Hormel Foods Corp. v. Crystal Distribution Servs., Inc.

• Decision Date: 03 April 2012
• Docket Number: No. C09-2011,C09-2011
• Citation: Hormel Foods Corp. v. Crystal Distribution Servs., Inc., No. C09-2011 (N.D. Iowa Apr 03, 2012)
• Parties: HORMEL FOODS CORPORATION, Plaintiff, v. CRYSTAL DISTRIBUTION SERVICES, INC., Defendant.
• Court: U.S. District Court — Northern District of Iowa

HORMEL FOODS CORPORATION, Plaintiff,

v.CRYSTAL DISTRIBUTION SERVICES, INC., Defendant.

No. C09-2011

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF IOWA EASTERN DIVISION

Dated: April 3, 2012

RULING ON MOTIONS IN LIMINE

TABLE OF CONTENTS

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

II. PROCEDURAL HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

III. HORMEL'S MOTIONS IN LIMINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. Salvage Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. Raymond Tarnowski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

C. Warehouse Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

D.Insurance Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

IV. CRYSTAL'S MOTIONS IN LIMINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A. Damages Paid By Hormel's Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

B. Crystal's Prior Payments to Hormel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

C. Failing to Obtain "All Risk" Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

D. Using the Term "Basement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

E. Special Valuation Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

F. Opinions of Kathleen Kotula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

G. Lost Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

H. Articles Authored By Crystal's Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

I. Insurers' Right to Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

J. Alleged Temperature Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

V. ORDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

I. INTRODUCTION

On the 23rd day of March 2012, this matter came on for hearing on the Motions in Limine filed by the Plaintiff (docket numbers 78, 79, 80, and 87) on March 9, 2012, and the Motions in Limine filed by the Defendant (docket numbers 82, 83, 84, 85, 86, 88, 89, 90, 91, and 92) on the same date. Plaintiff Hormel Foods Corporation ("Hormel") was represented by its attorneys, Jacob D. Bylund and Ryan P. Howell. Defendant Crystal Distribution Services, Inc. ("Crystal") was represented by its attorneys, John F. Horvath and Brian J. Fagan.

II. PROCEDURAL HISTORY

On February 23, 2009, Hormel filed a complaint seeking judgment against Crystal for damages sustained to products owned by Hormel and stored in Crystal's warehouse in Waterloo, Iowa. In June 2008, flood water entered the warehouse, damaging meat products stored in the lower level. In seeking to recover its loss, Hormel alleged three counts of breach of contract and one count of negligence. Crystal filed a counterclaim, seeking reimbursement for the cost of disposing of the products.

Both parties filed motions for summary judgment. In an Order filed on May 27, 2011, Judge Edward J. McManus denied Hormel's motion for partial summary judgment, and granted Crystal's motion for summary judgment, in part.¹ Among other things, Judge McManus concluded that pursuant to the economic loss doctrine, Hormel's remedy lies in contract, rather than in tort. Accordingly, Count IV of the complaint was dismissed. Since only contract claims remain, Judge McManus further concluded that the collateral source rule does not apply. Additional relevant facts will be set forth below.

III. HORMEL'S MOTIONS IN LIMINE

A. Salvage Evidence

On June 11, 2008, Crystal was storing Hormel's products on several levels in its warehouse, including a level which was "below grade."² Widespread flooding caused water to enter the lower level of the warehouse and to come into contact with some portion of Hormers products. The United States Department of Agriculture ("USDA") detained all of the food products, including those owned by Hormel in the lower level of die warehouse.³ Hormel and Crystal "coordinated" with the USDA to dispose of the products in an appropriate sanitary landfill.⁴ Now, Crystal asserts that some of the damaged products could have been salvaged.

If permitted to do so, Crystal will call Mark Ruddy to testify that the damaged products had a gross salvage value of approximately $700,000. Hormel argues that Ruddy is not qualified to render an expert opinion in Axis regard and, in any event, his proposed testimony is "pure speculation." Hormel also argues that Crystal "waived any such argument with respect to salvage when it developed die disposal plan for all of its impacted customers. "⁵ Crystal responds that "Hormel made the unilateral decision to dispose of all of the goods," and that Ruddy is fully qualified to express an opinion that he "could have persuaded the USDA to reconsider its order detaining Hormel's goods."⁶

On June 18, 2008 - one week after water initially entered die lower level of die warehouse - Tom Poe of Crystal wrote a letter to Brian Hendrickson of Hormel, regarding disposition of the damaged products. The letter provided, hi part:

The onsite USDA representative inspected those products and determined that they are adulterated and placed the products on a 20 day detention to allow you time to voluntarily dispose of the products as allowed by law.

One acceptable method of voluntary disposal is the voluntary destruction of the products determined by the USDA to be adulterated. At USDA's request we have enclosed a letter the USDA requires be signed by each of our customers requesting the voluntary destruction of the products which are currently in storage in our basement storage rooms. If you choose to have the products we are currendy storing for your company's account in our basement storage rooms voluntarily destroyed, please place the enclosed letter on your company's letterhead, sign it and return it to us as soon as possible. We will then deliver the letter to the USDA.

If you believe that you are entitled, under the law, to pursue a different form of voluntary disposition, we suggest that you do so immediately, since the USDA has indicated that the products will not be subject to a new detention unless a written extension is requested and approved by USDA. There is a great urgency to remove the adulterated product as soon as possible. Our hope is to begin the disposal process as early as tomorrow, June 19, 2008.

Letter from Tom Poe to Brian Hendrickson, dated June 18, 2008 (docket number 78-2 at 32). The proposed letter to the USDA - enclosed with Poe's letter - refers to transporting the products to the Black Hawk County Landfill for disposal.

The parties have stipulated that they "coordinated" with the USDA to dispose of the products at the sanitary landfill. Hormel argues that Crystal has thus waived any claim that the products had salvage value. Crystal asserts, however, that Hormel's decision was "unilateral." Donald Johnston and Tom Poe testified at their depositions that they spoke with Hormel regarding whether the products were "potentially salvageable." When asked who he spoke to, Johnston responded "I guess I'd have to say it was probably BrianHendrickson."⁷ Given the disputed testimony, the Court cannot say on this record that Crystal waived a claim that the products had salvage value.

FEDERAL RULE OF EVIDENCE 702 permits a qualified expert to testify regarding his opinion if (a) the knowledge will help the jury to determine a fact issue, (b) the opinion is based on sufficient facts, (c) the opinion is based on reliable principles and methods, and (d) the expert has "reliably applied the principles and methods to the facts of the case." Here, Hormel argues that Ruddy is not qualified to render an expert opinion, nor is his opinion based on a reliable application of principles and methods to the facts in this case.

Hormel's products were stored in the basement on pallets stacked two-high. Apparently, the water rose partway up on the first pallet. Hormel was also concerned, however, about the exposure of the products to increased heat and humidity. The products were to be stored at 35 degrees Fahrenheit. It is apparently undisputed that power was lost to the warehouse for 24 hours, and the temperature rose to 45-50 degrees. After conceding that he is not a "microbiology expert," Ruddy opined that "canned hams that sat at 50 degrees for a week would be totally acceptable."⁸ Similarly, after conceding that he was not "an expert in the degradation" of bacon, Ruddy opined that under the facts in this case "both of these products are salvageable."⁹

Importantly, however, there is no basis for believing that Ruddy's proposed salvage plan would have been accepted by the USDA. Crystal has stipulated that Hormel's food products stored on the lower level of the warehouse were detained by the USDA. Ruddy conceded that he had not spoken with USDA officials regarding the proposed plan. At the time of hearing, Crystal's attorney advised the Court that the plan had not been submitted to the USDA, nor would anyone from the USDA testify at trial that the proposal would have been acceptable to them. As noted by Hormel in its brief, for Ruddy's testimony toassist the jury in determining if the products had salvage value, it must be assumed that the USDA would have approved of the plan to move the products to another facility, that another federally-inspected facility was available and willing to accept the products, that following cleaning and testing the...