A New Mexico jury decided in mid-July that Tyson Fresh Meats must pay a New Mexico cattle feeder more than $10 million in actual and punitive damages following a 2020 contract complaint.
On July 18, U.S. District Judge Margaret Strickland wrote in a final judgment that Tyson must pay Albuquerque, NM, based Zia Agricultural Consulting LLC more than $2.5 million in actual damages and $8 million in punitive damages after Tyson breached a 2019 contract to pay Zia for several thousand head of value-added cattle.
Zia has sourced and sold cattle to Tyson for processing and resale in the commercial market for “many years,” according to court documents. The feeder provided Tyson with non-hormone treated cattle (NHTC), as well as Global Animal Partnership (GAP) certified cattle, which are used solely for Whole Foods’ program.
Contract complaint
In late 2018 to early 2019, Robert Scherer, Tyson’s director of cattle procurement, contacted Zia to request they identify as many premium cattle as possible for sale to Whole Foods. In late January 2019, Scherer emailed Narciso Perez, Zia’s chief of cattle feeding operations, asking when the cattle would be moved to the feedlot because he “need(ed) them in the yard to put them on the books,” according to court documents. He then emailed a follow-up message a few days later, inquiring about the cattle’s status.
In early February 2019, Perez emailed Scherer back with a show list and cost-plus model, to which Scherer replied in approval and asked for the cattle to be put in a finish yard ASAP. Perez sent several updated cost-plus models over the next few months, which included estimates and totals. Scherer never responded with disagreement or confusion to any of the updates, according to court documents. From January to March 2019, Scherer or other Tyson representatives visited the feedlots to inspect the cattle.
In March, Zia’s manager prepared a memorandum for Larue Road Capital LLC, an investment firm, stating Tyson would purchase calves under a cost-plus model and payment would comprise costs plus an additional $125 for each delivered GAP calf and $100 for each delivered NHTC calf. In another email, the manager told Larue Road the cost-plus model was “merely an estimation of the number of head and approximate cost to create expectations for Tyson” and that Zia was unable to “prescribe how Tyson is going to consider ‘cost’ or calculate payment on these cattle.”
In late May 2019, Perez sent Scherer a finalized invoice, which included the feeder’s costs in the total price. Scherer responded, “I’m not paying for the cost of calves. That’s not what we do. What are you trying to do here?” Scherer and Justin Nelson, Tyson’s vice president of cattle procurement, then called Perez and made it clear they would not pay the amount on the invoice.
Tyson denied that they had ever agreed to pay Zia’s costs, either by email or verbally. Instead, when Zia’s cattle were delivered to Tyson over several months, Tyson paid Zia according to an alternate formula and refused to purchase certain lots of the premium cattle that were identified in the cost-plus model.
Zia invoiced Tyson for $16,220,198, which included actual costs for 9,153 head plus the premiums per head for GAP and NHTC cattle. Tyson purchased 7,654 cattle and paid Zia $12,595,753.13.
Dispute
Strickland wrote in a February 2022 opinion that the crux of the issue was the substance of the verbal negotiations that took place between Zia and Tyson before the initial email exchanges in early 2019.
Zia claimed they would only agree to sell to Tyson if the packer paid Zia’s costs plus a small margin, while Tyson said the two companies verbally agreed in the spring of 2018 on the price for the following year’s cattle, long before the early 2019 email exchanges. This price, Scherer said, was according to their usual course of dealings and was determined by the Nebraska weighted average plus a price per head premium.
Scherer said the cost-plus model sent in the original February 2019 email was interpreted as merely an inventory of Zia’s available premium cattle, and the email he sent in response was assenting to the number of cattle going into a finish yard, rather than the price of the cost-plus model.
Zia brought the suit against Tyson on May 8, 2020, alleging claims of breach of contract, breach of the implied duty of good faith and fair dealing, quantum meruit, fraudulent misrepresentation, and violations of the New Mexico Unfair Practices Act.
“The parties’ arguments are based largely on competing declarations and deposition testimony about the nature of their prior verbal negotiations,” Strickland wrote in her earlier opinion. “Their genuine disagreement cannot be resolved except by a series of factual determinations within the purview of the jury.”
During the verdict on July 14, the jury in New Mexico found that Zia and Tyson’s agreement was contractual, and Tyson had breached the contract. Tyson was ordered to pay Zia roughly $10.5 million in damages. — Anna Miller, WLJ managing editor
