MEMORANDUM OPINION AND ORDER REGARDING CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT
TABLE OF CONTENTS
I. INTRODUCTION. 847
A. Procedural Background. 847
B. Factual Background... OO 847
II. LEGAL ANALYSIS.. 849
A. Standards For Summarg Judgment. 849
B. The Securities Exchange Act Claim. 850
1. The Howey test.: 850
2. Application of the Howey test to Schewe’s HTAs. 851
C. The Commodities Exchange Act Claim. 853
1. Schewe’s HTAs . 854
2. Schewe’s attempt to distinguish or dispute Oeltjenbrun 856
D. Inability To Recover Margin Calls. 858
III.CONCLUSION .859
In another episode in the continuing agony-inflicted on the grain industry by disputes over the enforceability of so-called “Hedge-To-Arrive” contracts (HTAs) for the sale and purchase of grain, the parties to the present lawsuit, a grain elevator and a grain producer, have filed cross-motions for partial summary judgment raising the key question in almost all of the eases involving HTAs, are certain HTAs illegal off-exchange “futures” contracts under the Commodities Exchange Act (CEA), 7 U.S.C. §§ 1-25, or valid “cash forward” contracts not within the regulatory purview of the CEA? This is the second time the court has reached the merits of this key question.
See Oeltjenbrun v. CSA Investors, Inc.,
I. INTRODUCTION
A. Procedural Background
This lawsuit was filed by plaintiff Top of Iowa Cooperative, which operates a grain elevator in Lake Mills, Iowa, in the Iowa District Court for Winnebago County on August 12, 1996, against defendant Virgil E. Sehewe, a farmer in Freeborn County, Minnesota. Top of Iowa’s complaint alleges that Sehewe has repudiated certain HTAs he had entered into with Top of Iowa by failing to give adequate assurances of delivery of grain pursuant to the HTAs. As the result of that repudiation, Top of Iowa alleges that it has sustained damages corresponding to the amount it has paid in margin calls on the Chicago Board of Trade on transactions it entered into as hedges against delivery of Sehewe’s grain.
Sehewe removed this action to this federal court on October 7, 1996, asserting diversity of citizenship and sufficient amount in controT versy. On October 11, 1996, Sehewe filed an answer and counterclaim also asserting various affirmative defenses. Schewe’s counterclaims allege (1) that the HTAs were “securities” within the meaning of the SEA and that they were not offered, engaged in, or sold in compliance with that Act; (2) that the HTAs are illegal off-exchange futures contracts in violation of the CEA and hence are unenforceable; (3) that Top of Iowa has violated the Racketeer Influenced and Corrupt Organizations Act (RICO); (4) that Top of Iowa’s actions constitute negligence, breach of fiduciary duty, and breach of contract; and (6) that Top of Iowa has engaged in fraud and misrepresentation.
On March 12, 1998, Top of Iowa filed its motion for partiál summary judgment asserting that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law on- Count I of Schewe’s counterclaim, the SEA claim, Count II of the counterclaim, the CEA claim, and Schewe’s affirmative defense asserting an illegal contract. On April 16, 1998, Sehewe sought leave of court to file his own cross-motion for partial summary judgment. That leave was granted, and Schewe’s motion was filed on April 23, 1998. Sehewe seeks summary judgment, first, on his affirmative defense No. 20, which seeks a declaration that the HTAs at issue are illegal off-exchange futures contracts that are unenforceable against him, and, second, dismissing Top of Iowa’s cause of action for failure to state a claim upon which relief can be granted, because Top of Iowa is barred by the terms of the HTAs from recovering amounts allegedly paid in margin calls on the elevator’s hedge transactions that relate to Schewe’s HTAs.
The court heard oral arguments on the cross-motions for summary judgment on May 22, 1998. Plaintiff Top of Iowa was represented by counsel Brenton D. Soderstrum of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C., in Des Moines, Iowa. Defendant Virgil E. Sehewe was represented by counsel Matthew Benda of Peterson, Savelkoul, Schlichting & Davis, Ltd., in Albert Lea, Minnesota.
B. Factual Background
The court will discuss here only the nucleus of pertinent facts for this litigation. In its legal analysis, the court will address where necessary the parties’ assertions of genuine issues of material fact that may preclude summary judgment in favor of either party. The nucleus of pertinent facts begins with an examination of the HTAs Sehewe has entered into with Top of Iowa.
At issue are five contracts, each denominated a “HEDGE TO' ARRIVE CONTRACT,” that Sehewe entered into with Top of Iowa in the Spring and Summer of 1995. Each is in the form of the contract entered into on March 13, 1995, with handwritten entries, which vary from contract to contract, shown as underlined and paragraph numbers added by the court:
[1.] BUYER and SELLER agree to the following:
[2.] BUYER confirms the following futures transaction was made for seller today on the Chicago Board of Trade, Seller *848 agrees that said grain is yet to have the “CASH PRICE” determined for arrival;
[In tabular form:]
GRADE & GRAIN US 2y Com ARRIVAL PERIOD [Dec] 95 DESTINATION Lake Mills or Joice QUANTITY 5,000 FUTURES OPTION [Dec 9]5 FUTURES OPTION PRICE 2.60
[3.] SELLER states knowledge of cash basis which is the difference between a designated futures option on the Chicago Board of Trade and the cash price of grain for the designated arrival period of this contract. SELLER understands that the Cash Basis has not been determined in establishing the “Cash Price” of said grain on arrival.
[4.] SELLER understands that the “Cash Basis” will be the difference between the price quoted for the futures options designated in this contract and the “Cash Price” of the grain for the designated arrival period in this contract on the date and time SELLER elects to set the cash price of said grain.
[5.] SELLER agrees to set the “Cash Basis” and determine the cash value of said grain on or before 11-15-95. Unless other terms have been agreed upon by both Buyer and Seller prior to said date, and grain has' not been priced by Seller, Buyer is authorized to set the cash basis and to set the cash price of contract.
[6.] Buyer sháll be responsible for commissions and margin requirements of this transaction. Buyer agrees that this transaction shall be subject to the rules of the Chicago Board of Trade and the marketing policies of the Buyer.
[7.] SELLER agrees to a service fee of .02 cents per bushel and the service charge will be assessed against the cash price of this contract.
[8.] Failure by the Seller to perform on this contract [sic], Seller shall be subject to all of the terms of the “Grain Purchase Contract and Confirmation” attached to and made a part of this contract.
[9.] This is NOT considered a credit sale contract as long as ■ final price is determined before delivery.
Complaint Exhibit A; Exhibit A to Memorandum of Law of Plaintiff, Top of Iowa Cooperative, an Iowa Cooperative, In Support of Motion for Partial Summary Judgment. Although each of the contracts refers to a “Grain Purchase Contract and Confirmation” purportedly attached to the HTA, neither party has provided the court with a copy of such a document for any of the five HTAs.
Thus, the five contracts in question initially provided as follows: (1) Contract No. 0020, dated March 13, 1995, was for 5,000 bushels of corn with an “arrival period” of December 1995 at Lake Mills or Joice, Iowa, with a “futures option” of December 1995, at a “futures option price” of $2.60 per bushel; (2) Contract No. 0044, dated April 3, 1995, was for 5,000 bushels of corn with an “arrival period” of December 1995 at Lake Mills, Iowa, with a “futures option” of December 1995, at'a “futures option price” of $2.65 per bushel; (3) Contract No. 0075, dated May 1, 1995, was for 10,000 bushels of corn with an “arrival period” of December 1995 at Lake Mills, Iowa, with a “futures option” of December 1995, at a “futures option price” of $2.64 per bushel; (4) Contract No. 0091, dated May 17, 1995, was for 5,000 bushels of corn with an “arrival period” of December 95 at Lake Mills, Iowa, with a “futures option” of December 1995, at a “futures option price” of $2.68 per bushel; (5) Contract No. 0372, dated June 28,1995, was for 5,000 bushels of corn with an “arrival period” of December 1995 at Lake Mills, Iowa, with a “futures option” of December 1995, at a “futures option price” of $2.75 per bushel.
Although none of the HTAs provides for “rolling,” each was in fact “rolled,” that is, delivery was postponed to a later date. The parties do not dispute that Schewe attempted to deliver his corn pursuant to the HTAs in the Fall of 1995, but that the elevator was full. However, they dispute whether, in these circumstances, Schewe or Top of Iowa requested or required that the HTAs be rolled to the Spring of 1996. Certainly, each of the contracts indicates that it was rolled to a later delivery date in the Spring of 1996 and each was repriced accordingly. However, Schewe canceled the contracts on May 31, 1996, asserting that Top of Iowa had breach *849 ed the agreements by changing the terms of the roll. No grain was ever delivered on any of the contracts. This litigation followed Schewe’s cancellation of the contracts.
II. LEGAL ANALYSIS
A. Standards For Summary Judgment
This court has considered, in some detail the standards applicable to motions for summary judgment pursuant to Fed. R. Civ. P. 56 in a number of recent decisions.
See, e.g., Swanson v. Van Otterloo,
Rule 56. Summary Judgment
(b) For Defending Party. A party against whom a claim ... is asserted ... may, at any time, move for summary judgment in the party’s favor as to all or any part thereof.
(c) Motions and Proceedings Thereon.... The judgment sought shall be rendered forthwith 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 judgment as a matter of law.
Fed. R. Civ. P. 56(b) & (c) (emphasis added).
1
Applying these standards, the trial judge’s function at the summary judgment stage of the proceedings is not to weigh the evidence and determine the truth of the matter, but to determine whether there are genuine issues for trial.
Quick v. Donaldson Co.,
Furthermore, in
Coonley v. Fortis Benefit Ins. Co.,
With these standards in mind, the court turns to consideration of the parties’ cross-motions for partial summary judgment on various claims and defenses.
B. The Securities Exchange Act Claim
Top of Iowa has moved for summary judgment, first, on Sehewe’s counterclaim that the HTAs are securities sold in violation of the SEA. In arguing the question of whether or not the HTAs are “securities” within the meaning of the SEA, the parties both apply the three-part test established by the United States Supreme Court over fifty years ago in
SEC v. W.J. Howey Co.,
1. The Howey test
This court considered what “investment contracts” are “securities” within the meaning of the SEA in
De Wit v. Firstar Corp.,
The threshold question presented by any claim of violation of securities laws is “whether what the plaintiffs invested in was actually a ‘security.’ ” Stone v. Kirk,8 F.3d 1079 , 1084 (6th Cir.1993) (citing Union Planters Nat’l Bank of Memphis v. Commercial Credit Business Loans, Inc.,651 F.2d 1174 , 1179 (6th Cir.), cert. denied,454 U.S. 1124 ,102 S.Ct. 972 ,71 L.Ed.2d 111 (1981) (“The threshold question in any action brought pursuant to the Securities Acts is whether a security exists.”)); Koch v. Hankins,928 F.2d 1471 , 1475 (9th Cir. 1991) (“critical threshold inquiry” was whether investments were “investment contracts” within meaning of Act and therefore subject to securities regulation) _
Almost fifty years ago, the United States Supreme Court established the test of what investment vehicles fall within the definition of an “investment contract” as a security subject to regulation under federal securities regulations in SEC v. W.J. Howey Co.,328 U.S. 293 , 298-99,66 S.Ct. 1100 , 1102-03,90 L.Ed. 1244 (1946). Teague [v. Bakker], 35 F.3d [978,] 986 [ (4th Cir.1994), cert, denied,513 U.S. 1153 ,115 S.Ct. 1107 ,130 L.Ed.2d 1073 (1995) ]; [SEC n] Eurobond Exchange, Ltd., 13 F.3d [1334,] 1338 [ (9th Cir.1994) ]; Stone,8 F.3d at 1085 ; Holden [v. Hagopian], 978 F.2d [1115,] 1118 [ (9th Cir.1992) ]. Under the Howey test, an investment contract security exists if the contract involves (1) an investment of money (2) in a common enterprise (3) with an expectation of profits garnered “solely” from the éfforts of others. Howey,328 U.S. at 298-99 ,66 S.Ct. at 1102-03 (an “investment contract” includes any “contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party”); Teague,35 F.3d at 986 ; Revak v. SEC Realty Corp.,18 F.3d 81 , 87 (2d Cir.1994); Eurobond Exchange,13 F.3d at 1338 ; Stone, 8 F.3d at 1085; RTC [v. Stone], 998 F.2d [1534,] 1540 [ (10th Cir.1993) ]. The test is a flexible one, “capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” Howey ,328 U.S. at 299 ,66 S.Ct. at 1103 ; Stone, 8 *851 F.3d at 1085 (quoting Howey)] Securities and Exchange Comm’n v. R.G. Reynolds Enter., Inc.,952 F.2d 1125 , 1130 (9th Cir. 1991). Furthermore, in defining securities, substance governs form, and the substance of an investment contract is a security-like interest in a “common enterprise” that, through the efforts of the promoter or others, is expected to generate profits for the security holder, either for direct distribution or as an increase in the value of the investment. Howey,328 U.S. at 298-99 ,66 S.Ct. at 1102-03 ; United Housing Found, v. Forman,421 U.S. 837 , 852-53,95 S.Ct. 2051 , 2060-61,44 L.Ed.2d 621 (1975); Rodriguez v. Banco Cent. Corp.,990 F.2d 7 , 10 (1st Cir.1993) (holding that land sales contracts were not securities, because they involved no investment in an enterprise, even if land was bought on expectation that development of the area would increase the value of the land).
De Wit,
2. Application of the Howey test to Schewe’s HTAs
Courts rarely tarry over the “investment of money” prong of the Howey test,
De Wit,
Schewe’s arguments, while imaginative, are ' simply unpersuasive, because they amount to nothing more than assertions that he did what farmers do to produce and sell grain and that he chose one marketing tool over another. Commitment of part of next year’s crop to a certain market simply is not the same as investing money in some enterprise. Sehewe certainly never placed money in the hands of a “promoter” with the expectation that his investment would grow. Rather, he retained for his own use all of the facilities, equipment, services, and inputs he asserts were required in order to arrive at the productive capacity necessary to be a successful farmer. Thus, Sehewe has made no “investment of money” within the meaning of the ■ first prong of the
Howey
test.
Howey,
Top of Iowa also' argues that the HTAs do not fit the second prong of the Howey test, because they were not an investment in any “common enterprise,” but a vehicle to sell Schewe’s own grain. Indeed, Top' óf Iowa argues that the HTAs were designed to avoid profits and losses associated with the volatility in the grain market, and hence there are no profits or losses of others to which the producer’s fortunes were tied. Furthermore, Top of Iowa argues that Sehewe did not have an undivided interest in anything beyond his own grain contracts, and thus could not expect any pro rata share of profits from some pooled investments. Nothing daunted, Sehewe argues that the HTA program had both horizontal and vertical commonality. *852 Although his vertical commonality argument is vague at best, it seems to consist of the assertion that investors and promoters, presumably grain producers and elevators, respectively, had their fortunes tied together, because neither party intended that the purchasers would ever receive the grain, but instead intended both parties to profit from hedging against the market. His horizontal commonality argument is plainer: he contends that various farmers’ grain was pooled and sold as a .block on the Chicago Board of Trade and the farmers then received a pro rata share of the profits.;
Again, neither Schewe’s vertical commonality argument nor his horizontal commonality argument is persuasive. There is still no decision of the Eighth Circuit Court of Appeals resolving the question of whether the “common enterprise” prong of
Howey
requires' only horizontal commonality, vertical commonality, or both.
Compare De Wit,
The first fundamental difficulty with Schewe’s assertion that the second prong of the
Howey
test is met is the fact 'that “it is not obvious that there is an ‘enterprise’ in the picture,” which bleeds over into the third prong of the analysis, whether profit was expected to arise from the efforts of others.
See Life Partners, Inc.,
Schewe also cannot demonstrate any “horizontal commonality.”
Id.
Finally, as Schewe’s own arguments concerning his “investment” make clear, he did not expect profits derived “solely” from the efforts of others, the third prong of the
Howey
test.
Howey,
Thus, the court concludes that, as a matter of law, Schewe’s HTAs were not “investment contract” securities, because they fail each of the prongs of the
Howey
test. Because there are no “securities” at issue, Schewe has failed to establish the threshold requirement of his SEA claim.
De Wit,
C. The Commodities Exchange Act Claim
As the court observed at the outset, one of the key questions in this and many other cases involving HTAs is whether the specific HTAs 'in question are illegal off-exchange “futures” contracts under the Commodities Exchange Act (CEA), 7 U.S.C. §§ 1-25, or valid “cash forward” contracts not within the regulatory purview of the CEA. In Count II of his counterclaim, on which Top of Iowa seeks summary judgment, Schewe alleges that the HTAs he entered into are illegal off-exchange futures contracts, and hence are unenforceable. Top of Iowa, however, contends that Schewe’s HTAs are instead valid cash forward contracts.
In
Oeltjenbrun,
this court recently discussed in some detail the differences between “futures” contracts and “cash forward” contracts as well as the tests courts use to distinguish between them.
See Oeltjenbrun,
1. Schewe’s HTAs
The parties have recognized that the HTAs Schewe entered into with Top of Iowa are identical or virtually identical in their terms to those described in
Oeltjenbrun
as having been entered into originally between Oeltjenbrun and Farmers Cooperative Company (FCC).
2
See Oeltjenbrun,
3 F.Supp.2d. 1024, 1044-47 In
Oeltjenbrun,
this court noted that the focus of judicial determinations of whether or not a contract is a valid cash forward contract was whether there was any obligation to make actual physical delivery of the commodity in question,
see Oeltjenbrun,
Nonetheless, in
Oeltjenbrun,
this court found that it was. “clear that Oeltjenbrun understood similar contracts to require actual physical delivery of corn, because he performed” such a contract on a roll by actually delivering corn to the elevator.
Oeltjenbrun,
[T]he contract is between a seller engaged in the business of producing grain and a buyer engaged in the business of buying grain and involves individually negotiated terms of amount, price, and delivery date. Salomon Forex, Inc.,8 F.3d at 971 (“cash forwards are generally individually negotiated sales of commodities between principals”). Also, because the contract is between a grain producer and a grain elevator, the contract was entered into between parties able to make and receive physical delivery of the subject goods. Id. The grain contract has “inherent value” to each of the parties: to Oeltjenbrun because it provides for sale of a portion of his annual crop, and to the elevator because it provides the source of a supply of grain for the elevator’s business. Co Petro Mktg. Group, Inc.,680 F.2d at 578 (examining the “inherent value” of the contract to the parties). Yet *855 more importantly, nowhere in this record does Oeltjenbrun maintain that he did not intend to deliver on the FCC HTAs; thus, he cannot generate a genuine issue of material fact that he had no such intent or that actual delivery was not the purpose of the contract, however inartfully the contract was drafted. Fed. R. Civ. P. 56(e) (the nonmovant is required to go beyond the pleadings, and by affidavits, or by the “depositions, answers to interrogatories, and admissions on file,” designate “specific facts showing that there is a genuine issue for trial”); Celotex,477 U.S. at 324 ,106 S.Ct. 2548 ; Rabushka ex. rel. United, States v. Crane Co.,122 F.3d 559 , 562 (8th Cir.1997), cert. denied, — U.S. -,118 S.Ct. 1336 ,140 L.Ed.2d 498 (1998); McLaughlin v. Esselte Pendaflex Corp.,50 F.3d 507 , 511 (8th Cir. 1995); Beyerbach,49 F.3d at 1325 .
Oeltjenbrun,
Here, as in
Oeltjenbrun,
it is “clear that [Schewe] understood similar contracts to require actual physical delivery of corn.”
Oeltjenbrun,
Furthermore, like the FCC contracts in
Oeltjenbrun,
Schewe’s HTAs with Top of Iowa are between a seller engaged in the business of producing grain and a buyer engaged in the business of buying grain and each involves individually negotiated terms of amount, price, and delivery date.
Salomon Forex, Inc., 8
F.3d at 971 (“cash forwards are generally individually negotiated sales of commodities between principals”). Also, ber cause the contract is between a grain producer and a grain elevator, the contract was entered into between parties able to make and receive physical delivery of the subject goods.'
Id.
The grain contract has “inherent value” to.- each of the parties: to Schewe because it provides for sale of a portion of his annual crop, and to the elevator because it provides the source of a supply of grain for the elevator’s business.
Co Petro Mktg. Group, Inc.,
Thus, the question becomes whether the “roll” of the contracts, even though there is no express “roll” provision in any of them, somehow makes them illegal off-exchange futures contracts. Because there is no express “roll” provision, either permitting, forbidding, or in any way contemplating rolling, these contracts, like the FCC contracts at issue in
Oeltjenbrun,
at best were “administered” in such a fashion that rolling was permitted. The rolling of Schewe’s HTAs with Top of Iowa is similar to the “bookout” agreements the Ninth Circuit Court of Appeals found the CFTC countenanced in
In re Bybee,
2. Schewe’s attempt to distinguish or dispute Oeltjenbrun
Schewe nonetheless argues that this court should reach a different conclusion as to his HTAs with Top of Iowa, either because of differences in his HTAs, or because this court was simply wrong in
Oeltjenbrun.
He points out that, unlike the FCC contracts in
Oeltjenbrun,
each of which was canceled when rolled and replaced with another HTA including slightly different terms in ¶ 5,
see Oeltjenbrun,
Paragraph 5 in the replacement HTAs in Oeltjenbrun stated the following:
SELLER agrees to set the “Cash Basis” and determine the cash value of said grain on or before 11-30-96 and deliver no later than 11-30-96. Unless other terms have been agreed upon by both Buyer and Seller prior to said date, and grain has not been priced by Seller, Buyer is authorized to set the cash basis and to set the cash price of contract.
Oeltjenbrun,
However, contrary to Sehewe’s argument that the change in ¶ 5 of the FCC contracts in
Oeltjenbrun
was “crucial to the court’s conclusion” that those contracts were cash forward contracts, Defendant’s Reply Memorandum at 2, this court did not in fact rely on that change at all in reaching its conclusion that the parties intended actual physical delivery of grain. Rather, this court found no evidence that Oeltjenbrun had agreed to the change, and thus there was no inference from the changed terms of Oeltjenbrun’s intent as to delivery under the contracts.
See Oeltjenbrun,
Schewe audaciously asserts that “Top of Iowa and this Court continue to base their legal conclusions on the fact that HTA contracts were entered into between farmers and elevators. This approach, however, ignores the plain language of the contracts. Likewise, such a , finding implies that while the rest of society has strict protection from securities and commodities fraud, farmers are excluded from these protections. The Court’s ruling in Oeltjenbrun implies that all transactions made by farmers are excluded from regulation.” Defendant’s Reply Memorandum at 3. This, of course, is an attempt to oversimplify this court’s ruling in Oeltjen-brun beyond all recognition.
Certainly, the court did base its ruling in
Oeltjenbrun
in part on the fact that the parties to the HTAs were farmers and grain elevators, producers and buyers of grain, respectively.
See Oeltjenbrun,
Finally, Schewe directly attacks one of the court’s conclusions in
Oeltjenbrun,
something he is entitled to do, if he can do so on factually or analytically sound grounds. He contends that the court’s conclusion that a farmer has the ability to “make delivery” is “questionable,” because “Top of Iowa and this Court have no way of knowing for sure whether Schewe would have the- ability to produce corn in future crop years,” as “any number of factors could have eliminated [a
*858
farmer’s] ability to'make delivery.” Defendant’s Reply Memorandum at 3. Again, Sehewe misconstrues the import of the “ability to deliver” factor in the “cash forward” contract analysis. The question is not whether the seller will be absolutely certain to deliver, but whether the parties are engaged in the business of producing or buying the commodity and whether, because they are engaged in that business, they would be likely to produce and deliver, on the one side, and to receive on the other, the actual commodity.
See Salomon Forex, Inc.,
Thus, for many of the same reasons this court found in Oeltjenbrun that Oeltjenbrun’s HTA contracts with FCC were valid “cash forward” contracts, the court concludes that Schewe’s HTAs with Top of Iowa are “cash forward” contracts as a matter of law, and thus outside the purview of the CEA. Consequently, Top of Iowa is entitled to summary judgment on Count II of Schewe’s Counterclaim, which alleges a violation of the CEA.
The court’s rulings in Top of Iowa’s favor on its motion for summary judgment on Counts I and II of Schewe’s counterclaim necessarily also disposes of Top of Iowa’s motion for summary judgment on Schewe’s defense of illegal contracts, as well as the first part of Schewe’s own motion for partial summary judgment, which sought judgment in his favor-on the illegal contract defense. All that now remains is the second contention Sehewe raises in his motion, which is his assertion that he is entitled to summary judgment dismissing Top of Iowa’s cause of action for failure to state a claim upon which relief can be granted, because Top of Iowa is barred by the terms of the HTAs from recovering amounts allegedly paid in margin calls on the elevator’s hedge transactions that relate to Schewe’s HTAs. That portion of Schewe’s motion for partial summary judgment is considered in the next section of this ruling.
D. Inability To Recover Margin Calls
The entirety of Schewe’s argument that he is entitled to summary judgment on Top of Iowa’s claim for damages, because Top of Iowa is contractually barred from recovery, is as follows:
The clear language of the contract states as follows: “Buyer shall be responsible for commissions and margin requirements of this transaction.” See Exhibit A of Plaintiffs Petition. Plaintiff is now wrongfully requesting.reimbursement of $65,400 that it has allegedly paid in margin calls. See ¶ 6 of Plaintiffs Petition. Such a position by Top of Iowa is in clear contradiction of the language within the four corners of the contract. The language of the contracts controls, and Plaintiffs action should be dismissed.
Defendant’s Memorandum of Law in Support of Defendant’s Motion for Summary Judgment, p. 3. Top of Iowa’s response, nearly as brief as Schewe’s argument, is that Sehewe has failed to understand its claim. Top of Iowa’s cause of action, so it explains, is
for the damages Top of Iowa suffered as a result of Schewe’s failure to deliver grain as set out under the HTA contracts. Top of Iowa’s damages happen to equal the margin calls Top of Iowa had to make on the hedge position taken with the Chicago Board of Trade. If Sehewe would have delivered the corn, as required under the contracts, Top of Iowa would have received all of their [sic] margin calls back based upon, the sale of corn at a higher price than what the corn was bought from Sehewe for..
Top of Iowa was responsible for the commissions and margin requirements that were required to be made based upon its *859 hedge position with [the] Chicago Board of Trade. However, these margin call amounts were the damages suffered by Top of Iowa as a result of Schewe’s failure to deliver the corn under the HTA contracts.
Memorandum of Law in Support of Plaintiffs Resistance to Defendant’s Motion for Summary Judgment, p. 8.
Upon proof of a breach of contract, under Iowa law — which is applicable to Top of Iowa’s claim in this diversity action— the non-breaching party is entitled to damages “ ‘to place the injured party in the position he or she would have occupied if the contract had been performed.’ ”
Flom v. Stahly,
The margin calls Top of Iowa seeks as damages were amounts Top of Iowa paid in reliance on Sehewe’s performing his contractual obligations,
Yost,
III. CONCLUSION
Once again, the court has answered one of the key questions in HTA eases by concluding that the particular HTAs at issue here are valid “cash forward” contracts not within the regulatory purview of the CEA, rather than illegal off-exchange “futures” contracts under the CEA. Furthermore, on the novel question of whether the HTAs are “securities” within the meaning of the SEA, the court concludes that the answer is no. The HTAs at issue here do not meet any of the three prongs of the Howey test of what is an “investment contract” security subject to regulation under federal securities laws. Finally, the court concludes that there is no contractual bar to the damages Top of Iowa seeks for Schewe’s repudiation of the HTAs.
THEREFORE,
1. Top of Iowa’s March 12, 1998, motion for partial summary judgment is granted in its entirety. Summary judgment is granted in favor of Top of Iowa on Counts I(SEA) and II(CEA) of Schewe’s counterclaim and those claims - are consequently dismissed. Summary judgment is also granted in Top of Iowa’s favor on Schewe’s affirmative defense no. 20, which asserts the illegality of the contracts at issue, and that defense is consequently stricken.
2. Schewe’s April 23, 1998, motion for partial summary judgment is denied in its entirety.
IT IS SO ORDERED.
Notes
. Neither parly has moved for summary judgment on one of its own claims; thus, Rule 56(a), which governs summary judgment for a claimant, is not applicable here, even though the matter is before the court on cross-motions for partial summary judgment.
. Indeed, the only difference appears to be in the tabular portion of paragraph 2, which in the case of the FCC contracts included QUANTITY, BUSHELS, GRADE & GRAIN, ARRIVAL PERIOD, DESTINATION, QUALITY, FUTURES OPTION, and FUTURES OPTION PRICE, while in the Top of Iowa contracts, the table includes instead GRADE & GRAIN, ARRIVAL PERIOD, DESTINATION, QUANTITY, FUTURES OPTION, and FUTURES OPTION PRICE, but leaves out BUSHELS and QUALITY, two categories that were redundant of QUANTITY and GRADE & GRAIN.