• November 12, 2014

SugarCubes2Update (November 12, 2014): It seems with each filing (as described below) the news gets worse for defendant U.S. Sugar Company in this case, which appears to be about the defendant’s misfortune of buying sugar at historic high prices before a collapse in sugar prices.

In United Sugars’ summary judgment brief we learn that one agent of defendant told the sugar seller, “We are prepared to take our losses…up to a point.” Is it naïveté for a business to simply declare that it will take its losses until it simply decides to refuse to? We’ll see if the defendant’s response to plaintiff’s motion gives us any reason to believe that such a strategy can pan out.

Update (July 16, 2014): (Under Title: The Bitter Truth Reflected In The Challenge of Finding a “Sugar Market Expert”?) When, over several months, you have “at least 7 experts” declining to take your case and an eighth expert unexpectedly quits three business days before your expert report deadline (and one week after you retained him), you might want to give some serious thought as to what this might reflect as to the merits of your case. Maybe it is just a run of very bad luck but maybe not?

U.S. Magistrate Judge Franklin L. Noel (D. Minn.) showed mercy on the defendant, U.S. Sugar. Undoubtedly the defendant can now breathe easier. But possibly the defendant has only bought more time (at significant cost) before a not terribly favorable ultimate outcome…

Update (August 8, 2013)(under the subject line: When Is a Deal SO BAD That The Law Let’s You Back Out?): In Sugar v. Sugar (that is United Sugar vs. U.S. Sugar), in a recent filing in the case, Defendant U.S. concedes that it did, in fact, have the misfortune of agreeing to buy 450,000 cwt of sugar in October 2010 and January, 2012 (“cwt” = “hundredweight” or 100 lbs.) in the middle of a stratospheric crazy sugar high (price, that is).  Nevertheless, U.S. appears to argue in its recent filing that, with regard to two of four not so sweet deals with United, United’s claims are barred by the statute of frauds.  It also argues that the agreements’ “force majeure provisions” and “the doctrine of frustration of commercial purpose due to extraordinary events” apply, excusing its performance.

So, as I understand it, the defendant’s argument in part is that it, a sophisticated buyer of thousands of tons of sugar, agreed to buy the sugar at a specific price but, according to the non-performing buyer, under the specific contract and/or under other applicable law, if the deal over time turned out to be REALLY REALLY REALLY bad (that is, if the price of sugar fell sharply), then buyer was excused from its obligations to buy the expensive sugar.  But sophisticated players in commodities markets have access to all kinds of insurance and hedging (like option contracts, for example) to mitigate that risk, don’t they?  Can there really be some kind of legally imposed “escape valve” if the deals turn out to be bad for one side or the other, so long as it is really HORRIBLE rather than just less advantageous than buyer or seller had hoped (in which case, all would agree that an escape valve would be absurd and would eviscerate the essential purpose of contract law)?

On the other hand, “force majeure” clauses are highly customized in all sophisticated transactions (like the one in the case linked here (which failed to protect a party from breach of contract for its non-performance)).  Maybe there’s more here than meets the eye.  Maybe the “force majeure” clauses in the applicable contracts here, which we have not yet obtained, excuse performance if sugar becomes too plentiful over time causing the price to drop?  Interestingly, in the recent filing, defendant U.S. Sugar disclosed that it will have “a meteorologist or climatologist expert with expertise in the impact of weather…on agricultur[e].”   Who could have foreseen weather’s impact on agriculture?

Original post (June 19, 2013):  (Under subject line, “Coming off a mean sugar high…”):  The linked chart reflects the changing price of sugar over the past five years.  If you bought several thousand tons five years ago, you might be feeling pretty sweet these days (assuming sugar does not spoil, assuming that you have not had to pay anything for storage, and that the tasty commodity otherwise behaves like money or a share of stock).  Over that five-year time period, the price of sugar has gone up over 40%.  (You’d probably feel even better (and have fewer cavities) if you skipped the sweets and just invested in an index fund.  The Dow Jones Industrial Average is also up over 40% for the same time period).

But if you bought boatloads of sugar in June/July 2011, on the other hand, you would probably be pretty bitter now.  The price of sugar back then was nearly $0.30/lb.  Sugar was basically at its highest price of all time in mid 2011.  (People thought that world sugar supply was in trouble.)  But it is now sold for about half that.  Aside from this crash from this stratospheric sugar high, could there be any other reason why U.S. Sugar Co. would not want to buy United Sugars Corp.’s sweet stuff, which U.S. Sugar allegedly committed to buying when sugar prices were at their highest price ever?

With a sweet $16,000,000 at stake, presumably Defendant U.S. Sugar Corporation and its talented team of lawyers, Dick Thomson and Tyler Candee of the Lapp, Libra, Thomson, Stoebner & Pusch, Chtd., will be giving a very hard look at the alleged contracts between the parties and exploring all possible strategies and defenses to avoid this sticky situation. The case was removed from Minnesota state court and is now pending before Sr. U.S. District Court Judge David S. Doty (D. Minn.).  The lawyers on both sides of this case are talented and, it seems to me, this case might be a rigorous and interesting exercise in contract law and interpretation.

(Coincidentally, see the story in this morning’s Star Tribune on sugar prices…Maybe we should stick to stocks.)

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