KEVIN S.C. CHANG, United States Magistrate Judge.
Before the Court are 1) Defendant Skretting Canada Inc. aka Skretting North America's ("Defendant") Motion for Summary Judgment, filed May 17, 2013; 2) Defendant's Supplemental Motion for Summary Judgment on the Doctrine of Res Ipsa Loquitur and Any Similar Theories, filed July 8, 2013; and 3) Plaintiff Keahole Point Fish LLC's ("Plaintiff") Motion for Partial Summary Judgment Re: Circumstantial Evidence Under Strict Products Liability ("Quasi" — Res Ipsa,) filed July 8, 2013.
These matters came on for hearing on August 29, 2013. David Nakashima, Esq., appeared on behalf of Plaintiff. Jeffrey Johnson, Esq., Patricia Napier, Esq., and Randall Whattoff, Esq., appeared on behalf of Defendant. After careful consideration of the motions, the supporting and opposing memoranda, the arguments of counsel, and the applicable law, the Court HEREBY GRANTS IN PART AND DENIES IN PART Defendant's Motion, and DENIES AS MOOT Defendant's Supplemental Motion and Plaintiff's Motion for the reasons set forth below.
This action arises out of allegations that the Kona Pacific poultry meal feed that Plaintiff purchased from Defendant was defective because of nutrient deficiencies, namely taurine, and inferior ingredients.
In late 2005 or early 2006, Kona Blue, Plaintiff's predecessor, requested that Defendant prepare a custom diet for its Seriola rivoliana. Def.'s CSF, Decl. of Jeffrey
In December 2007, Defendant began shipping the Kona Pacific poultry meal feed to Kona Blue. Id., Johnson Decl., Ex. D. Since 2007, all product sheets for the Kona Pacific diet contained the following disclaimer: "Individual results from the use of Skretting feed products may vary due to management, environment, genetic, health and sanitation differences. Therefore, Skretting does not warrant or guarantee individual results and reserves the right to modify it without prior notice." Id., Beattie Decl. at ¶¶ 11-12, Exs. E & F. Kona Blue began feeding the Kona Pacific poultry meal feed to its Seriola rivoliana in early 2008. Id., Johnson Decl., Ex. D. According to Neil Sims, Kona Blue's president, Chris Beattie, Defendant's general manager, advised him that Kona Pacific feed would provide a balanced diet. Id., Johnson Decl., Ex. E; Pl.'s CSF, Additional Material Facts ("AMF") at ¶ 3 & Ex. 3.
In July 2008, Kona Blue reported to Defendant that it experienced some of the best fish survival in company history. Pl.'s CSF, Ex. 20. In October 2008, Kona Blue complained of slower growth and reduced feed response. Id., AMF at ¶¶ 6-9. Eventually, Kona Blue determined that overstocking, strep infection, and skin flukes caused the issues, and mortality rates in 2008 were in fact low. Def.'s CSF, Johnson Decl., Ex. D; Def.'s Reply CSF at ¶¶ 6-8. Defendant represents that Kona Blue thereafter reported successful results for nearly two years while its fish were consuming the Kona Pacific poultry meal feed. Def.'s CSF, Beattie Decl. at ¶ 6. At the end of 2009, Kona Blue was successfully harvesting Seriola rivoliana at average weights over four-and-a-half pounds, which was at or exceeding the farm's historical harvest weights. Id., Johnson Decl., Exs. A & D.
In February 2010, Plaintiff assumed control of the aquafarm. Id., Beattie Decl., Ex. D. Prior to its acquisition of the farm, Plaintiff conducted due diligence with respect to Kona Blue's practices, harvest data, and financial data. Id., Johnson Decl., Exs. E & F. Kona Blue disclosed that it requested that Defendant replace some fishmeal with poultry meal, and recommended another feed company to enable Plaintiff to consider other feeds. Id., Johnson Decl., Ex. E.
Plaintiff claims that after it began operations, Defendant further reduced the amount of fishmeal in the feed and replaced it with alternative protein materials that contained less taurine by weight.
On January 13, 2010, Todd Madsen, Plaintiff's president, signed Defendant's Customer Record/Credit Application. The Application stated: "We hereby jointly and severally agree to pay your account ... according to your terms of sale and to pay interest at the rate set by [Defendant] on all amounts in arrears as outlined in the terms and conditions of sale." Def.'s CSF, Beattie Decl., Ex. B. Invoices accompanying each order contained the terms and conditions of the sale of the feed, including payment terms, items purchased, quantity, and price. Id., Beattie Decl., Ex. C. Defendant also provided Plaintiff with product sheets containing its disclaimer that individual results may vary and that it does not warrant or guarantee individual results.
In early 2011, Plaintiff hypothesized that taurine deficiency was the cause of problems with its fish. Id., Johnson Decl., Ex. B. In an email dated May 18, 2011, Mr. Madsen inquired with Mr. Beattie about ingredient information and indicated that Plaintiff was investigating whether feed formulation changes were contributing to growth issues. Id., Beattie Decl., Ex. G. On June 7, 2011, Gavin Shaw provided estimated taurine levels in the feed and calculated a weighted average of taurine for all feed sizes of approximately 0.17%. Id., Johnson Decl., Ex. B. Just one day prior, however, Plaintiff stopped purchasing the Kona Pacific poultry meal feed and ordered the high fishmeal feed. Id., Beattie Decl., Ex. I.
In August 2011, Plaintiff began purchasing a high fishmeal feed from EWOS, Defendant's competitor. By Plaintiff's accounts, following the switch to the EWOS feed, the health of the fish improved quickly and dramatically, mortalities dropped, and Plaintiff has since successfully raised four more Cohorts. Pl.'s CSF, Ex. 4. The EWOS feed had a higher taurine content than the Kona Pacific poultry meal feed.
Plaintiff commenced this action on November 3, 2011. On December 22, 2011, Plaintiff filed a First Amended Complaint, asserting the following claims: 1) negligence (Count 1); 2) intentional misrepresentation
Defendant filed a Counter-Complaint on December 29, 2011, alleging that Plaintiff breached its contract with Defendant by ordering and taking possession of Kona Pacific high fishmeal feed, but failing to pay $36,548.60.
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a). "A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir.2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)); T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). In a motion for summary judgment, the court must view the facts in the light most favorable to the nonmoving party. State Farm Fire & Cas. Co. v. Martin, 872 F.2d 319, 320 (9th Cir.1989).
Once the moving party has met its burden of demonstrating the absence of any genuine issue of material fact, the nonmoving party must set forth specific facts showing that there is a genuine issue for trial. T.W. Elec., 809 F.2d at 630; Fed. R.Civ.P. 56(c). The opposing party may not defeat a motion for summary judgment in the absence of any significant probative evidence tending to support its legal theory. Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991). The nonmoving party cannot stand on its pleadings, nor can it simply assert that it will be able to discredit the movant's evidence at trial. T.W. Elec., 809 F.2d at 630; Blue Ocean Preservation Soc'y v. Watkins, 754 F.Supp. 1450, 1455 (D.Haw.1991).
If the nonmoving party fails to assert specific facts, beyond the mere allegations or denials in its response, summary judgment, if appropriate, shall be entered. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 884, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990); Fed. R. Civ. P 56(e). There is no genuine issue of fact if the opposing party fails to offer evidence sufficient to establish the existence of an element essential to that party's case. Celotex, 477 U.S. at 322, 106 S.Ct. 2548; Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir.1994); Blue Ocean, 754 F.Supp. at 1455.
In considering a motion for summary judgment, "the court's ultimate inquiry is to determine whether the `specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec., 809 F.2d at 631 (citing Anderson v. Liberty Lobby, 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Inferences must be drawn in favor of the nonmoving party. Id. However, when the opposing party offers no direct evidence of a material fact, inferences may be drawn only if they are reasonable in light of the other undisputed background or contextual facts and if they are permissible under the governing substantive law. Id. at 631-32. If the factual context makes the opposing party's claim implausible, that party must come forward with more persuasive evidence than otherwise necessary to show there is a genuine issue for trial. Bator v. State of Hawaii,
Defendant moves for summary judgment on all claims, including its counterclaim. The Court addresses each argument in turn.
Defendant argues that it is entitled to summary judgment on Plaintiff's negligence, products liability, implied warranty of merchantability, and implied warranty of fitness claims because they are preempted by the Federal Food, Drug, and Cosmetic Act ("FDCA"). Specifically, Defendant maintains that it could not have consistently satisfied Plaintiff's desired taurine levels without supplementing its fish feed with crystalline taurine, a food additive, in violation of 21 C.F.R. § 573.980.
Under the Supremacy Clause, the laws of the United States "shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const., Art. VI, cl. 2. Accordingly, "state laws that conflict with federal law are `without effect.'" Mut. Pharm. Co. v. Bartlett, ___ U.S. ___, 133 S.Ct. 2466, 2473, 186 L.Ed.2d 607 (2013) (citations omitted). "Federal preemption occurs when: (1) Congress enacts a statute that explicitly pre-empts state law; (2) state law actually conflicts with federal law; or (3) federal law occupies a legislative field to such an extent that it is reasonable to conclude that Congress left no room for state regulation in that field." Chae v. SLM Corp., 593 F.3d 936, 941 (9th Cir. 2010) (citations omitted).
The FDCA does not contain a preemption clause. Riegel v. Medtronic, Inc., 552 U.S. 312, 339, 128 S.Ct. 999, 169 L.Ed.2d 892 (2008). Even when there is an absence of an express preemption provision, however, state law may be impliedly preempted when "it is `impossible for a private party to comply with both state and federal requirements.'" Id. (quoting English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990)); Fla. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963) (An inquiry into congressional design is not required "where compliance of both federal and state regulations is a physical impossibility for one engaged in interstate commerce.").
Conflict preemption, which Defendant argues applies here, implies Congress's intent to preempt state law to the extent there is conflict between federal and state law. Whistler Invs., Inc. v. Depository Trust and Clearing Corp., 539 F.3d 1159, 1164 (9th Cir.2008). It arises when it is impossible for a party to comply with both federal and state law "or where state law `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Hunter v. Philip Morris USA, 582 F.3d 1039, 1046 (9th Cir.2009) (citations omitted). Showing preemption by impossibility is a "demanding defense." Wyeth v. Levine, 555 U.S. 555, 573, 129 S.Ct. 1187, 173 L.Ed.2d 51 (2009).
The FDCA presumes that food additives are unsafe until the Food and Drug Administration ("FDA") formally authorizes their use. 21 U.S.C. §§ 342, 348. The FDCA defines "food additive" as
21 U.S.C. § 321(s). The FDA has deemed taurine safe for use in animal feeds provided that "[i]t is added to complete feeds so that the total taurine content does not exceed 0.054 percent of the feed." 21 C.F.R. § 573.980(b).
Defendant asserts that given these restrictions on taurine, successfully and consistently meeting Plaintiff's taurine requirements would require illegal supplementation of the feed with crystalline taurine, a food additive, which would result in a conflict between federal and state law. Plaintiff claims that Defendant, as well as EWOS, sold and manufactured feed that met Plaintiff's minimum taurine level solely through the use of fishmeal. It is Plaintiff's position that because naturally occurring taurine is not a food additive, it does not implicate food additive regulations.
The issue before the Court is whether federal law preempts Plaintiff's state law claims alleging that 1) Defendant's failure to produce and provide a fish feed that contained sufficient taurine caused it to breach its duty of care to Plaintiff; 2) the feed was defective in design and manufacture because it failed to perform as safely as an ordinary consumer would expect when used in an intended or reasonably forseeable manner; and 3) Defendant breached the implied warranties of fitness for purpose and merchantability by designing and manufacturing a defective feed that was not fit for consumption.
Wyeth, 555 U.S. at 565, 129 S.Ct. 1187 (alterations in original). "[O]ne of the [FDCA's] core objectives is to ensure that any product regulated by the FDA is `safe' and `effective' for its intended use." Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000). The mission of the FDA is to "protect the public health by ensuring that ... foods are safe, wholesome, sanitary, and properly labeled." 21 U.S.C. § 393(b)(2).
For preemption to apply in the present case, the facts would have to undisputably demonstrate that Defendant could not manufacture a feed satisfying Plaintiff's minimum taurine requirement without taurine supplementation. As earlier discussed, taurine is a food additive that can only be added to animal feed under the limited circumstances set forth in 21 C.F.R. § 573.980. Thus, any supplementation of Defendant's feed with taurine would violate the FDCA and 21 C.F.R. § 573.980, and any liability resulting from Plaintiff's
Based on the record before the Court, genuine issues of material fact exist that preclude summary judgment. Central to Plaintiff's negligence, products liability, implied warranty of merchantability, and implied warranty of fitness claims is Plaintiff's belief that a feed must contain a specific range of taurine to be optimal for Seriola rivoliana. The parties dispute Defendant's ability to manufacture a feed meeting Defendant's minimum requirement without supplementation.
Plaintiff cites test results of feed manufactured by both Defendant and EWOS to support its assertion that its minimum taurine requirement was met, and could be met, through naturally occurring taurine in fishmeal and other raw materials. Defendant challenges that the test results demonstrate that it was impossible to meet Plaintiff's taurine requirement and comply with federal law. The Court agrees that the evidence tends to suggest that it would be difficult to consistently produce a feed with sufficient taurine. However, because Defendant and EWOS have successfully done so, even if unreliably so, it is possible. Viewing the evidence in the light most favorable to Plaintiff, there is a material factual dispute about whether Defendant could have manufactured a feed that included sufficient taurine without resorting to supplementation.
Consequently, the granting of summary judgment with respect to Plaintiff's negligence, products liability, and implied warranty claims on grounds of preemption would be improper.
Defendant also seeks a ruling that Plaintiff's negligence, intentional/negligent misrepresentation, and products liability claims are barred by the economic loss rule because Plaintiff's damages reflect purely economic losses. Plaintiff asserts that the rule is inapplicable because the defective feed damaged its "other property."
The economic loss rule bars causes of action "where a plaintiff alleges a purely economic loss stemming from injury only to the product itself."
City Express, 87 Hawai'i at 469, 959 P.2d at 839 (quoting Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist., 124 Wn.2d 816, 881 P.2d 986, 989-90 (1994) (en banc)) (quotations omitted). Damage to a product itself is most appropriately a warranty claim. Bronster, 82 Hawai'i at 40, 919 P.2d at 302. "Such damage means simply that the product has not met the customer's expectations, or, in other words, that the customer has received `insufficient product value.'"
The court concluded that the plaintiff's damages consisted of purely economic losses, and noted that the plaintiff did not seek damages for personal injuries. Id. at 294, 167 P.3d at 287. In reaching this conclusion, the Court relied on cases applying the economic loss rule to situations where the defective product is a component of an integrated system/structure and causes damage to other components of the system/structure because the damage is to the defective product itself, not "other property." Id. at 293-94, 167 P.3d at 286-87. The court further held that "even assuming arguendo that the cracked floor tiles, demising walls, skewed door jambs and windows, and damage caused by termites entering through the cracks were caused by the allegedly defective floor slabs, such consequential damages do not constitute damage to `other property.'" Id. at 294-95, 167 P.3d at 287-88.
This district has interpreted Newtown Meadows to extend the reach of the economic loss rule to preclude "purely economic losses including `consequential damages' to property other than the allegedly defective product." Burlington, 518 F.Supp.2d at 1254 (citation omitted).
"Economic losses encompass Marriages for inadequate value, costs of repair and replacement of [the] defective product, or consequent loss of profits-without any claim of personal injury or damage to other property.'" Newtown Meadows, 115 Hawai'i at 293, 167 P.3d at 286 (citations and quotations omitted) (alteration in original); City Express, 87 Hawai'i at 469, 959 P.2d at 839 (in cases involving negligent design of building, economic loss damages are those pertaining solely to the costs related to the operation and value of the building itself, i.e. additional costs, lost rent, the cost of remedying the alleged building defects, and the difference between the value of the building as designed and the value it would have had if it had been properly designed; personal injuries caused by the defective design or damage to property other than the building itself are excluded); Millenkamp v. Davisco
Plaintiff submits that its tort claims are not barred by the economic loss rule because the feed damaged its fish, i.e. "other property." An exception to the rule exists when the finished product causes damage to "other property." Kawamata Farms, Inc. v. United Agric. Prods., 86 Haw. 214, 254, 948 P.2d 1055, 1095 (1997). Kawamata involved allegations by the plaintiffs that Benlate, an agricultural fungicide, damaged their plants, soil, and farm structures. Id. at 221, 948 P.2d at 1062. Following trial, the jury awarded compensatory and punitive damages based on the injury to the plaintiffs' crops. Id. at 227, 948 P.2d at 1068. The jury did not award damages for soil or farm structure restoration. Id. at 228, 948 P.2d at 1069.
The defendants filed a motion for judgment notwithstanding the verdict, arguing that the economic loss doctrine barred recovery in tort given the jury's conclusion that the plaintiff's injuries were a result of "economic loss" rather than damage to soil or farm structures. Id. In denying the motion, the circuit court concluded in pertinent part that "[t]he majority of Plaintiffs' compensatory damages awarded by the jury were for plant replacement costs for the damages to Plaintiffs' plant inventory [that] constitutes `other property,' which therefore brings this case out of the realm of the economic loss doctrine." Id. (alterations in original) (quotations omitted). The Hawaii Supreme Court affirmed the circuit court decision, holding that
Id. at 254, 948 P.2d at 1095.
At first glance, Kawamata appears to be directly on point. However, upon closer examination of the facts, there are critical distinctions between Kawamata and this case. Plaintiff submits that it may recover in tort for the physical injury to its fish caused by the defective feed. Yet it does not seek damages for physical injury to its fish. Instead, it bases its damages theory "on a lost profits methodology which considers financial losses as well as avoided costs over a damage period, or period of restoration," and it seeks damages for lost revenue, actual feed cost incurred, and additional costs incurred.
By contrast, the damages awarded in Kawamata were for injury to the plaintiffs' plants; specifically, the replacement costs for the plants, i.e. "other property." Insofar as Plaintiff does not seek damages for injury to its fish, the Court finds that the economic loss rule bars recovery with respect to Plaintiff's negligence, products liability, and negligent misrepresentation claims. Millenkamp, 391 F.Supp.2d at 875-79 (in a breach of warranty and negligence case alleging that milk permeate
This conclusion is consistent with the legal principles set forth in Newtown Meadows and Burlington, even though this case is factually distinguishable in that it is not construction litigation. Neither Newtown Meadows nor Burlington
Having concluded that the economic loss rule applies, the Court must determine whether it bars Plaintiff's intentional misrepresentation claim. As earlier discussed, the Hawaii courts have held that the rule applies to negligence, products liability, and negligent misrepresentation claims. They have not, however, authorized the application of the rule to intentional misrepresentation claims. In the absence of state court precedent extending the economic loss rule to intentional misrepresentation claims, the Court declines to extend the rule here. Accordingly, the Court finds that the economic loss rule bars Plaintiff's negligence, products liability, and negligent misrepresentation claims, and grants summary judgment in Defendant's favor as to said claims.
Insofar as the economic loss doctrine bars Plaintiff's products liability claim, Plaintiff and Defendant's summary judgment motions concerning the applicability of the res ipsa loquitur doctrine are denied as moot.
Defendant moves for summary judgment on the ground that it did not make any actionable misrepresentation claims. To prove a claim of intentional misrepresentation, a plaintiff must establish that "(1) false representations were made by defendants, (2) with knowledge of their falsity (or without knowledge of their truth or falsity), in contemplation of plaintiff's reliance upon these false representations, and (4) plaintiff did rely upon them." Shoppe v. Gucci Am., Inc., 94 Haw. 368, 386, 14 P.3d 1049, 1067 (2000). "To be actionable, the alleged false representation must relate to a past or existing material fact and not the occurrence of a future event." Id. (citation omitted).
The first alleged misrepresentation made by Mr. Beattie was that the Kona Pacific feed formulation did not change since early 2008. Defendant contends that this is not an actionable misrepresentation because minor changes in raw material concentrations between different feed orders do not constitute a change in the formula. Plaintiff accuses Defendant of manufacturing a distinction between the words "formula" and "raw material concentrations." Plaintiff points to Defendant's formulation data to establish that changes in raw material concentrations constitute a change in the formula. Pl.'s CSF, Ex. 11.
A close examination of the evidence reveals no disputed issues of material fact, even viewing such evidence in a light most favorable to Plaintiff. According to Defendant, it uses a "least cost formulation" to select the most cost effective ingredients in its inventory that still satisfy the nutrient requirements and raw material limitations set in the formula. Def.'s CSF, Johnson Decl., Exs. C & P. Indeed, Greg Deacon testified that that the feeds are produced using a feed formulation program, with ingredient parameters set by a formulator. Def.'s CSF, Johnson Decl., Ex. C. He further testified that when Kona Blue requested a change to the poultry meal feed in 2007, he probably lowered the feed's fishmeal content to 20%. Id.
Mr. Shaw similarly testified that Defendant used a program called "Format" to formulate its diets, wherein minimum and maximums for every product by size were set within Format's parameters. Def.'s CSF, Johnson Decl., Ex. P. Mr. Shaw also stated that Format determines which raw materials are best for use on a particular day. Id. The formulation data cited by Plaintiff establishes that ingredient percentages changed over time, which is consistent with the undisputed facts, including Mr. Madsen's testimony that Mr. Beattie explained that ingredients may vary over time. Pl.'s CSF, AMF at ¶ 11, Ex. 2; Def.'s Reply CSF at ¶ 11; Def.'s CSF, Johnson Decl., Ex. B. Therefore, the evidence establishes that Mr. Beattie accurately represented that the formula did not change because any variation in the ingredient content still fell within the formula's parameters/restrictions. For example, notwithstanding the fact that the ingredient percentages changed over time, as reflected in the formulation data, the fishmeal numbers referenced by Plaintiff demonstrate that the fishmeal level always exceeded the 20% formulation level set by Mr. Deacon for the Kona Pacific poultry meal feed.
Based on the foregoing, the Court hereby finds, as a matter of law, that Mr. Beattie's statement about a lack of change to the formula since 2008 was not a false representation.
The second alleged misrepresentation is Mr. Beattie's statement that Kona Blue had successfully grown Seriola rivoliana on the Kona Pacific poultry meal feed, despite his knowledge that Kona Blue had experienced similar feeding and growth problems after switching to said feed. Kona Blue reported to Defendant in July 2008 that it experienced some of the best fish survival in company history. Pl.'s CSF, Ex. 20. Citing communications between Kona Blue and Mr. Beattie several months later, which expressed Kona Blue's concern about feeding and growth issues,
The issues with growth and feeding around October 2008 were later determined to be caused by overstocking, skin flukes, and strep infection. Def.'s Reply CSF, Supplemental Johnson Decl., Ex. B. In addition, Kona Blue reported successful results for nearly two years while its fish were consuming the feed. Def.'s CSF, Beattie Decl. at ¶ 6. Thus, Plaintiff has not come forward with significant probative evidence tending to support its legal theory that Mr. Beattie misrepresented Kona Blue's success with the Kona Pacific poultry meal feed.
It is worth noting too, that Plaintiff had access to Kona Blue's records prior to its acquisition of the aquafarm, so Plaintiff had at its disposal information to confirm Kona Blue's success, or lack thereof, using the Kona Pacific poultry meal feed. By the time Plaintiff assumed control of the aquafarm in February 2010, the fish had been consuming the Kona Pacific poultry meal feed for approximately two years. For these reasons, the Court grants Defendant's Motion as to representations about the growth of the fish on Kona Pacific feed.
The third alleged misrepresentation concerned the taurine concentration level in the Kona Pacific poultry meal feed, which Plaintiff alleges Mr. Shaw falsely represented. Mr. Shaw provided estimated levels of taurine and calculated a weighted average of taurine for all feed sizes around 0.17% on June 7, 2011, a fact undisputed by Plaintiff. However, just one day prior, Defendant stopped purchasing the Kona Pacific poultry meal feed and ordered the Kona Pacific high fishmeal feed. Defendant asserts that in view of these facts, Plaintiff cannot establish that it relied on Mr. Shaw's representations about the taurine content. The Court agrees.
Plaintiff cannot reasonably contend that it relied on a statement/representation about taurine content in the Kona Pacific poultry meal feed when it had already stopped purchasing the feed and decided to purchase the high fishmeal feed. Plaintiff failed to respond to Defendant's arguments about this alleged misrepresentation so the Court assumes that Plaintiff has waived any arguments concerning said representation. There being no opposition by Plaintiff, and the Court finding that no genuine issues of material fact exist, Defendant is entitled to summary judgment.
Lastly, Plaintiff claims that in July 2010, Mr. Beattie misrepresented that the Kona Pacific feed formulation was appropriate and fit for use with Seriola rivoliana. Defendant submits that this statement is not actionable because a misrepresentation claim cannot be based on mere broken promises or unfulfilled predictions or expectations. Defendant also characterizes Mr. Beattie's statement as sales talk or "puffing."
Plaintiff does not challenge Defendant's argument that a representation cannot consist of broken promises of unfulfilled predictions or expectations, countering only that Mr. Beattie's statement was not "puffing," but an actionable statement that was sufficient to deceive. Hawaii law is clear that a misrepresentation claim
Id. (quoting Stahl v. Balsara, 60 Haw. 144, 149, 587 P.2d 1210, 1214 (1978)). As discussed with respect to the second alleged misrepresentation (subsection B), Mr. Beattie believed that the fish had successfully grown on the Kona Pacific feed. Thus, even accepting Plaintiff's factual allegations as true, Plaintiff has not set forth significant probative evidence that Mr. Beattie made a false statement, and certainly not that he knew of the falsity of the statement, assuming it was false. Furthermore, the promissory nature of the representation makes its non-actionable. Accordingly, the Court grants summary judgment on Plaintiff's intentional misrepresentation claim.
Defendant argues that it is entitled to summary judgment on Plaintiff's breach of implied warranty of merchantability claim because no warranty attached to the custom designed Kona Pacific meal feed, which was for an unknown species and thus had no ordinary purpose. Plaintiff counters that a warranty attaches to all products, even those that are custom made. Plaintiff submits that the issue of whether the feed was defective or unfit for the ordinary purposes for which it was used is disputed.
The implied warranty of merchantability is arguably the broadest warranty in the Uniform Commercial Code, and is "implied by operation of law into every sale of goods by a merchant seller." Ontai v. Straub Clinic and Hosp. Inc., 66 Haw. 237, 249-50, 659 P.2d 734, 744 (1983) (citations omitted). Merchantability means, among other things, that goods "[a]re fit for the ordinary purposes for which [they] are used." Haw.Rev.Stat. § 490:2-314(2)(c);
The Court begins its discussion by addressing the custom product exception advanced by Defendant. Relying on out of
Second, even if the Court were to consider the custom product exception, it would find that the exception does not apply. The basis for the rulings in the cases cited by Defendant was that there were no usual standards for determining ordinary performance in the new products. Given the facts presented here, the Court could not reach the same conclusion as those cases. The Kona Pacific poultry meal feed was not a newly created feed made especially for Plaintiff; it was created in 2007 for Kona Blue and had been sold for over two years by the time Plaintiff assumed control of the aquafarm. Arguably then, usual standards for determining ordinary performance could be ascertained.
In view of the inapplicability of the custom product exception, the issue is whether Defendant is entitled to summary judgment based on the evidence before the Court. The answer is clearly no. There is a genuine issue of material fact concerning the second element of this claim-whether the feed was defective or unfit for the ordinary purpose for which it was used. Accordingly, the Motion is denied as to Plaintiff's breach of implied warranty of merchantability claim.
In a footnote, Defendant also argues that Plaintiff cannot prevail because it is undisputed that the feed was merchantable given Plaintiff's resale of the excess Kona Pacific feed to other farmers. Plaintiff clarifies that it did not resell the feed to Seriola commercial farmers; it sold the feed to Kona Blue for a research trial, an agricultural management/consulting service company, and a hotel and pond service company. Pl.'s CSF at ¶ 34. The Court rejects Defendant's argument because "[t]he right of a buyer to bring suit against a seller for breach of an implied warranty of merchantability is not affected by the fact that the former has resold the goods to a third party." 26 Am.Jur. Proof of Facts 2d 1. Thus, summary judgment is improper.
Defendant's first argument is that Plaintiff's breach of implied warranty for a particular
The implied warranty of fitness for a particular purpose is narrower and more specific than the implied warranty of merchantability. Ontai, 66 Haw. at 250, 659 P.2d at 744 (citation omitted). "[T]he essential components of an implied warranty of fitness are that the seller has reason to know of the particular purpose for which the goods are required, and that the buyer relies on the seller's expertise in supplying a suitable product." Id.; Haw. Rev.Stat. § 490:2-315.
The implied warranty of fitness may be disclaimed as long as it is in writing and conspicuous.
In the present case, Defendant's disclaimer is not "conspicuous" as defined by HRS § 490:1-201.
Defendant's disclaiming language is at the bottom of the product sheet, in the same font as the main text, but smaller. Moreover, there is no heading separating it from the text above.
The disclaimer at issue here contains no such heading or distinctive font to call attention to it. As a result, the Court finds that it is not conspicuous. Office Supply Co., Inc. v. Basic/Four Corp., 538 F.Supp. 776, 784 (D.C.Wis.1982) (finding that disclaimers were not conspicuous because they were on the reverse side of the first two pages of the contract; they were not positioned near the buyer's signature
The Court's inquiry does not end there, however.
Sierra Diesel, 890 F.2d at 114; Va. Sur. Co., Inc. v. Am. Eurocopter Corp., 955 F.Supp. 1213, 1217 (D.Haw.1996). Factors to be considered are the sophistication of the parties and the circumstances of the negotiation and signing. Id. Notably, as Plaintiff has pointed out, there is no dispute that the product sheets were not part of the contract. Defendant contends that there is no requirement that disclaimers need to be incorporated into a contract. Yet, nearly all of the cases it relies upon involved a disclaimer in a contract.
Not only does the majority of case law involve contracts, but a finding of conspicuousness often involves undisputable evidence, generally in the form of testimony, that a buyer has seen and understood the disclaimer.
Without reaching the issue of whether the product sheet became part of the agreement, the Court finds that the evidence does not clearly establish that Mr. Madsen read and knew about the disclaimers, at the time the parties entered into the contract, even though Kona Blue produced the product sheets as part of Plaintiff's due diligence. In his position as president, Mr. Madsen should arguably have a fairly high level of sophistication in business dealings. Nevertheless, bearing in mind that exclusions are generally disfavored, and viewing the evidence in the light most favorable to Plaintiff, the Court concludes that Defendant has not presented sufficient evidence demonstrating that Plaintiff was aware of the disclaimer. Even if Plaintiff was aware of the disclaimer, the disclaimer itself is not conspicuous. Accordingly, considering the physical appearance of the disclaimer, the sophistication of the parties, and the circumstances of the negotiation and signing, the Court declines to find that Defendant disclaimed the implied warranty of fitness.
Defendant's second argument for granting summary judgment is that Plaintiff did not rely on Defendant in determining whether the feed was appropriate for the fish; that Plaintiff selected the feed based on Kona Blue's success. Plaintiff represents that it relied on Defendant's expertise to create a feed that met Seriola rivoliana's nutritional requirements. Based on the evidence submitted by the parties, a genuine issue of material fact exists as to whether Plaintiff relied on Defendant's expertise in supplying a suitable product.
Mr. Madsen attests that he "relied on [Defendant's] global expertise and skill in formulating fish feed in deciding to continue to purchase the Kona Pacific feed
Defendant seeks dismissal of Plaintiff's unjust enrichment claim because there is an express contract between the parties. Plaintiff counters that if the Court finds that Plaintiff does not have an adequate remedy of breach of an implied warranty, then clear issues of fact exist about whether Plaintiff conferred a benefit upon Defendant and whether Defendant's retention of the benefit would be unjust.
"To prevail on an unjust enrichment claim, a plaintiff must show that: 1) it has conferred a benefit upon the defendant, and 2) that the retention of the benefit was unjust." State Farm Fire and Cas. Co. v. Chung, 882 F.Supp.2d 1180, 1192 (D.Haw.2012) (citation omitted). It is well settled "that equitable remedies are not available when an express contract exists between the parties concerning the same subject matter." AAA Haw., LLC v. Haw. Ins. Consultants, Ltd., CV. No. 08-00299 DAE-BMK, 2008 WL 4907976, at *3 (D.Haw. Nov. 12, 2008) (citations omitted); Chung, 882 F.Supp.2d at 1192 ("As a general rule, `[a]n action for unjust enrichment cannot lie in the face of an express contract.'"). Thus, "[w]here the parties to a contract have bargained for a particular set of rights and obligations, all claims involving those express rights and obligations properly lie in contract law and not in equity." AAA, 2008 WL 4907976, at *3.
Here, there is no dispute that there is a contract between the parties. Def.'s CSF at ¶¶ 9, 10, 43; Pl.'s CSF at 2 & ¶¶ 9, 10. Because Plaintiff's allegation that it "conferred a benefit upon Skretting by purchasing Kona Pacific feed and making payment to Skretting," First Amend. Compl. at ¶ 54, arises solely out of the express contract for the sale of the feed, Plaintiff cannot maintain an unjust enrichment claim.
Defendant lastly argues that it is entitled to summary judgment on its breach of contract counterclaim in the amount of $34,654.40 because it is undisputed that Plaintiff failed to pay for the high fishmeal feed that it admitted was satisfactory. To prevail on a claim for breach of contract, Defendant/Counterclaim Plaintiff must identify "(1) the contract at issue; (2) the parties to the contract; (3) whether [Defendant/Counterclaim] Plaintiff performed under the contract; (4) the particular provision of the contract allegedly violated by [Plaintiff/Counterclaim] Defendant[]; and (5) when and how [Plaintiff/Counterclaim] Defendant[] allegedly breached the contract." Evergreen Eng'rg, Inc. v. Green Energy Team LLC, 884 F.Supp.2d 1049, 1059 (D.Haw.2012).
Plaintiff contends that there are material issues of fact as to whether Defendant
Based on the evidence before the Court, there was a valid contract between the parties for the Kona Pacific high fishmeal feed, Defendant delivered the feed, and Plaintiff failed to pay for the feed. Def.'s CSF, Beattie Decl. at ¶ 16 & Ex. J; Johnson Decl., Ex. R. Mr. Madsen has admitted that the high fishmeal feed was sufficient, but that Plaintiff did not pay for the feed because it had paid millions of dollars for defective feed.
Based on the foregoing, the Court HEREBY GRANTS IN PART AND DENIES IN PART Defendant's Motion for Summary Judgment and DENIES AS MOOT 1) Defendant's Supplemental Motion for Summary Judgment on the Doctrine of Res Ipsa Loquitur and Any Similar Theories and 2) Plaintiff's Motion for Partial Summary Judgment Re: Circumstantial Evidence Under Strict Products Liability ("Quasi" — Res Ipsa).
Defendant's Motion is granted as to Plaintiff's negligence (Count 1), intentional/negligent misrepresentation (Counts 2 and 3); products liability (Count 4), and unjust enrichment claims (Count 7), and Defendant's breach of contract counterclaim. Defendant's Motion is denied as to Plaintiff's implied warranty of merchantability (Count 5) and implied warranty of fitness claims (Count 6).
IT IS SO ORDERED.
Haw.Rev.Stat. § 490:2-314
Haw.Rev.Stat. § 490:2-315.
Haw.Rev.Stat. § 490:1-201.
