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Dakota Style Foods, Inc. v. Sunopta Grains And Foods, Inc.

United States District Court, D. South Dakota, Northern Division

July 10, 2018

DAKOTA STYLE FOODS, INC.; Plaintiff,
v.
SUNOPTA GRAINS AND FOODS, INC., Defendant.

          ORDER

          CHARLES B. KORNMANN, UNITED STATES DISTRICT JUDGE.

         BACKGROUND

         Dakota Style Foods, Inc. ("Dakota Style") filed sued against SunOpta Grains and Foods, Inc., ("SunOpta") to recover damages incurred by Dakota Style as a result of SunOpta's recall of shelled sunflower kernels. SunOpta voluntarily recalled roasted sunflower kernel products due to the potential presence of listeria monocytogenes on May 2, 2016, May 18, 2016, and May 31, 2016. The recall ultimately covered approximately one year's products sold to Dakota Style.[1]Dakota Style filed claims for strict products liability, negligence, breach of implied warranties, breach of express warranties, breach of contract, and declaratory judgment in state court. On August 12, 2016 SunOpta removed the case to federal court and on December 13, 2016 this court dismissed Dakota Style's claims for strict products liability, negligence, and declaratory judgment. SunOpta filed an answer to plaintiffs complaint, which included counterclaims for breach of sales contract, breach of contract, unjust enrichment, conversion, promissory estoppel, and fraud-related to plaintiffs alleged failure to pay its outstanding balance with SunOpta or verify that product for which plaintiff was reimbursed by SunOpta was subject to recall.

         On May 1, 2018, plaintiff filed a motion for partial summary judgment and defendant filed a motion for summary judgment. Plaintiff requests summary judgment for breach of contract and breach of implied and express warranties and requests that SunOpta's counterclaims be dismissed. SunOpta objects to plaintiff's request, arguing, inter alia, that Dakota Style has sustained no damages as the majority of product was sold to the end consumer and paid for by Dakota Style's customers, that the bulk of product delivered to Dakota Style was not contaminated by listeria monocytogenes, and that there is a factual dispute as to whether product specifications were included in the parties' contracts and whether SunOpta knew that Dakota Style used its sunflower kernels for human consumption.

         Defendant-requests summary judgment on Dakota Style's claim for consequential damages, Dakota Style's outstanding balance to SunOpta, the purchase price of kernel product not covered by the recall, and for the purchase price of product covered by the recall which SunOpta alleges Dakota Style already sold. Dakota Style objects to defendant's request, arguing, inter alia, that Dakota Style is a third-party beneficiary of SunOpta's insurance contract, that limiting damages to the purchase price is unconscionable, that Dakota Style was forced to reimburse merchants for the defective products, and that Dakota Style is entitled to set-off for its outstanding balance.

         Both parties request oral argument on their summary judgment motions. Because the court is able to resolve the pending motions for summary judgment without oral argument, the requests for oral argument should be denied.

         DECISION

         I. Standard of Review

         The purpose of summary judgment is to determine whether there is a "genuine issue for trial" with regard to a claim or defense or "part of each claim or defense." Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Fed.R.Civ.P. 56(a). Summary judgment should be granted only where there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). If facts are disputed, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986). The moving party bears the burden of showing that the material facts in the case are undisputed and "inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); United States v. Diebold. Inc., 369 U.S. 654, 655 (1962) (per curiam). However, a nonmoving party "may not rest on mere allegations or denials" and "must do more than show that there is some metaphysical doubt as to the material facts." Anderson at 256; and Matsushita at 587. Where "the factual context renders respondents' claim implausible"-for instance, "if the claim is one that simply makes no economic sense"-then "respondents must come forward with more persuasive evidence to support their claim than would otherwise be necessary." Matsushita at 587. In sum, an issue of fact is genuine if, based upon the evidence in the record, a reasonable jury could return a verdict for the nonmoving party. Anderson at 248.

         II. Breach of Express Warranty

         This court determined in its previous ruling in this matter that South Dakota law governs substantive issues and the UCC governs the sales contracts between Dakota Style and SunOpta. Dakota Style Foods. Inc. v. SunOpta Grains and Foods. Inc., 2016 WL 7243534, *2 (D.S.D. 2016). Dakota Style requests that this court grant its motion for summary judgment as to breach of express warranty. In order to recover money damages for a breach of express warranty in South Dakota, Dakota Style must prove the following elements:

(1) an affirmation of fact or promise made by the seller to the buyer relating to the goods;.
(2) such affirmation of fact or promise became a part of the basis of the bargain;
(3) that the injured party, in making the purchase, relied on the representations, affirmations of fact or promises;
(4) that the goods sold by the seller failed to comply with the promises or affirmations of fact made by the seller;
(5) that the buyer, because of such failure, was financially injured; and
(6) that such failure to comply was a proximate cause of the financial injury suffered by the buyer.

Swenson v. Chevron Chemical Co., 234 N.W.2d 38, 42 (S.D. 1975) (internal citations omitted). SDCL § 57A-2-313(1)(b) provides that "[a]ny 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." Further, "[i]t is not necessary to the creation of an express warranty that the seller use formal words such as 'warrant' or 'guarantee' or that he have a specific intention to make a warranty." SDCL § 57A-2-313(2). As this court has previously noted, "[p]urchase agreements may incorporate by reference another document containing technical specifications for the product, and this will likely create an express warranty by description." James River Equip. Co. v. Beadle Cry. Equip., Inc., 646 N.W.2d 265, 269 (S.D. 2002); Dakota Style Foods. Inc. v. SunOpta Grains and Foods. Inc. at *5. The contracts between Dakota Style and SunOpta specifically state "[a]s per attached product specifications." The product specification states that "[t]he product shall be manufactured in accordance with Good Manufacturing Practice 21 CFR, Part #110"; "shall conform in every respect with the provisions of the Federal Food, Drug and Cosmetic Act, as amended, and to all applicable State and Local Regulations"; and "shall meet the Kashruth requirements of the Union of Orthodox Jewish Congregations of America." The product specifications provide nutritional data, a flavor profile, and indicate that the sunflower kernels are "[n]utritionally-dense whole food."

         SunOpta argues that the product specifications that Dakota Style references do not create an express warranty for two reasons: (1) that the product specifications were not included in the contracts with Dakota Style; and (2) that the product specifications disclaim any warranty through inclusion of the following statements: "This information is presented in good faith, and great care was used in its preparation. However, no warranty, guarantee, or freedom from patent infringement is implied or intended. This information is offered solely for your consideration and verification." Dakota Style, as the party having moved for summary judgment for breach of express warranty, has the burden of proving, by a preponderance of the evidence, that the product specifications were part of the parties' agreements. Dakota Foundry, Inc. v. Tromley Indus. Holdings. Inc., 737 F.3d 492, 495 (8th Cir. 2013).

         A. The Product Specifications Were Included in the Contracts with Dakota Style

         It is clear to this court, given the statement in the contracts "[a]s per attached product specifications," that product specifications were part of the contracts. This is consistent with the fact that virtually no description of the products Dakota Style purchased are included in the sales contracts. SunOpta, however, argues that there is a factual issue as to whether the product specifications were provided to Dakota Style as part of the contract, stating that

Michael Todd, the SunOpta employee who negotiated the sunflower contracts with Dakota Style, testified he did not believe he included the product specifications when he sent contracts to Dakota Style, and even stated he looked back at emails to see if he had, and no emails substantiated that product specifications were sent with the contracts.

         Michael Todd also stated via affidavit that "SunOpta does not make its product specifications generally available to the public." The contracts themselves, two of which were finalized just over a year before the initiation of this dispute, are hand signed and include a provision requesting that the signed copy be returned to SunOpta. SunOpta is uniquely in possession and control of these documents; yet, it has failed to submit any evidence that other specifications were provided to Dakota Style, that Dakota Style was provided or may have otherwise obtained the specifications exclusive of the contract negotiations, or that its files in fact contain no product specifications and the reference included in the contracts was in error. It is immaterial that Dakota Style's Vice President, Riley Dandurand, was unable, at deposition, to remember the exact date that the product specifications were received when he was nonetheless able to specify that "when we would enter a contract we would get [the product specifications] from SunOpta's . . . QA or quality control department."

         SunOpta must do more than "show there is some metaphysical doubt" as to the incorporation of product specifications in its contracts with Dakota Style. Matsushita at 587. Moreover, because this court finds that it is implausible that product specifications would not have been included in the contracts, that Dakota Style would have had such product specifications absent their inclusion in the contracts, and that SunOpta would not be able to dispute the specifications Dakota Style provides, SunOpta must "come forward with more persuasive evidence to support [its] claim than would otherwise be necessary." Id. No reasonable jury could return a verdict for SunOpta, based on the evidence that it has provided, that the product specifications provided by Dakota Style were not included in the contracts. As such, this matter is not a genuine issue of fact that must be preserved for trial. This court therefore finds that the product specifications serve as an express warranty pursuant to SDCL § 57A-2- 313(1)(b).

         B. SunOpta's Purported Disclaimer of Express Warranty is Inoperative

         SunOpta claims that a statement included on its product specifications disclaims any warranty that might arise as a result of those specifications. SDCL § 57A-2-316(1) states that

Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this chapter on parol or extrinsic evidence (ยง 57A-2-202) negation or ...

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