Free Proposed Findings of Fact - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Case No.: 03-cv-00097 WDM-MJW

PRAIRIELAND PROCESSORS, INC., a Colorado corporation, Plaintiff, v. RIDGEFIELD FARMS, LLC, a Connecticut limited liability corporation, WEST-CONN MEAT CO., INC., a Connecticut corporation, and RICHARD MR. GREENFIELD, Defendants, ELDON ROTH, REGINA ROTH, KEVIN LAFLEUR, and DONALD BABCOCK, Additional Counterclaim Defendants. PLAINTIFF'S AND COUNTERCLAIM DEFENDANT'S REVISED PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

Plaintiff and Counterclaim Defendant Prairieland Processors, Inc., by its counsel, submits the following Revised Proposed Findings of Fact and Conclusions of Law: JURISDICTION AND VENUE 1. Jurisdiction is based on 28 U.S.C. 1332. The action was originally filed in the

District Court for the County of Adams, State of Colorado and was removed to this Court by Defendant Ridgefield Farms, LLC, pursuant to 28 U.S.C. 1441. FINDINGS OF FACT

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Histories of Prairieland and Ridgefield and Their Business Arrangements 2. Prairieland is a Colorado corporation. Its principal owners were Eldon Roth and

Regina Roth. Donald Babcock and Kevin LaFleur were minority owners. 3. Plaintiff Prairieland was formed in 2001. Prairieland operated a meat processing

facility in Denver, Colorado, from late 2001 through December 2002. 4. Don Babcock was an executive with IBP, a large meat processing company. Mr.

Babcock had managed processing facilities and held several senior positions with IBP, a large meat company. Mr. Babcock negotiated with an unrelated company known as "Prairieland Processors" to acquire its name and customer list. The company produced meat from commodity cattle, which were cattle that did not meat the size or grade standards of large meat packers such as IPB. 5. Mr. Babcock presented the opportunity to Eldon and Regina Roth. Mr. Roth is

the owner of companies that develop technologies for processing meat and produce meat products. 6. The Roths agreed to provide financial backing to Mr. Babcock. The Roths

acquired the majority interest in Prairieland. Mr. Babcock became the president of the company. 7. Mr. Babcock was responsible for setting up the Prairieland facility and starting

the business. Prairieland began operations in the second half of 2001. It incurred greater than anticipated losses during its first year of operations. 8. In January 2002, Kevin LaFleur was brought into Prairieland as a co-president.

Mr. LaFleur had worked at every level of the meat packing industry. He had been a senior executive with Monfort and ConAgra.

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9.

Mr. LaFleur was asked to evaluate Prairieland's operations and identify means of

improving its profitability. Mr. LaFleur determined that primary causes of Prairieland's losses were problems with Prairieland's marketing efforts, the loss of the purchased customer base, and market conditions that had resulted in a scarcity of commodity cattle, which led to higher than normal prices and lower than planned production levels. 10. Mr. LaFleur implemented changes to Prairieland's marketing efforts and set up

systems to track the daily profitability of the business. Mr. LaFleur believed that Prairieland was operating at breakeven levels by April or May 2002. He also determined that increasing

Prairieland's production levels would increase its profitability. 11. During the period from the start of its operations through September or October

2002, Prairieland was not generating monthly profit and loss statements. Prairieland replaced its controller in August 2002 and charged its new controller, Jeff Greer, with developing accurate and reliable financial reporting systems. 12. Mr. LaFleur based his assessments of Prairieland's profitability on his experience

in the industry and the limited financial information that was available to him at that time. 13. Mr. LaFleur recommended that Prairieland shift from processing commodity

cattle to custom processing for a "branded" cattle program. 14. Mr. LaFleur contacted several companies that were marketing meat through

branded programs. In April or May of 2002, Kevin LaFleur was introduced to Phil Friend, the president of Defendant Ridgefield. 15. Ridgefield marketed beef from Hereford cattle that is subject to a USDA certified

brand program.

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16.

Ridgefield was formed in 2001 and had operated as a marketing company for beef

produced by third parties. 17. The owners of Defendant Ridgefield, at the times relevant to this action, were

Defendant Richard Greenfield (30%), Roy Levy (30%), Phil Friend (30%) and Neil Flanagan (10%). 18. Mr. Greenfield and Mr. Levy each own or control 50% of the shares of Defendant

West-Conn Meat Co., Inc. ("West-Conn"). 19. 20. Ridgefield initially sold beef that was processed by Washington Beef. When the arrangement between Ridgefield and Washington Beef began,

Washington Beef shipped directly to Ridgefield's customers, invoiced the customer, and sent Ridgefield the difference between a formula cost negotiated between Ridgefield and Washington Beef and the price paid by Ridgefield's customer. Washington Beef held a 25% interest in Ridgefield during this period. 21. In early 2002, Washington Beef changed the terms of its arrangement with

Ridgefield. Washington Beef began invoicing West-Conn for product sold to Ridgefield's customers. Washington Beef required payment on 7-day terms. West-Conn invoiced

Ridgefield's customers under West-Conn's trade name, "Ridgefield Hereford Farms." WestConn paid the margin between the amount paid by Ridgefield's customers and the amount charged by Washington Beef to Ridgefield. 22. Prairieland conducted test runs of Hereford cattle for Ridgefield in June 2002.

After the tests, Prairieland and Ridgefield began to negotiate a contract under which Prairieland would become the processor of Hereford cattle for Ridgefield.

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23.

Mr. Friend was the principal negotiator for Ridgefield. Kevin LaFleur was the

principal negotiator for Prairieland. 24. On July 12, 2002, Prairieland and Ridgefield signed a contract that was intended

to govern the production of meat for Ridgefield's Hereford program. 25. After the contract was signed, Mr. Friend met with Mr. and Mrs. Roth and Mr.

LaFleur in Dakota Dunes, South Dakota. During the meeting in Dakota Dunes, Mrs. Roth and Mr. LaFleur described Prairieland's operating history and disclosed its past losses. Mrs. Roth and Mr. LaFleur answered Mr. Friend's questions about Prairieland's sales and operations. Mrs. Roth told Mr. Friend that she and her husband had made loans and capital contributions to Prairieland to sustain its operations. 26. During the period from the initial negotiations to the end of the relationship,

Ridgefield never requested financial statements from Prairieland. 27. The parties never operated under the written contract. Instead, by the time

Prairieland began production for the Hereford program on August 12, 2002, the parties had agreed verbally that (1) Prairieland would sell all of its production of Hereford and out-cattle to Ridgefield; (2) Ridgefield would take over Prairieland's sales operations; (3) Prairieland would invoice Ridgefield for the cost of cattle plus a processing fee; (4) Ridgefield would pay Prairieland's invoices; and (5) any profits received by Ridgefield above the payments to Prairieland and its costs of sales would be shared by Prairieland and Ridgefield. 28. Prairieland's processing fee, in accordance with the agreement to share net

profits, was set at an amount that was intended to cover its operating costs. Prairieland's profit from product sold to Ridgefield would come from the share of the profits realized from

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Ridgefield's sales of the product to its customers. Kevin LaFleur and Mr. Friend calculated the processing fee on the assumption that Prairieland was operating at a minimum level of 1,500 head of cattle per week. 29. Prairieland and Ridgefield understood that it would take time for Prairieland's

production to reach the break-even level. Ridgefield and Prairieland knew that it would take time for Prairieland to find sources of Hereford cattle and to shift its production from commodity cattle to Hereford cattle. 30. Before August 12, 2002, Prairieland gave inventory and accounts receivable Richard Greenfield evaluated the information and determined that

records to Ridgefield.

Prairieland had $600,000 to $800,000 in accounts receivables from its customers that were past due. 31. Prairieland also disclosed its problems with marketing its commodity product.

Prairieland told Ridgefield that Prairieland wanted to utilize Ridgefield's sales and marketing expertise because of the disclosed problems with Prairieland's marketing efforts. 32. Ridgefield was aware of Prairieland's problems with its commodity program

before it agreed to purchase and sell meat from commodity cattle. 33. Prairieland's representations to Ridgefield about its operating costs and the

potential profitability of its business were based on the information available to it at the time. 34. Prairieland told Ridgefield that its processing fee would not be enough to cover its

costs at production levels below 1,500 head per week. Ridgefield knew that the production level was critical to Prairieland's ability to cover its operating costs.

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35.

Mr. Friend told Mr. Greenfield that Ridgefield could protect itself from market

conditions by decreasing its purchases from Prairieland and that the reduced level of purchases would cause Prairieland to operate at a loss. (Plaintiff's Exhibit 16, p. 2, lines 5-10). 36. The parties agreed that Ridgefield would buy all of the meat that Prairieland could

produce and that Prairieland would become the exclusive provider for Ridgefield when Prairieland's production increased. 37. Prairieland requested this assurance in order to proceed with the arrangement

because it knew that it must increase its weekly output to the levels on which the processing fee was based in order to avoid operating losses. 38. Prairieland and Ridgefield began operating under their verbal agreement on

August 12, 2002. On that date, as agreed by the parties, Prairieland transferred its inventory to Ridgefield and invoiced Ridgefield for the transferred inventory. 39. The original written contract between Ridgefield and Prairieland (Defendant's

Exhibit A-5) did not specify the time for payment. 40. industry. Prairieland's invoices called for payment in 7 days, which was customary in the (Plaintiff's Exhibit 2). Prairieland offered to extend its terms to 14 days to

accommodate Ridgefield's request for longer terms. 41. Prairieland told Ridgefield that it needed to be paid on 14-day terms because

Prairieland's carcass suppliers required payment on 7-day terms, which were the same as Ridgefield and West-Conn's terms with Washington Beef. 42. Ridgefield told Prairieland that its customers were paying on 28-day terms and

that it could not pay more quickly than 28 days.

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43.

Over the course of their relationship, Ridgefield made commitments to Prairieland

to pay on 21-day terms, measured from the date of the Prairieland invoice. 44. Although the evidence of the agreement between the parties on payment terms is

conflicting, the Court finds, on the basis of the statements and conduct of the parties, that Ridgefield agreed to pay on 21-day terms. 45. Prairieland never agreed to extend credit to Ridgefield beyond 21-day terms.

Neither Prairieland nor its owners agreed to fund cattle purchases by contributing equity or borrowing. Ridgefield knew or should have known that Prairieland's ability to purchase cattle for sale to Ridgefield was dependent on Ridgefield's payment of Prairieland's invoices. 46. 1). 47. Ridgefield told Prairieland that its slow payments were the result of the payment Ridgefield failed to pay within 21 days almost immediately. (Plaintiff's Exhibit

cycle with its customers. 48. Throughout these discussions, Ridgefield, Mr. Friend and Mr. Greenfield never

told Prairieland that (1) West-Conn financed Ridgefield's purchases from Washington Beef; (2) West-Conn paid Washington Beef on 7-day terms; or (3) Ridgefield continued to acquire substantial quantities of product from Washington Beef that was being shipped directly to Ridgefield's customers. 49. Prairieland was aware of the portion of Ridgefield's purchases from Washington

Beef and others that were shipped to Prairieland to be repackaged. Prairieland was not aware of the extent to which potential production was being diverted from its venture with Ridgefield by shipments directly from Washington Beef.

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50.

Ridgefield did not tell Prairieland that it was paying West-Conn for purchases on

its behalf on 7 to 11-day terms without regard to receipt of payment from Ridgefield's customers. The parties disagree on when Ridgefield disclosed that it was paying West-Conn on industry terms. 51. Prairieland gave Ridgefield a series of credits to address production and billing

issues in September 2002. Prairieland also gave Ridgefield credits for the inventory that had been transferred to Ridgefield on August 12, 2002. Prairieland's credits to Ridgefield totaled $1,283,749. The majority of the credits were issued on or before September 30, 2002. 52. In September, Prairieland and Ridgefield implemented procedures for the review

of carcass invoices and verification of the amount charged to Ridgefield by Mr. LaFleur and Mr. Friend. 53. Mr. Friend told Mr. Greenfield that the billing errors that led to the credits that

were given in September were not intentional, but that he would use Prairieland's concerns about the errors to Ridgefield's advantage. (Plaintiff's Exhibit 16, pp. 1- 2). 54. Over the course of the relationship, Prairieland gave Ridgefield every credit that it

requested, including credits for shipping problems and product quality problems that may not have been caused by Prairieland. 55. On September 10, 2002, Mr. Greenfield and Mr. Friend met with Eldon and

Regina Roth and Kevin LaFleur in Dakota Dunes, South Dakota. Richard Jochum attended the meeting and kept notes. 56. After the meeting, Mr. Jochum prepared meeting notes that summarized the

discussion points in the meeting (Plaintiff's Exhibit 11) and prepared a "Summary of Terms" that

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incorporated the principal provisions of an agreement to continue the venture (Plaintiff's Exhibit 10). Mr. Jochum sent the notes and the Summary of Terms to Mr. Friend and Mr. Greenfield. Although they never signed the Summary of Terms, neither Mr. Friend nor Mr. Greenfield advised Prairieland before this action was filed that they disagreed with the Summary of Terms or that they believed the notes were inaccurate. 57. During the meeting, Ridgefield agreed to bring its account to at least 21-day terms

(21-days from the date of the invoice by Prairieland). 58. Ridgefield failed to bring its account to 21-day terms after the meeting. In

telephone conversations with Mr. Greenfield, Mrs. Roth told Ridgefield that the slow payments could not continue and demanded that Ridgefield find financing to bring its account current. 59. In October 2002, Ridgefield entered into an arrangement with Entrepreneurial

Growth Company ("EGC") to finance the purchases of product from Prairieland. The EGC arrangement temporarily improved the payment problem. The EGC borrowing limits and terms would not support Ridgefield's purchase at the current or planned level of production by Prairieland. 60. As Mr. Greer, Mrs. Roth and others testified, the cash flow problem caused by

Ridgefield's delinquent payments impeded Prairieland's ability to purchase carcasses and caused Prairieland to reduce its purchases of cattle. (Testimony of Mr. Greer and Mrs. Roth). 61. In late October 2002, Prairieland insisted that Ridgefield find a way to finance its

purchases that would allow it to bring its accounts current. Mrs. Roth or Scott Sehnert arranged for Wells Fargo Commercial Credit ("Wells Fargo") to contact Ridgefield. Ridgefield applied

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for credit from Wells Fargo and entered into a factoring agreement with Wells Fargo in November 2002. 62. Prior to the start of the Wells Fargo factoring arrangement, Prairieland ordered

cattle and issued checks to cattle suppliers on the basis of Ridgefield's representations that Ridgefield would pay Prairieland before Prairieland's check to the cattle supplier would clear its bank. 63. In mid-November, Mr. Greer mailed checks to Booker Packing after being told by

Ridgefield that a check from Ridgefield would be delivered to Prairieland to cover the purchases. Ridgefield failed to deliver the promised checks. Mr. Greer stopped payment on the checks to Booker Packing. As a result of Ridgefield's failure to deliver the promised checks that forced Prairieland to stop payment on its checks to Booker Packing, Booker Packing imposed new restrictions on Prairieland that had the effect of limiting it to 2 to 3-day terms. Booker Packing's payment restrictions, Ridgefield's failure to pay for product and Prairieland's effort to comply with Ridgefield's requests for Hereford cattle caused Prairieland to shut down its operations in the week beginning November 18, 2002. 64. Wells Fargo required Ridgefield to factor all of its sales, including all sales of

product acquired from Washington Beef. 65. Wells Fargo required an indemnity by Mr. Roth against claims cattle suppliers

from Eldon Roth in order to protect Wells Fargo's interests in receivables from the statutory lien created by the Packers and Stockyards Act. (Plaintiff's Exhibit 26). The indemnity was

equivalent to a guaranty of payments to cattle suppliers.

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66.

In order to induce Mr. Roth to give his guaranty, Ridgefield reaffirmed its

commitment to purchase all meat products that Prairieland could produce and to purchase exclusively from Prairieland to the extent of Prairieland's production capacity.

Messrs. Greenfield and Friend promised to use the proceeds from the Wells Fargo financing to first pay Prairieland in order to bring Ridgefield's receivable within 21-day terms. 67. Although Ridgefield made payments to Prairieland with the proceeds from the

Wells Fargo factoring arrangement, Ridgefield never brought the Prairieland account current. 68. In early December 2002, Mr. Friend, on behalf of Ridgefield, proposed that

Ridgefield and Prairieland combine the production and sales operations into a single company to be owned by Mr. and Mrs. Roth. (Defendants' Exhibits A-25, A-26 and A-27). 69. As a result of Ridgefield's slow payments, Prairieland temporarily halted

operations on December 20, 2002. 70. Mr. Friend, along with Jeff Greer of Prairieland, met with Eldon and Regina Roth

on December 23, 2002 to discuss the "Newco" concept and the requirements for the continuation of Prairieland's sales to Ridgefield. 71. During the meeting, Mr. Friend told Mr. and Mrs. Roth that he had discovered a

"hole" in Ridgefield's inventory and that if Ridgefield liquidated all of its receivables, it would not realize enough to pay what it owed to Prairieland. 72. Mr. and Mrs. Roth told Mr. Friend that Prairieland would not continue to make

sales to Ridgefield unless Ridgefield brought its account current. The meeting ended with an understanding that Mr. Friend would prepare a written proposal and send it to Mr. and Mrs. Roth. Mr. Roth received the proposal on or about December 26, 2002.

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73.

The proposal called for additional contributions of capital or loans of $6,000,000

from the Roths. 74. Mr. Roth told Mr. Friend that he would neither proceed with the Newco proposal

nor continue to allow Prairieland to make sales to Ridgefield unless Ridgefield brought its account current. Mr. Friend responded by disparaging Prairieland and its principals and refusing to pay Prairieland. 75. Prairieland shut down its operations on December 30, 2002. At that time, it was

owed over $2,477,114 by Ridgefield. 76. Prairieland's inability to purchase cattle for sale to Ridgefield from August 12

through December 20 was caused by Ridgefield's failure to pay on 21-day terms. (Greer Testimony). 77. The amount owed by Ridgefield to Prairieland was greater than Prairieland's

accounts payable on December 31, 2002. Prairieland's accounts payable are reported for the last day of each month on Plaintiff's Exhibit 1. The Ridgefield account receivable is greater that Prairieland's accounts payable at the end of each month. (Plaintiff's Exhibit 1). 78. Ridgefield turned over 137,000 pounds of product to Prairieland pursuant to a

replevin stipulation. The product was stored at Oneida's facility. Oneida asserted a lien in the product as a result of a payment dispute with Ridgefield. Ridgefield did not offer credible evidence of the value of the product and did not offer evidence that the product was made available to Prairieland for sale within a reasonable time. Expert Testimony

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79.

Dennis Brown testified on behalf of Prairieland. Mr. Brown was qualified as an

expert in forensic accounting and financial analysis. Mr. Brown's curriculum vitae and his Preliminary Report (Plaintiff's Exhibit 42) and his Rebuttal and Supplemental Report (Plaintiff's Exhibit 43) were admitted into evidence. 80. Mr. Brown offered the opinion that Prairieland's financial damages were

$3,172,375, and were comprised of principal of $2,477,114 and interest at 8% per annum from December 30, 2002 through March 6 , 2006 of $695,261. (Plaintiff's Exhibit 84). 81. Mr. Brown prepared a data base of the weights charged in the invoices of

Prairieland's carcass suppliers. Mr. Brown prepared a database of Prairieland's credit memos to Ridgefield by reviewing Ridgefield's copies of the credit memos. Mr. Brown concluded that

Prairieland overbilled Ridgefield certain carcass costs, primarily in the period prior to September 30, 2002 and that Prairieland gave Ridgefield credits for all over billings. Mr. Brown determined that Prairieland's credits exceeded the documented overcharges. 82. Mr. Brown verified his calculation of damages by comparing Prairieland's

invoices to Ridgefield's accounts receivable ledgers at November 7, 2002 and December 11, 2002 and found that the amounts stated by Prairieland and Ridgefield were comparable, with only minor differences. 83. Mr. Brown verified his calculation of damages by comparing the invoiced weights

to the carcass weights reported in Prairieland's daily production reports. Mr. Brown found that the carcass weights reported in the daily production reports were only .7% less than the invoiced weights. Mr. Brown also compared Prairieland's invoice weights to the invoiced weights

reported in the perpetual inventory prepared by ERE (Ridgefield's accountants and Defendants'

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expert). (Defendants' Exhibit A-72, foldout spreadsheet).

The invoiced weights differed from

the weights reported by ERE by only 74,000 pounds (17,785,000 invoiced by Prairieland and 17,859,000 calculated as delivered by ERE). 84. Mr. Brown analyzed Ridgefield's cost of goods sold, as reported in its financial

statements, and determined that Ridgefield's financial statements confirmed the sale of the product delivered by Prairieland. Mr. Brown also determined that ERE's report, EGC's record of the invoices that it processed in October and November, and Wells Fargo's records of its factoring activity in December confirmed the sale of the product delivered to Ridgefield by Prairieland. 85. In his testimony and in his Rebuttal and Supplemental Report, Mr. Brown opined

that the quantity identified by ERE as "inventory shrinkage" was equal to the processing loss which was reported by Prairieland in its production records and its yield recap (Plaintiff's Exhibit 48) and which was analyzed and found reasonable by Dr. Belk in his report. 86. Ridgefield offer the report of ERE. (Defendants' Exhibits A-72). Ridgefield did

not offer a witness from ERE. Plaintiff's offered the deposition testimony of Stacy Cook of ERE in support of its claims. Ms. Cook performed or supervised ERE's work on behalf of Ridgefield. 87. Ms. Cook testified in her deposition that she was not asked to consider carcass

yields in her report and that she was not given information on Prairieland's yields or USDA information on yields. 88. Mr. Brown's conclusions were not rebutted by competent evidence and are

adopted by the Court.

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89.

Keith Belk, PhD, a Professor in Meat Science at Colorado State University

testified on behalf of Plaintiff. Dr. Belk's report was admitted into evidence as Plaintiff's Exhibit 49. 90. Dr. Belk testified regarding his qualifications including his academic experience,

his experience as a researcher for the USDA and his experience as chief procured of cattle for a major supermarket chain. 91. Dr. Belk was qualified and accepted as an expert in meat sciences and yields, red

meat quality and safety, live animal development, international markets for red meat, and quality management systems. 92. Dr. Belk evaluated samples from Prairieland's production records (Plaintiff's

Exhibits 5 and 6) and concluded that the records and concluded that the records were typical for plants of Prairieland's size. 93. Dr. Belk offered the opinion that Prairieland's total red meat yield, the measure of

yield reported in Prairieland's production records, was reasonable. 94. Dr. Belk evaluated Prairieland's yields for selected cuts of meat and concluded

that Prairieland's yields were reasonable and better than reported industry averages. 95. Dr. Belk, in his testimony, offered the opinion that determining whether the

expected sales value of the meat products will exceed the cost of production is typically the responsibility of the marketing entity. In this case, Ridgefield should have been responsible for determining that it could sell the product that it purchased from Prairieland at a profit. 96. Dr. Belk's report and testimony were not rebutted. His opinions and conclusions

are adopted by the Court.

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Prairieland/Ridgefield Venture 97. Prairieland and Ridgefield agreed that Ridgefield would pay Prairieland a

processing fee plus the costs of the carcasses. Prairieland and Ridgefield agreed to share the amount by which Ridgefield's proceeds from the sale of product purchased from Prairieland exceed Ridgefield's payments to Prairieland and Ridgefield's sales and marketing costs. Prairieland and Ridgefield did not agree to share Prairieland's losses from production or Ridgefield's losses from sales. Ridgefield confirmed this agreement in its communications with Wells Fargo. (Plaintiff's Exhibits 53 (Greenfield email to Canfora) and Plaintiff's Exhibit 9 (Wells Fargo Prospect Approval and Closing Checklist). 98. Prairieland and Ridgefield agreed that Ridgefield would sell the product

purchased from Prairieland and would pay one-half of any "profit" to Prairieland. "Profit" was defined by the parties as the amount paid by Ridgefield's customer, less Ridgefield's sales and marketing costs and Ridgefield's cost of goods (the amount paid to Prairieland). 99. Ridgefield did not agree to share Prairieland's losses if Ridgefield's payments to

Prairieland did not cover Prairieland's operating costs. 100. Prairieland did not agree to share Ridgefield's losses if Ridgefield's sales

revenues did not cover Ridgefield's costs of goods and sales and marketing costs. 101. Ridgefield and Prairieland did not maintain a joint venture bank account.

Ridgefield and Prairieland did not file tax returns on behalf of the joint venture. Ridgefield did not apply for loans on behalf of the joint venture. 102. Ridgefield did not state that the parties would share losses in its contemporaneous

descriptions of the parties agreement. (Plaintiff's Exhibit 53, Plaintiff's Exhibit 9).

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103. 104.

Ridgefield did not demand that Prairieland pay its losses during the venture. Ridgefield's accounting for losses did account for Prairieland's losses of $770,

700 (Defendants' Exhibit A-51U, p. 2) during the venture and did not account for the $2,477,114 in unpaid invoices. 105. Ridgefield's alleged losses are costs that it voluntarily incurred to fulfill its

obligation to pay Prairieland by entering into arrangements with EGC and Wells Fargo or losses from alleged misconduct by Prairieland that Ridgefield failed to prove at trial... The EGC and Wells Fargo borrowing costs were obligations that Ridgefield voluntarily incurred to meet its obligations and promises to Prairieland. Ridgefield was solely and individually responsible for its obligations to EGC and Wells Fargo. Prairieland never agreed to be liable for the financing that Ridgefield used to pay for the product that Prairieland sold to Ridgefield. Ridgefield's alleged losses are not credible and were liabilities of Prairieland under the agreement of the parties. Findings on Ridgefield's Defenses and Counterclaims 106. Prairieland did not begin producing monthly financial statement until September

or October 2002. Mr. Greer reconstructed Prairieland's financial statements for January through August, after he began generating financial statements in September or October. 107. Prior to the preparation of the Crossroads Report in January 2003, Prairieland's

management and owners did not know that Prairieland's carcass costs were too great a percentage of revenues, as concluded by Crossroads. 108. Crossroads did not evaluate Prairieland's arrangement with Ridgefield and was

not told that Prairieland's operating fee had been set at a breakeven level for the Ridgefield sales.

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109.

Ridgefield never told Prairieland that it would not pay for product that was

delivered by Prairieland. (Greer Testimony, Flanagan Deposition). 110. Ridgefield did not track its inventory of products purchased from Prairieland.

(Flanagan Deposition). 111. Ridgefield did not maintain inventory records for its purchases from Washington

Beef because Washington Beef shipped directly to its customers. (Flanagan Deposition). 112. Mr. Friend requested assistance from Mr. Greer with Ridgefield's inventory

tracking and management and told Mr. Greer that Ridgefield's records and systems were not adequate. 113. Ridgefield made the decision not to prepare an inventory of the product at the (Dan Babcock

Seattle Fish Facility before it moved its inventory to the Oneida facility. Deposition). 114.

Ridgefield obtained inventory information from Oneida after it transferred its

inventory to Oneida in October 2002. Ridgefield did not reconcile the inventory information with its purchases or sales. Stacy Cook of ERE testified that she reconciled the inventory and sales records for the first time, with assistance from David Ellicott, Ridgefield's vice president for sales. (Cook Deposition.). 115. Ridgefield did not have inventory records when ERE began its work for

Ridgefield. (Cook Deposition). 116. Ridgefield had access to the information that ERE used to evaluate its inventory

at all times during its relationship with Prairieland. (Cook Deposition).

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117.

Ridgefield did not track its sales of product purchased from Prairieland

contemporaneously. (Friend Testimony). 118. Ridgefield did not prove that it made requests for credits from Prairieland that

were not granted. 119. Ridgefield did not offer an explanation for its failure to identify the alleged

problems with billings when the invoices were presented by Prairieland. 120. Ridgefield's claims of product quality, problems with the receiving dock scale

and billing problems are not credible because the alleged problems were known or should have been known by Ridgefield in 2002 and were not addressed contemporaneously. 121. Ridgefield was given daily production reports (Plaintiff's Exhibit 5) and daily

profit and loss reports (Plaintiff's Exhibit 6) following each day of production. Roger Kime, an assistant to Mr. Greer and the former controller of Champion Beef (the former occupant of the Prairieland facility) testified that he prepared the reports and delivered copies to Mr. Friend and David Ellicott each day. Mr. Greer and Mr. Kime testified that the reports were reviewed in a daily meeting that was attended regularly by Mr. Friend and Mr. Ellicott, Ridgefield's marketing vice president. Mr. Kime testified that the sales information that was used to calculate estimated profits in the daily profit and loss reports was given to Prairieland by Ridgefield. 122. issued. 123. The records of sales generated by ERE, Ridgefield's expert, and Wells Fargo Ridgefield did not question the accuracy of the reports at the time the reports were

confirm that Ridgefield sold the product invoiced and delivered by Prairieland.

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124.

The "missing inventory" or "hole" was the expected difference between the

weight of carcasses purchased by Prairieland and the weight of the boxed beef that was delivered. Prairieland's production yields were reasonable. 125. Mr. Friend, David Ellicott and Ridgefield's sales staff had offices in the

Prairieland facility. 126. Prairieland gave Ridgefield detailed reports on its production (Plaintiff's Exhibits

5 and 6) on a daily basis and reviewed the reports with Ridgefield's representatives in daily production meetings. The meetings were attended by Mr. Friend and Mr. Ellicott on a regular basis. The Prairieland reports tracked the yield from each lot of cattle that was purchased and processed. Ridgefield presented never questioned Prairieland's yields during the period from August 12 through December 31, 2002. 127. The product delivered by Prairieland was sold by Ridgefield. The sales resulted

in a gross profit for Ridgefield. Ridgefield cannot explain what it did with the proceeds from the product it sold, but did not pay for. 128. Mr. Greenfield controlled West-Conn and Ridgefield's financial matters.

Mr. Greenfield caused Ridgefield to pay West-Conn on 7 to 11-day terms at the same time it was not paying Prairieland on 21-day terms. 129. purchases. 130. West-Conn is controlled by Richard Greenfield and Roy Levy, who also control From August through December 2002, Ridgefield paid West-Conn in full for all

Ridgefield. In December, 2002, Ridgefield paid West-Conn even though Ridgefield claimed that

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it could not pay Prairieland and thus was insolvent. Ridgefield also repaid loans from its owners at times when it was not paying Prairieland. (Plaintiff's Exhibits 55 and 70).

CONCLUSIONS OF LAW Applicability of Colorado Uniform Commercial Code 131. Prairieland's sales of product to Ridgefield were governed by Article 2 of

Colorado's Uniform Commercial Code ("UCC"), Colo.Rev.Stat. §4-1-101, et seq. (2005). See §4-2-102(1) (2005). 132. For the reasons set forth in the Findings of Fact, the Court finds that Ridgefield

agreed to pay Prairieland on no longer than 21-day terms 1 . The Court's finding that Ridgefield agreed to 21-day terms by its conduct is supported by the UCC. See §4-2-208(1) (2005) ("Where the contract for sale involves repeated occasions for performance . . . any course of performance accepted or acquiesced in without objection shall be relevant to determining the meaning of the agreement"). By obtaining financing from EGC and Wells Fargo for the

admitted purpose of bringing its account with Prairieland to 21-day terms, Ridgefield agreed to or acquiesced to Prairieland's demands for payment on no more than 21-day terms. Existence of A Joint Venture 133. The Court found that Ridgefield and Prairieland agreed to share profits form the

sale of meat products processed by Prairieland and sold by Ridgefield. Profits were measured by Ridgefield's net revenues from the sale of product purchased from Prairieland after deducting the amount paid to Prairieland and Ridgefield's sales and marketing costs.
1

In the absence of an agreement on the time of payment, payment is due at the time and place of shipment. Colo.Rev.Stat. §4-2-310(a) (2005).

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134.

Prairieland and Ridgefield did not agree to share losses. Prairieland was not

responsible for Ridgefield's losses if Ridgefield's revenues did not equal its cost of goods and sales and marketing costs. Ridgefield was not responsible for Prairieland's losses if the

processing fee paid by Ridgefield and Prairieland's share of profits from Ridgefield's sales did not cover Prairieland's operating costs. 135. The Court must determine whether this arrangement constitutes a joint venture

under Colorado law. 136. A joint venture is a partnership formed for a limited purpose. Colorado

Performance Corporation v. Mariposa Associates, 754 P.2d 401,405 (Colo. App. 1987) 137. joint venture: "(1) There must be joint interest in the property by the parties sought to be held as partners; (2) there must be agreements, express of implied, to share in the profits and losses of the venture; and (3) there must be actions and conduct showing co-operation in the project. None of these elements alone is sufficient.'" (citations omitted) Realty Development Company v. Felt, 151 Colo. 44, 387 P.2d 898, 899 (1963); See Dime Box Petroleum v. Louisiana Land and Exploration Company, 938 F.2d 1144 (10th Cir. 1991) ("Under Colorado law three elements must exist to establish a joint venture: (1) a joint interest in property; (2) an express or implied agreement to share in the losses or profits of the venture; and (3) conduct showing cooperation in the venture." (citations omitted)(Emphasis added)). The Colorado Supreme Court adopted the following criteria for the existence of a

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138.

Alternatively, the Tenth Circuit has expressed a less formalistic standard for a

joint venture in determining whether a venturer could be liable to a third party for the actions of a coventurer: A joint venture requires only that the parties combine their property, money, efforts, skill or knowledge in some common undertaking. The contribution made by each party need not be of the same character. A co-ownership of property is not essential, so long as each joint venturer contributes something promotive of the enterprise. Wood v. Western Beef Factory, 378 F.2d 96, 98 (10th Cir. 1967) (applying Colorado law). Under the standard in Wood v Western Beef Factory, an agreement to share losses is not necessary. 2 139. A joint venture can be created by an agreement to acquire and share overriding

royalty interests in oil and gas leases. Kincaid v. Miller, 129 Colo. 552, 272 P.2d 276 (1954). 140. In determining the nature of the agreement between Ridgefield and Prairieland,

the Court is guided by the rule that "since a joint venture is a contractual relationship, the intent of the parties is controlling and is to be gleaned, in the absence of an express agreement, from the conduct, the surrounding circumstances, and the transactions between the parties." Stone v. First Wyoming Bank, N.A., Lusk, 625 F.2d 332, 340 (10th Cir. 1980). 141. The court finds that Ridgefield and Prairieland intended to form a joint venture

for the limited purpose of sharing profits, as defined above, from the sale of certain products.

A joint venture is not created when the parties agree to share gross profits and where "each party was to be separately and solely responsible for certain of the expenses involved." Colorado Performance Corporation v. Mariposa Associates, 754 P.2d 401, 406 (Colo. App. 1987)

2

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The court finds that the parties did not intend to share losses and structured their relationship in a manner that precluded the sharing of losses. The Court relies on Wood v. Western Beef Factory, supra, and Kincaid v. Miller, supra, and finds that the parties formed a joint venture that did not require the sharing of losses. Goods Sold and Delivered 142. Prairieland's sales of product to Ridgefield and Ridgefield's purchases from

Prairieland were governed by Article 2 of the Colorado Uniform Commercial Code, Colo.Rev.Stat. 4-2-101, et seq. Colo.Rev.Stat. § 4-2-102(1) (2005). 143. Any defects in weight and quality would constitute non-conformity under the

UCC. See, Colo.Rev.Stat. § 4-2-106(2) (2005). 144. Ridgefield was required to reject non-conforming product and upon rejection was

required to hold the product. See, Colo.Rev.Stat. § 4-2-602 (2005). 145. Ridgefield was invoiced before the delivery of the finished product. The UCC

provides that when a buyer is invoiced for goods before inspection, any non-conformity of the goods does not excuse the buyer from making payment. Colo. Rev. Stat. § 4-2-512 (2005). 146. Ridgefield did not reject the product at issue in this action. Ridgefield accepted

all product at issue in this action. See Colo.Rev.Stat. § 4-2-606 (2005). Ridgefield's acceptance and sale precluded subsequent rejection. See Colo. Rev. Stat, § 4-2-607 (2005). 147. Ridgefield was required to pay for any product that it accepted at the contract rate.

See Colo. Rev. Stat, § 4-2-607(1) (2005). Prairieland invoiced Ridgefield at the contract rate and gave Ridgefield all requested adjustments and credits. The amounts reflected in Prairieland's invoices and Plaintiff's Exhibit 1 are not disputed.

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148.

Pursuant to C.R.S. § 5-12-102, Plaintiff is entitled to judgment for pre-judgment

interest against Ridgefield. See Robb v. Universal Constructors, Inc., 665 F.2d 998, 1002 (10th Cir. 1981); North Drive-In Theatre Corp v Park-In Theatres Inc, 248 F.2d 232 (10th Cir. 1957). 149. Ridgefield failed to pay for $2,477,114 of product. Ridgefield breached its

obligations as a buyer under the UCC. Prairieland is entitled to judgment against Ridgefield for $2,477,114, with pre-judgment and post-judgment interest.

Breach of Contract By Ridgefield 150. Prairieland and Ridgefield entered into an oral joint venture agreement. The

terms of the joint venture were that Prairieland would purchase cattle, take delivery of the carcasses and process the carcasses into saleable products; Prairieland would invoice Ridgefield upon receipt of the carcasses; Ridgefield would pay the costs of the carcasses plus a processing fee; Ridgefield would take possession of the meat produced by Prairieland and sell it; Ridgefield would recover its actual sales costs, which were set by agreement with Prairieland, and any sales proceeds in excess of Ridgefield's sales costs would be split 50/50 by Prairieland and Ridgefield. 151. As part of the oral joint venture agreement, Ridgefield and Prairieland entered

into a contract for the sale of goods. The contract for the sale of goods and the amount that was to be paid under the contract were not disputed by Ridgefield. 152. 153. Prairieland substantially performed the contract. Ridgefield breached the contract by failing to pay for the goods delivered by

Prairieland in accordance with the terms of the parties' contract.

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154.

Prairieland suffered damages in the amount of $2,477,114 as a result of

Ridgefield's breach of contract. Fraudulent Concealment and Misrepresentation By Ridgefield and Greenfield 155. Mr. Greenfield controlled the financial transactions of Ridgefield and West-Conn Mr. Greenfield

and controlled payments from Ridgefield to West-Conn and West-Conn. controlled Ridgefield's payments to Prairieland. 156.

West-Conn was the distributor of Ridgefield's products on the East Coast and was

a major customer of Ridgefield. Greenfield testified that West-Conn did not take profits from the sales that it made through its "Ridgefield Hereford Farms" trade name. However, the customer in a significant portion of those sales would have been West-Conn. With respect to sales to West-Conn under the trade name "Ridgefield Hereford Farms", West-Conn was not taking a profit on sales to itself. 157. Mr. Greenfield knew that the agreement between Prairieland and Ridgefield

required Ridgefield to pay Prairieland. Mr. Greenfield knew that Prairieland's ability to buy cattle was dependent on its prompt receipt of payment from Ridgefield. 158. Mr. Greenfield caused Ridgefield to favor the interest of West-Conn over the

interests of Prairieland. 159. Mr. Greenfield knew that Prairieland would be unable to buy cattle for processing

if Ridgefield failed to pay Prairieland in a timely manner. Mr. Greenfield knew that Prairieland would incur operating losses if it could not buy sufficient cattle to reach the operating level on which the processing fee was based.

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160.

Mr. Greenfield caused Ridgefield to delay payment to Prairieland at the same

time that Ridgefield was paying Mr. Greenfield's company, West-Conn, on a current basis. 161. Mr. Greenfield told Prairieland that Ridgefield did not have sufficient funds to

pay Prairieland on a current basis because its customers were paying on 28-day terms. This representation was false because Ridgefield was paying West-Conn on 7 to 11-day terms and was paying West-Conn without regard to the timing of the payments from its customers. 162. Mr. Greenfield knew that Prairieland was continuing to sell product to Ridgefield

in reliance on Mr. Greenfield's representations that Ridgefield's non-payment was due to factors that it could not control. 163. Ridgefield and Mr. Greenfield concealed from Prairieland that Ridgefield was

paying West-Conn for product on 7 to 11-day terms without regard to payments from its customers. 164. Mr. Greenfield and Ridgefield promised Prairieland that Ridgefield would bring

its accounts current with the proceeds from the Wells Fargo financing. Mr. Greenfield and Ridgefield did not intend to use the proceeds from the Wells Fargo financing to bring the Prairieland account current when those representations were made. Mr. Greenfield and

Ridgefield intended to continue to favor West-Conn by paying West-Conn on a timely basis while not paying Prairieland. 165. In December, 2002, Ridgefield proposed that Prairieland's owners fund the

formation of a single company that would combine the business of Prairieland and Ridgefield, which was referred to as Newco. When Prairieland's owners demanded payment in full as a

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condition to funding the formation of the Newco, Ridgefield and Mr. Greenfield alleged that Prairieland had failed to deliver product and that there was a "hole" in Ridgefield's inventory. 166. Mr. Greenfield and Ridgefield knew that the allegedly missing inventory was the

difference between the weight of the purchased carcasses and the weight of the finished product, which consisted of the normal weight loss during processing. 167. Ridgefield and Mr. Greenfield asserted the existence of missing inventory as a

defense in this action and at the hearing on Prairieland's writ of attachment. Ridgefield and Mr. Greenfield knew that the allegations of missing inventory were false. 168. Ridgefield and Greenfield's failure to disclose that Ridgefield was paying West-

Conn on 7 to 11-day terms without regard to the payment from its customers constitutes fraudulent concealment. 169. Ridgefield's and Greenfield's representations to Prairieland that it could not pay

Prairieland on 21-day terms because it was limited to the funds received from its customers, who were represented to pay on 28-day terms constitutes false representations. 170. material facts. 171. Prairieland reasonably relied on Ridgefield's and Greenfield's false The facts concealed and misrepresented by Ridgefield and Greenfield were

representations because of the joint venture relationship between the parties. 172. As a proximate result of the fraudulent concealment and false representations of

Mr. Greenfield and Ridgefield, Prairieland sustained damages in the amount of $2,477,114, plus pre- and post-judgment interest. Breach of Fiduciary Duties By Ridgefield

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173.

The parties to a joint venture owe fiduciary duties to the other parties to the

venture, including duties of good faith and fair dealing. See Lucas v. Abbott, 198 Colo. 477, 601 P.2d 1376, 1379 (1979). 174. joint venture. 175. The Court finds that a joint venturer cannot favor his interests over the interests of The Court finds that the relationship between Prairieland and Ridgefield was a

the venture. See Kincaid v. Miller, 129 Colo. 552, 272 P.2d 276, 281 (1954) ("Without consent of his associate no member of a joint adventure may so act that his personal interest is hostile to the interest of another member thereof . . ."). 176. As a proximate result of the breach of fiduciary duty by Ridgefield, Prairieland

sustained damages in the amount of $2,477,114, plus pre- and post-judgment interest. Intentional Interference with Contractual Relations by West-Conn and Mr. Greenfield 177. Intentional interference with contractual relations requires an improper action by

the defendant. The defendant must be aware of the contract, must intend that one of the parties breach the contract and must take actions that induce a party to breach the contract or make it impossible for the party to perform. Krystowiak v. W.O. Brisben Companies, Inc. , 90 P.3d 859, 871 (Colo. 2004). 178. In determining the whether the defendant has acted improperly, a court considers

the following factors form the Restatement (Second) of Torts §767: (a) the nature of the actor's conduct, (b) the actor's motive, (c) the interest of the other with which the actor interferes, (d) the interests sought to be advanced by the actor, (e) the social interest in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of

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the actor's conduct to the interference and (g) the relations of the parties. Krystkowiak v. W.O. Brisben Companies, Inc. , 90 P.3d 859, 871 (Colo. 2004); Trimble v. City and County of Denver, 697 P.2d 716, 726 (Colo. 1985). 179. Mr. Greenfield was aware of the joint venture agreement and contract for the sale

of goods between Prairieland and Ridgefield. 180. West-Conn, through Mr. Greenfield, was aware of the agreements between

Ridgefield and Prairieland. 181. By the conduct described above, Mr. Greenfield, acting for himself and on behalf

of West-Conn, caused Ridgefield to breach the joint venture agreement and the contract between Ridgefield and Prairieland for the sale of goods by causing Ridgefield to fail to pay Prairieland for product and by breaching its fiduciary duties under the joint venture agreement. 182. The Court finds that the interference by West-Conn and Mr. Greenfield was

improper under the factors set forth in the Colorado cases because of the fiduciary relationship between Ridgefield and Prairieland, Mr. Greenfield's control of West-Conn and Ridgefield, and Mr. Greenfield's preference for the interests of West-Conn over the interests of Prairieland, with whom Ridgefield had a fiduciary relationship. 183. Mr. Greenfield is liable for interference with the contractual joint venture

relationship between Ridgefield and Prairieland. See Trimble v. City and County of Denver, 697 P.2d 716, 725-726 (Colo. 1985) (agent may be liable for interference with contract of its principal). 184. As a proximate result of Mr. Greenfield's and West-Conn's conduct, Prairieland

sustained damages in the amount of $2,477,114, plus pre- and post-judgment interest.

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Findings on Ridgefield's Counterclaims 185. Ridgefield has failed to prove that Prairieland, committed the torts of fraudulent

misrepresentation, fraudulent concealment and negligent misrepresentation. 186. Ridgefield has failed to prove that Prairieland breached the oral joint venture

agreement between the parties. 187. Ridgefield's recovery of fees arising from the writ of attachment hearing is barred

by Ridgefield's failure to comply with the pre-conditions to recovery of damages or attorneys' fees under Rule 102(n) of the Colorado Rules of Civil Procedure. 188. Rule 102(n)(2) provides for the award of reasonable attorney's fees when a

defendant traverses the affidavit after issuance of an ex parte writ of attachment. Rule 102(n)(1) states that "the defendant may, at any time before trial, by affidavit, traverse and put in issue the matters alleged in the affidavit, testimony, or other evidence upon which the attachment is based. (emphasis added). Colo.R.Civ.P. 102(n)(1). In this case, an ex parte writ was never issued. 189. Ridgefield's recover recovery of damages or attorneys' fees arising from the writ

of attachment hearing is barred by Ridgefield's misrepresentations during the hearing. Mr. Friend and Mr. Greenfield testified that inventory was missing. Mr. Friend and Mr. Greenfield knew or should have known that the "missing inventory" or "hole" was the expected difference between the weight of carcasses and the weight of the finished product. The cause of the difference should have been evident given their experience in the industry. Ridgefield had access to Prairieland's records from which it could have ascertained the nature of the missing product. The Court finds that Mr. Greenfield and Mr. Friend knew that the "hole" did not exist.

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Dated this 20th day of March, 2006. DUCKER, MONTGOMERY, ARONSTEIN & BESS, P.C.

s/Marcus L. Squarrell Marcus L. Squarrell David H. Stacy 1560 Broadway, Suite 1400 Denver, Colorado 80202 Telephone: (303) 861-2828 Facsimile: (303) 861-2017 Email: [email protected] [email protected] ATTORNEYS FOR PRAIRIELAND PROCESSORS, INC.

By:

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CERTIFICATE OF SERVICE The undersigned hereby certifies that on the 20th day of March, 2006, a true and correct copy of the foregoing PLAINTIFF'S AND COUNTERCLAIM DEFENDANT'S REVISED PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW was filed electronically with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected] Frank W. Visciano, Esq. Luis A. Toro, Esq. SENN · VISCIANO · KIRSCHENBAUM · MERRICK P.C. 1801 California Street, Suite 4300 Denver, Colorado 80202 Facsimile: 303-296-9101

By:

s/Marcus L. Squarrell Marcus L. Squarrell David H. Stacy 1560 Broadway, Suite 1400 Denver, Colorado 80202 Telephone: (303) 861-2828 Facsimile: (303) 861-2017 Email: [email protected] [email protected]

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