Blommer Chocolate Co. v. Bongards Creameries, Inc.

• Decision Date: 14 April 1986
• Docket Number: No. 83 C 536.,83 C 536.
• Citation: 635 F. Supp. 919
• Parties: BLOMMER CHOCOLATE COMPANY, Employers Insurance of Wausau, and Old Republic Insurance Company, Plaintiffs, v. BONGARDS CREAMERIES, INC., and J.M. Swank Company, Inc., Defendants. J.M. SWANK COMPANY, INC., Third party plaintiff, v. PACEMAKER, LTD., Third party defendant.
• Court: U.S. District Court — Northern District of Illinois

635 F. Supp. 919

BLOMMER CHOCOLATE COMPANY, Employers Insurance of Wausau, and Old Republic Insurance Company, Plaintiffs, v. BONGARDS CREAMERIES, INC., and J.M. Swank Company, Inc., Defendants.

J.M. SWANK COMPANY, INC., Third party plaintiff, v. PACEMAKER, LTD., Third party defendant.

No. 83 C 536.

United States District Court, N.D. Illinois, E.D.

April 14, 1986.

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Deborah L. LaDolce, Law Offices of Roderick J. Bergin, Chicago, Ill., for defendant/cross-claimant/third party plaintiff.

James T. Martin, Gislason and Martin, Edina, Minn., William E. Spizzirri, Chicago, Ill., for third party defendant and defendant/cross-defendant.

MEMORANDUM AND ORDER

MORAN, District Judge.

This action arose when plaintiff Blommer Chocolate Company discovered salmonella contamination in several hundred thousand pounds of its chocolate products in 1982. The facts are set out at length in an earlier memorandum and order of this court, Blommer Chocolate Company v. Bongards Creameries, Inc., 635 F.Supp. 911, 913-915 (N.D.Ill.1985). Briefly, Blommer traced that contamination to its own satisfaction to four lots of dry whey powder, a component in its chocolate, which had been manufactured by defendant Bongards Creameries, Inc. Though Bongards had found no salmonella in the whey when it checked a random sample as part of its usual testing program, tests and serotyping revealed salmonella cubana (one of some 1,500 distinct strains of salmonella) in the chocolate, an unopened bag of whey, and whey tailings (residue in the processing machinery) at Bongard's plant. The plant had a history of occasional incidents of salmonella contamination. Blommer purchased the whey form defendant/third party plaintiff J.M. Swank Company, Inc., a food broker. Swank had ordered the whey from third party defendant Pacemaker, Ltd., a dairy products broker, who had arranged for its manufacture by Bongards. The whey was shipped directly from Bongards to Blommer in sealed plastic-lined bags; though Swank legally took possession of the whey at Bongards' plant, in fact no one from Swank ever touched or even saw it. Once Blommer had decided that the whey had contaminated the chocolate, it refused to pay Swank for the remaining whey and brought this action against Swank and Bongards.

The issue presently before this court is whether Swank can assure itself of shifting all of its eventual losses to Pacemaker and Bongards. As soon as Blommer sued Swank, Swank "vouched in" Pacemaker, following the procedures laid out in section 2-607(5) of the Uniform Commercial Code (UCC), Illinois Revised Statutes ch. 26, ¶ 2-607(5). When Pacemaker rejected Swank's tender of defense, Swank also impleaded Pacemaker into this action on a third party complaint which, as amended, contains nine counts. In addition, Swank filed a cross-claim against Bongards using identical counts and theories.

This court in its June 28 order granted summary judgment for Blommer against Swank on three breach of warranty counts: breach of an express warranty that the whey would be salmonella-free, of the implied warranty of merchantability, and of the implied warranty of fitness for a particular purpose. Swank now moves for summary judgment against both Pacemaker and Bongards on seven of the nine counts it has against each of them. On counts I through IV, warranty and indemnity counts, it moves for partial summary judgment, specifically that Pacemaker and Bongards will be liable to Swank for Swank's liability to Blommer. On counts VII through IX, Swank's claims through breaches of warranties for its own losses in the transaction, Swank moves for summary judgment against both Pacemaker and Bongards for the cost of the three shipments of whey for which it had paid Pacemaker and was never paid by Blommer. Its motion is granted in part and denied in part.

DISCUSSION

Bongards and Pacemaker do not have identical status before this court. Pacemaker was vouched in under UCC § 2-607(5) and impleaded under Federal Rule of Civil Procedure 14; Bongards was not. However, Bongards has recently accepted a tender of defense from Pacemaker. It will therefore be bound by any judgment against Pacemaker. Ocean Accident & Guarantee Corp. v. Felgemaker, 143 F.2d 950, 952 (6th Cir.1944). For that reason there is no need for a separate discussion of Swank's claims against Bongards.

1. Vouching in Under the UCC

"Vouching in" pursuant to the UCC is a device similar in nature to impleader. The text of the statute reads:

Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. UCC § 2-607(5)(a).

The use of voucher, like impleader, depends first of all on the possibility that a third party is or may be liable to the defendant for the injury of which the plaintiff complains. The process in a typical products liability action for breach of warranty would work as follows. When a consumer sues a retailer for breach of warranty, the retailer seeks to shift liability to the manufacturer of the product, maintaining that the consumer's injury stems from the manufacturer's breach of the same warranty when the product was sold to the retailer. The retailer tenders defense to the manufacturer in the manner prescribed by § 2-607(5). If the manufacturer (the vouchee) rejects that tender from the retailer (the voucher), the manufacturer is vouched in. See generally D. Mixon, Voucher to Products Liability: The Mechanics of U.C.C. § 2-607(5)(a), 29 Ark.L.Rev. 486 (1976).

A judgment against the voucher does not automatically make the vouchee liable over for the judgment the voucher owes. That question remains to be litigated in their own suit, and the vouchee can assert there any defenses he has against the voucher. The judgment binds the vouchee as to those issues common to the two litigations (plaintiff-voucher and voucher-vouchee) which were actually determined and necessary to the judgment. International Harvester Co. v. TRW, Inc., 107 Idaho 1123, 695 P.2d 1262 (1985); Mixon, supra, at 504. Ordinarily these common issues will be the existence of a breach of warranty as between the voucher and the plaintiff, the fact of the voucher's liability to the plaintiff, and the amount of damages the voucher must pay the plaintiff as a result of the judgment against him. TRW, 695 P.2d at 1265; Mixon, supra, at 504-505. The effect, then, also is similar to that of impleader, where a judgment against the defendant/third party plaintiff usually binds the third party defendant on the fact of the former's liability and the amount of the damages he must pay. Barron v. United States, 654 F.2d 644, 649 (9th Cir.1981); Bosin v. Minneapolis, St. Paul & Sault Ste. Marie Railroad, 183 F.Supp. 820, 823 (E.D.Wis.1960), aff'd 297 F.2d 583 (7th Cir.1961). See 3 Moore, Moore's Federal Practice ¶ 14.13 (1985).

Swank does not cite and this court has not unearthed any case which squarely holds that a summary judgment binds a vouchee on the common issues. However, neither is there a case which squarely holds that it does not bind and we see no reason in the instant case why it should not. There are some situations in which a judgment cannot be used against a vouchee. For example, the judgment does not bind the vouchee if it was obtained through a settlement. Stewart & Foulke, Inc. v. Robertshaw Controls Co., 397 F.2d 971 (5th Cir.1968); CGM Valve Co. v. Gulfstream Steel Corp., 596 S.W.2d 161 (Tex.Civ.App. 1980). Given the similarities between voucher and impleader, the principle that a judgment will not bind a third party defendant if liability was grounded on the defendant/third party plaintiff's admission of liability probably also applies to voucher cases. See St. Joseph Light & Power Co. v. Zurich Insurance Co., 698 F.2d 1351, 1362 (8th Cir.1983); Dewald v. Minster Press Co., 494 F.2d 795, 798 (6th Cir.1974).

On the basis of the same similarities, however, a summary judgment would have binding effect. What is required is an "arm's length good faith adversary proceeding." CGM, 596 S.W.2d at 63, quoting Stewart, 397 F.2d at 974. A summary judgment which is a good faith adversary proceeding can bind an impleaded party. See F. & D. Property Co. v. Alkire, 385 F.2d 97, 98 (10th Cir.1967); United States v. National City Bank of New York, 32 F.Supp. 890, 893 (S.D.N.Y.1940). Swank proceeded here as an adversary in good faith; indeed, this court expressly commented on its "valiant effort to avoid summary judgment." Blommer, 635 F.Supp. at 915. The judgment here therefore fits the requirements for application of UCC § 2-607(5).

A judgment against the voucher tends to significantly accelerate determination of the vouchee's liability. When both actions are grounded in warranty, the vouchee will ordinarily be liable over unless he can show one of the following: (1) that he was not properly vouched in; (2) that he did not sell the product which gave rise to plaintiff's action; (3) that the warranty he gave the voucher differed materially from the warranty the voucher gave the plaintiff; or (4) that he did not breach the warranty, at least not in a way which caused plaintiff's injury. Ford Motor Co. v. Bendix Corp., 83 Mich.App. 108, 268 N.W.2d 305 (1978); Frank R. Jelleff, Inc. v. Pollak Bros., Inc., 171 F.Supp. 467, 470-472 (N.D. Ind.1957) (under Uniform Sales Act, predecessor of the UCC's Article 2). If no genuine issue of fact exists on any of these questions the result should be summary judgment for the voucher. Bendix, 268 N.W.2d at 307. Cf. Uniroyal, Inc. v. Chambers Gasket and Manufacturing...