going into a trust,” however, a segregated account was not discussed.
5. Willy Creek Ranch
Plaintiff Willy Creek Ranch did business with Eades in 1995, if not 1994. Jeffrey Jongsma Dep. at 13. Willy Creek made prepayments to Eades since 1995. Id. at 18. Willy Creek earned seven percent interest on the prepay balance. Id. at 32. Mr. Jeffrey Jongsma, who was responsible for Willy Creek’s business dealings with Eades, testified there were verbal agreements in addition to the written contracts entered into with Eades for delivery of feed into 2000:
Q: Are the other contracts other than these that are not in this stack that dealt with delivery for feed into 2000?
A: Well, there was verbal agreements.
Q: Okay. And what sort of verbal agreements did you have with Eades?
A: Well, I give — I’d give him refundable deposit so I’d have the opportunity to purchase feed from him in the — in the future and probably the present.
Q: And when did you reach an agreement with Eades that the deposit as you characterized it and that you made with him were refundable?
A: I believe in December.
Q: All right. Did you have a specific conversation with Mr. Eades?
A: Yes, I had a conversation with him.
Q: Okay. And do you remember the date of that conversation?
A: No I couldn’t — I don’t know at this time.
Q: Did you call him or did he call you?
A: I believe we called each other.
Q: Who placed the call?
A: We would each place calls to each other.
Q: Did Mr. Eades use the word “refundable deposit” when he spoke with you?
A: Yes, I believe so.
Q: As I understood it, then, the money that you deposited with him, that would be like a deposit in a bank?
A: I would say its’s basically the same thing.
Id. at 15-17. Mr. Jongsma also testified regarding whether the prepayments were held in trust and segregated:
Q: Did they ever tell you that they’d hold your prepayment money in trust?
A: Those exact words, I don’t believe so.
Q: Did they ever tell you what they would do with your money once it was received?
A: Yes.
Q: And what did they tell you?
A: They told me that they — it would be deposited — a refundable deposit, and they would only take money out of it once I received feed for it. That was Bob Eades, not Bob March.
Q: Did they promise that it wouldn’t be used to pay other business expenses?
A: I don’t recall that.
Q: Did they ever tell you that the money would be segregated in a separate account with a financial institution?
A: I don’t recall that either.
Q: Did you ever discuss an A.G. Edwards account or tell you that your money would be deposited in A.G. Edwards?
A: I never discussed A.G. Edwards.
Q: As far as you know was your money ever deposited with A.G. Edwards?
A: I don’t recall. I don’t — as far as I know, no.
Q: Sure. Did Stan Lawrence or Wes Creswick or anybody else from Feed Services ever tell you that they would hold your prepayment money in trust?
A: I — that Feed Services would hold the money in trust?
Q: That either Feed Services or Eades would hold the money in trust?
A: I don’t believe — I don’t — I don’t recall at this time if they did or not.
Q: Okay. Did Mr. Lawrence, Mr. Cre-swick or anybody else from Feed Services ever tell you what would happen to your prepayment money once you made those prepayments?
A: Not that I recall.
Q: Okay. Did they ever tell you that the prepayment moneys would be segregated in a separate account with A.G. Edwards or any other financial institution?
A: Not Stan Lawrence and certainly not Wes Creswick.
Id. at 38-41.
Mr. Jongsma was not told Willy Creek Ranch funds would be held in trust or would not be commingled with Eades’ general funds. He understood Willy Creek placed “refundable deposits” with Eades that were not earmarked, not segregated, and placed at risk dependent upon Eades’ financial ability. The payment of interest on the deposit reflected a repayment obligation as opposed to a trust.
6. Larrybell Dairy & Sons
Plaintiff Larrybell Dairy & Sons made prepayments to Eades six to eight years ago. Larry Lawrence Dep. at 22, 37. Larry Lawrence, the co-owner and person responsible for Larrybell Dairy’s business dealings with Eades Commodities, testified he purchased feed from Eades through Stan Lawrence. Id. at 10, 17. Mr. Lawrence hand-delivered the prepayment checks to Stan Lawrence. Id. at 25. Mr. Lawrence acknowledged the prepayments benefitted Larrybell Dairy through a tax deduction, a fixed price per ton, and a good interest rate on the prepayment. Id. at 80-34. Mr. Larry Lawrence communicated with Eades through Mr. Stan Lawrence regarding the prepayments. Id. at 42.
Q: So other than the December 27th, 1999 luncheon, do you recall any other specific conversations or exchange of letters or email and the like with Mr. Eades or anybody else from Eades Commodities?
A: Every year in December he’d give us a Christmas dinner and give us wine and sweet talk us into doing this. The same thing every year. It was nothing new in ’99. We did it every year, I think, since Eades was in this area.
Q: And how about Mr. Lawrence? Did you ever discuss the topic of prepays with Mr. Lawrence?
A: Yes, sir.
Q: Stan Lawrence, that is?
A: Yes, sir.
Q: And what would Mr. — excuse me. What would Stan Lawrence say to you about the prepayments?
A: What would he say to me?
Q: Yeah.
A: He would ask me if I planned on doing any prepaying toward the end of the years. Every year — he’d asked me if I had any plans to do any prepaying that particular year so he could come over and I could issue him a check and he would take it in.
Q: Did Bob Eades, Stan Lawrence or anybody else ever tell you that the money that you prepaid would be held in trust?
A: That was my understanding. My money was my money, just like— that’s why I am getting seven percent interest because my money is in the holding account where I can get my interest back every month. As the invoices come in, it would be deducted off of my moneys in the bank.
Q: Did Bob Eades, Stan Lawrence or anyone else tell you specifically that your money would be held in a segregated account or a holding account with A.G. Edwards or any other financial institution?
A: With A.G. Edwards, no.
Id. at 42-44. Mr. Lawrence testified Lar-rybell Dairy requested a letter of credit the first year it began doing business with Eades but decided not to obtain a letter of credit in the subsequent years. Id. at 39.
Q: Why did you decide after this year not to obtain any further letters of credit in connection with your business dealings with Eades Commodities Company?
A: First off, you’ll notice it’s April. It takes a while to get this thing from — I’m sure I requested it in December or January. It takes awhile, and it costs money. I took a gamble that I wouldn’t need it. I lost.
Id. at 41.
Mr. Lawrence’s testimony does not evidence any express or implied promise to hold Larrybell’s funds in trust, not to commingle the prepayments, or to segregate the funds. Rather, Larrybell recognized the risk in the first year by obtaining a letter of credit. It assumed the risk of Eades’ financial inability by voluntarily electing not to secure its prepayments by a letter of credit. Expense deductions for the full prepayments evidence a sale and account receivable to Eades not fully earned by performance. Interest was paid on prepayments.
7. Marchy & Sons Dairy
Plaintiff Marchy & Sons Dairy made prepayments to Eades only in 1999. Robert Marchy Dep. at 10. Mr. Robert Marchy, a co-owner and person responsible for the dairy’s business dealings with Eades, stated he placed orders for feed through Wes Creswick as the dairy’s broker. Id. at 11. Mr. Marchy never spoke with Mr. Eades or Mr. Bob March. Id. at 17. He testified the dairy prepaid to deduct the prepayments on his tax returns for 1999, to obtain interest on the prepayments and to lock in an assured quantity. Id. at 13-14. Mr. Marchy testified as to his discussions with Mr. Creswick regarding whether the prepayments would be held in trust:
Q: Okay. Did Mr. Creswick or anybody else from Feed Services tell you that the prepayments that you made would be held in trust?
A: Yes.
Q: Okay. When did — or who told you that they would be held in trust?
A: Wes.
Q: And did he use that specific word “trust”?
A: Yes.
Q: And when did — when did he first tell you that?
A: When I was first striking the deal with him just prior to 1999 — or the last week of ’99, and then he sent me a letter when we had found out that Eades was going insolvent.
Q: Would that have been — that would have been a letter you would have received in March of 2000?
A: Yes. I believe it was around March. I can’t quite remember the date.
Q: Other than that letter that you received in March, is there any other previous written correspondence to the effect that your money would be held in trust?
A: No, I don’t believe so.
Q: Did Mr. Creswick or anybody else from Feed Services ever tell you that your prepayments would be segregated or held in separate account with A.G. Edwards or any other financial institution?
A: No.
Q: Did you ever get any statements showing where your money was?
A: No.
Q: Do you recall when Mr. Creswick told you that your prepayments would be held in trust?
A: Yes. It was the last week in 1999. That’s when I made the deal with him for the prepay.
Q: Was it something you asked him about, or did he just sort of gratuitously tell you that?
A: He told me about the trust because I was asking [about the] disability of the company, and he said this is what it would be going to.
Q: Did you ask him to put that in writing?
A: No, I didn’t.
Q: Now, I think that a moment ago, you said that you were concerned about Eades’ insolvency at the time that you were making a prepayment to Eades; is that correct?
A: Yes.
Q: Other than the conversation that you had with Mr. Creswick, did you take any other steps to secure your prepayments that you made?
A: No.
Q: So I take it you never obtained a letter of credit?
A: No.
Q: And you never filed any financing statements or obtained any security agreements from Eades -
A: No.
Q: in connection with your prepayments?
A: No.
Id. at 18-19.
Mr. Marchy testified he was told by Mr. Creswick in late 1999 that prepayments for his dairy would be held “in trust.” No specifics were provided. No writing was completed. No separate account was established. The Marchy Dairy deducted the full amount of prepayments for tax benefits. No other step was taken to secure prepayments. Interest was paid on prepayments.
8. B &J Dairy
Plaintiff B & J Dairy first did business with Eades in 1999. Robert Pellandini Dep. at 12. Mr. Robert Pellandini was primarily responsible for the company’s business dealings with Eades. Id. at 8. B & J Dairy prepaid Eades in 1999 to lock in a price and supply, to deduct the prepayments on its income tax returns and to receive interest on the prepayments. Id. at 19-20. Mr. Pellandini testified it was a common practice for the cattle feed industry to offer its customers interest on prepayments. Id. at 20. Mr. Pellandini stated B & J Dairy chose not to obtain a letter of credit in his business dealings with others because “if they’re a solid business, there’s no reason to get it.” Id. at 25. Mr. Pellandini testified regarding his communications with Eades and Mr. Creswick:
Q: Did you ever talk with Mr. Eades or anybody else from Eades Commodities?
A: No.
Q: Did you do business with Eades through another person or entity?
A: Yes.
Q: Who was that person?
A: Feed Service.
Q: And who would you deal with at Feed Services?
A: Wes.
Q: And did you ever discuss the subject of prepayments with Mr. Cre-swick?
A: Yes.
Q: And what would he tell you about prepayments?
A: I don’t remember what he told me other than he just said you can prepay if you want to. I don’t remember exactly anything else.
Q: Okay. Did Mr. Creswick, Mr. Eades or anybody else ever tell you that the money that you prepaid to Eades would be held in trust? Did they ever use that language?
A: That’s what Wes told me. It’s not used until you take the feed.
Q: Did he use the term “trust?”
A: I’m not — I can’t definitely say because I don’t remember exact words anymore but ...
MR. RICHTER: So Mr. Creswick told you it was not to be used until you take the feed. So — that you’d have a balance with Eades until that feed was delivered? Is that how you understood it?
A: That’s right.
Q: Just like a receivable balance?
A: Oh, I don’t know what it’s like, but it wasn’t their money until they brought the feed.
Q: Did Mr. Creswick, Mr. Eades or anybody else ever tell you what they’d do with your money once it was received?
A: I don’t remember if he did.
Q: Did he ever promise you that it wouldn’t be used to pay any other business expenses?
A: I don’t know. I don’t think so. I don’t know if he said that.
Q: Did he ever tell you that the moneys would be segregated and held in a separate account with A.G. Edwards or any other financial institution?
A: He might have told me that. He said it wasn’t their money until the feed was delivered.
Q: But you don’t recall him specifically telling you that it would be held separately at another financial institution, do you?
A: I think he did, but truthfully I can’t say for sure.
Id. at 28-80. Mr. Pellandini testified he did not know Eades had deposited some of the prepayments to A.G. Edwards:
Q: Were you aware prior to today that Eades had deposited prepaid moneys which you had forwarded to it in an account with A.G. Edwards?
A: No.
Q: And I take it, then, you also were not aware that Eades had withdrawn such funds from A.G. Edwards?
A: No.
Q: Did you or anybody from B & J ever communicate with anybody from Diversified Business Credit?
A: I don’t know. I never.
Id. at 31. Sandra Pellandini, who is the bookkeeper at B & J Dairy testified regarding her understanding of the prepayment deposits:
Q: Okay. What did you mean when you used the term “deposit”?
A: I never even thought about it. By giving it to the prepay, deposit it in the prepay account because all money should be kept separate.
Q: Now, you said all the money should be kept separate. Is that something that somebody else told you, or is that something that you just thought they would do with the money?
A: No one else told me that, no.
Q: So I — so no one from Eades Commodities or Wes Creswick — nobody ever told you that Eades would hold your money in trust; is that correct?
A: I don’t remember.
Q: You don’t recall them ever saying that?
A: I don’t remember that.
Q: Okay. And you don’t remember Mr. Eades or Mr. Creswick or anyone else ever telling you what they would do with your money once it was received; is that correct?
A: I don’t remember going into that conversation, no.
Q: And did anyone promise you that that money wouldn’t be used to pay other business expenses of Eades?
A: I never talked to Eades, no.
Q: And Mr. Creswick, he never said that, either, did he?
A: No.
Q: Okay. And did anybody ever tell you that the $80,000 would be segregated or held in a separate account? Did anybody ever tell you that?
A: No.
Q: Okay. Did anybody ever discuss A.G. Edwards account or tell you that your money would be deposited with A.G. Edwards?
A: No.
Q: And have you ever seen any documents from A.G. Edwards?
A: No.
Id. at 19-21.
No express trust agreement was formed. The Pellandinis understood that prepayments would be kept in a separate deposit account until earned. No security was arranged nor step taken to earmark “deposits” to provide notice to third parties. B & J Dairy took advantage of tax deductions for prepayments. Interest was paid on prepayments.
9. Western Sky Dairy
Plaintiff George Plantenga dba Western Sky Dairy did business with Eades Commodities since 1989. George Plantenga Dep. at 13. Western Sky Dairy prepaid Eades for cattle feed starting in 1989, except for 1997. Id. Western Sky Dairy made prepayments to obtain the benefits of deducting the prepayments on its income tax returns and to receive a fixed price per ton. Id. at 23-24. Mr. Planten-ga, who was principally responsible for dealing with Eades Commodities, stated he never asked for a security agreement or filed a financing statement to preserve his interest in the prepayments. Id. at 11, 42. Mr. Plantenga testified regarding his communications with Eades representatives:
Q: Did you ever — in your dealings with Eades or any other feed merchants, did you ever ask for a security agreement or file a financing statement to protect or to preserve, I should say, your interests in the prepayments?
A: No, I have not.
Do you ever talk to anybody from Eades Commodities?
Eric. Do you know what his last name was? <©
I don’t know his last name. i>
Is he the only person at Eades whom you ever spoke with? .©
No. When Eades started out in ’89, it was an individual with the name of Mark Pate.
P-A-T-E? <©
Yeah, P-A-T-E. !>
So early on you’d communicate with a fellow named Mark Pate? Is that - <©
Yes. Yes. P>
Okay. Other than Mark Pate and Eric, have you communicated with anybody else at Eades? <©
Twice with Bob himself who came over to the dairy, visited us, thanked us for the business, hope we can keep up the good relationship. Kind of a PR thing.
Sure. O'
A: So that was twice that I actually met Bob Eades himself.
Q: Okay. Let’s start with Mark Pate since he was the first person that you communicated with from Eades, correct?
A: Yeah.
Q: Okay. Do you recall the substance of your communications with him?
A: No, but he was the one who actually introduced us to Bob Eades and his firm. I had an excellent deal on corn hominy at the time, and actually, that was our first dealing with Bob Eades through Mark Pate.
Q: Okay. And when did — now, the next person you communicated with was Eric.
A: That’s correct.
Q: Okay. When did — at what point did you stop communicating with Mark and begin communicating with Eric?
A: Mark got himself another job.
Q: And when was that?
A: You know, I don’t know.
Q: The early -
A: I really don’t know how long Mark was with them, but it was two years, three years or one year. After that I communicated over the phone. Before that Mark would call on us. Mark lived in the same area where we do, and he made personal calls. After that we just dealt over the phone.
Q: So would it be — I understand you can’t recall the correct year, but would it be fair to say that Mark left in early of — the early 1990s at some point?
A: I would say that — yeah, that’s correct.
Q: Do you recall any of your communications with him?
A: Oh, yes.
Q: Okay. What would you guys talk about?
A: Price.
Q: Okay. Now, these two conversations that you had with Bob Eades himself, when was the first time you talked with Bob?
A: I cannot recall the first time. I know he was there. And what was said, I don’t know. The second time he came over and introduced himself. Bob was also a coin collector, and he left us a little — I think it was a new edition of a silver dollar so — I still have the silver dollar.
Q: Did any of these three people or anyone else ever tell you that the money that you prepaid to Eades would be held in trust?
A: No.
Q: Is that something — would it be fair to say that that’s something that you just assumed?
A: Yes.
Q: Okay. Did anyone ever promise you that the money that you prepaid to Eades would not be used to pay Eades’ business expenses?
A: No.
Q: Or that it wouldn’t be pledged as security for a loan?
A: No.
Q: And, again, that’s something you just assumed, correct?
A: Yes.
Q: Okay. Did anyone ever tell you what Eades did with your money once it was received?
A: No.
Q: Did they ever discuss an A.G. Edwards account or tell you that your money would be deposited with A.G. Edwards?
A: No.
Id. at 44-48.
There was no discussion of a trust or segregated account. Full tax deductions were taken for prepayments.
10. George TeVelde Dairy
Plaintiff George TeVelde individually and dba George TeVelde Dairy made prepayments to Eades in 1998-1999. George TeVelde Dep. at 14. George TeVelde Dairy made prepayments to deduct those prepayments on the income tax returns, to receive interest and to obtain a fixed price for the feed. Id. at 23, 27, 29. Mr. George TeVelde was responsible for dealing with Eades. Mr. TeVelde testified there was no side agreement to the contract of sale:
Q: Okay. So as I understand it, then, the contract between you and Eades covered everything? There wasn’t any sort of side agreement, it was just that you had prepaid for more than you contracted for. Is that a fair—
A: That’s correct.
Q: —summary of your testimony?
A: Uh-huh.
Id. at 31. Mr. TeVelde also testified regarding his communications with Eades:
Q: I’d like to talk a little bit about your — about your conversations with people from Eades Commodities. Who was the person that you would principally talk to in doing business with Eades?
A: Wes Creswick.
Q: Did you ever talk directly to anyone from Eades, either Bob Eades, Bob March, anybody else?
A: I did talk to Bob Eades -
Q: Okay.
A: —on two occasions.
Q: Okay. When did you — when was the first time you talked to Mr. Eades?
A: He came out and did a courtesy call. I believe it was ’97 or ’98, and I met him.
Q: Uh-huh.
A: The second time was after they stopped delivering on the 2000 contracts in March or late February, I should say. I had a short telephone conversation. It was a conference call between Mr. Creswick, Mr. Eades and myself.
Q: Okay. Let’s talk first about the ’97 or ’98 conversation. Okay. Could you just summarize that — what was — what was said.
A: It was just an opportunity to meet him, and he wanted to see — meet his customers and see the businesses he was dealing with. We just exchanged pleasantries. We did not make any dealings at that point.
Q: And this conversation after he had stopped delivery, do you remember the date of that conversation?
A: I — it was late February, I’m pretty sure.
Q: Okay. Perhaps we’re just splitting hairs here a bit, but I remember from the spreadsheet that we looked at, Exhibit 3 to your — to your deposition, which is Bates stamped Weststeyn Dairy 4, I think, the last delivery of feed from Eades was on March 8th. Could that conversation have been after March 8th?
A: It may have been.
Q: And that was with you and Mr. Creswick and Mr. Eades on a conference call, correct?
A: That’s correct.
Q: Okay. You said it was a short conversation. How long did it last? A: Probably two minutes. Q: Sure. Did Mr. Creswick ever tell you that the money that you prepaid to Eades for feed would be held in trust?
A: No. I don’t recall he ever said that.
Q: Is that something that you just assumed?
A: It’s conventional. So yes, I — it’s conventional in my industry for that to be the case, so I assumed it was the same with Eades, yes.
And how do you come to the conclusion that it’s conventional in your industry for those prepayments to be — for prepayments for feed to be held in trust? <©
I wouldn’t say that it’s put in trust formally. What I would say is that the money is under my direct control. It can be withdrawn at any time. I’ve done that in the past. I can either order or not order feed that would be charged against my— my balance, my prepaid balance.
Okay. When you say that you could withdraw at any time, do you mean withdraw money or withdraw feed? ¿O
The money.