WILLIAM B. SHUBB, District Judge.
Plaintiff Starbucks Corporation ("Starbucks") filed this action against defendants Amcor Packaging Distribution, Amcor Packaging (USA), Inc. (collectively, "Amcor"), and Pallets Unlimited, LLC ("Pallets Unlimited"), alleging that defendants supplied it with defective wooden pallets that caused mold to develop on its unroasted ("green") coffee and resulted in losses of approximately $5.3 million. (Compl. ¶¶ 9-11 (Docket Nos. 1, 6, 7).) The matter is now before the court, pursuant to Federal Rule of Civil Procedure 56, on (1) Starbucks' motion for partial summary judgment against Amcor on certain purportedly invalid provisions of the contract between Starbucks and Amcor, (Docket No. 119); and (2) Amcor's cross-motion for summary judgment on all of Starbucks' claims, (Docket No. 111).
Starbucks is an international company that distributes coffee products. Starbucks operates a coffee bean roasting facility in Minden, Nevada called the Carson Valley Roasting Plant ("CVRP"). Ozburn-Hessey Logistics, LLC ("OHL") owned and operated a warehouse in Sparks, Nevada ("OHL Warehouse") where Starbucks' green coffee was stored on wooden pallets before being transported to CVRP for roasting. (Compl. ¶¶ 8-11.)
Upon delivery, OHL, acting on behalf of Starbucks, visually inspected the wooden pallets for damage, but did not measure the pallets for moisture content. Except for one shipment of wooden pallets that were found to be wet and returned to Pallets Unlimited, OHL accepted all of the pallet deliveries on behalf of Starbucks. Following the deliveries, Amcor issued invoices to Starbucks for the sale of the wooden pallets ("Invoices"). Each Invoice included a provision at the bottom as follows:
(the "Disclaimers"). (
Starbucks paid these Invoices and loaded 68,000 bags of green coffee on the wooden pallets it purchased from Amcor for storage at the OHL Warehouse and subsequent transportation to CVRP for roasting. (
Starbucks retained independent surveyors to conduct an investigation into the source of the mold. The surveyors determined that many of the wooden pallets Starbucks purchased from Amcor did not meet specifications because they were constructed with lumber whose moisture content was considerably above the 19% requirement. (Parikh Decl. Exs. 14-15, 19 (Docket Nos. 111-5 to -27).) The surveyors concluded that the "formation of mold on the affected Bags [and] Green Coffee Beans was apparently due to the release of moisture from the lumber materials used in construction of the Pallets, principally due to excessive moisture contained within the lumber." (
Upon Starbucks' request, Amcor picked up all of the wooden pallets it had sold to Starbucks from the OHL Warehouse and sent them back to Pallets Unlimited. (Coons Decl. ¶¶ 11-12, Ex. 25 (Docket Nos. 111-28 to -32).) Starbucks demanded that Amcor reimburse it for the damage to its coffee beans caused by the mold. Amcor disputed its liability for any damage to Starbucks' coffee as precluded under the Disclaimers contained in the Invoices it issued Starbucks for the wooden pallets. (
Starbucks filed this action on August 23, 2013, alleging claims against Amcor for (1) breach of contract, and (2) breach of the express warranty that the wooden pallets would meet Starbucks' moisture content specifications. (Compl. ¶¶ 26-34.) Starbucks additionally asserted claims against Amcor and Pallets Unlimited for (3) breach of the implied warranty of merchantability, (4) breach of the implied warranty of fitness for a particular purpose, (5) strict products liability, and (6) negligence. (
Starbucks moves for partial summary judgment against Amcor that the Disclaimers in the Invoices are unenforceable and invalid as a matter of law because Starbucks neither bargained for nor assented to them. (Docket No. 119.) Starbucks seeks a ruling that Amcor is precluded from invoking the Disclaimers as a defense against Starbucks' claims. Starbucks also seeks to strike Amcor's thirteenth and forty-ninth affirmative defenses, which are premised on the Disclaimers.
Amcor's thirteenth affirmative defense states that Amcor "disclaimed, negated and excluded each and every warranty of the type and character alleged in the complaint so as to bar recovery based on any such warranty." (Amcor's Ans. at 9 (Docket No. 14).) Amcor's forty-ninth affirmative defense states that "the warranties, disclaimers and any other exclusions in the invoices or contract between plaintiff and [Amcor] is valid and enforceable." (
A party may move for summary judgment on a "claim or defense." Fed. R. Civ. P. 56(a). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.
The moving party bears the initial burden of establishing that no genuine issue of material fact exists as to the particular claim or defense.
Once the moving party has met its initial burden, the burden shifts to the non-moving party to produce concrete, specific evidence establishing a genuine issue of material fact.
In ruling on a motion for summary judgment, the court may not weigh the evidence, make credibility determinations, or determine the truth of the matters asserted, and it must view all inferences drawn from the factual record in the light most favorable to the non-moving party.
Where parties submit cross-motions for summary judgment, the court must consider each motion separately to determine whether either party has met its burden, "giving the nonmoving party in each instance the benefit of all reasonable inferences."
"[F]ederal courts sitting in diversity apply state substantive law and federal procedural law."
Starbucks argues that the Disclaimers are not part of the parties' contract, are unconscionable, and are invalid because they materially alter the parties' contract. Amcor, on the other hand, contends that the Disclaimers are part of the parties' contract because Starbucks had assented to them during the parties' prior course of dealing; thus, Starbucks' remedy for breach of contract here is limited to the exclusive remedy provided in the Disclaimers.
Amcor argues that Starbucks is precluded from challenging the validity of the Disclaimers because Starbucks judicially admitted in its Complaint that Amcor's Invoices were part of the parties' contract for the wooden pallets. (Amcor's Mem. at 14-15 (Docket No. 111-1).) "Factual assertions in pleadings . . . are considered judicial admissions conclusively binding on the party who made them."
To determine whether the Disclaimers are a part of the parties' contract for the sale of the wooden pallets, the court must evaluate the manner in which the parties formed the contract. "[T]he rules of contract formation under the [Code] do not include the principle that the parties must agree to all essential terms in order to form a contract."
To find an enforceable contract, the parties' conduct must indicate a consummated process of offer and acceptance—and thus, an intent to contract—rather than inconclusive negotiations.
It is undisputed that, on December 14, 2011, Kerri Hardy, Starbucks' CVRP distribution supervisor, called Rachel Carranza
Although Hardy and Carranza did not specifically discuss the 19% kiln-dry requirement that was contained in the Specification Sheet, it is undisputed that Carranza orally represented to Hardy that Amcor would supply the wooden pallets to Starbucks in accordance with the Specification Sheet. (Hardy Decl. ¶¶ 5-6; Carranza Dep. at 51:1-17.) Carranza's prompt promise to ship the pallets thus constituted an acceptance of Starbucks' offer and created an enforceable contract between the parties.
Between December 2011 and February 2012, Starbucks placed additional orders for wooden pallets pursuant to the Specification Sheet. (Carranza Decl. ¶ 25 (Docket Nos. 111-33 to -37);
Amcor, through Pallets Unlimited, delivered the first shipment of pallets to the OHL Warehouse on December 21, 2011— one week after Hardy placed the initial order for pallets—and continued to deliver the remaining wooden pallets until February 17, 2012. (McCullough Decl. ¶ 6 (Docket No. 119-17 to -19)); Parikh Decl. Ex. 10.) Because the parties' conduct indicates a consummated process of offer and acceptance, Starbucks and Amcor entered into an enforceable contract here for the sale of 9,480 wooden pallets made from lumber that was kiln-dried to a moisture content of less than 19%.
Both parties refer to the sale of all 9,480 wooden pallets as a single contract, and the court will treat their transaction as such here. The Code treats an installment contract "which requires or authorizes the delivery of goods in separate lots to be separately accepted" as a single contract. Cal. Com. Code § 2612(1);
It is undisputed that the parties never discussed the Disclaimers contained in the Invoices and that Starbucks never expressly assented to them. (McCullough Decl. ¶ 7; Hardy Decl. ¶ 6.) Starbucks argues that the Disclaimers are invalid because they materially alter the parties' contract of sale pursuant to § 2207(2)(b). Amcor issued the first Invoice to Starbucks on December 23, 2011, after the first shipment of wooden pallets was delivered on December 21, 2011. By that time, an enforceable contract for the sale of the pallets already existed between the parties.
California courts treat the application of § 2207 to undisputed facts as an issue of law.
Subsections 2207(1) and (2) do not apply, however, when "[c]onduct by both parties . . . recognizes the existence of a contract . . . [but] the writings of the parties do not otherwise establish a contract."
Subsections 2207(1) and (2) do not apply here. The 26 Invoices did not constitute "definite and seasonable expression[s] of acceptance" under § 2207(1) because Amcor's acceptance occurred when it promised to ship the wooden pallets to Starbucks. The Invoices were also not written confirmations "intended by the parties as a final expression of their agreement." Cal. Com. Code § 2202;
In addition, the parties here agreed that the wooden pallets would conform to the Specification Sheet. The Invoices did not mention any of the requirements contained in the Specification Sheet besides indicating that they were for "54x72" pallets. (
This conclusion is supported by the official commentary to UCC § 2-207(3), which addresses the precise situation here: "In many cases, as where goods are shipped, accepted and paid for before any dispute arises, there is no question whether a contract has been made. . . . The only question is what terms are included in the contract, and subsection (3) furnishes the governing rule." U.C.C. § 2-207, cmt. 7 (1966);
The terms of a contract formed pursuant to § 2207(3) are those terms upon which the parties expressly agreed and any supplemental terms incorporated under any other provisions of the Code.
Although it is undisputed that Starbucks did not expressly assent to the Disclaimers, Amcor contends that Starbucks' assent can be implied from the parties' course of dealing. It argues that all of the invoices Amcor had issued to Starbucks since the companies started doing business in 2008 contained the same disclaimer language at issue here and that Starbucks never raised any objections to those disclaimers. (Amcor's Mem. at 24-25, 32; Carranza Decl. ¶¶ 7-10; Coons Decl. ¶¶ 5, 8.) Amcor argues that Starbucks' failure to object constituted its assent to the Disclaimers here.
California courts have recognized that "the `supplementary terms' referred to in section 2207(3) may include terms incorporated as a result of the parties' course of dealing."
"A `course of dealing' is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct."
Amcor argues that the parties "had a three year prior course of dealing [since 2008], which imputed notice to plaintiff of the limited remedy and the limitation of liability provision." (Amcor's Mem. at 32.) Amcor contends that, between 2008 and 2012, it issued approximately 250 invoices to Starbucks for the sale of various products, including wooden pallets, and that all of those invoice contained the same disclaimers as those contained in the 26 Invoices here. Amcor has not provided copies of any of the invoices it purportedly issued to Starbucks prior to the transaction at issue in this case. Instead, Amcor submits two spreadsheets that list the approximately 250 invoices Amcor purportedly issued since 2008. (
Amcor also states that it had sold wooden pallets to Starbucks once before in July and August 2009. In that transaction, as here, Starbucks ordered pallets pursuant to a specification sheet it provided that included a 19% kiln-dry requirement, and Amcor subcontracted with Pallets Unlimited to manufacture and deliver the pallets to Starbucks. (Carranza Decl. ¶¶ 11-13, 17; Kirsch Decl., May 27, 2016 ("Kirsch II Decl."), Ex. C at 97:1-25, Ex. O (Docket Nos. 122-4 to -19).)
California courts have consistently held that "the repeated sending of a writing which contains certain standard terms, without any action with respect to the issues addressed by those terms, cannot constitute a course of dealing which would incorporate a term of the writing otherwise excluded under [§ 2207]."
In
Amcor attempts to distinguish
In
"[P]ayment on an invoice in accordance with an existing oral contract does not in itself establish assent to the addition of terms to the contract. For a party's performance to establish assent to a modification or addition of terms, the performance must be related to the proposed modification or addition and differ from the performance already required of the party by the existing contract."
It cannot be said here that Starbucks' payment of Amcor's prior invoices without objection constituted a course of dealing establishing a common basis of understanding between the parties as to their respective liabilities and remedies. There is no evidence that, by paying the prior invoices, Starbucks manifested its affirmative assent to the disclaimers in the Amcor's prior invoices. Rather, Starbucks was merely performing its obligation to pay Amcor for the goods that it purchased, including the wooden pallets that were delivered in 2009. The payment of those invoices, without more, thus does not constitute Starbucks' assent to the Disclaimers in the 26 Invoices here.
To support its argument, Amcor relies on two inapposite cases, neither of which involves the use of a course of dealing to supplement the terms of the parties' contract under § 2207(3). In
However, the court held that the limitation of liability was enforceable because it was provided in conspicuous large font, capital letters, and bold print.
Unlike
Amcor also contends that, when Starbucks and Amcor first started doing business in 2008, the parties attempted to negotiate the terms of a standard supplier contract to govern Starbucks' purchase of goods from Amcor. (Parikh Decl. Exs. 4-5.) On March 10, 2008, Christopher Silkworth, a Starbucks employee, emailed a proposed contract to Amcor for review. (
On March 24, 2008, Silkworth responded that, with the exception of an arbitration clause that Amcor had added, Amcor's changes were "acceptable." (Parikh Decl. Ex. 4 at 004151.) Silkworth requested that Amcor make certain additional changes and resubmit their revised contract to Starbucks. (
Amcor argues that Silkworth's March 24, 2008 email accepting Amcor's revisions indicates Starbucks' assent to the Disclaimers in the Invoices here. When asked at his deposition whether he had the authority to execute supplier contracts on behalf of Starbucks, however, Silkworth responded that he "had the authorization to administer the flow of agreements between suppliers and Starbucks," but "never had authorization to sign on Starbucks' behalf any agreements or documents that related to a supplier, any supplier." (Silkworth Dep. at 21:10-22:6.)
As to the proposed revisions that Amcor sent back on March 19, 2008, Silkworth testified that he would not have had the authority to respond to Amcor regarding those changes without first taking them to the proper officials at Starbucks for review and approval. (
Contrary to Amcor's assertions, the parties' March 2008 negotiation is immaterial because, as Amcor itself acknowledges, no agreement was reached. The very nature of a negotiation allows a party to change its position regarding a specific term numerous times before the parties finally reach an agreement. Since the parties failed to reach an agreement in 2008, the emails do not evince Starbucks' intent to assent to the Disclaimers at issue here. In addition, the proposed clause in 2008 is different from the Disclaimers at issue because it limits both parties' liability for damages. The Disclaimers here, by contrast, limit only Amcor's liability for damages. And, unlike the 2008 clause, the Disclaimers here exclude all express and implied warranties, limit the remedy for any defective pallets to the replacement of those pallets, and provide that Starbucks assumes the risk of any loss that arises from the defective pallets.
Furthermore, "[u]nder well-established precedent, a single prior transaction cannot constitute a course of dealing."
For instance, in
Because the parties did not have a course of dealing from which Starbucks' assent to the Disclaimers may be inferred, there are thus no genuine issues of material fact regarding the absence of Starbucks' assent to the Disclaimers here. As a matter of law, therefore, the Disclaimers are not part of the parties' contract for the sale of the wooden pallets. Accordingly, the court must grant Starbucks' motion for summary judgment regarding the unenforceability of the Disclaimers and strike Amcor's thirteenth and forty-ninth affirmative defenses. Amcor is thus excluded from raising the Disclaimers as a defense to Starbucks' claims.
Starbucks does not oppose Amcor's motion for summary judgment on its strict products liability and negligence claims against Amcor. (Pl.'s Opp'n at 2 (Docket No. 122).) The court will thus grant Amcor's motion for summary judgment on those claims.
Amcor seeks judgment as a matter of law that Starbucks is precluded from recovering damages on its breach of contract claim and is limited to the exclusive remedy provided in the Disclaimers.
Amcor does not dispute that the "disclaimer in the invoices is ineffective as to the implied warranty of merchantability and any express warranties." (Amcor's Opp'n at 5.) Amcor argues, rather, that Starbucks' claim for breach of express warranty fails because no express warranty exists here.
Section 2313 of the Code provides that "[a]ny affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise." Cal. Com. Code § 2313(1)(a). "Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description."
Starbucks contends that "Amcor expressly warranted that the pallets would be 19% kiln dried when it accepted the order for pallets." (Pl.'s Mot. at 7.) The Specification Sheet contained the requirement that the wooden pallets be constructed with lumber that was kiln-dried to a moisture content of less than 19%. (Compl. Ex. B.) It is undisputed that Starbucks provided Amcor with the Specification Sheet and that Carranza, on behalf of Amcor, orally agreed to provide Starbucks with wooden pallets in accordance with the Specification Sheet. (Hardy Decl. ¶¶ 5-6; Carranza Dep. at 51:1-17.)
Amcor's promise that the pallets will conform to the Specification Sheet thus created an express warranty that the pallets would be 19% kiln dried.
Amcor argues that Starbucks' claim for breach of the implied warranty of fitness for a particular purpose fails because no such warranty exists here. "Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is . . . an implied warranty that the goods shall be fit for such purpose." Cal. Com. Code § 2315. Amcor argues that Starbucks has failed to establish that Amcor knew Starbucks was relying on its skill or judgment in furnishing the pallets in accordance with the Specification Sheet.
This argument is without merit. It is undisputed that Amcor was aware of the particular purpose for which Starbucks would use the wooden pallets. Carranza states that she "knew beans" and that "the ordinary use of wooden pallets was to hold goods for storage, moving, and/or shipping." (Carranza Decl. ¶¶ 28-29.) It is also undisputed that Amcor knew Starbucks was relying on Amcor to furnish the pallets in accordance with the Specification Sheet. Carranza testified that Hardy "requested [that Amcor] build the pallets per the specification sheet," and that Amcor represented to Starbucks it would furnish the pallets in accordance with the Specification Sheet. (Carranza Dep. at 51:1-17.)
Amcor's own undisputed evidence also establishes that Amcor expected Pallets Unlimited to manufacture the pallets in accordance with the Specification Sheet. (
Amcor argues that Starbucks' claim for breach of the implied warranty of merchantability fails because there was no merchantability that goods are "fit for the ordinary purposes for which such goods are used." Cal. Com. Code § 2314(2)(c). The implied warranty provides for a "minimum level of quality."
A plaintiff claiming breach of the implied warranty of merchantability must show that the product "did not possess even the most basic degree of fitness for ordinary use."
Starbucks provides evidence here that the mold discovered on the pallets could pose a health hazard to humans working with them and a quality hazard to any products stored on them. (Kirsch II Decl. Ex. I at 177:17-179:17.) Amcor argues that the wooden pallets Starbucks returned to Amcor several weeks or months after they were delivered to the OHL Warehouse were not moldy. However, the evidence submitted indicates that the pallets' moisture content decreased over time as a result of natural air drying. (Anderson Dep. at 169:21-171:12; Kirsch II Decl. Ex. N.) This would support a reasonable inference that the pallets may not have been able to support mold growth at the time Amcor took them back.
Amcor also disputes whether the particular mold that was found on the pallets was dangerous to human health and to products because "some types of mold are not hazardous to humans and would not impact products not meant for consumption." (Amcor's Reply at 5.) Amcor acknowledges, however, that the cause of the mold may need to be resolved before the court may determine if the implied warranty of merchantability was breached. It also acknowledges that the cause of the mold "is a disputed fact and cannot be resolved without weighing the evidence and credibility of the parties' witnesses and experts." (
Because genuine issues of material fact exist as to whether the wooden pallets here posed a health and quality hazard and because the determination of this issue may require the resolution of the causation issue, the court must deny Amcor's motion for summary judgment on Starbucks' claim for breach of the implied warranty of merchantability.
IT IS THEREFORE ORDERED that:
(1) Starbucks' motion for partial summary judgment on the unenforceability of the Disclaimers in Amcor's 26 Invoices, (Docket No. 119), be, and the same hereby is, GRANTED;
(2) Amcor's thirteenth and forty-ninth affirmative defenses, (Docket No. 14), be, and same hereby are, STRICKEN and that Amcor be excluded from raising the Disclaimers in the 26 Invoices as a defense to Starbucks' remaining claims for breach warranty of merchantability, and breach of the implied warranty of fitness for a particular purpose;
(3) Amcor's motion for summary judgment on Starbucks' strict products liability and negligence claims, (Docket No. 111), be, and the same hereby is, GRANTED; and
(4) Amcor's motion for summary judgment on Starbucks' claims for breach of contract, breach of express warranty, breach of the implied warranty of merchantability, and breach of the implied warranty of fitness for a particular purpose, (Docket No. 111), be, and the same hereby is, DENIED.
