Scotts ordered to pay Seeds, Inc.

A ruling which involves approximately $8 million in payments for Kentucky Bluegrass delivered last fall was issued by Whitman County Judge David Frazier Friday afternoon. The judge ruled in favor of Seeds, Inc., Tekoa, on their motion for a partial summary judgment against Scotts Company of Ohio.

The judge ruled terms of a supply agreement between Scotts and Seeds, Inc., required Scotts to make the two rounds of fall payments for crop production delivered from the 2010 seed harvest.

His decision was announced in a 75-minute session Friday afternoon with a small number of growers in the courtroom.

The ruling followed a Jan. 3 session when Pullman Attorney Tim Esser, representing Seeds, presented the motion before a packed courtroom. Scotts’ attorney Matthew Turetsky, Seattle, argued against the motion Jan. 3 on behalf of Scotts.

Esser was back in court Friday, and Turetsky appeared via telephone.

A summary judgment is issued when the court determines a decision can be made on known facts in a suit. The judge in his ruling pointed out other issues raised as of the Jan. 3 hearing did not warrant a trial for that portion of the dispute.

Seeds, Inc., and Dye Seed Co. of Pomeroy filed cross suits against Scotts after growers filed suit against Scotts and the two seed processors.

Seeds and Dye actually contracted with the growers for Kentucky Bluegrass seed production in a series of three-year contracts.

The processors’ cross suit noted they are unable to pay the growers until Scotts pays them.

The judge ruled Friday the settlement and supply agreement between Seeds, Inc., and Scotts included a provision that allows Scotts to audit the processors’ books. However, the judge ruled, under terms of the contract, Scotts could not delay the payments if it opted to exercise its audit provision.

The judge added the payment schedule, which requires first fall payments for one third of the delivered crop be made by Sept. 10, before processing of the grass seed, was a strong indication the agreement’s audit option was never intended to be a condition for making the payments.

He also noted Scotts had followed the payment procedure after delivery for the prior two harvest years and cited e-mails from Scott executives which provided an early indication the payment process was on track again this year.

The judge noted Scotts has contended the supply agreement could have been breached because the 2010 contract price of $1.10 far exceeded the spot market price for 2010. That condition reflected the plunge in the housing market which eroded demand for grass seed.

Scotts has contended the agreement could have been breached because the price difference provided an incentive for “stuffing,” a term which applies to bringing in seed harvested from fields not included in the contracts.

Near the end of his ruling, the judge read from pre-trial declarations made by Scotts executives. The judge noted the declarations failed to include any factual basis to support the corporate officers’ stated beliefs that some of the delivered crops came from fields which were not under the contracts.

After the ruling, Esser said the ruling should involve payments due of more than $8 million. The original amount request filed in the motion for a partial summary judgment has be revised because Scotts did make payment for deliveries of proprietary seed under another set of contracts. That sum was also included in the motion and will have to be deducted from the amount sought, Esser said.

Additions to the original motion sum will be made for a 20-cent bump Scotts authorized on contracts when it was competing to sign growers. Also, the ruling included an interest provision for late payment which will have to be added.

Friday’s ruling involved only part of the overall Scotts Kentucky Bluegrass dispute. It only applied to the motion from Seeds, Inc., and only for a partial amount of their overall suit.

Still pending is the Dye Seeds segment of the cross suit. Karl Kime, one of the Spokane attorneys representing Dye, told the Gazette Monday they are negotiating with Scotts attorneys to work out a settlement in light of the ruling made by the judge on the Seeds, Inc., motion.

If they cannot settle, Kime said Dye will file a motion for a partial summary judgment on a contention which matches the one Esser successfully presented for Seeds, Inc. Kime declined to say at this point how much could be sought in a similar motion from Dye.

Also, Richard Kuhling, Spokane attorney who filed the first suit on behalf of the growers, Nov. 30 filed another suit on behalf of 39 growers, most of them in the Camas Prairie area of Idaho. Kuhling’s suit again alleges Scotts and the two seed processing companies breached the contracts.

Judge Frazier Friday concluded his ruling by pointing out Scotts still has the option of filing for damages if that’s the course of action they want to follow after reviewing the results of their audits. An audit team spent a week going over the Seeds, Inc., books last October and recently has been inspecting the Dye records in Pomeroy.

Also, the supply agreements include a “true up” payment for each year’s contracts in April. The fall payments are based on a 62 percent figure of the delivered crop in anticipation of a volume shrinkage on the seed after processing.

Esser Friday said he and his clients at Seeds have every reason to believe the audited records at Seeds, Inc., will show the processor and growers followed terms of the contracts.