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Wells Fargo Bank, N.A. v. Paulsiegel

September 2, 2008

WELLS FARGO BANK, N.A., PLAINTIFF-APPELLANT,
v.
PAULSIEGEL, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 05 C 5635-Samuel Der-Yeghiayan, Judge.

The opinion of the court was delivered by: Wood, Circuit Judge.

ARGUED JANUARY 22, 2008

Before EASTERBROOK, Chief Judge, and WOOD and SYKES, Circuit Judges.

Ty-Walk Liquid Sales, Inc., provided products and marketing services to farmers. Unfortunately, it fell on hard times and closed its doors on August 23, 2001, leaving behind millions of dollars of debt that it owed to Wells Fargo Bank, N.A. The debt was secured by, among other things, Ty-Walk's accounts receivable, and one of those accounts was with defendant Paul Siegel. When it could not collect from Ty-Walk, Wells Fargo turned to Siegel to collect the monies Siegel owed to Ty-Walk under an oral contract. After a bench trial, the district court concluded that the scope of the agree-ment was not as broad as Wells Fargo believed, and thus that Wells Fargo could not recover against Siegel. Wells Fargo appeals; we affirm.

I.

Over the years, Wells Fargo loaned a substantial amount of money to Ty-Walk, which was in the business of selling fertilizer, chemicals, and various farming services, including a grain-marketing program through which Ty-Walk tried to help grain producers obtain the best price for their production. At times, the program included trading in grain futures.

One of Ty-Walk's customers was Paul Siegel, who has been a farmer since the mid-1970s. Siegel's relation with Ty-Walk began in the early 1990s, when he attended several meetings at Ty-Walk's facilities about grain marketing and trading. Siegel also had face-to-face discussions about grain-marketing strategies with Ty-Walk's CEO, John C. ("Buzz") Gibbons. Frequently giving informal sales pitches to farmers at breakfast meetings, annual dinners, barbeques, and the like, Gibbons was the face and engine of Ty-Walk. Around 1995 Siegel decided to move his business to Ty-Walk, because it charged a lower commission than the company he had been using. At first Siegel simply bought fertilizer and chemicals from TyWalk; soon he began to participate in its marketing program. It is undisputed that at that time, Siegel and Gibbons (speaking for Ty-Walk) entered into an oral contract that set the terms of Siegel's participation in the program. The point of contention is whether that agreement included Siegel's authorization for Ty-Walk to trade futures on his behalf.

Siegel kept his business with Ty-Walk for six years, until Ty-Walk ceased operations on August 23, 2001, and Wells Fargo sued to recover the millions that Ty-Walk owed on its loans. Wells Fargo's suit in the Circuit Court of Kendall County resulted in an order granting it possession of the collateral on those loans. That order may have ended one phase of the litigation, but it marked the beginning of a new one: Wells Fargo's collection efforts.

One step Wells Fargo took was to send a letter to Siegel, demanding that he pay Wells Fargo $380,525.32, the balance that Wells Fargo alleged was due on Siegel's marketing-program account. The letter further demanded that Siegel pay another $50,785.16, the amount that Wells Fargo said was due on a loan that Siegel took out from the Commodity Credit Corporation ("CCC"), a U.S. government agency that loans money to farmers using commodities as collateral. Both parties agree that Ty-Walk paid off the CCC loan on Siegel's behalf in September 2000. The question remaining is whether Siegel repaid TyWalk for its discharge of that debt: Wells Fargo says no; Siegel says yes.

When Siegel ignored its payment demand, Wells Fargo initiated this lawsuit in federal district court, invoking the court's diversity jurisdiction. It claimed that Siegel had breached his contract with Ty-Walk by failing to pay TyWalk the sums due under his marketing-program account and his CCC loan, and (by virtue of the state court order) that Siegel now owed those sums to Wells Fargo. The complaint, filed in September 2005, also asserted a third claim, based on approximately $20,000 in goods and services that Ty-Walk allegedly provided to Siegel but for which Siegel had not paid. After discovery, Wells Fargo moved for summary judgment on each claim. The district court denied the motion for the counts based on the marketing-program account and the CCC loan, but granted it with respect to the claim for $20,000 in goods and services. Siegel's post-trial motion challenging the $20,000 judgment against him was denied; he paid the amount due on that claim.

Wells Fargo's remaining two claims proceeded to a bench trial, which took place on April 23-24, 2007. Wells Fargo did not produce a single witness who could testify about the formation of any contract, verbal or otherwise, between Ty-Walk and Siegel. Instead, the bank relied primarily on documentary evidence, including Ty-Walk's financial records and accounting books, audit letters, and commodity statements sent to Siegel purportedly reflecting the status of his account. It also introduced more than 200 documents evidencing individual transactions between Siegel and Ty-Walk over the course of their six-year business relations. Wells Fargo argued that these documents provided conclusive proof that Siegel and Ty-Walk had an oral agreement, and that the agreement included Siegel's authorization for Ty-Walk to engage in futures trading on his behalf.

In its appellate briefs, Wells Fargo refers to the documents showing individual transactions between Siegel and Ty-Walk as "contracts." Each document shows the crop year in which that particular trade took place. Some, but not all, of them refer to "corn futures" or "bean futures," and some use other words, such as "puts" and "calls," that imply futures-trading transactions. For each of these documents, Ty-Walk sent a trade-confirmation invoice to Siegel. Siegel kept a copy of the invoices in his files, and many of them were entered into evidence.

Siegel testified at the trial on his own behalf. Indeed, with respect to the CCC loan, he provided the only evidence in the record. We address everything related to that issue below. With respect to the alleged debts related to futures trading, Siegel asserted that his arrangement with Gibbons (and hence Ty-Walk) was only an agreement to sell grain for cash. He maintained that he did not anticipate any futures trading, and that he never gave TyWalk permission to perform options or futures trading on his behalf. Rather, as he described it, he simply delivered grain to Ty-Walk and got paid for it. He never thought that he owed any balance to Ty-Walk, because only a few days normally elapsed between his delivery of the grain and his receipt of payment. As for the documents that Wells Fargo now calls "contracts," Siegel testified that they were not intended to be contracts at all; they were just the records generated after a trade took place, to confirm that the transaction had occurred. TyWalk sent them to Siegel with instructions that he sign and return them, and he obliged. He testified-and the documents plainly show-that Siegel frequently put question marks and comments on the forms. He explained that he did so because he did not understand the terms and wanted to indicate that he neither understood nor agreed with the parts of the documents to which his comments were directed. Though he often wrote questions on the forms before returning them, no one from Ty-Walk responded to his concerns.

Siegel also testified about a series of audit confirmation letters that were entered into evidence. The letters were similar to the commodity statements that Siegel received, in that each showed the amount that Ty-Walk believed Siegel owed on his marketing-program account as of a given date. The audit letters requested that Siegel confirm "directly to our auditors . . . the amount receivable from you/payable to you on [date] on your farmer marketing account." They then displayed two columns: "Crop Year" and "Amount Due." The last line of the columns reflected the total balance that Ty-Walk thought was owed (or due) on the account, followed by an instruction that the letter's recipient should "inform our auditors whether this balance is in agreement with your records. Indicate your answer below and mail it to our auditors in the enclosed, pre-addressed, stamped envelope." At the bottom of the page were two choices, followed by a signature line:

____ The balances shown above are correct.

____ The balances shown above are not correct. See detail of the difference on the reverse side of this form.

On the audit letters dated August 19, 1998, and September 2, 1999, Siegel put an "x" next to the option stating that the balances were not correct, but he did not provide any explanation on the back of the form before signing and returning it. On the 1999 letter, however, he wrote that the amounts reflected "are not cash debt but Grain to be delivered." He testified at trial that what he "was trying to say" with that note was that "I had confusion about why I ever got this and that I was simply making a ...


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