The opinion of the court was delivered by: COHILL
Bernie S. Mashuda, an individual who resided until his recent death in Evans City, Pennsylvania, filed this action against Western Beef, Inc., a corporation with offices in Amarillo, Texas, for damages allegedly arising from the breach of a cattle feeding agreement. This Court has jurisdiction over the subject matter of Mr. Mashuda's lawsuit pursuant to 28 U.S.C. § 1332(a) (1976), which bestows original jurisdiction on the district courts over all civil actions where the amount in controversy exceeds $ 10,000 and the parties are citizens of different states. Venue properly lies in the Western District of Pennsylvania because the plaintiff resides in this district. See 28 U.S.C. § 1391(a) (1976).
Following a period of extensive discovery, the defendant filed a motion for summary judgment. The parties have presented the Court with briefs, supplemental briefs and oral argument on the motion.
A federal court will grant summary judgment only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, a court must view the facts in the light most favorable to the non-moving party. Goclowski v. Penn Central Transportation Company, 571 F.2d 747, 751 (3d Cir. 1977); Smith v. Pittsburgh Gage and Supply Company, 464 F.2d 870, 874 (3d Cir. 1972). The movant has the burden of establishing that no genuine issue of fact exists. Scooper Dooper, Inc. v. Kraftco Corp., 494 F.2d 840, 848 (3d Cir. 1974). With these principles in mind, we now turn to an examination of the factual basis that underlies the defendant's motion.
Under the terms of the agreement, Mr. Mashuda would provide $ 30,000 of equity capital to Western Beef for the purchase of three hundred head of cattle and the necessary feed. Western Beef would purchase the cattle and the feed, would place the cattle in one of its feedlots, would feed and care for the cattle in accordance with prevailing standards of animal husbandry, would market the cattle, and would deposit the proceeds from the sales in Mr. Mashuda's account. Title to the cattle and to the feed would be in Mr. Mashuda's name at all times. The seventh paragraph of the agreement read as follows:
7. HEDGING-It is understood between Feeder and Owner that hedging cattle or grain on commodity futures markets is a vital part of this program. Hedging will be entered into for the purpose of minimizing losses and "locking in" profits; however, such hedging may have the effect of reducing profits or "locking in" losses if a subsequent rise in market prices is experienced. Feeder shall have full authority to execute such futures transactions as in its opinion is deemed proper. Feeder agrees to finance margin requirements of hedging provided assignment of the hedging account maintained with a commodity broker is executed in proper form acceptable to Feeder's lending agency. The gain or loss plus interest on such hedging under this provision shall be for the account of Owner.
Hedging is the establishment of a position in the commodities futures market that is approximately equal to, but the reverse of, the position that the investor holds in tangible commodities. This technique minimizes the risk of financial loss in the event that commodity prices move in an unexpected direction.
Through letters dated May 6, 1976 and June 22, 1976, Western Beef informed Mr. Mashuda that it had acquired cattle for his account. It also recommended in those letters that he confer regularly with his advisors on total cost projections and on developments in the futures market.
In early November 1976, Western Beef informed Mr. Mashuda's accountant through a letter that no hedges had been placed on Mr. Mashuda's cattle, that the market price for cattle had fallen substantially, that Mr. Mashuda's account had sustained a loss of $ 12,000, and that Western Beef was projecting a further loss of $ 6,000. Western Beef explained to the accountant that it had understood the agreement to be that Mr. Mashuda, with the assistance of his broker, would conduct all hedging activities. It stated that it now inferred from the absence of hedging, however, that Mr. Mashuda had expected Western Beef to conduct the hedging activities. Finally, Western Beef expressed a willingness to modify the agreement to remedy the apparent misunderstanding and to attempt to recover the loss that Mr. Mashuda had sustained.
Representatives of Western Beef and Mr. Mashuda promptly began to discuss the possibility of modifying the agreement. As a result of these negotiations, Western Beef sent the following letter to Mr. Mashuda's accountant:
Certified Public Accountants
Pittsburgh, Pennsylvania 19222