Full opinion text
MEMORANDUM OPINION • Findings of Fact and Conclusions of Law WINNER, District Judge. Plaintiff’s amended complaint pleads two counts. The theory of Count Two is that the sugarbeet growers’ contracts which are the subject of this litigation are securities, and that the Court has jurisdiction of Count Two under 15 U.S.C. § 78aa. On January 16, 1975, applying as the law of this Circuit Mr. Steak, Inc. v. River City Steak, Inc., D. C., 324 F.Supp. 640, aff’d 10 Cir., 460 F.2d 666, I held that the growers’ contracts are not securities, and Count Two was dismissed. This effectively dismissed Great Western United Corporation from the case because Count One claims only against The Great Western Sugar Company. Plaintiff is a Kansas Corporation having its principal place of business in Kansas. Defendant Sugar Company is a wholly owned subsidiary of Great Western United, and neither is a citizen of Kansas nor does either maintain a principal place of business in Kansas. Moreover, diversity and jurisdictional amount are admitted as to the named plaintiff. Accordingly, jurisdiction of Count One under 28 U.S.C. § 1332 exists. This count asserts a claimed breach of the 1974 sugarbeet grower’s contract between plaintiff and defendant Sugar Company, and, more particularly, a claimed breach of its provisions having to do with the initial payment to be made by the Sugar Company to the growers. The specific provisions of the contract giving rise to this controversy will be discussed in detail later in these findings. Plaintiff sues for itself and on behalf of all other growers similarly situated, and the complaint asks that the case be certified and treated as a class action. On January 16, 1975, and by order formalized on Feburary 4, 1975, I found that the tests and requirements of Rule 23 for class action treatment were met, and it was ordered that the case be maintained as a class action under the provisions of Rule 23(b)(3). The class was defined as: “All persons, including individuals, partnerships and corporations, who contracted to grow, grew and delivered prior to November 5, 1974 under a 1974 Sugarbeet Contract with Great Western Sugar Company 12 or more acres of sugarbeets.” The 12-acre limitation was fixed to meet the jurisdictional amount requirement spelled out in Zahn v. International Paper Co. (1973) 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511, and, based on the record made, each grower who, prior to November 5, 1974, grew and delivered to the Sugar Company more than 12 acres of sugarbeets under a 1974 sugarbeet contract has more than $10,000.00 in controversy, exclusive of interest and costs. In accordance with the requirements of Rule 23(c) notice was sent to the class members in the approximate number of 4,000, and approximately 900 class members requested that they be excluded from the class. Records of these exclusion requests have been maintained by the Clerk of the Court and copies have been supplied to counsel for the parties. Paragraphs 5 and 6 of the sugarbeet growers’ contracts are the paragraphs important to this case, and they provide: “5. Determination of Payment for Sugarbeets. All beets grown hereunder and delivered to the Company, in accordance with the terms of this contract, shall be paid for by the Company on the following basis: “(a) The price per ton (2,000 lbs.) of beets delivered hereunder to the Company shall be determined upon the average net return per one hundred (100) pounds of sugar received by the Company from sugar manufactured by the Company at, or purchased for distribution from, its factories in the state of Colorado, Kansas, Montana, Nebraska and Wyoming which is sold by the Company during the period commencing October 1, 1974, and ending September 30, 1975 (both dates inclusive), and also upon the average percent sugar in all beets of the 1974 crop grown and delivered by the Grower to the Company under this contract, in accordance with the following schedule:” [The contract then sets out a schedule for per ton payments dependent upon the sugar content of the beets and the “Average Net Return per 100 Pounds of Sugar.”] Then, after providing for certain adjustments, we reach the nub of the case which is paragraph 6 of the contract. That paragraph says: “6. Payment for Sugarbeets. Subject to the deductions and assignments hereinafter authorized, an initial payment shall be made by the Company on or before the 20th day of November for beets delivered prior to the 5th day of November', and an initial payment shall be made on or before the 15th day of each calendar month thereafter for beets delivered during the previous calendar month for which an initial payment has not theretofore been made which shall be at the highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar and the sugar content of beets. Further payments may be made by the Company at such times and in such amounts as the Company may deem to be justified by the aforesaid factors and the quantities of sugar sold. Final settlement in accordance with the terms of this contract, if any amounts be due after credit of all payments theretofore made by the Company to the Grower, shall be made on or before October 25, 1975, unless the Company receives assurance from the United States Department of Agriculture that it is going to report an ‘actual raw sugar cost’ in which event final settlement hereunder shall be made on or before ten days after the reporting of said ‘actual raw sugar cost’ or October 25, 1975, whichever is later.” It is agreed that the 1974 sugarbeet crop had an average sugar content of approximately 17.25% sugar, and the class members received as an initial payment for their 1974 crop a total of $28-58 per ton, $2.33 of which included a payment made by the United States government, the net result of which is, of course, that the Sugar Company itself paid as its initial payment to-the growers $26.25 per ton. Although the contract’s schedule does not list a 17.25% sugar content and does not contemplate an “Average Net Return per 100 Pounds of Sugar” of more than $15.00, extrapolation develops per ton payments for beets having a 17.25% sugar content for the following hypothetical “Average Net Returns per 100 Pounds of Sugar”: Per Per ton 100 lbs. payments $15.00 $ 27.407 $20.00 $ 36.518 $30.00 $ 54.840 $40.00 $ 72.962 $50.00 $ 91.184 $60.00 $109,332 The case has to do with whether the $26.25 per ton initial payment conformed to Great Western’s obligations under the contract, taking into account past history of operations under earlier similar contracts. That being true, it is appropriate to supply a bit of company history and a summary of past grower-company relationships. Great Western Sugar Company is one of Colorado’s oldest and most respected companies, but in recent years it has been the target of successful and unsuccessful takeover attempts. After many years as one of the areas two largest sugar refiners, it found itself under new management and it became a part of a conglomerate owned by Great Western United. The conglomerate consisted of the unlikely combination of Great Western Cities [a land development company] Shakey’s [a chain of franchised pizza pie parlors] and Great Western Sugar Co. Management changed from time to time, and with every change in management, there was an increase in grower concern as to company policies and stability. The sugar business being what it is, in the majority of the growing areas, Great Western was the only purchaser of the growers’ beets, and just as Great Western is dependent upon the growers’ acreage, the growers must rely on Great Western. The contract spells out that “The grower is an independent contractor,” but many of the elements of joint venture are present in the overall picture of company-grower relationships. In fact, Charles R. Haning, a former officer of Great Western, testified that “we are semi-partners with the Growers.” For many years, Frank A. Kemp headed the company, and during his tenure relationships were harmonious and the growers trusted him implicitly. He typically had the company pay 80%-85% of the anticipated net returns for the sugar grown during a particular crop year, arriving at the amount of the payment per ton of beets through the use of the schedule contained in the contract. However, the passage of time led to deaths and retirements, takeover attempts, turmoil within the company, diversification of company efforts into unrelated fields, and a loss of grower confidence which had prevailed over the years. Robert R. Owen became president of Great Western Sugar Company in 1968, and he served as such until 1971. He is presently the president of Great Western Producers Cooperative which just last year itself unsuccessfully attempted to acquire Great Western Sugar Company. During Owen’s tenure as Great Western’s president, he orally agreed to pay the growers 85% of the anticipated net returns. Grower-company realtionships were fairly good during Mr. Owen’s term, but they did not always equal those which existed under Mr. Kemp. George Wilber succeeded Mr. Owen in 1971, and grower relationships deteriorated. The growers did not trust Mr. Wilber and they did not trust company management. This distrust led to the execution of a written “side deal” for the 1972 and 1973 crop years under which Great Western contracted to pay as an initial payment 85% of the anticipated net returns. Through oversight, no such written “side deal” was discussed or signed for the 1974 crop year. Undeniably, the record shows that with or without a written “side deal” the typical payment made to the growers was historically based upon 80%-85% of the reasonably anticipated per cwt. net return for sugar for the particular crop year in question. With equal certainty, 1974-1975 sugar prices have been, and, more importantly, in October, 1974, were reasonably anticipated as being more volatile than they had ever been before. This volatility resulted and was anticipated to result from many factors, among which were the end of the Sugar Control Act, ah explosive world wide market stemming from natural disasters in several sugar producing areas, consumer price resistance, and'the bugaboo of rampant inflation. The company must protect against an initial payment which, as of the following October 25, would prove to be more than 100% of the average net return per hundred pounds of sugar, and this is so because the company probably could not recover the overpayment from many of the growers. In earlier crop years, with sugar selling at an average net return of perhaps $10.00 per cwt., a cushion or hedge of $2.00 per cwt. was sufficient to protect the company, and a payment of 80%-85% of the reasonably anticipated net return represented the exercise of reasonable, good-faith business judgment on the part of the company under more normal circumstances. Presumably, this is the reason for the history or custom of the 80%-85% payment. Defendant urges, and I agree, that 1974 economic conditions demanded more of a cushion than the hedge required under historical circumstances. The negotiating history of the contracts convinces me that the Sugar Company has long been determined not to obligate itself to pay an arbitrary amount which could break it, either this year or next. Illustrative of the evidence leading to this conviction on the company’s part is a comparison of the Great Western contract with the growers’ contract used by Holly Sugar Co. Holly agrees to pay as an initial payment 90% of the preceding year’s average net return per cwt. of sugar. The Great Western growers wanted a similar provision in their contract, but, as explained by Mr. Owen, while Great Western’s president, he resisted any such contractual obligation because of his fear of a replay of the disastrous 1921 collapse in sugar prices. Instead, it was Great Western’s policy to make a reasonable forecast of the anticipated average net return, allow a reasonable cushion, and pay the growers the difference as the initial payment. The insistence of the growers on a 90% payment clause and the resistance of the Sugar Company' to any such clause is just one element disproving any claim that the growers’ contracts are adhesion contracts. On this point, the record establishes that Fuentes v. Shevin (1972) 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556, is not applicable and that D. H. Overmyer Co. v. Frick Co. (1972) 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124, does apply. In other words, the growers’ contracts are agreements negotiated between equals to provide for distribution of a fund to be derived from the joint efforts of the semi-partners—that is, the capital and labor of the growers in growing the beets and the capital and work of the Sugar Company in refining and selling the refined sugar. But, the negotiation of the contract is not the end of the story. Once the contract is agreed to, the equality comes to an end when we come to performance of the agreement, and all of the principles of Dittbrenner v. Myerson (1946) 114 Colo. 448, 167 P 2d 15, come into play under a challenge to the Company’s performance. The Company argues that the amount of the growers’ initial payment is a matter within the Company’s almost unfettered discretion—an argument which emphasizes the superiority of the Company and the inequality of the parties in the contracts’ performance. In Dittbrenner v. Myerson, Justice Stone quoted from Lord Hardwicke’s opinion in the classic case of Earl of Chesterfield v. Janssen, and held that fraud is to be presumed where there is inequality between the parties. He then quoted from the early Colorado case of Sears v. Hicklin, 13 Colo. 143, 21 P. 1022: “ ‘The principle on which a court of equity acts in relieving against transactions on the ground of inequality of footing between the parties is not confined to cases where a fiduciary relation is shown to exist, but extends to all the varieties of relations in which dominion may be exercised by one over another, and applies to every case where influence is acquired and abused, or where confidence is reposed and betrayed.’ ” Manifestly, Dittbrenner v. Myerson was a fraud case, and this case is not a fraud case. Nevertheless, the underlying equitable principles forming a part of the Colorado law of contracts apply. Applying those principles, then, Great Western does have some discretion in determining the amount of the initial payment, but it has an absolute duty to exercise complete good faith in the exercise of that discretion. Probably, Dittbrenner v. Myerson would permit a holding that Great Western has the burden of proving good faith once the inequality of the parties is established, but I do not go that far, and I leave the burden on plaintiff to prove lack of good faith on Great Western’s part in its determination of the initial payment to be made under the terms and provisions of the 1974 growers’ contract. As will be seen presently, in the fall of 1974, Great Western was torn between what amounted to built-in conflicts of duty. The growers’ contracts provide: “(Great Western Producers) Cooperative has entered into or is contemplating entering into an agreement providing for the acquisition, lease, management or control of the Company from United which the parties presently expect will be closed during the 1974 season.” Great Western’s directors owed fiduciary duties towards its stockholders in connection with this contemplated transaction, and those duties included the duty to be sure the stock brought a reasonable price. This determination required a careful analysis of the anticipated price to be paid for sugar refined from the 1974 crop, and, after optimistic Great Western communications to shareholders which will be discussed later, the Cooperative’s acquisition of the company was voted down by the security holders. Winnowed to its essentials, Great Western’s problem was that from the standpoint of exercising a good faith judgment as to what the growers should be paid, it wanted the lowest possible price, but when acting for the stockholders, it wanted the highest price. This headlong clash of conflicting fiduciary and good faith duties put Great Western in an untenable position. It is to be remembered that paragraph 6 of the growers’ contract says that, subject to certain deductions, “an initial payment shall be made by the Company on or before the 20th day of November for beets delivered prior to the 5th day of November . . . which shall be at the highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar and the sugar content of beets." In furtherance of its contractual obligation to determine the amount of the initial payment, and in accordance with established practice, certain Company officials were requested to study the matter and to make recommendations. Chief among these officials was Robert J. Fisher, Senior vice-president for Agriculture of Great Western, who for several years had made a similar recommendation. Mr. Fisher was deceased at time of trial, but he testified by deposition that he commenced the study to determine the amount of the 1974 initial payment in early September, 1974, and he then concluded that the anticipated average net return per cwt. of sugar was $25.00. Other Company officials made higher and lower estimates depending on whether the problem was being looked at from the grower payment viewpoint or company sale viewpoint. Despite Mr. Fisher’s prediction of $25.00 per cwt. for sugar, he recommended a payment of only $26.25 per ton, which, under the agreed schedule in the contract, is equivalent to only about $14.35 per cwt. Mr. Fisher’s testimony is worrisome. The contract mandates that in making its good faith determination of the amount of the initial payment, the Company must take into consideration anticipated returns from the sale of sugar. Yet Mr. Fisher testified: “Q. Did you take into consideration in arriving at your $26 figure any level of sugar net returns that the company expected to realize on an average for the entire marketing year ? “A. No, I did not. “Q. Did anyone in the company do so, so far as you know ? “A. Not that I know of with respect to the initial payment." Additionally, under date of October 4, 1974, Mr. Fisher prepared a memorandum for Mr. Krentler in which he said: "While I realize the agriculture department’s views may have to be modified to fit GWTJ cash and borrowing necessities, I feel strongly that GWS will suffer acreage-wise next year if we do not pay at least the minimum amounts I now propose . . . “At the moment I will stick with the conservative estimate I made on September 9 that our average basis (sic) price will be $25 per cwt. of sugar in the Chicago-West market for the year to end September 30, 1975. This equates to a net return in the West of about $23 per cwt. This in turn would mean average total payments to western growers of about $41.83 per ton of 1974 beets. If we paid initially at 85% of this amount, our November 20 initial payment would average $35.-55 per ton. I could not conscientiously recommend so high an initial payment at this time however in view of the serious risk to the Company if, for some presently unknown reason, the sugar market would completely collapse in 1975. Nor do I believe that intelligent and fair-minded growers would want the Company to take so great a risk. On the other hand, I feel reasonably sure that the Co-op leaders will attack a $25 initial payment as being too low—even though such position would be inconsistent with their recent gloom and doom statements. “If anything, the estimate of GW prices I made a month ago is too low. All data currently available indicate a higher level .... “If we pay growers initially at the levels I now recommend, it would require us to attain average net returns for sugar of about $13.73 in the West. (This is) less than 65% of the averages we have gotten for the marketing year just ended. . . . ” An analysis of Mr. Fisher’s October 4, 1974, memorandum against the entire record in the case leads to the inescapable finding that the chief motivation for the initial payment determination was the borrowing capacity of Great Western rather than the contractually obligated test of a good faith determination of “the highest rate per ton that the company may deem to be justified taking into consideration anticipated returns from the sale of sugar.” Illustrative of the evidence mandating this finding is the testimony of Gunther Fritze, a witness for defendant. He is an officer of one of the larger banks which finance Great Western, and he testified: “Q. Did you ever discuss with representatives of the Sugar Company or United the level of the initial payment to growers for the 1974 crop, sugar beets which the company proposed to make or did make? “A. I believe at various times we did discuss the proposed level of payments basically because that had an influence, direct influence of the amount of bank financing. The level of these payments, I believe, at times varied between— were considered between twenty and thirty dollars a ton. It depended on the amount of cash that the company had available. “Q. Did you express any views at any point to the company as to what a prudent level of amount would be? “A. No. I did not enter into that consideration at all. I told the company that as long as they lived within this borrowing base formula, which was my primary concern to safeguard my loans, they could pay out to the growers whatever they wanted to, but they had to live unthin this formula. I knew, obviously, you know, that this formula would permit them to pay within the range of twenty to thirty a ton “Q. Did Mr. Haning . . . tell you what he anticipated paying to the growers as their initial payment . . . ? “A. Yes. The exact time I am not aware of. Some time in September but for sure in October we talked about the various ranges that the company might be paying to the growers. “Q. Was that range in the order of a hundred thirtyrtwo million dollars? “A. It was based at that time, I believe, more on how much per ton, and we were talking of ranges between twenty to thirty dollars a ton. That is if the money was available. “Q. Is that what Mr. Haning said would determine whether it was twenty or thirty dollars, whether the money was available ? “A. Mr. Haning might not have said it, but the whole gist of our conversations was that it depended on the availability of money.” The growers did not contract for an initial payment the amount of which was to be determined by the availability of money to Great Western. They contracted for an initial payment based on a good faith determination of “the highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar.” As Mr. Fisher candidly testified, anticipated returns from the sale of sugar were not taken into consideration, and Great Western did not live up to its agreement with the growers. That Mr. Fisher’s testimony was no slip of the tongue is proven by his memorandum of November 16, 1974. That memorandum commences with this damning language: “Great Western’s initial payments for 1974 sugarbeets, to be made November 20, were based on the following factors and not on any particular level of sugar net returns that the Company expected to realize on the average for the entire marketing year to end next September 30.” Easily understandable is Great Western’s decision to base its initial payment on borrowing capacity. Its bankers said that this had to be the basis for the initial payment, and Mr. Fritze testified that a 78-million dollar loan exhausted the company’s borrowing capacity. It is true that Great Western was able to generate enough cash internally to leave $23-million of its available loan unused, but it is crystal clear that the banks dominated the fixing of the amount of the initial payment. With this financial pressure on it, Great Western consciously elected to [or was forced by bank pressure] to breach the growers’ contracts and to base the initial payment on the $20 to $30 per ton fixed by the banks as the loan value of the crop, albeit it is rudimentary that loan value differs markedly from market value and from “the highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar.” Indeed, Mr. Clayton, a company consultant, after testifying to $40 and $53 per cwt. price projections which will be discussed later, said, “The estimate we give to growers is a different figure than we use any place, okay? We are estimating that we will receive about $17.00 from our sugar, when we speak to growers, and the initial payment is based on that figure . we will pay about 85 percent, I think of that figure in November.” Of course, an additional pressure was the 11.5% interest Great Western had to pay on the 78-million which immediately brings into play another conflict between the duty Great Western, as a semi-partner, owed to the growers, and the duty Great Western owed to its stockholders who would have to pick up the tab for the interest. There is no uncertainty as to how that conflict was resolved. Mr. Haning testified: “Q. Let me ask you this, is it correct to say the $132,000,000 is as much as the banks would lend you? “A. I could not make that statement that direct because, to say that I could not get another two million dollars is facetious. “Q. A hundred thirty', hundred forty million, is that as much as they would go? “A. I could not get that much from the banks, no. “Q. How much? “A. Roughly $80,000,000 from the banks. “Q. And where is the other 50? “A. Internally generated cash. . The other question on this, other than just the fact of having money available, is the cost of money, okay? And we’re entering into this payment at a very, very high interest rate, about liy2% to 12% prime, so that is also a major consideration. That interest payment is borne completely by the company, it is not shared with the growers, and even though we are semi-partners with the growers, quite frankly and candidly, as financial officer, if it comes down to splitting the line I’m going on the side of the stockholders and the company as opposed to the growers.” Just how this inevitable conflict of interest can ever be resolved under a contract similar to the 1974 Great Western Growers’ contracts I know not, and if future contracts leave to the company the ultimate right to fix the amount of the initial payment, Great Western will spend its corporate life walking a tightrope between threat of stockholders’ suits for breach of fiduciary duty and growers’ suits brought on similar grounds. In any event, under the existing contract, Great Western has its problems under Dittbrenner v. Myerson, supra, in attempting to justify going “on the side of the stockholders and the company as opposed to the growers.” It is easy to understand that Great Western didn’t like the 11.5% interest it had to pay, but neither did the growers enjoy paying their bankers the same or higher rates on the loans the growers had to obtain to finance their crops. Great Western’s contractual obligation isn’t keyed to the interest it had to pay, and the Company must have known when it signed the contracts that if the price of sugar went up, the amount of money the Company would have to borrow would go up correspondingly. Indeed, it told its stockholders just that in its August 28, 1974, proxy statement quoted infra. Without at this point passing on the question of whether Great Western was contractually obligated to an initial payment of 80%-85% of the “highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar,” I find that the initial payment made by Great Western to the growers under the 1974 beet contracts did not fairly take into consideration anticipated returns from the sale of sugar; that the initial payment determination was based on many other factors, but that the contractual requirement that anticipated returns be a factor to be taken into account as one factor was ignored by Great Western, and I find that Great Western breached its 1974 contract with the growers in deciding upon the amount of initial payment the Company would and did make. Additionally, for reasons which I shall explain presently, apart from the contractual requirement that anticipated returns from the sale of sugar be taken into account, I find that in fixing the amount of the initial payment, Great Western was guilty of fraud or such gross mistake as necessarily implies bad faith or a failure to exercise an honest judgment. It is to be remembered that Mr. Fisher decided in September, 1974, that $25 per cwt. was a reasonable figure to use in computing the initial payment, but the payment actually made to the growers as announced on November 8, 1974, was based on a per cwt. level of $14.35. This, as has been seen, permitted the company to hold its borrowing to $78,000,000. Yet, on August 28, 1974, wearing another hat, Great Western United said in a proxy statement prospectus : “Great Western Sugar has a recurring need to obtain short-term bank financing to pay growers during the time interval between the purchase of sugar beets and the sale of the finished products; it obtains the required funds through bank ‘sugar-line’ financing consisting of short-term loans. Since growers receive approximately 85% of the amounts due to them in November or December of each year, the sugar-line financing requirements are then at their highest. Great Western Sugar negotiated sugar-line financing amounting to $84,177,500 for the 1972 crop, and $81,166,000 for the 1973 crop. Management presently anticipates that financing re quirements for the 1974 crop may substantially exceed any amounts previously borrowed by Great Western Sugar, although the financing requirements will be dependent in part upon future sugar prices.” Undeniably, sugar prices went up, but the bankers froze the loan limits and effectively fixed the amount of the initial payment despite the higher prices and the higher anticipated returns. Great Western’s financial needs went up, but its financial abilities went down, and the growers were made to bear the brunt of this revolting development. Great Western’s 1974 problems multiplied the built-in conflicts of interest under which the company operated. The Cooperative and Great Western United entered into a contract for the sale of the company. As a consequence of the increase in sugar prices, seven of United’s twelve directors recommended against approval of the transaction by United’s security holders. On September 80,1974, United’s security holders voted against the proposed sale of the company to the Cooperative. Great Western’s troubles were not over, for right on the heels of the defeat of the Co-op offer, the Hunt brothers made a tender offer. This meant that for purposes of talking to the growers, and because the banks had said that initial payments should be keyed to borrowing limits, management had to adopt a pessimistic attitude and talk the price down. However, for purposes of talking to the stockholders in support of management’s effort to block the Hunt takeover, unbounded optimism was required. This is what the record shows: October 4, 1974. Mr. Fisher’s memorandum estimating $25.00 per cwt. as the price of sugar and a $35.55 per ton initial payment. November 4, 1974. Mr. Fisher met with the growers and announced a price of $14.35 per cwt. and $26.25 per ton as “the highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar.” November 7, 1974. Mr. Haning prepared his “Best estimate of Price,” and he said that $40 per cwt. was the company’s best estimate of the yearly average price. The consensus of the Board of Directors was that his estimate was too conservative. November 13, 1974. Seven days before the growers’ initial payment was made, Mr. Adelman, Chairman of the Board, wrote the stockholders recommending against the Hunt tender offer, and that letter said, inter alia: “2. Great Western Sugar Company estimates, assuming that actual sales prices will approximate current prices for sugar contracts in the commodity futures markets for delivery through September, 1975, adjusted for regional price differentials, that the average price for the Company’s refined sugar for the next twelve months would approximate $53 per hundredweight. Estimated earnings, based on this average, after taxes and preferred dividend requirements, would be approximately $113,000,000 or $54 per share ($44 on a fully-diluted basis) for the twelve months—well above the tender price. “3. It is important to note that a change of $1 in the average price per hundredweight of sugar for a twelvemonth period will change the Company’s net earnings after taxes by approximately $1.30 per share ($1.10 on a fully-diluted basis). At an average price for sugar of $40 per hundredweight, which the Company is presently using for internal projections, estimated net earnings after taxes and preferred dividend requirements would be approximately $68,000,000 or $32 per share ($27 on a fully-diluted basis) for fiscal 1975 and $77,000,000 or $36 per share ($31 on a fully-diluted basis) for the twelve months ending September 30, 1975—well above the tender price.” November 1A, 197A. Mr. Adelman notified stockholders that the company would use more than $3,000,000 of the company’s funds to purchase 182,280 shares of its $1.88 preferred stock. The notice explained that on October 10, 1974, the company decided to pay all dividend arrearages on the $1.88 preferred and that it decided to satisfy all sinking fund arrearages on that stock. November 20, 197A. An initial payment was made to the growers of $26.25 per ton which equates to a sugar price of $14.35 per cwt. The same day the Company’s price for sugar was $61.85 per cwt. December A, 197A- Over Mr. Adelman’s signature, Great Western ran an advertisement in the Wall Street Journal saying: “The price at which Great Western Sugar is selling its refined sugar has increased by $12.00 per hundredweight since November 13 to $61.85. As was pointed out in our letter of November 13, a change of $1.00 in the average price per hundredweight of sugar for a twelvemonth period will change the Company’s net earnings after taxes by approximately $1.30 per share (approximately $1.10 on a fully-diluted basis) for the same period. Sugar future prices, which had gone up since November 13, have recently been declining and are now slightly below the then-prevailing levels, and recent price reductions for refined sugar by certain east coast sugar refiners may expand into Great Western Sugar’s market area, thereby causing a reduction from the current price level. “The Company has now fully complied with all sinking fund purchase requirements for the $1.88 preferred stock and has declared the next regular quarterly dividend due on the $1.88 preferred stock. In addition, the Executive Committee of the Board of Directors has authorized payment of all dividend arrearages on the $3.00 preferred stock, subject to compliance with certain legal requirements. Payment of these arrearages will free the Company from certain legal restrictions preventing payment of dividends on the common stock, although no decision as to any such payment has yet been made. “A majority of your Board of Directors recommended that you vote against the proposed sale to the growers’ cooperative last September because they felt that the price was inadequate in light of the dramatic increase in sugar prices. Since that time prices of sugar have gone up far more than was anticipated and so has the Company’s profit potential. Now the Hunt brothers, with their background of great wealth and experience in the commodities markets, are trying to buy control of your Company. Your Board again feels that the offering price is inadequate.” In a nutshell, then, we find that in a time span of ten days, depending on whose ox was being gored, Great Western forecast “anticipated returns from the sale of sugar” as $14.35 when it was forecasting for purposes of money paid out, and it predicted $40.00 or $53.00 for purposes of money to be paid in. On the day the growers were paid at the rate of $14.35 per cwt., Great Western was selling the sugar for more than $60.00. This is some though not all of the evidence which mandates the finding that Great Western Sugar Company was guilty of fraud or such gross mistake as necessarily implies bad faith or a failure to exercise an honest judgment in determining the amount of the initial payments to the growers under their 1974 contracts with the company. With these findings, the substantive law is not complex. Plaintiff is entitled to recover on each of two separate approaches to the problem. 1. The company is liable because it breached its contractual obligation to make an initial payment “on or before the 20th day of November for beets delivered prior to the 5th day of November ... at the highest rate- per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar . . . ” The Company promised to take into consideration anticipated returns from the sale of sugar and it did not do so. 2. In determining the amount the Company allegedly deemed itself to be justified in paying the growers, the Company was guilty of fraud or such gross mistake as necessarily implies bad faith or a failure to exercise an honest judgment in fixing the amount of the initial payment. Generally, the courts have applied principles of arbitration law to contracts which give to one contracting party the right to determine the amount owed under a contract, but more accurately such contracts provide for an “appraisement” rather than an “arbitration.” See, City of Omaha v. Omaha Water Company (1910) 218 U.S. 180, 30 S.Ct. 615, 54 L.Ed. 991. In a more conventional arbitration situation, Judge Doyle, speaking for the Supreme Court of Colorado, held that where the arbitrators were obliged to determine replacement cost on the basis of retail prices of the goods at the seller’s place of business, and where, instead they found cost new less depreciation, there was a failure to follow the arbitration agreement and the award was void. Skinner v. Davidson (1960) 142 Colo. 423, 351 P.2d 872. Judge Doyle said: “It will be recalled that the language in question reads ‘all items in Group D shall be paid for at replacement cost. Replacement cost shall be deemed to be that amount at which any item could be replaced at retail by an item of comparable kind, quality, and condition at seller’s place of business.’ It is said by plaintiff that this language was subject to construction, by the judge, the trier of the facts, and that his interpretation is binding. But this is true only if the words are ambiguous. Western Colorado Power Co. v. Gibson Lumber & Coal Co., 65 Colo. 288, 176 P. 318; Bauer v. Goldman, 45 Colo. 163, 100 P. 435; Wagner v. Hallack, 3 Colo. 176. As we view these words, they do not appear to be ambiguous. On the contrary, the parties have carefully defined the terms which set up the method of valuation and thus the only question is whether the appraisal was carried out in accordance with the terms of submission as contained in paragraph 4 of the contract. “As to the burden of proof, it is said in 3 Am.Jur., Arbitration and Award, § 165, that the party who bases his claim on the report or finding has the burden of proving the validity of the awards from the standpoint of patent defects and once this is accepted the burden shifts to the party who is attacking the finding. Cf. Lilley v. Tuttle, 52 Colo. 121, 128, 117 P. 896. As to a deviation from the terms of the commission to the appraiser, the authorities hold that if there is a variance the report is not binding on the contracting parties. See Swisher v. Dunn, 89 Kan. 412, 131 P. 571, 572. That case involved the purchase of a druggist’s business. The contract contained the provision that the price of the stock of goods would be determined by appraisal ‘at the invoice purchase price of all goods with the cost of transportation added.’ The action was by the seller to enforce the finding of the appraiser. The evidence showed that the appraisal of part of the goods had been on the basis of current wholesale market price, which in some instances, had increased since the date of the purchase of the goods. The Kansas Court declared : ‘ * * * The award of the appraisers, made in good faith, was binding upon the parties with respect to matters submitted to their judgment. But they were selected to appraise the value of the goods, not to interpret the written contract. ‘An award of arbitrators which is the result of a mistaken view of the meaning of the language in which the terms of the submission are expressed is not binding.’ “To the same effect are the following eases: Ice Service Co., Inc. v. Henry Phipps Estates, 245 N.Y. 393, 157 N. E. 506; William H. Low Estate Co. v. Lederer Realty Corp., 35 R.I. 352, 86 A. 881; Stowe v. Mutual Home Builders Corp., 252 Mich. 492, 233 N.W. 391; Tabor v. Craft, 217 Ala. 276, 116 So. 132; Brennan v. Brennan, 164 Ohio St. 29, 128 N.E.2d 89. “Plaintiff’s authorities do not suggest any principle of law different from the principles set forth in the above cases. Their cases involved attacks on the finding of an appraiser based on bad faith, bias or merely poor judgment. See, for example, Empson Packing Co. v. Clawson, 43 Colo. 188, 95 P. 546, holding that where parties have stipulated to the exercise by a third person of discretion, they are bound by his determination. There can be no quarrel with this rule, but it falls short of governing a controversy wherein the appraiser has disregarded his instructions.” It is the unusual case in which an arbitrator’s award is set aside, but where there is a clear violation of the arbitration agreement, the award is void. A more typical case is Gaddis Mining Company v. Continental Materials Corporation (1961) D.C.Wyo., 196 F.Supp. 860, aff’d, 10 Cir., 306 F.2d 952. Defendant there wanted to write-in limitations on the arbitrators’ authority, and the court refused to permit this. However, in reaching the opposite result, the court recognized the rule of Skinner v. Davidson, supra: “Continental has the burden of proving its attacks on the validity of the arbitration award. Wright Lumber Co. et al v. Herron, 10 Cir., 199 F.2d 446. It has not sustained its attack. It is true beyond cavil that the jurisdiction of arbitrators is limited to those matters or questions submitted to them. Western Oil Fields, Inc. v. Rathbun [, 10 Cir., 250 F.2d 69]; Wright Lumber Co. v. Herron [, 10 Cir., 199 F.2d 446], and authorities cited therein.” The “question submitted” to ' Great Western was “the (payment of the) highest rate per ton that the Company may deem to be justified taking into consideration anticipated returns from the sale of sugar.” When the “anticipated returns from the sale of sugar” were not taken into account by the company, the “question submitted” wasn’t answered, and Skinner v. Davidson, supra, applies. In applying it, one thing is to be noted. That case sent the matter back to the arbitrators, but the same result can hardly ensue here where it is Great Western which is to determine the amount of the initial payment. In fact, at the pretrial hearing of March 14, 1974, defense counsel agreed that if a breach of contract was found, the Court should determine the dollar amount of the initial payment. Of course, as will be seen presently, this problem does not exist under the second ground on which I have found liability on Great Western’s part. That second ground rests squarely on Empson Packing Co. v. Clawson (1908) 43 Colo. 188, 95 P. 546. That case is closely parallel on its facts. In Empson, growers’ contracts for peas were involved, and the contracts provided that the Empson Packing Company foreman “is to be the sole judge of the proper condition of the crops for canning.” The foreman turned down most of plaintiff’s crops, and Clawson’s suit against the company was tried to a jury. The case was reversed because the trial judge let witnesses testify that in their opinion the foreman’s decision to reject the peas was wrong. The Colorado Supreme Court held that instead: “ . . . the rule of law is, that where parties to a contract designate a party who is authorized to determine questions relating to its execution, and stipulate that his determination shall be final and conclusive, both parties are conclusively bound by his determination of those matters which he is authorized to determine, except in case of fraud, or such gross mistake upon his part as would necessarily imply bad faith, or a failure to exercise an honest judgment. (citing many cases, including, Martinsburg & Potomac R. R. Co. v. March, 114 U.S. 549, 5 S.Ct. 1035, 29 L.Ed. 255, Sweeney v. United States, 109 U.S. 618, 3 S.Ct. 344, 27 L.Ed. 1053, Chicago & Santa Fe R. R. Co. v. Price, 138 U.S. 185, 11 S.Ct. 290, 34 L.Ed. 917, and Kihlberg v. United States, 97 U.S. 398, 24 L.Ed. 1106.)” Admittedly, the evidence in this case is conflicting, but, I resolve the conflict in favor of plaintiff, and I find that on the record made Great Western Sugar Company is liable to plaintiff and the members of the class under the rule of Empson Packing Co. v. Clawson. In so holding, I am not unaware of defendant’s whirligig arguments that the projections made to the stockholders were made by Great Western United [the parent] rather than by Great Western Sugar Company, and that they were made for a different purpose. Great Western United was projecting sugar prices based on information given to it by Great Western Sugar Company employees, and I concede that the purpose of the projections was different. However, each projection was required to be made in good faith; the projection for stockholder action required good faith and so did the grower estimate. The trouble is that the established purpose of each estimate was to paint the picture most favorable to management’s positions to satisfy the conflicting interests presented. As I have said, the evidence establishes to my satisfaction, in the language of Empson, “fraud, or such gross mistake on (Great Western’s) part (which implies) bad faith, or a failure to exercise an honest judgment.” It is not necessary to the resolution of this case to decide whether the growers and the company are joint adventurers. There is no clear rule to be derived from the cases as to the legal relationship resulting from contracts between growers and purchasing processors. See, 21 Am.Jur.2d, Crops, § 55, and an annotation, Validity, construction and effect of contract between grower of vegetable or fruit crops, and purchasing processor, packer or eanner, 87 A.L.R.2d 732. Moreover, although I think that the tests of Realty Development Co. v. Feit (1963) 154 Colo. 44, 387 P.2d 898, defining a joint adventure are here met, liability is not here founded on the duty owed by one joint adventurer to another. See, Swann v. Ashton (1964) 10 Cir., 330 F.2d 995. The duty of one co-adventurer to another does not differ materially from the duty of a dominant party under the principles of Dittbrenner v. Myerson, supra, and, for that reason, I do not hold that the company and the growers are joint adventurers. I come now to the question which has occupied so much of counsel’s time and to which many pages of their briefs have been devoted. That question is whether there is an implied provision in the growers’ contracts or a trade custom which requires the payment of an initial payment of 85% of the “anticipated returns from the sale of sugar.” Clearly, for 1974, there was no such express provision in the contract, and, although the evidence shows a practice of usually paying an amount of between 80% and 85% of the “anticipated returns from the sale of sugar,” I do not think that plaintiff has met its burden of showing a contractual obligation on defendant’s part to pay any particular percentage of those returns. The true concept of the contract is that the company shall in good faith pay the highest practicable amount, taking into account all relevant factors including the anticipated returns from the sale of sugar. That it did not take this essential element into account, I have already held, but it did and it was entitled to take other factors into account. To me, the argument about the 85% is mostly an argument over the distinction between tweedledum and tweedledee. I think that if, the company was contractually required to pay 85% of the “anticipated returns from the sale of sugar,” it could in good faith give greater weight to the volatility of the market, and it could reasonably apply the 85% multiplier to the smaller multiplicand than the multiplicand which it can in good faith use when a smaller percentage multiplier is utilized. In other words, if the 85% multiplier was required to be used, I would hold that the company could reasonably hedge its internal control figure by an additional $10, and that it could in good faith pay 85% of $30.00 per cwt. This would require a payment by the company of $25.-50 per cwt. However, I do not think that a similar reduction in the multiplicand is to be permitted if the 85% multiplier be rejected. Under these circumstances, I think that the company was bound to pay on the basis of its internal projections, and that if it is given a hedge to take care of the volatile market of fifteen percent in the percentage multiplier, that is all it can in good faith defend against. Accordingly, accepting the company’s argument as to utilization of the 85% figure, I find that the company could in good faith pay the growers as their initial payment no less than 70% of the $40 figure used for the company’s internal controls. That being true, I find that had the company taken into account the anticipated returns from the sale of sugar, $28.00 per cwt. is the lowest amount the company could have paid the grower’s under the contracts’ requirements. Extrapolating from the table in the contract, the initial payment per ton which Great Western should have made to the growers was $51.02 per ton compared to the $26.25 payment made by the company. This brings me to that which is for me the most difficult question in the case. Plaintiff says that it and the members of the class are entitled to interest on the $24.77 initial payment difference from November 20, 1974, to date of judgment, and plaintiff says that the interest should be at the rate of 11.5% per annum. The seeming confusion in the applicable law is well explained in State Trust & Savings Bank v. Hermosa Land & Cattle Co. (1925) 30 N.M. 566, 240 P. 469, where the court said: “The question of interest is one much more often passed upon than carefully considered by courts. It is usually presented only incidentally to much more important issues, and often decided one way or the other at the close of exhaustive investigation of other questions, and with the perhaps unconscious feeling that it is not of sufficient magnitude to justify further serious labor. Again, the elements involved in determining the question are many of them so elastic in their application that cases may be rightly resolved in different ways without the distinction being apparent from the statement of them.” Here the question of interest is of sufficient magnitude to justify much serious labor. Although the amount of the judgment requires a calculation to determine the number of tons of beets delivered by the class members before November 5, 1974, it is likely that the interest alone would amount to $3-mil-lion to $4-million, and whether this amount is due from Great Western Sugar Company to the growers is not a question I intend to “pass upon” rather than to “carefully consider.” Moreover, counsel have at one time or another said that the interest problem is really the only question in the case. For example, just 10 days before trial, defendant asked to have the case certified for interlocutory appeal to review defendant’s contention that the jurisdictional amount requirement should rest on the amount of interest claimed. In that motion, defendant argued that the principal amount owing would be voluntarily paid by defendant as a matter of course, and that the only matters in dispute were when that amount was due and whether interest was owed if payment was delayed. That motion said: “Plaintiff's only good faith claim is for the interest allegedly due based on the Company’s and the growers different interpretations about the timing of a certain part of the ultimate payments. That this is indeed the amount in controversy is pointed out clearly in a letter sent by plaintiff’s counsel, Paul R. Connolly, to the class members. “ ‘. . . To the extent that the company may have shorted you on that [the initial] payment and in effect used your money, they are—if we are correct entitled to collect damages. The damages would amount to the interest that the Company should pay you for the use of your money.’ ” As has been held, the company was required to pay the highest amount it deemed justified, taking into account the anticipated returns from the sale of sugar. This, then, closely resembles a requirement that the company be required to pay a reasonable amount, reasonableness to be determined by the contracts’ provisions. The question of entitlement to interest is to be answered under Colorado law, even as to the growers who are citizens of other states and whose farms are in other states. See, Rocky Mountain Tool & Machine Co. v. Tecon Corp. (1966) 10 Cir., 371 F.2d 589; T & M Transp. Co. v. S. W. Shattuck Chem. Co. (1947) 10 Cir., 158 F.2d 909; Phillips Petroleum Co. v. Oldland (1951) 10 Cir., 187 F.2d 780. Colorado follows a minority rule of conflict of laws in determining what law applies to interest questions, and Colorado holds that it is the law of the forum which governs. Anderson-Thompson, Inc. v. Logan Grain Company (1956) 10 Cir., 238 F.2d 598; Hays v. Arbuckle (1922) 72 Colo. 328, 211 P. 101; 25 C.J.S. Damages § 4 b, p. 632. A vast number of the interest cases in Colorado have been decided under 73 C.R.S. 5-12-102 and its predecessors. [I make no effort to review cases decided under 73 C.R.S. 13-21-101, which allows interest in personal injury actions from the date of filing the complaint.] 73 C.R.S. 5-12-102 provides: “Creditors allowed six percent. Creditors shall be allowed to receive interest, when there is no agreement as to the rate thereof, at the rate of six percent per annum, for all moneys after they become due, on any bill, bond, promissory note, or other instrument of writing, or on any judgment recovered before any court or magistrate authorized to enter the same within this state, from the date of entering said judgment until satisfaction thereof be made; also on money due on mutual settlement of accounts from the date of such settlement, on money due on account from the date when the same became due, and on money received to the use of another and retained without the owners’ consent, expressed or implied, from the receipt thereof; and on money taken or retained and fraudulently converted to the taker’s use from the time of taking.” The cases relied upon by defendant in its brief and a host of others sing a litany that “interest is a creature of statute,” and that “interest cannot be allowed on an unliquidated claim.” During the last twenty-five years, in passing upon the allowance of statutory interest on unliquidated claims, the Colorado Supreme Court has had occasion to comment: In Weaver v. First National Bank of Limon (1958) 138 Colo. 83, 330 P.2d 142 [a suit for breach of warranty]; “Interest should have started running from the date of the entry of the judgment. C.R.S. ’53, 73-1-2. The right to interest, independent of an agreement to pay it, is statutory. C. R.S. ’53, 73-1-2, enumerates the cases in which it may be awarded. Denver, etc. Railroad Co. v. Conway, 8 Colo. 1, 5 P. 142, 54 Am.Rep. 537; Greeley, etc. Ry. Co. v. Fount, 7 Colo.App. 189, 42 P. 1023. ‘An action in damage for a breach of warranty is not one of the enumerated cases.’ Denver Horse Importing Co. v. Schafer, 58 Colo. 376, 147 P. 367. See Schlottman v. Pressey, 10 Cir., 195 F.2d 343, in which the Denver Horse Importing case is followed.” In Moreland v. Austin (1958) 138 Colo. 78, 330 P.2d 136 [a suit for fraud and deceit]: “The judgment entered included interest on the amount of damages found ($4,953.33) at the statutory rate from the date of the commencement of the action, and counsel for plaintiffs in error contend that the allowance of interest was error under the authority of Keeney v. Angell, 92 Colo. 213, 19 P.2d 215. In Clark v. Giacomini, 85 Colo. 530, 277 P.2d 306, this court said that interest is not recoverable in an action for damages occasioned by fraud and deceit. Such, also, was the holding in Keeney v. Angell, supra. The trial court erred in allowing interest from the date of the filing of the complaint. Interest is a creature of statute, and our statute makes no provision for interest on unliquidated damages which may be awarded in actions of this kind.” In Hunter v. Wilson (1961) 147 Colo. 36, 362 P.2d 553 [a suit for the reasonable value of labor and services]: “We find no authority for allowing interest in this case. Creditors shall be allowed to receive interest ‘on money due on mutual settlement of accounts from the date of such settlement, on money due on account from the date when the same became due . . . .’ C.R.S. ’53, 73-1-2. This statute, allowing interest on book accounts, ‘must be strictly construed.’ Smith-McCord-Townsend Co. v. Camenga, 104 Colo. 7, 87 P.2d 751, 753. It has been held ‘that interest can only be recovered in the cases enumerated in the statute.’ West Elk Land & Livestock Co. v. Telck, 71 Colo. 79, 205 P. 270, 271. “Keeping in mind that the trial court resolved the disputed matter on the basis of a fair and reasonable charge for work and services, it becomes necessary to determine whether interest thereon comes within the terms of the statute. Such a claim so cast by the trial court is an unliquidated demand. Dexter v. Collins, 21 Colo. 455, 42 P. 664; El Paso County v. Flanigan, 21 Colo.App. 467, 122 P. 801. “In El Paso County v. Flanigan, supra, the plaintiff sought to recover a judgment against the defendant ‘for work and labor performed, services rendered, and tools and supplies furnished in building a wagon road ..’ The court said: “ ‘The court properly refused to allow interest on the claim. Interest in this state is a creature of statute and regulated thereby. It is only recoverable, in the absence of contract in the cases enumerated in the statute. [Citing cases.] The case at bar does not come within the statute as to allowance of interest. The claim was unliquidated.’ “Equally to the point and equally controlling is this language from the case of Dexter v. Collins, supra [21 Colo. 455, 42 P. 666] : “ ‘The court instructed the jury that if they found for the plaintiffs, either under the express agreement or on the quantum meruit, in any amount, they should add interest thereto from the time the same became due, as to which the court told the jury there was no conflict, viz. December 31, 1889. This was error. We are unable to determine whether the jury found for the plaintiffs under the first or second cause of action. If under the second, the claim was for an unliquidated demand, and this court under