First Dakota National Bank v. Eco Energy, LLC
881 F.3d 615
8th Cir.2018Background
- Eco-Energy agreed to buy Nedak’s ethanol and leased railcars under a Car Service Agreement; Nedak agreed to sublease those railcars from Eco-Energy if the Marketing Contract ended.
- Nedak later assigned its rights under the Marketing Contract and Sublease to lender AgCountry; Eco-Energy consented and agreed to notify AgCountry of any defaults and allow a reasonable cure period.
- The Marketing Contract was terminated; Nedak subleased the railcars from Eco-Energy, later defaulted, and Eco-Energy notified Nedak (but not AgCountry), terminated the Sublease, and denied Nedak’s cure attempt.
- First Dakota acquired AgCountry’s and Nedak’s contractual rights and sued Eco-Energy for (1) failing to give Nedak notice and opportunity to cure and (2) failing to give AgCountry notice and opportunity to cure under the Assignment/Collateral Assignment.
- The district court granted partial summary judgment for Eco-Energy as to the Sublease (no notice/cure requirement to Nedak) but found Eco-Energy breached the Assignment and reserved factual issues on causation; after a bench trial the court found First Dakota failed to prove AgCountry would have cured, so no recoverable damages.
- On appeal, the Eighth Circuit affirmed: (a) the Sublease does not incorporate the Car Service Agreement’s lessor notice-and-cure provision as to Eco-Energy; and (b) under North Dakota law the proper causation inquiry is what AgCountry actually would have done, not an objective reasonable-lender standard, and First Dakota failed to prove causation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the Sublease require Eco-Energy to give Nedak notice and a 15‑day opportunity to cure by incorporating the Car Service Agreement’s §4.07? | Sublease incorporates Car Service Agreement terms (including §4.07) by reference and Exhibit attachment. | Section 5 binds only lessee duties to Nedak; §4.07 imposes duties on the lessor, so it is not incorporated as to Eco‑Energy. | Held: No. The Sublease unambiguously bound Nedak to lessee obligations only; §4.07 (lessor duty) was not incorporated. |
| Did parties’ course of performance show incorporation of the entire Car Service Agreement? | Parties’ conduct (e.g., invoicing, testimony about mileage credits) indicates incorporation of all terms. | Conduct only supports limited incorporation (lessee rental provisions); testimony was hypothetical or explained by standard invoicing. | Held: No. Conduct did not show incorporation of all terms; limited incorporation only. |
| Did Eco‑Energy breach the Assignment by failing to give AgCountry notice and opportunity to cure? | Assignment required Eco‑Energy to give AgCountry prompt written notice and reasonable time to cure; Eco‑Energy breached by not notifying AgCountry. | Eco‑Energy conceded breach of Assignment but disputed causation and damages. | Held: District court correctly found Eco‑Energy breached the Assignment. |
| Did First Dakota prove causation and recoverable damages (would AgCountry have cured if notified)? | A reasonable-lender (objective) standard should apply; in ordinary course a lender would have cured, so damages flow from breach. | North Dakota law requires proof of what AgCountry actually would have done; evidence showed AgCountry likely would not have cured (frozen accounts, conduct). | Held: District court properly applied North Dakota proximate-cause standard requiring proof of actual conduct; First Dakota failed to prove AgCountry would have cured, so no recoverable damages. |
Key Cases Cited
- Anderson v. Hess Corp., 649 F.3d 891 (8th Cir.) (standard of review for contract interpretation and summary judgment)
- Dick Broad. Co., Inc. v. Oak Ridge FM, Inc., 395 S.W.3d 653 (Tenn. 2013) (cardinal rule: give effect to parties’ intent; clear language controls)
- McCall v. Towne Square, Inc., 503 S.W.2d 180 (Tenn. 1973) (instruments referred to may be construed together)
- Roger Miller Music v. Sony/ATV Publ’g, 477 F.3d 383 (6th Cir.) (Tennessee law allows incorporation by reference into written contracts)
- Staubach Retail Servs.-Se., LLC v. H.G. Hill Realty Co., 160 S.W.3d 521 (Tenn. 2005) (examples of wording that incorporates an entire attached agreement)
- WFND, LLC v. Fargo Marc, LLC, 730 N.W.2d 841 (N.D.) (elements of breach-of-contract damages under North Dakota law)
- Vallejo v. Jamestown Coll., 244 N.W.2d 753 (N.D.) (N.D.C.C. §32-03-09 codifies common-law proximate-cause rule for contract damages)
- IPSCO Tubulars, Inc. v. Ajax TOCCO Magnathermic Corp., 779 F.3d 744 (8th Cir.) (standard of review for bench-trial legal conclusions)
- Moen v. Meidinger, 583 N.W.2d 634 (N.D.) (use of objective standard in certain contract-law questions)