Boone Val. Coop. Proc. Ass'n v. French Oil Mill Mach. Co.

• Decision Date: 10 October 1974
• Docket Number: Civ. No. 71-C-2012-C.
• Citation: 383 F. Supp. 606
• Parties: BOONE VALLEY COOPERATIVE PROCESSING ASSOCIATION, EAGLE GROVE, IOWA, Plaintiff, v. The FRENCH OIL MILL MACHINERY COMPANY, a foreign corporation, Defendant.
• Court: U.S. District Court — Northern District of Iowa

383 F. Supp. 606

BOONE VALLEY COOPERATIVE PROCESSING ASSOCIATION, EAGLE GROVE, IOWA, Plaintiff, v. The FRENCH OIL MILL MACHINERY COMPANY, a foreign corporation, Defendant.

Civ. No. 71-C-2012-C.

United States District Court, N. D. Iowa, C. D.

October 10, 1974.

Theodore T. Duffield, F. H. Becker and Gary D. Ordway of Patterson, Lorentzen, Duffield, Timmons, Irish & Becker, Des Moines, Iowa, for plaintiff.

Paul F. Ahlers and Lee W. Rosebrook of Ahlers, Cooney, Dorweiler, Allbee, Haynie & Smith, Herschel G. Langdon and Richard G. Langdon, Des Moines, Iowa, for defendant.

MEMORANDUM AND ORDER

HANSON, Chief Judge.

This matter is before the Court by way of defendant's Motion for Summary Judgment and Partial Summary Judgment under Rule 56 of the Federal Rules of Civil Procedure. The motion was filed on May 1, 1974. Oral arguments were heard before the Court on July 9, 1974. All post-hearing briefs have been submitted.

Plaintiff, Boone Valley Cooperative Processing Association, is a domestic co-operative association organized under the laws of Iowa. It engages in the business of processing soybeans in Eagle Grove, Iowa. Defendant, The French Oil Mill Machinery Company, is a corporation organized under the laws of Ohio, and having its principal place of business in that state. The amount in controversy exceeds $10,000.00, and this Court has diversity jurisdiction under 28 U.S.C., § 1332.

In July of 1968 plaintiff contracted with defendant for the installation of soybean processing equipment which would substantially increase plaintiff's then existing processing capacity. The defendant sold, delivered and supervised the installation of certain machinery pursuant to the parties' agreement. On or about December 17, 1969 an explosion occurred at plaintiff's plant. This explosion damaged the plant and plaintiff's equipment, and rendered the plant inoperable for a period of time.

As a result of the explosion, plaintiff filed suit seeking $6,483,826.56 in damages: $950,000.00 for property damage to the plant and equipment, $33,826.56 for damage to and destruction of certain stock and inventory, and $5,500,000.00 for business profits lost during the time production was interrupted by the explosion. Defendant has counterclaimed for $133,487.19 which it alleges is due and owing under the contract.

Plaintiff's suit is framed in five divisions. Division I is based on breach of certain sales agreements in the contract, Division II on negligence, Division III on implied warranty, Division IV on strict liability in tort and Division V on "res ipsa loquitor". No issue is raised as to any conflict of laws problems; Iowa law is to govern.

Defendant's summary judgment motion involves three distinct issues. The first is whether the plaintiff is barred as a matter of law from asserting all of its claims by virtue of a provision in the contract which purports to waive certain buyer's rights if it defaults on a "due" payment. As to this ground for summary judgment, defendant asserts that if it prevails, plaintiff's entire case must be dismissed.

Defendant's second ground for summary judgment would eliminate a substantial part of plaintiff's damage claims. Specifically, defendant alleges that plaintiff is not entitled to recovery for any lost business profits because of the following contractual provision:

The seller shall not be held liable under this contract for any special, ordered, or consequential damages whatsoever.

In connection with this contractual limitation of remedy argument, defendant raises a real party in interest question as to plaintiff's ability to recover lost business profits. Specifically, defendant contends that the cooperative association is not the real party in interest — its members are. The cooperative, as a nonprofit entity, has no "profits" to recover. A ruling for the defendant on either theory as to this ground for summary judgment would eliminate the $5,500,000 lost profits claim from plaintiff's possible recovery.

As a third basis for summary judgment, defendant contends that it is entitled to a judgment for $119,003.65 on its counterclaim. The defendant alleges that this amount is undisputed and that it is due and owing under the contract.

Defendant's three grounds for summary judgment will be discussed in the order in which they were presented to the Court.

I. FULL SUMMARY JUDGMENT AS A RESULT OF THE CONTRACTUAL WAIVER.

The defendant, French Oil Mill, is seeking to dismiss the plaintiff's entire claim on the basis of the following contractual language:

It is mutually agreed that, in default of any payment under the terms and conditions outlined in this contract, with 30 days after such payment is due, the buyer waives any and all rights in said machinery due to prior payments made or otherwise, and waives any and all claims for damages of whatsoever kind or nature, and agrees to load and/or authorizes the seller to enter property where situated and to load said machinery covered by this contract in good condition on cars at the expense of the buyer, and ship as per instructions to be given by the French Oil Mill Machinery Co., Piqua, Ohio, without any objection or litigation from the buyer.

The defendant maintains that plaintiff has waived all claims for damages by defaulting on payments which were due under the contract.

In order to grant any motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, this Court must determine that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Because certain material facts are clearly in issue as it relates to this particular waiver provision, defendant's motion for a full summary judgment must be denied.

The face of the contract reveals that the waiver defendant seeks to invoke is triggered by a default on a payment which is due. Pursuant to the parties' agreement, a "start-up" of the plant and "operation conforming to guarantees" were required to make the final 10 percent of the contract price "due".¹ It is apparent from the pleadings and oral argument in this case that a factual dispute exists as to whether the conditions precedent of start-up and conformance to guarantees were satisfied. While defendant contends that there can be no question as to "start-up" because the plant was in operation both before and after the explosion, this assertion is not conclusive, for it is clear that the plant was to be in partial operation while the new equipment was being installed. Thus, "start-up" must refer to something other than the simple fact that the plant has a daily output, and at this point in the litigation factual issues exist as to what the concept actually entails.

Considering the aspect of conformance with the contractual guarantees, the contract specified that the defendant was to increase plaintiff's processing output from 400 tons per day to 1500 tons per day. The facts of the case indicate that at the time of the December 1969 explosion the plant had an output of approximately 700 tons per day. While the 1500-ton goal was reached on at least some days in May of 1971, that goal was not achieved in the form of average output until October of 1971. The facts are undisputed that conformance was not reached prior to the explosion; further, it is not clear whether the eventual compliance with the output guarantee was achieved through the efforts of the defendant alone, or with the help of the plaintiff. In any event, factual issues exist as to compliance with the conditions precedent and hence defendant's motion for summary judgment based on plaintiff's waiver of damages under the contract must be denied.²

II. PARTIAL SUMMARY JUDGMENT AS TO PLAINTIFF'S CONSEQUENTIAL DAMAGES

In addition to asserting that the plaintiff has waived all of his claims under the contract, the defendant asserts that the plaintiff is foreclosed under the contract from recovering for any losses in the nature of consequential damages. Because consequential damage recovery in a situation such as this one will vary depending upon whether a contract or tort theory is being asserted, defendant's claims in this regard will be discussed as they relate to the particular Divisions of plaintiff's Complaint.

Before considering the effect of a consequential damages limitation on each of the theories of recovery, however, two preliminary matters must be dealt with: (1) whether plaintiff's alleged lost profits fall within the concept of consequential damages, and (2) whether the plaintiff is the real party in interest to recover for the loss at issue.

Condition number seven of plaintiff's contract states:

The seller shall not be held liable under this contract for any special, ordered, or consequential damages whatsoever.

The great bulk of damages sought by the plaintiff in this case ($5,500,000.00) is for "lost business and profits" as a result of the explosion and the disruption of plant operations. To avoid the effects of the consequential damages clause, the plaintiff has asserted that it did not intend that loss of profits be included as consequential damages.

In order to reach the question of plaintiff's intention as to a particular contract term, the Court must first determine that the term in issue is so ambiguous as to require interpretation. As acknowledged by the plaintiff (See Plaintiff's Brief in Resistance to Defendant's Motion for Summary Judgment), the Iowa Uniform Commercial Code provides a statutory definition of consequential damages:

... any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know. ... Section 554.2715, Code of Iowa (1973).

Loss of profits in a manufacturing context similar to the processing operations of plaintiff, Boone Valley, seems to directly fit this statutory definition, and has been recognized to be consequential damages by the Eighth Circuit Court of Appeals...