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Autauga Quality Cotton Association v. Crosby

United States Court of Appeals, Eleventh Circuit

June 25, 2018

AUTAUGA QUALITY COTTON ASSOCIATION, Plaintiff - Appellant,
v.
TIM L. CROSBY, MARISA D. CROSBY, BRANDON CROSBY, SKYLER CROSBY, Defendants - Appellees.

          Appeal from the United States District Court for the Middle District of Georgia D.C. Docket No. 7:15-cv-00121-WLS

          Before NEWSOM, BRANCH, and ANDERSON, Circuit Judges.

          NEWSOM, Circuit Judge:

         This is a case about cotton. B. B. King once called cotton "a force of nature"-"[t]here's a poetry to it," he wrote, "hoeing and growing cotton."[1] Here, the poetry of the hoeing and growing has given way to a nasty little feud over the selling. Specifically, Autauga Quality Cotton Association, a cooperative that pools and markets farmers' cotton, claims that the individual owners of one of its former member entities-together, the Crosbys-breached a marketing agreement, and "betray[ed]" the organization, when they failed to deliver their promised cotton for the 2010 crop year. Most significantly for present purposes, Autauga contends that as a remedy for the Crosbys' breach it is entitled to liquidated damages pursuant to the marketing agreement's terms. We must determine whether, under Alabama law, the provision that Autauga seeks to enforce is a valid liquidated-damages clause or, instead, an impermissible penalty. We hold that the provision imposes a penalty and is therefore void and unenforceable.

         I

         A

         Appellant Autauga is a not-for-profit cotton-marketing association based in Central Alabama. Its mission is to provide price stability to both farmers and consumers by pooling the cotton grown by its more than 1, 000 members and then marketing it for sale. Association members pledge all of the cotton that they grow on certain farms to Autauga, which then, based on the members' representations, sells both commodity futures and physical product to consumers. After the cotton is harvested and ginned, Autauga delivers it to the buyers and remits the sale proceeds (minus its own operating expenses) to its members. This arrangement is memorialized in a marketing agreement between Autauga and each association member.

         Appellees are a family of South-Georgia cotton farmers and partners in Crosby, Crosby, Crosby, Crosby (CCCC). Before the kerfuffle that resulted in this litigation, CCCC had been a member of (and sold a lot of cotton through) Autauga for many years.

         In their capacities as partners in CCCC, Tim and Marisa Crosby entered into the operative marketing agreement with Autauga in 2007. Their children, Skyler and Brandon Crosby, joined CCCC-and the marketing agreement-the following year. Under the agreement's terms, CCCC was obligated to sell to Autauga all cotton grown on farms listed on a separately-executed "Farm Verification Form." (Association members are free to sell cotton grown on farms not listed on the verification form outside Autauga's marketing pool.) The agreement contemplated that CCCC would submit a new verification form each year, but didn't specify a deadline for doing so. Importantly, per the agreement's language, the previous year's verification form would continue to apply until a new form was filed. In 2009-the year before the crop year in question here-CCCC (through an intermediary) submitted its verification form in late October. In that form, CCCC pledged to market through Autauga all cotton grown on more than 2, 000 acres of land spread across 22 farms. (For the 2009 crop year, CCCC's pledge resulted in it marketing more than 4, 000 bales through Autauga.) Because CCCC never submitted a verification form for the 2010 crop year, its 2009 form governed its 2010-crop-year obligations.

         The agreement allows a grower to "sign out" of the marketing arrangement entirely by executing a certified notice by a particular date before the beginning of the crop year.[2] On March 8, 2010, Autauga informed its members that the "sign-out" deadline for the 2010 crop year would be March 26. It's undisputed that the Crosbys never executed a "sign-out" notice, although, as it turns out, Tim Crosby had earlier executed contracts to sell essentially all of CCCC's 2010-crop-year cotton-some 4, 000 bales-to an organization outside the association, Cargill Cotton.

         On April 8 and August 24, 2010, Autauga sent letters to its members requesting that they submit farm verification forms as soon as possible, but didn't specify a hard deadline. When it still hadn't received CCCC's verification form by November 2010, Autauga contacted Tim Crosby by phone, and Tim reported that CCCC would be selling most if its 2010-crop-year cotton directly to Cargill. By December, CCCC had delivered more than 4, 000 bales of 2010 cotton to Cargill. CCCC never delivered any of its pledged 2010 cotton to Autauga.

         In May 2011, Autauga's attorney sent a demand letter to CCCC explaining that the Crosbys' failure to deliver the cotton pledged in their 2009 verification form breached the marketing agreement[3] and that, as a result, Autauga was entitled to liquidated damages. In relevant part, the agreement's liquidated-damages provision provides as follows:

In the event of a breach by the Grower of any material provision of this Marketing Agreement, particularly as to the delivery or marketing of committed cotton other than through the Association, the Association shall, upon proper action instituted by it, be entitled to an injunction to prevent further breach and to a decree for specific performance hereof, according to the terms of this Agreement. If and to the extent that the equitable relief described above is not available, [4]the Association shall be entitled to receive for every breach of this agreement for which such equitable relief is unavailable, liquidated damages in an amount equal to the difference between (a) the price of such cotton on the New York futures market during the period beginning with the date of breach or default by the Grower (taking into account the grade, staple, and micronaire of such cotton) and ending with the final delivery by the Association of cotton sold during that year, and (b) the highest price per pound received by the Association for the membership cotton (of the same or nearest grade, staple, and micronaire) sold by it from the same year's crop.

         The May 2011 letter didn't demand a specific liquidated-damages sum; rather, it stated that Autauga hoped to avoid a lawsuit and urged CCCC to "take prompt action to resolve this matter in a way that satisfies [Autauga]." Nearly three years later, Autauga's attorney sent a second letter that, for the first time―and purporting to use the formula set out in the agreement-calculated the liquidated damages to be $1, 305, 397. The second letter included an offer to settle for less if the Crosbys paid within 30 days; otherwise, it said, Autauga would be "forced to initiate a lawsuit."

         B

         The Crosbys didn't pay, and Autauga sued. Claiming that the Crosbys had breached the marketing agreement by failing to deliver their pledged cotton for the 2010 crop year, Autauga asserted that it was entitled to liquidated damages. Having initially calculated the liquidated-damages sum to be $1, 305, 397, Autauga increased the amount to $1, 340, 225 when it filed its complaint-and then later revised it upward to $1, 660, 857, and then upward again to $1, 712, 846, and then downward to $1, 696, 610. Following discovery, the Crosbys sought summary judgment on the ground that the agreement's liquidated-damages provision is an unenforceable "penalty" clause under Alabama law.[5] The district court agreed and granted summary judgment, concluding that the provision imposes a penalty―rather than reasonably estimating probable loss―and is therefore void. Autauga timely appealed to this Court.

         II

         On appeal, Autauga asserts that the agreement's liquidated-damages provision is enforceable for three reasons: (1) because it isn't a penalty clause under the usual common-law rules prevailing in Alabama; (2) because the usual rules should bend to a public policy that demands "liberal enforcement" of liquidated-damages provisions in cooperative agreements; and (3) because, usual rules aside, Alabama's Agricultural Code explicitly authorizes ...


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