© 2014 The Texas Lawbook.
By Natalie Posgate
Staff Writer for The Texas Lawbook
(June 4) – A federal jury in Victoria, Texas recently awarded $25 million to HeartBrand Beef, Inc. for a Japanese cattle deal that went south with a Colorado cattle ranch.
After a seven-day trial, the jury determined that Bear Ranch, LLC defrauded the Flatonia, Texas-based HeartBrand during a large 2011 cattle purchase from HeartBrand’s chairman, Ronald Beeman, and that Bear Ranch breached the terms of a 2010 contract with HeartBrand.
The jury awarded HeartBrand $23.2 million in actual damages and $1.8 million in exemplary damages.
“The evidence of Bear Ranch’s real intentions was clear to the jury,” said Houston V&E partner Jim Reeder, the lead attorney for HeartBrand. “We’re pleased that after the jury got to hear directly from those who negotiated the deal, they saw the facts as we did.”
Jurors also found the buy back cost under the remedies for breach provision of the contract that would allow HeartBrand to recover its cattle and offspring from Bear Branch – if U.S. District Judge Gregg Costa agrees to that remedy during post-trial proceedings.
“While we are disappointed with the verdict, we respect the court system,” said Paul Yetter, Bear Ranch’s lead attorney and a partner at the Houston limitation boutique, Yetter Coleman.
HeartBrand is in the business of breeding and producing meat from Akaushi cattle, a rare Japanese-descended breed that is sometimes called wagyu or “Kobe” beef. Besides its reputation for rich flavor, tenderness and juiciness, Akaushi beef is also known to produce health benefits such as lower cholesterol levels and prevent coronary heart disease.
Bear Ranch, owned by Florida billionaire Bill Koch (the brother of the owners of private oil giant, Koch Industries), purchased 424 Akaushi cattle and 10,000 units of Akaushi semen from HeartBrand for about $2.4 million in July 2010. The ranch purchased 514 more Akaushi cattle from HeartBrand chairman Beeman in June 2011 for about $2.5 million.
When Bear Ranch made both purchases, it signed contracts agreeing that it would only sell calves and cattle back to HeartBrand and it would register all the full-blooded Akaushi calves it produced with the American Akaushi Association (AAA) and comply with the Association’s rules.
Bear Ranch initiated the legal battle in 2012, suing HeartBrand on antitrust claims that it was “monopolizing the market for Akaushi beef products” by not allowing its purchasers to sell the Akaushi cattle to third parties, instead only allowing them to sell the cattle and offspring back to HeartBrand or to AAA members, according to court documents.
HeartBrand originally obtained its Akaushi cattle from Japan in the 1990s due to a loophole in a trade act, which highly restricts the Japanese export of its indigenous cattle and beef products. HeartBrand obtained a small nucleus of 11 Akaushi cattle and significantly grew the herd over the years.
As the case unfolded, Bear Ranch claimed it learned that HeartBrand was not the sole owner of Akaushi cattle, so it dropped the antitrust claims. Instead, the company argued that HeartBrand defrauded Bear Ranch into entering the contracts limiting its selling power by falsely representing that Akaushi genetics were controlled by HeartBrand. Bear Ranch also claimed that HeartBrand’s false claims were a breach of contract, the amended complaint says.
Bear Ranch’s amended complaint also included declaratory judgment actions for no contract restrictions on the cattle it purchased from HeartBrand, Beeman or the AAA, as well as the cattle’s offspring.
HeartBrand countersued, arguing that Bear Ranch defrauded HeartBrand into selling the cattle by misrepresenting its intentions to abide by the contracts. HeartBrand also claimed Bear Ranch breached the contract that required it to register its Akaushi offspring produced from the cattle and/or purchased semen from HeartBrand and Beeman with the AAA, as well as multiple other breaches of the contracts.
The jury sided with HeartBrand, determining that during the purchase from Beeman, Bear Ranch misrepresented that it intended to sell HeartBrand 30 percent of its calves and that it would comply with the restrictions in the 2010 agreements for the cattle it purchased from Beeman.
“The jury’s verdict sends an important message,” Reeder said. “Bait-and-switch tactics aren’t fair, whether you’re selling a car of a herd of valuable cattle.”
The seven-day trial included 14 witnesses and four expert witnesses. The jury came back with a verdict after almost a full day of deliberation. The case was tried in the U.S. District Court for the Southern District of Texas.
Along with Reeder, fellow V&E partner Jason Powers and associates Stacy Neal and Nicholas Shum represented HeartBrand.
In addition to Yetter, Bear Ranch’s legal team included fellow Yetter Coleman partners Collin Cox and Cam Barker, as well as Lubbock attorney Andrew Seger.
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