Gold'n Plump Poultry, Inc. v. Simmons Engineering Co.

• Decision Date: 24 November 1986
• Docket Number: No. 85-5186,85-5186
• Citation: 805 F.2d 1312
• Parties: 2 UCC Rep.Serv.2d 1232 GOLD'N PLUMP POULTRY, INC., Appellant, v. SIMMONS ENGINEERING CO., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1312

805 F.2d 1312

2 UCC Rep.Serv.2d 1232

GOLD'N PLUMP POULTRY, INC., Appellant, v. SIMMONS ENGINEERING CO., Appellee.

No. 85-5186.

United States Court of Appeals Eighth Circuit.

Submitted May 14, 1986.

Decided Nov. 24, 1986.

Denis E. Hynes, St. Cloud, Minn., for appellant.

Donald R. Donovan, Hiram, Ga., for appellee.

Before HEANEY, JOHN R. GIBSON and MAGILL, Circuit Judges.

MAGILL, Circuit Judge.

Gold'n Plump Poultry, Inc. (Gold'n Plump) appeals from the judgment of the district court ¹ dismissing this action for a full refund of the purchase price of two chicken processing machines. We affirm.

I. BACKGROUND.

In the fall of 1982, Armour Food Company (Armour) entered into negotiations with Simmons Engineering Company (Simmons) of Georgia for the purchase of two "venter opener" chicken processing machines ² for Armour's Cold Spring, Minnesota plant. During the two years prior to purchase, Armour's profits from the Cold Spring plant had suffered because its chickens were oversized (up to five pounds and over). The standard average industry size was three and one-half pounds, and processing equipment was generally designed for average sized chickens, with tolerance up to approximately four pounds. ³ Armour sought to become more efficient in processing and to decrease chicken size. The latter could be accomplished through the feeding process.

Armour based its decision to purchase Simmons' machines on the results of an extensive two year investigation of venter opener machines. Before final selection, Armour solicited information from various plants throughout the country using Simmons' machines, including quality control reports with information on the effectiveness of processing relative to chicken size. In addition, Armour's chief engineer, general production manager, and a plant operations manager observed Simmons' venter openers operating satisfactorily in two Georgia plants. Similar machines were satisfactorily processing average size chickens in twenty-seven other plants around the country. Jim Theis, Armour's general manager at Cold Spring, had had experience dealing with Simmons since 1974 regarding Armour's turkey processing plants. In addition, Armour had been using three other Simmons machines on its processing lines in Cold Spring. Both in 1981 and 1982, Theis discussed the venter openers with Simmons in Atlanta.

Armour's former chief engineer testified at trial that Simmons repeatedly told Armour in various meetings and phone conversations prior to purchase that the machines would have no problem processing industry average size chickens weighing up to four pounds. He testified: "[We] knew what representations Mr. Simmons had made." Tr. at 282.

In October 1982, Theis requested a price quote from Simmons and it responded by letter of October 13, 1982:

In response to your request, we quote as follows:

One Simmons Venter/Opener (SVO-1011) $54,000.00 FOB Cold Spring, MN with Simmons installation supervision.

Delivery would be 3-4 weeks A.R.O.

We feel we have used the best engineering materials available, however, only time will prove us right. With this in mind, Mr. Simmons has instructed us to provide you with spare parts and service, at no charge, for six months, just as we have done for the other plants that have this equipment.

* * *

* * *

As you are aware, having seen the machine in operation, minimum installation problems will be encountered. A very small amount of vacuum and water are required.

We sincerely appreciate your business.

This was the only written document evidencing the sale. Theis agreed to the terms of sale for Armour and ordered two machines. The full purchase price was $113,400, which included tax.

The first machine was installed at Cold Spring over the weekend of December 4 and 5, 1982. Processing began on Monday, December 6, 1982. Problems arose immediately because of the large size of Armour's five and one-half pound chickens. The evidence discloses Armour was aware of the size problem. Its former chief engineer testified: "[T]he birds were excessively sized for what the machine was purchased and designed for." (Emphasis supplied). Simmons advised Armour not to install the second machine because of the size problem and was willing to take back the first machine. However, Armour insisted that Simmons attempt to modify the machines while it worked on decreasing chicken size. The second machine was installed and the size problems continued. Simmons spent more than $250,000 on modifications, and its research and development chief spent a total of three months at the Cold Spring plant.

Simmons' terms of sale were that Armour pay cash within ten working days from the date of installation. More than two months after the sale Armour still had not paid Simmons, however. To obtain payment, Simmons issued a letter to Armour ⁴ dated February 14, 1983:

* * * [I]n the event our venter openers do not function within reasonable tolerance; we will refund all monies paid to us for this equipment.

We reserve the right to make such modifications as we deem proper in an attempt to attain a satisfactory machine.

We further assure you our best effort.

This letter prompted Armour's full payment of the purchase price of $113,400 to Simmons. On March 2, Armour received approval of the formal purchase order from its Phoenix home office. The only written terms of the purchase order were "as agreed." Armour's Jim Theis testified that the corporate approval and issuance of the purchase order were only a formality. Theis further testified that Armour paid the exact price as agreed to in December and did not adjust the price based on Simmons' February 14 letter.

On April 1, 1983, Armour sold its entire Cold Spring plant, including the disputed machines, to Gold'n Plump. Gold'n Plump had been created at this time by its parent, JFC, Inc., to own and operate the Armour Cold Spring processing facility. Despite Gold'n Plump's full knowledge of the size problem, the plant sale agreement provided for transfer of the machines to Gold'n Plump "as is" and with an express warranty disclaimer. ⁵

Prior to the plant sale, Jack Frost, Inc. had raised chickens and supplied them to Armour for processing and marketing under a joint venture agreement. Gold'n Plump and Jack Frost, Inc. were both wholly owned subsidiaries of JFC, Inc. The parent corporation actually negotiated the plant purchase with Armour. However, ownership transferred directly from Armour to its newly created subsidiary Gold'n Plump.

Gold'n Plump did not purchase the disputed machines unwittingly. Theis, the plant manager, who had negotiated the machine purchase from Simmons in December, transferred to the same position with Gold'n Plump. Gold'n Plump's Dale Nelson, vice president of finance and administration, testified that Gold'n Plump insisted upon purchasing the entire plant with clear title and under "a clean deal." He testified that were it not for Gold'n Plump's insistence, the plant purchase documents could have been changed and the disputed machines purchased without Armour having paid Simmons before the plant sale. Tr. at 137-139. Under the plant sale agreement, Gold'n Plump paid Armour "net book value" for the two Simmons machines. This was $113,400 or the full purchase price which Armour had paid Simmons, despite testimony of Theis and other Gold'n Plump witnesses that the machines were worthless. Nelson also testified to a full understanding of the "as-is" warranty disclaimer language in the plant sale:

Well, that was the documentation produced by the attorneys for Greyhound, Armour's parent company, to mean that Armour was selling these assets to us in Cold Spring functioning as they are and not--you know, not guaranteeing their performance. And if something went wrong with the machines, they're basically saying that you can't go back after Armour.

[Tr. at 125.]

JFC, Inc. and its two subsidiaries, Jack Frost, Inc. (chicken supplier) and Gold'n Plump (processor and marketer), were legally separate corporations with their own personnel, assets, and books. Theis testified at trial that none of these corporations had any relationship with Simmons: a) they were not involved in the December machine purchase; b) they were not involved in the February 14 letter prompting the purchase price payment; and c) they did not receive any warranties from Simmons. Moreover, the Gold'n Plump corporation did not exist at the time of the contractual dealing between Armour and Simmons.

Following the sale of the plant to Gold'n Plump, of which Simmons management was unaware, Simmons continued its efforts to modify the machines, without success. In May, July and August 1983, Gold'n Plump made requests for a full refund of the purchase price, relying upon Simmons' February 14 letter to Armour. Simmons ignored these requests. Gold'n Plump subsequently removed the machines from operation and brought this diversity action seeking a refund of the original $113,400 purchase price.

A two-day bench trial ensued in March 1985, and the district court entered judgment denying relief to Gold'n Plump. This appeal followed.

II. DISCUSSION.

Gold'n Plump contends that under Minnesota's version of the Uniform Commercial Code (U.C.C.) it is entitled to a full purchase price refund based on (A) Simmons' implied and express warranties to Armour; (B) its revocation of acceptance; and (C) the doctrine of sale on approval. These issues involve both questions of fact and questions of state law. With regard to the questions of state law, in this diversity case, we will give substantial weight to the decisions of the district court on matters which have not yet been treated by the state courts. See Sigma Chemical Co. v. Harris, 794 F.2d 371, 373 (8th Cir.1986). We will not disturb the factual findings of the district court unless they are clearly erroneous. See Anderson v. City of Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 1512, 84 L.Ed.2d 518 (1985);...