Scheenstra

INTRODUCTION

Plaintiff John Scheenstra was a member of defendant California Dairies, Inc. (Cal Dairies), a member-owned milk marketing and processing cooperative. After Cal Dairies instituted internal production quotas for its members and reduced payments for milk deliveries in excess of the quotas, Scheenstra sued for breach of contract claiming his quota was too low. The contract provision in question obligated Cal Dairies to accept all of the milk of its members, “subject to the right of the Board, in its discretion, upon written notice to the membership ... to allocate equitably among the members on a uniform basis ... the quantity ... of milk to be received by the Association.” (Italics added.)

The trial court concluded that, under the circumstances represented, the ' business judgment rule did not shield Cal Dairies from liability for breach of contract. The court found that the quota system adopted by Cal Dairies was not equitable or uniform and therefore breached the contract. Among other things, the quota system required dairies with increasing production to bear the entire brunt of the oversupply. More remarkably, the quota system responded to the oversupply…