Cargill, Inc., et al., Respondents, vs. Lone Star Technologies, Inc., a Delaware corporation, et al., Appellants.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1381

 

Cargill, Inc., et al.,

Respondents,

 

vs.

 

Lone Star Technologies, Inc.,

a Delaware corporation, et al.,

Appellants.

 

Filed June 1, 2004

Affirmed

Peterson, Judge

 

Hennepin County District Court

File No. CT 01-18740

 

 

Thomas Tinkham, Craig D. Diviney, Marisa A. Hesse, Daniel F. Lainsbury, Dorsey & Whitney LLP, 50 South Sixth Street, Suite 1500, Minneapolis, MN  55402-1498 (for respondents)

 

Jeffrey J. Keyes, Robin Caneff Gipson, Briggs and Morgan, P.A., 2400 IDS Center, 80 South Eighth Street, Minneapolis, MN  55402; and

 

David F. Herr, Dawn C. Van Tassel, Maslon Edelman Borman & Brand, LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN  55402-4140; and

 

George C. Lamb III (admitted pro hac vice), Baker Botts, LLP, 2001 Ross Avenue, Suite 600, Dallas, TX  75201 (for appellants)

 

            Considered and decided by Halbrooks, Presiding Judge; Lansing, Judge; and Peterson, Judge.

U N P U B L I S H E D   O P I N I O N

PETERSON, Judge

            In this appeal from a judgment and denial of posttrial motions, appellant Lone Star Technologies, Inc. challenges (1) the jury's determination that appellant breached its contract to purchase a business from respondent Cargill, Inc., and (2) the award of damages.  Lone Star also argues that the district court, rather than the jury, should have determined whether the liquidated-damages provision in the contract applied.  We affirm.

FACTS

            North Star Steel Company, a subsidiary of Cargill, Inc., operated a division called Universal Tubular Services, Inc., which produced seamless pipe.  Cargill decided to sell the tubular division and retained an investment broker to assist with the sale.  Among the factors considered in choosing a buyer were the purchase price, whether the parties reached a definitive agreement, and whether the buyer had financing that ensured that the buyer was qualified and could pay for the purchase.

            Cargill accepted Lone Star's bid of $430 million.  Under the purchase agreement, Lone Star's financing consisted of a commitment from Goldman Sachs Credit Partners L.P. to provide a bridge loan of $130 million and a planned stock offering of $180 million.  The balance would be paid in cash with money obtained from a bank loan.  The parties also negotiated their remedies in the event of breach or termination and included a liquidated-damages provision.  Lone Star did not obtain the committed financing from Goldman Sachs or secure funds from a stock offering, and it notified Cargill that it would not close the transaction by the December 15, 2001, deadline.  Cargill then commenced suit and officially terminated the purchase agreement on January 18, 2002.  Cargill put the tubular division back on the market and in July 2002, sold it for $380 million to Vallourec & Mannesmann Tubes.

            At trial, Cargill sought damages of $50 million, the difference between the price that Lone Star agreed to pay and the price that Cargill ultimately received from the sale.  The jury determined that Lone Star breached the contract, that Cargill suffered damages in the amount of $32 million, and that the liquidated-damages provision did not apply.  The district court entered judgment against Lone Star for $32 million and denied Lone Star's motions for JNOV or a new trial.  This appeal followed.

D E C I S I O N

            As a preliminary matter, we note that under the contract, the law of Delaware governs.  "[P]arties may agree that the law of another state shall govern their agreement and [Minnesota courts] will interpret and apply the law of another state where such agreement is made."  Milliken & Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980).  However, "matters of procedures and remedies [are] governed by the law of the forum state."  Davis v. Furlong, 328 N.W.2d 150, 153 (Minn. 1983).  Therefore, "general choice of law provisions, as expressed in contracts, incorporate only substantive law, and do not displace the procedural law of the forum state."  Fredin v. Sharp, 176 F.R.D. 304, 308 (D. Minn. 1997); (accord U.S. Leasing Corp. v. Biba Info. Processing Servs., Inc., 436 N.W.2d 823, 825-26 (Minn. App. 1989), review denied (Minn. May 24, 1989).  Consequently, in this analysis, we apply the substantive law of Delaware and the procedural law of Minnesota.

I.

            Lone Star seeks reversal of the jury's award of damages to Cargill, contending that Cargill failed to carry its burden of proving damages.

            An appellate court "will not interfere with the jury's award of damages unless its failure to do so would be shocking or would result in plain injustice."  Hughes v. Sinclair Mktg., Inc., 389 N.W.2d 194, 199 (Minn. 1986).  When a party challenges the sufficiency of the evidence, the appellate court will view "the evidence in the light most favorable to the prevailing party.  The verdict will not be reversed if the evidence reasonably or fairly tends to sustain it."  Lesmeister v. Dilly, 330 N.W.2d 95, 100 (Minn. 1983).  But where a plaintiff fails to carry its burden of proof of damages, remittitur of damages may be ordered.  Barbarossa & Sons, Inc. v. Iten Chevrolet, Inc., 265 N.W.2d 655, 662-63 (Minn. 1978); see Sievert v. First Nat'l Bank in Lakeville, 358 N.W.2d 409, 415 (Minn. App. 1984) (reversing damage award by jury where items "too uncertain to justify the jury's award of damages"), review denied (Minn. Feb. 5, 1985).

            Under Delaware law, "remedy for a breach should seek to give the nonbreaching party the benefit of its bargain by putting that party in the position it would have been but for the breach."  Genencor Int'l, Inc. v. Novo Nordisk A/S, 766 A.2d 8, 11 (Del. 2000).  In other words,

                        the standard remedy for breach of contract is based upon the reasonable expectations of the parties ex ante.  This principle of expectation damages is measured by the amount of money that would put the promisee in the same position as if the promisor had performed the contract.  Expectation damages thus require the breaching promisor to compensate the promisee for the promisee's reasonable expectation of the value of the breached contract, and hence, what the promisee lost.

 

Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (footnote omitted).

            Cargill sought damages of $50 million, which was the difference between the $430 million purchase price agreed to by Lone Star and the $380 million price agreed to by the ultimate purchaser.  The jury awarded damages of $32 million.

            Lone Star argues that Cargill's evidence was insufficient as a matter of law to sustain its burden of proof and that Cargill failed to prove the basic elements of the benefit-of-the-bargain damage theory.  First, Lone Star argues that Cargill failed to present competent evidence of the final purchase price Lone Star would have paid for the tubular division, as well as the final purchase price that Vallourec paid.  It is undisputed that Lone Star agreed to pay $430 million and Vallourec agreed to pay $380 million.  But, Lone Star contends, these were not the actual purchase prices because, under the parties' contracts, the purchase prices were subject to a "working-capital" adjustment at the time of closing.  This working-capital adjustment was intended to take into account fluctuations in the values of assets and liabilities between the time the sale was agreed to and the time the deal closed.  Lone Star argues that because Cargill failed to put these calculations into evidence, it did not meet its burden of proof.  But witnesses specifically testified about these adjustments, and the question was one for the jury to decide. 

            Next, when Lone Star appeared to be unable to obtain funds for its stock offering, Cargill offered to purchase $130 million in stock from Lone Star at a higher-than-market price in an effort to complete the deal.  Lone Star refused the offer.  Lone Star now argues that because Cargill failed to offer proof of the market value of Lone Star stock at the time the closing was to occur, it failed to prove the actual purchase price agreed to by Lone Star.  But Cargill introduced evidence of Lone Star's stock price throughout the period in question, and the matter was one for the jury to decide.

            Lone Star also argues that Cargill saved money because of the breach, because had Cargill purchased the $130 million in stock as part of the deal, it would have had to spend some 15% of the stock's value to dispose of the stock.  Cargill argues that the Lone Star claim assumes that Cargill would have been required to sell all of its stock at once, triggering a charge for discounts, which Cargill argues it was not required to do.  Further, Cargill argues that the profit it would have made by selling the stock at a premium later would have easily paid for any transaction fees.

            Finally, Lone Star argues that Cargill failed to account for gains that it realized as a result of the breach.  Lone Star contends that during the 6.5 months that Cargill continued to own the tubular division because of the breach, it generated profits that Cargill would not have realized but for the breach.  Cargill argues that this amount was accounted for because the retained profits were included in the price Vallourec paid as part of the capital adjustments.

            Cargill presented evidence about these disputed issues to the jury.  The jury apparently accepted some of Cargill's arguments about what the evidence demonstrated and some of Lone Star's arguments about the evidence because the jury awarded $32 million, rather than the $50 million of damages that Cargill claimed.  The theory of damages was not speculative, and the district court properly rejected Lone Star's motion for JNOV on damages.

II.

            Lone Star argues that the damages Cargill was awarded are precluded by the liquidated-damages clause in the purchase agreement.  The liquidated-damages clause, section 12.3 of the agreement, states:

            If this Agreement is terminated pursuant to Section 12.1(f), Buyer shall pay Seller as liquidated damages and not as a penalty, the sum of Ten Million Dollars ($10,000,000) ("Termination Fee").  The parties agree that the damages that Seller would incur as a result of such termination would be difficult to estimate with precision, but that the amount provided for in this Section 12.3 is a fair and reasonable estimate of such damages and shall be in lieu of all claims, costs, losses and liabilities arising from such termination.  The Termination Fee shall be paid no later than five Business Days after notice of termination has been issued by Seller. 

 

            Section 12.1(f) of the agreement states, "This Agreement may be terminated at any time on or prior to the Closing . . . [b]y Seller if Buyer fails to meet its obligations under Section 7.10."

            Section 7.10 of the agreement states:

            Buyer has secured and executed letters of commitment from Goldman Sachs Credit Partners L.P. (the "Committed Financing")[.] . . . Buyer shall act in good faith to comply with its obligations under the terms of the Committed Financing and to finalize the Stock Offering (subject to the fiduciary obligations of its board of directors under Delaware law) on an expeditious basis.  If all or any portion of the Committed Financing is terminated by Goldman, unless Buyer has replaced the terminated portion with financing from its senior secured lender, Buyer shall provide prompt written notice to Seller and shall have 15 Business Days from the date of such notice to seek and secure an alternate funding source as evidenced by a signed commitment letter, with terms evidencing Buyer's ability to obtain the funds necessary to close this transaction.  If Buyer is unable to secure alternate funding within the time period provided above, Seller shall have the right to terminate this Agreement pursuant to Section 12.1(f).

 

            Together, these three provisions say that Cargill may terminate the agreement before or at closing if Lone Star fails to meet its obligations under section 7.10, and, if Cargill does so, Lone Star must pay Cargill $10 million in lieu of any other damages.  The parties disagree about whether the liquidated-damages provision applies, however, because they disagree about what Lone Star's obligations are under section 7.10.

            In summary-judgment motions, both parties argued that the liquidated-damages provision is unambiguous, but they offered different interpretations.  The district court ruled that the language of the liquidated-damages clause is ambiguous because it is reasonably susceptible to two or more meanings and submitted the issue to the jury in a special-verdict question, which asked, "Does the liquidated damages clause in the contract apply to Lone Star Technologies' alleged breach of contract?"  The jury determined that it did not apply.

            On appeal, Lone Star first argues that the district court erred as a matter of law in denying its motion for summary judgment because the provision is unambiguous and provides for liquidated damages for Lone Star's alleged failure to meet its good-faith obligation under section 7.10; and second, that even if ambiguity existed, under Delaware law, interpretation of the contract was a question of law for the court, not a fact question for the jury.

            Lone Star contends that because it had an obligation under section 7.10 to "act in good faith to comply with its obligations under the terms of the Committed Financing and to finalize the Stock Offering" and Cargill terminated the agreement for Lone Star's alleged failure to meet its good-faith obligations, the termination was a termination under section 12.1(f), which triggered the liquidated-damages provision in section 12.3 and limited Cargill's recovery to $10 million.  Cargill argues that the liquidated-damages provision was not triggered because the termination was not a termination pursuant to section 12.1(f) for Lone Star's failure to meet its obligations under section 7.10.  Cargill contends that section 7.10 required Lone Star to act in good faith to obtain the committed financing, and a termination pursuant to section 12.1(f) occurred only if Lone Star acted in good faith and still could not obtain financing from Goldman Sachs, or from another source on terms that were not less favorable.

            In denying Lone Star's motion for JNOV, the district court concluded:

The Jury rejected Lone Star's interpretation of when the break-up fee applied and accepted Cargill's position that the $10 million break-up fee only applied if Goldman Sachs terminated the Committed Financing and Lone Star was unable to secure alternate financing.  Cargill's position was a reasonable interpretation of the Agreement's language, and this interpretation was supported by the preponderance of evidence adduced at trial.  Therefore, there is no basis for overturning the Jury's decision. 

 

            We agree with the district court's analysis that the language is ambiguous and the jury's interpretation is supported by the evidence.  The last sentence in section 7.10 makes a direct connection between Cargill's right to terminate the agreement pursuant to section 12.1(f) and Lone Star's inability to secure alternate funding, which supports Cargill's interpretation of the agreement.  But section 12.1(f) permits Cargill to terminate the agreement if Lone Star fails to meet its obligations under section 7.10, and one of Lone Star's obligations under section 7.10 is to act in good faith, which supports Lone Star's argument that a termination for not acting in good faith is a termination under section 12.1(f).  Therefore, the agreement is ambiguous.  Lone Star acknowledges that under Delaware law, when a contract is ambiguous, the court should consider the appropriate extrinsic evidence and settle the meaning.  See Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997) ("when there is uncertainty in the meaning and application of contract language, the reviewing court must consider the evidence offered in order to arrive at a proper interpretation of contractual terms").

            There was testimony that indicated that the three people who signed the purchase agreement understood that the liquidated-damages provision meant what Cargill argues it meant.  For example, Rhys Best, the president of Lone Star who signed the agreement, testified in a deposition that his understanding was "that the termination fee associated with the loss of the Goldman bridge financing and our [Lone Star's] ability to not replace it, which would give the seller the opportunity to terminate the agreement under that particular clause."  This evidence supports the interpretation the jury gave to the liquidated-damages provision.

            Although Lone Star acknowledges that extrinsic evidence may be considered to determine the meaning of an ambiguous contract, it argued in its motion for a new trial that under Delaware law, the district court, not the jury, should have considered the evidence and interpreted the language of the agreement to determine whether the termination fee applies.  The district court concluded:

This is a curious argument because Lone Star did not ask the Court to rule on the issue at the close of trial nor did it object to submitting the issue to the jury.  Furthermore, Lone Star submitted proposed jury instructions which included instructions on interpreting ambiguous contract language.  Since Lone Star did not object at trial, the Court will not reject the Jury's ruling unless the decision to submit the issue to the jury was a fundamental error of law.

 

            The record supports the district court's determination that Lone Star did not ask the court to interpret the agreement nor object to submitting the interpretation of the agreement to the jury.  Lone Star raised its argument that interpreting the contract was a matter for the court, rather than the jury, only after the jury determined that the liquidated-damages clause in the agreement did not apply to Lone Star's alleged breach.  Having failed to object to submitting this issue to the jury at trial, Lone Star may not assert the objection for the first time in a motion for a new trial or on appeal, and, therefore, it has waived the claim of error.  Poppler v. O'Connor, 306 Minn. 539, 541 n. 1, 235 N.W.2d 617, 619 n.1 (1975); see also Skogen v. Dow Chemical Company, 375 F.2d 692, 703 (8th Cir. 1967) ("It is the most fundamental rule of appellate procedure that a party may not sit idly by and allow the trial court to commit error, wait for a verdict, and complain of the error only if the verdict is unfavorable.").

III.

            Lone Star argues that as a matter of law, Cargill failed to prove that it breached the contract, and that Lone Star is entitled to JNOV.  In reviewing a claim for JNOV, this court must determine "whether there is any competent evidence reasonably tending to sustain the verdict."  Blue Water Corp. v. O'Toole, 336 N.W.2d 279, 281 (Minn. 1983).  Cargill had asserted that Lone Star breached three provisions of the contract:  (a) section 7.10, which imposed a duty on Lone Star to "act in good faith" to comply with the terms of the committed financing and to finalize the stock offering; (b) section 15.10, requiring Lone Star to take actions "as may be reasonable, necessary or desirable" to complete the transaction; and (c) the implied duty of good faith under Delaware law.  Lone Star argues that Cargill did not establish liability as a matter of law under any one of its three theories.

            First, Lone Star argues that Cargill convinced the district court erroneously to imply the "prevention doctrine" into the parties' contract.  Under the prevention doctrine, one who wrongfully prevents perfection of a condition precedent may not rely on the failure of the condition to escape contractual liability.  A.L.C. Ltd. v. Mapco Petroleum, Inc., 711 F. Supp. 1230, 1238 (D. Del.), aff'd, 888 F.2d 1378 (3rd Cir. 1989).  We are not persuaded that the district court implied the prevention doctrine into the parties' contract; it simply instructed the jury about contract-interpretation issues.

            Section 7.10 of the agreement states, "Buyer shall act in good faith to comply with its obligations under the terms of the Committed Financing and to finalize the Stock Offering (subject to the fiduciary obligations of its board of directors under Delaware law) on an expeditious basis."  The agreement does not define good faith.  The district court instructed the jury that "[t]he duty of a party to a contract to perform may be subject to the occurrence of a condition," and, in instructing the jury about the duty of good faith, the district court stated:

            Where a duty of one party is subject to the occurrence of a condition, the implied duty of good faith and fair dealing may require some cooperation on its part, either by refraining from conduct that will prevent or hinder the occurrence of that condition, or by taking affirmative steps to cause its occurrence.

 

            Here, Lone Star expressly agreed to act in good faith to comply with its obligations under the terms of the commitment financing and finalize the stock offering subject to the fiduciary obligations of its board of directors under Delaware law on an expeditious basis. 

 

            These instructions did not imply anything into the agreement; they informed the jury about legal principles and terminology employed in the agreement so that the jury could determine whether the parties met their obligations under the agreement.

            Next, Lone Star asserts its primary argument that Cargill failed as a matter of law to show that Lone Star breached the contract.  Lone Star's theory is that it complied with the requirements for obtaining the committed financing as a matter of law.  At trial, Lone Star presented evidence showing the efforts that its president made to support his assertions that he was continually seeking financing.  Cargill, however, introduced evidence to support its theory that Lone Star did not take steps to obtain the committed financing because it was seeking a lower price on the deal.  Without reiterating the evidence presented to the jury, we conclude that the jury had substantial evidence from which it could conclude that Lone Star failed to act in good faith to obtain the committed financing.

            Finally, Lone Star argues that because Cargill invoked three different contractual provisions, the jury had multiple liability theories from which to choose and it is impossible to tell the basis for the jury's liability finding.  It contends that if any one of these theories is invalid as a matter of law or unsupported by evidence, the court must reverse the judgment and order a new trial.  Bilotta v. Kelley Co., 346 N.W.2d 616, 623 (Minn. 1984) (new trial ordered where reviewing court had no way to ascertain whether verdict was based on theory on which trial court correctly instructed, or on another theory based on incorrect instructions).  Lone Star has failed to show that any of the theories is invalid as a matter of law or unsupported by evidence.

            Affirmed.