Philson v. Goldsboro Milling Co

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CLARENCE R. PHILSON, JR.; CLARENCE
R. PHILSON, SR., d/b/a Philson's
Farms,
Plaintiffs-Appellants,
and
STEVE GRADY,
Plaintiff,
v.
No. 96-2542
GOLDSBORO MILLING COMPANY; COLD
CREEK FARMS, INCORPORATED;
MAXWELL FOODS, INCORPORATED;
SLEEPY CREEK TURKEYS,
INCORPORATED; MAXWELL FARMS,
INCORPORATED; CARROLL'S
PROCESSING, INCORPORATED, d/b/a
Carolina Turkeys,
Defendants-Appellees.
CLARENCE R. PHILSON, JR.; CLARENCE
R. PHILSON, SR., d/b/a Philson's
Farms,
Plaintiffs-Appellees,
and
STEVE GRADY,
Plaintiff,
v.
No. 96-2631
GOLDSBORO MILLING COMPANY; COLD
CREEK FARMS, INCORPORATED;
MAXWELL FOODS, INCORPORATED;
SLEEPY CREEK TURKEYS,
INCORPORATED; MAXWELL FARMS,
INCORPORATED; CARROLL'S
PROCESSING, INCORPORATED, d/b/a
Carolina Turkeys,
Defendants-Appellants.
Appeals from the United States District Court
for the Eastern District of North Carolina, at New Bern.
Malcolm J. Howard, District Judge.
(CA-95-16-4-H-1)
Argued: October 29, 1997
Decided: October 5, 1998
Before WIDENER and ERVIN, Circuit Judges, and
PHILLIPS, Senior Circuit Judge.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded with instructions by
unpublished opinion. Judge Ervin wrote the opinion, in which Judge
Widener and Senior Judge Phillips joined.
_________________________________________________________________
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COUNSEL
ARGUED: Robert James Willis, Raleigh, North Carolina, for Appel-
lants. Christina L. Adams, WARD & SMITH, P.A., Wilmington,
North Carolina, for Appellees. ON BRIEF: Donalt J. Eglinton,
WARD & SMITH, P.A., Wilmington, North Carolina, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
ERVIN, Circuit Judge:
Plaintiffs-appellants Clarence R. Philson, Sr., and Clarence R. Phil-
son, Jr., are turkey growers. They filed suit against various entities
involved in the turkey growing and processing business, alleging
these entities violated state and federal laws in their dealings with the
Philsons. Following a jury trial, at which the Philsons were awarded
$15,000, the Philsons filed this appeal, claiming the trial court made
numerous errors throughout the proceedings below. For the reasons
discussed hereinafter, we affirm in part, reverse in part, and remand
with instructions.
I.
In 1989, the Philsons entered into an agreement with defendant-
appellee Cold Creek Farms, Inc. ("CCF"). CCF and its successor,
Maxwell Foods, Inc., were subsidiaries of Goldsboro Milling Com-
pany ("Goldsboro") and, although the relationships among the various
other defendants-appellees are not quite clear from the record, it
appears that they were all also subsidiaries of or otherwise related to
Goldsboro. Carolina Turkeys ("Carolina"), which was a partnership
between Maxwell Farms, Inc. and Carroll's Processing, Inc., was
involved in the weighing and processing of turkeys at all times rele-
3
vant to this lawsuit. For ease of reference, we will refer to all these
entities collectively as "the defendants."
Under the terms of their agreement with CCF, the Philsons agreed
to grow poults provided by CCF according to CCF standards, with
feed, medication, and services provided by CCF. In return, CCF
agreed to compensate the Philsons for all "marketable turkeys"
grown. Compensation was to be determined according to the weight
of the turkeys on the purchaser's scale.
Under the contract, CCF decided when and at what processing
plant the turkeys were to be processed. A CCF veterinarian would
determine how far in advance of loading the turkeys for processing
the Philsons were to withdraw feed from the turkeys. Feed is with-
drawn from turkeys prior to processing in order to give the turkeys
time to clear their gastrointestinal tracts, which helps prevent contam-
ination from fecal material during processing. The length of this "off-
feed time" affects the turkeys' weight -- the longer a turkey is off
feed, the less it will weigh (and hence the less the grower will be paid
for it).
From 1986 to 1994, and during all times relevant to this lawsuit,
the processing plants selected by CCF determined turkey weight for
purposes of grower payment by a weighing taken hours after the tur-
keys initially arrived at the plant, in violation of applicable federal
regulations. Clarence R. Philson, Sr., testified that he had complained
about this practice a number of times to a CCF representative because
the delay in weighing denied the Philsons full credit for the turkeys'
weight. Philson also complained to CCF about its allegedly utilizing
a different method for calculating the number of turkeys sold when
calculating the number for grower payment purposes than when cal-
culating the number for United States Department of Agriculture
reports and load reports, thereby underpaying the Philsons on their
flocks.
The Philsons contended that in July and August 1991, after they
had complained to CCF officials about these practices, the defendants
sent them two flocks of extremely poor quality poults and then
switched them from growing heavier tom turkeys to growing lighter
hen turkeys. Defendants maintained that all their contract growers
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were treated alike and that there was no difference in the quality of
poults that the Philsons received. According to the defendants, given
the nature of production it would have been nearly impossible to try
to manipulate the distribution to assure that any one grower received
better or worse quality poults. The switch to hen turkeys was made,
they contended, as a result of the Philsons' poor management,
because hens are more tolerant and require less attention.
CCF terminated its agreement with the Philsons in 1992, allegedly
because of the Philsons' continuing neglect, lack of proper manage-
ment and supervision of the turkeys, and failure to follow CCF's
instructions. In 1994, the Philsons attempted to certify a class action
lawsuit against the defendants in state court. In February 1995, the
Philsons and their co-plaintiff Steve Grady, who is not a party to this
appeal, commenced this federal action and voluntarily dismissed the
state action.
In federal court, the Philsons complained of the defendants' weigh-
ing practices, and alleged that the defendants knowingly furnished the
Philsons with low quality poults and terminated their turkey growing
agreement in retaliation for the Philsons' vocalization of their griev-
ances. The Philsons asserted these acts violated both state and federal
law, and sought relief for tortious termination, breach of contract,
unfair or deceptive trade practices, violation of the Packers and Stock-
yards Act, 7 U.S.C. § 181 et seq., fraud, and negligence.
In October 1995, the defendants made the Philsons a pre-trial offer
of judgment pursuant to Fed. R. Civ. P. 68 for $19,828.00, which the
Philsons declined. Just before trial, the district court dismissed all
claims against defendants Goldsboro Milling and Sleepy Creek Tur-
keys, and granted summary judgment on the Philsons' fraud claim in
favor of CCF. A ten-day jury trial was held on the remaining claims
in August 1996. In their opening statement, the defendants admitted
that their weighing practices violated federal regulations and that, as
a result, they owed the Philsons some compensation. At the end of the
trial, the jury returned a verdict on a special verdict sheet in favor of
the defendants on all counts except two of the misweighing claims
alleged by the Philsons, in which it found defendant Carolina liable
to the Philsons under N.C. Gen. Stat. § 75-1.1(a) for its admitted vio-
lation of federal regulations and awarded $5,000 in damages.
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Both sides submitted post-trial motions to the trial court. The Phil-
sons filed motions requesting judgment as a matter of law or a new
trial on certain claims pursuant to Fed. R. Civ. P. 50 and 59, for an
award of costs under both Fed. R. Civ. P. 54(d) and state law, and for
a trebling of the damages award pursuant to N.C. Gen. Stat. § 75-16.
The defendants moved for an award of costs under Fed. R. Civ. P.
54(d) and 68. The trial court granted the Philsons' motion to treble the
damage award, bringing the total judgment to $15,000, but denied all
other motions.
The Philsons now appeal, alleging that the district court committed
numerous errors before, during, and after the trial. The defendants
cross-appeal, arguing the district court erred as a matter of law in fail-
ing to award Carolina Turkeys costs under Fed. R. Civ. P. 68.
II.
The Philsons' first assignments of error concern the trial court's
decisions to limit discovery relating to other contract growers and to
exclude from evidence reports prepared by the Packers and Stock-
yards Administration ("PSA"). We review the trial court's discovery
and evidentiary rulings for an abuse of discretion. See WLR Foods,
Inc. v. Tyson Foods, Inc., 65 F.3d 1172, 1174 (4th Cir. 1995). A deci-
sion to exclude relevant testimony under Fed. R. Evid. 403 is granted
substantial deference; we will not overturn it unless there has been a
clear abuse of discretion. See United States v. Whittington, 26 F.3d
456, 465 (4th Cir. 1994).
A.
The Philsons assert that the trial court improperly limited discovery
by denying their requests for information regarding other turkey
farms that were under contract with CCF. Specifically, they maintain
that the trial court erroneously rejected their motions seeking to com-
pel the defendants to produce on-site inspection reports and numerous
other business records for "similarly situated" growers with whom the
defendants did business, and to produce documents giving the names
and addresses of other growers. Although the Philsons did not receive
all the items of evidence that they wanted, the amount of information
that they received during discovery was substantial. The record
6
reveals that the defendants made available to the Philsons numerous
documents containing a wealth of information about other growers,
which included the names of many nearby turkey growers. In light of
the broad discretion the trial court has in controlling discovery under
Fed. R. Civ. P. 26(b)(2), we cannot find that the trial court's decision
to limit the scope of discovery was an abuse of discretion.
B.
The Philsons also complain that the trial court wrongly granted the
defendants' motion to exclude investigative reports prepared by the
PSA. They maintain that these reports, prepared pursuant to the inves-
tigatory powers granted to the PSA under 7 U.S.C.§ 222 (1994) to
enable it to enforce the Packers and Stockyards Act ("the Act"), were
highly relevant and probative because they demonstrated that the PSA
had "determined the relevant [issues of wrongful termination, unnec-
essary off-feed time, and unfair head count] in favor of the [Philsons]
based upon the USDA's expertise and review of all relevant factual
information. . .," Appellants' Br. at 27, and should have been admitted
as admissible hearsay under Fed. R. Evid. 803(8).
Even assuming, without deciding, that Fed. R. Evid. 803(8) would
permit these reports to come in as admissible hearsay, we cannot say
that the trial court decision to exclude them under Fed. R. Evid. 403
was an abuse of discretion. Rule 403 allows a trial court to exclude
otherwise relevant evidence "if its probative value is substantially out-
weighed by the danger of unfair prejudice, confusion of the issues, or
misleading the jury . . . ." The record before us shows that the defen-
dants' motion did not ask for the PSA reports to be excluded in their
entirety, rather it sought only to redact selected portions of the PSA
reports -- those portions that reflected purported"conclusions" of
PSA employees. It was well within the trial court's discretion to con-
clude that these legal conclusions could lead to juror confusion and
unfair prejudice, and the court therefore did not abuse its discretion
when it ordered that these reports be excluded unless the plaintiffs
agreed to their redaction, which apparently they did not. Cf. Distaff,
Inc. v. Springfield Contracting Corp., 984 F.2d 108, 112 (4th Cir.
1993) (finding district court erred in excluding government report
under Rule 803(8) but noting district court on remand could decide
to exclude it on other grounds, including Rule 403).
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III.
The Philsons next assign several errors to the trial judge with
regard to jury instructions. We review to determine whether the dis-
trict court's instructions, construed as a whole, properly informed the
jury of the controlling legal principles without misleading or confus-
ing the jury to the Philsons' prejudice. See Hartsell v. Duplex Prods.,
Inc., 123 F.3d 766, 775 (4th Cir. 1997). "A judgment will be reversed
for error in jury instructions `only if the error is determined to have
been prejudicial, based on a review of the record as a whole.'"
Sturges v. Matthews, 53 F.3d 659, 661 (4th Cir. 1995) (quoting
Wellington v. Daniels, 717 F.2d 932, 938 (4th Cir. 1983)).
A.
According to the Philsons, the trial court inaccurately stated the
law when it instructed the jury that the Philsons were required to
prove that the defendants' conduct was likely to affect competition
adversely in order to prevail on their claims under the Packers and
Stockyard Act, 7 U.S.C. § 192(a). This argument is without merit.
Section 192(a) prohibits live poultry dealers from engaging in or
using "any unfair, unjustly discriminatory or deceptive practice or
device." While the Philsons correctly observe that it is unnecessary to
prove actual injury to establish an unfair or deceptive practice, a
plaintiff must nonetheless establish that the challenged act is likely to
produce the type of injury that the Act was designed to prevent. See,
e.g., Farrow v. United States Dep't of Agriculture, 760 F.2d 211, 215
(8th Cir. 1985) ("The Packers and Stockyards Act does not require
that the Secretary prove actual injury before a practice may be found
unfair. `[T]he purpose of the Act is to halt unfair trade practices in
their incipiency, before harm has been suffered.' Accordingly, the
Secretary need only establish the likelihood that an arrangement will
result in competitive injury to establish a violation." (citations omit-
ted)); see also Parchman v. United States Dep't of Agriculture, 852
F.2d 858, 864 (6th Cir. 1988) (quoting Farrow ). The district court's
instruction that the Philsons needed to prove the defendants' conduct
was likely to cause injury was therefore a correct statement of the
law.
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B.
Although not clearly spelled out in their briefs, the Philsons also
seem to claim that the trial court erred by refusing to instruct the jury,
as requested by the Philsons, that the termination of a turkey growing
contract without economic justification is an unfair or discriminatory
practice in violation of the Packers and Stockyards Act, 7 U.S.C.
§ 192(a). While the Act broadly proscribes any"unfair, unjustly dis-
criminatory, or deceptive practice," § 192(a), there is no legal author-
ity supporting the Philsons' argument that termination of a grower
contract without "economic justification" is an unfair practice as a
matter of law, and the district court's refusal to give such an instruc-
tion therefore was not error.
The Philsons' reliance on Baldree v. Cargill, Inc., 758 F. Supp. 704(M.D. Fla. 1990), aff'd without published opinion, 925 F.2d 1469(11th Cir. 1991), to support their argument is misplaced. In Baldree,
the district court granted a preliminary injunction to prevent a poultry
processor from terminating its contract with poultry growers because
it found the growers had a substantial likelihood of prevailing on their
claims, one of which was that the processor's termination of the plain-
tiff's growing contract "was without economic justification and,
therefore, constitute[d] . . . an unfair, unjustly discriminatory and
deceptive practice and device" in violation of§ 192(a). Id. at 706.
This case does little to further the Philsons' argument, however.
Because it was in the context of a preliminary injunction motion, the
Baldree court's decision says, at most, that the plaintiff was likely to
succeed on its claim that contract termination without economic justi-
fication was an "unfair" practice -- not that such a termination was
per se unfair or in violation of § 192(a). The Baldree plaintiff would
still have been required to go to trial to prove its claim that the proces-
sor's termination of the growing contract without economic justifica-
tion was indeed an unfair practice that violated the Act. This same
opportunity to convince the jury that such a termination was unfair as
a matter of fact was given to the Philsons here. The district court
therefore correctly refused to instruct the jury that termination of the
contract between the Philsons and CCF without economic justifica-
tion was an "unfair practice" as a matter of law.
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C.
The Philsons also argue that the trial court's instructions to the jury
on the issue of poult quality did not include all of the theories pre-
sented by the Philsons. Specifically, the Philsons argue that the trial
court failed to instruct the jury on its theory that the defendants inten-
tionally manipulated the poult quality to ensure that the Philsons
received inferior quality poults. We find this argument to be meritless.
The trial court properly instructed the jury with respect to all theo-
ries presented by the Philsons regarding poult quality. On this issue,
the following special interrogatory was given:
Did Cold Creek Farms alone or in conjunction with any
other entity knowingly divert a disproportionate and unfair
percentage of the higher quality turkey poults to parties
other than the plaintiffs?
J.A. at 1146. This instruction would not have misled the jury, as a rea-
sonable juror would have understood it to incorporate both the Phil-
sons' contention that better quality poults were diverted to other
customers -- either other contract buyers or commercial buyers, and
their contention that CCF furnished them with low quality poults. The
Philsons were not prejudiced by the instruction given and, accord-
ingly, we find no error.
IV.
The Philsons' next argument is that the trial court erred in denying
their application for costs. They contend that the district court incor-
rectly reviewed their application under Fed. R. Civ. P. 54(d) rather
than under state law and that, under the applicable state law, they are
entitled to at least some costs. This contention is incorrect. Indeed, the
case relied upon by the Philsons, Abrahms v. Lightolier, Inc., 50 F.3d
1204 (3d Cir. 1995), supports the trial court's conclusion that federal
law, not state law, governs whether to award costs to the prevailing
party. See id. at 1223; see also 10 Charles Alan Wright et al., Federal
Practice & Procedure § 2669, at 251 (3d ed. 1998) ("The award of
costs is governed by federal law.").
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Furthermore, even if the Philsons' contention that state law applied
were correct, under the applicable North Carolina law "costs may be
allowed or not, in the discretion of the court." N.C. Gen. Stat. § 6-20(1997). Therefore, regardless of whether state or federal law would
apply in this case, we review the trial court's refusal to award costs
to the Philsons under an abuse of discretion standard. Id. (state law);
Teague v. Bakker, 35 F.3d 978, 996 (4th Cir. 1994) (federal law). We
cannot say that the trial court's denial of the Philsons' costs was an
abuse of discretion. Out of their numerous claims against multiple
defendants, the Philsons in the end prevailed on only one issue against
a single defendant. The district court did not therefore abuse its dis-
cretion in determining not to award costs to the Philsons on the
ground that they had not "clearly prevailed" in the litigation. Order of
Sept. 25, 1996, in J.A. at 1268.
V.
In its cross-appeal, the defendants claim that the trial court erred
as a matter of law by denying Carolina Turkeys' application for costs
pursuant to Fed. R. Civ. P. 68. Rule 68 provides, in pertinent part:
At any time more than 10 days before the trial begins, a
party defending against a claim may serve upon the adverse
party an offer to allow judgment to be taken against the
defending party for the money or property or to the effect
specified in the offer, with costs then accrued. . .. If the
judgment finally obtained by the offeree is not more favor-
able than the offer, the offeree must pay the costs incurred
after the making of the offer.
Pursuant to this rule, the defendants made an offer of judgment to
the Philsons on October 3, 1995. The offer specified the sum that the
defendants were willing to pay on each of five claims made by the
Philsons, including $6,610 on their weighing claim. The total offer,
for all five claims together, was for $19,828 plus costs then accrued.
The defendants argue that this offer of judgment was more favorable
than the $15,000 judgment, including treble damages, finally obtained
by the Philsons against Carolina and accordingly, Rule 68 requires the
Philsons to pay the costs Carolina incurred subsequent to the date of
the offer.
11
The Philsons disagree with this calculation and set forth two argu-
ments why the district court's refusal to award Carolina's costs should
be affirmed. First, the Philsons argue that because they prevailed only
on their weighing claim, for Rule 68 purposes the court should com-
pare the $15,000 judgment they were awarded not with the $19,828
aggregate offer made by the defendants, but rather with the $6,610
offered on the weighing claim. Pointing to case law stating that Rule
68 is inapplicable when the defendant-offeror prevails at trial, Delta
Air Lines, Inc. v. August, 450 U.S. 346, 351 (1981), the Philsons point
out that they lost on all their other claims and contend that Carolina
is not entitled to costs on those claims upon which Carolina prevailed
at trial.
Although there may be some logic to this claim-by-claim approach
urged by the Philsons, we find it unpersuasive given the facts of this
case. The primary purpose behind Rule 68 is to encourage parties to
settle and to avoid protracted litigation. Id. at 352 & n.8. As the
Supreme Court observed in Marek v. Chesny, 473 U.S. 1 (1985), Rule
68 was designed to "prompt[ ] both parties to a suit to evaluate the
risks and costs of litigation, and to balance them against the likelihood
of success upon trial on the merits." Id. at 5.
The Philsons' second argument against the application of Rule 68
is that the amount of the judgment obtained exceeded the amount of
the offer because the "value of the non-monetary declaratory relief"
obtained by the Philsons, when added to the amount of the judgment,
actually exceeded the offer amount. Appellants' Answering & Reply
Br. at 30. This argument is meritless because no non-monetary declar-
atory relief was included in the final judgment. While the Philsons
correctly observe that the trial court trebled the original $5000 jury
award pursuant to N.C. Gen. Stat. § 75-16 because it found the defen-
dants had engaged in unfair or deceptive business practices, the
resulting final judgment of $15,000 is still not more favorable than the
$19,828 offer. As no other non-pecuniary relief was granted to the
Philsons, this court again avoids the "thorny issue[ ]" of "whether or
not a court should try to compare pecuniary with non-pecuniary
relief." Spencer v. General Elec. Co., 894 F.2d 651, 664 n.21 (4th Cir.
1990).
Accordingly, we find that the $15,000 judgment finally obtained by
the Philsons is not more favorable than the $19,828 offer made by the
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defendants and the district court is required, under the mandatory lan-
guage of Rule 68, to award Carolina costs it incurred after the offer
of judgment.
VI.
In addition to the claims discussed above, the Philsons make a
number of other assignments of error. For example, they claim the
district court abused its discretion in allowing an expert witness for
the defendants to testify regarding the quality of the poults provided
to the Philsons, and in refusing to grant them a new trial on certain
claims. We have closely examined each these claims, as well as the
other arguments advanced by the Philsons, and find them to be unper-
suasive.
Accordingly, we reverse the district court on the issue of Rule 68
costs, and remand the case to the district court with instructions to
order the Philsons to pay the costs incurred by Carolina subsequent
to its offer of judgment, pursuant to Fed. R. Civ. P. 68. On all other
issues, the judgment of the trial court is affirmed.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS
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