Duffin v. Idaho Crop Imp. Ass'n

• Decision Date: 22 March 1995
• Docket Number: Nos. 20135,20260,s. 20135
• Citation: 895 P.2d 1195,126 Idaho 1002
• Parties: , 28 UCC Rep.Serv.2d 133 Eric DUFFIN and Melanie Duffin, husband and wife, Plaintiffs-Appellants-Cross Respondents, v. IDAHO CROP IMPROVEMENT ASSOCIATION, an Idaho corporation; State of Idaho, acting by and through the Idaho Department of Agriculture, Federal-State Inspection Service, Defendants-Respondents, and CRATER FARMS, INC., an Idaho corporation, Defendant-Respondent-Cross Appellant. Eric DUFFIN and Melanie Duffin, husband and wife, Plaintiffs-Appellants, v. CRATER FARMS, INC., an Idaho corporation, Defendant-Respondent. Boise, December 1994 Term
• Court: Idaho Supreme Court

Page 1195

895 P.2d 1195

126 Idaho 1002, 28 UCC Rep.Serv.2d 133

Eric DUFFIN and Melanie Duffin, husband and wife, Plaintiffs-Appellants-Cross Respondents, v. IDAHO CROP IMPROVEMENT ASSOCIATION, an Idaho corporation; State of Idaho, acting by and through the Idaho Department of Agriculture, Federal-State Inspection Service, Defendants-Respondents and CRATER FARMS, INC., an Idaho corporation, Defendant-Respondent-Cross Appellant Eric DUFFIN and Melanie Duffin, husband and wife, Plaintiffs-Appellants, v. CRATER FARMS, INC., an Idaho corporation, Defendant-Respondent.

Nos. 20135, 20260.

Supreme Court of Idaho,

Boise, December 1994 Term.

March 22, 1995.

Rehearing Denied June 22, 1995.

Hepworth, Lezamiz & Hohnhorst, Twin Falls, for appellants Duffin. John C. Hohnhorst argued.

Elam & Burke, P.A., Boise, for respondent Idaho Crop Improvement Association. Bobbi K. Dominick argued.

Racine Olson Nye Cooper & Budge, Chtd., Pocatello, for respondent Crater Farms, Inc. John A. Bailey, Jr. argued.

Quane Smith Howard & Hull, Boise, for respondent Dept. of Agriculture. Phillip J. Collaer argued.

TROUT, Justice.

The action giving rise to this appeal was initiated by the appellants, Eric and Melanie Duffin, and involves the sale of certified seed potatoes.

I. BACKGROUND

The sale of certified seed in Idaho is subject to statutory regulation. The responsibility for administering the certification program is granted to the University of Idaho The goal of the certification program is to maintain genetic purity of commercial seed and to help ensure that the seed certified is free of the presence of certain diseases and insects within established tolerances. The process for the certification of potato seed entails two visual field inspections, a "winter grow-out" test where seed is taken to California during the winter months and actually planted, an inspection of storage conditions, and a shipping point inspection conducted by the State of Idaho, Department of Agriculture, Federal-State Inspection Service (FSIS).

                (UI).  I.C. § 22-425. 1  UI has, pursuant to I.C. § 22-429, delegated the day-to-day management of the program to the Idaho Crop Improvement Association (ICIA), a private, non-profit corporation organized under the Cooperative Marketing Act (I.C. §§ 22-2601 to -2628).  ICIA is granted responsibility for conducting the program in accordance with regulations (the Rules of Certification) adopted by UI to govern the certification process.  ICIA has also engaged in marketing activities, promoting the purchase of certified seed for the benefit of its members
                

The Duffins own and operate a farm near Aberdeen, Idaho. Willard Bell, the president and principal shareholder of Crater Farms, Inc. (CFI), approached the Duffins with an offer to sell seed potatoes for the crop year 1988. The Duffins agreed verbally to purchase seed from CFI so long as it was certified. The seed in question was grown on a 270 acre lot as part of CFI's 1987 crop. This lot was designated by ICIA as "lot 87-803" and was listed in the ICIA Grower Directory ² as being eligible for certification.

In late March of 1988, CFI began delivery of seed to the Duffins. This seed was inspected by the FSIS and found to be within tolerances for the absence of disease. FSIS inspectors, therefore, placed tags on the trucks delivering the seed which designated that seed as "certified." The Duffins finished planting the seed around May 6, 1988.

On April 29, 1988, approximately three weeks after the Duffins received their last load of CFI seed, an FSIS inspector discovered the presence of what proved to be bacterial ring rot (BRR) ³ in one of the remaining seed potatoes from lot 87-803. ICIA notified CFI that no further shipments from the lot could be sold as "certified" seed. At this time, 61,000 cwt. of seed from the lot had already been sold. Neither CFI nor ICIA made an effort to notify the Duffins of the problem.

Potatoes grown by the Duffins from CFI seed were tested and found to be infected with BRR. The Duffins claim the seed was infected when they received it and, as a result, they suffered substantial losses. The losses claimed consist of (1) the excess of the price paid for the seed because it was "certified;" (2) lost revenues which resulted from reduced yields; and (3) lost revenues which resulted from having to sell the crop immediately upon harvest, rather than by way of more lucrative contracts the Duffins had already negotiated, or by waiting until the open market prices were higher. ⁴

The Duffins seek to recover damages from CFI for breach of express and implied warranties

[126 Idaho 1006] arising from the contract for the sale of certified seed potatoes, and from ICIA and FSIS for negligence and negligent misrepresentation in the inspection and certification of the seed.

II. PROCEDURAL HISTORY

FSIS moved for summary judgment on the grounds that the Duffins' tort claims notice was untimely and that their claims were barred because the losses claimed were purely economic. The district court concluded that questions of fact remained as to when the Duffins should have known of the existence of their claims, and thus, whether their tort claims notice was timely under the Idaho Tort Claims Act (I.C. §§ 6-901 to -929). However, it concluded that recovery under a negligence theory was barred because the losses claimed were purely economic, and that FSIS was immune from liability for negligent misrepresentation under I.C. § 6-904(3). Therefore, it granted FSIS' motion.

ICIA sought summary judgment on the grounds that the Duffins' losses were economic and that it was an "instrumentality" of the state, immune from liability for misrepresentation under the Idaho Tort Claims Act. The district court concluded that ICIA was an "instrumentality" within the meaning of I.C. § 6-902(1). It also concluded that the Duffins' negligence claim was barred because the damages sought were purely economic. Finally, the court determined that the Duffins' claim for negligent misrepresentation was barred because: (1) I.C. § 6-904(3) prohibits such claims against a state instrumentality; (2) no actionable representation was made by ICIA; and (3) the Duffins could not establish an essential element of the claim (i.e. that ICIA knew the Duffins would rely on its representations).

CFI moved for summary judgment on the grounds that the Duffins could not establish that any express or implied warranties had been made or breached, and that certain warranty disclaimers and remedy limitations were valid. The Duffins brought a cross-motion for summary judgment seeking to have the court rule that the disclaimers and remedy limitations were ineffective as a matter of law. The district court ruled that genuine issues of material fact existed as to whether any warranties were created or breached, and whether the warranty disclaimers and limitations of remedy were part of the parties' agreement. It also concluded that it was not possible to rule as a matter of law that either the disclaimers or limitations were ineffective. It therefore denied both motions.

Finally, the Duffins sought leave to amend their complaint to add claims for fraud against CFI and ICIA, and claims for punitive damages on all counts. In ruling on this motion, the district court considered not only whether the allegations advanced supported the claims in the amended complaint, but also whether the claims were supported by the facts in the record. It denied the motion because the facts failed to demonstrate the existence of a claim for fraud, and because there was no evidence of the requisite state of mind to support a claim for punitive damages.

The trial court certified its orders granting summary judgment and denying the motion to amend the pleadings pursuant to I.R.C.P. 54(b). It also granted leave to appeal its order denying the cross-motions for summary judgment under I.A.R. 12.

III. THE ECONOMIC LOSS ISSUE

The first issue is whether the district court erred in its application of the so-called "economic loss rule." ICIA and FSIS both moved for summary judgment on the ground that the Duffins' negligence claims were barred because purely economic loss cannot be recovered in tort. The district court agreed and granted both motions. The Duffins now contend that the district court erred.

In Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978), a case involving In Just's, Inc. v. Arrington Constr. Co., 99 Idaho 462, 583 P.2d 997 (1978), the plaintiff sought to recover economic losses by way of claims for breach of contract and for negligent interference with prospective economic advantage. With regard to the tort claim, we held that economic loss was not recoverable under a negligence theory. The foundation for that holding was that the defendant's conduct did not invade an interest of the plaintiff to which the law of negligence extends its protection. Further, allowing the recovery of economic loss would "impose too heavy and unpredictable a burden on [a] defendant's conduct." Id. at 469-70, 583 P.2d at 1004-05.

                [126 Idaho 1007]  claims for breach of implied and express warranties and for negligence, we addressed "the very narrow question [of] whether the purchaser of a defective product who has ... only suffered economic losses, can recover those losses in a negligence action against the manufacturer."  Id. at 332-33, 581 P.2d at 790-91.   We answered the question in the negative, reasoning that a contrary holding would undermine the comprehensive structure of the Uniform Commercial Code, and that the economic expectations of parties have traditionally not been protected by tort law.  Id. at 335, 581 P.2d at 793.
                

Following Just's, this Court has adhered to a general rule prohibiting the recovery of purely economic losses in all negligence actions. See, e.g., Tusch Enters. v. Coffin, 113 Idaho 37, 41, 740 P.2d 1022, 1026 (1987) (defending the rule that "purely economic losses...