Kerry Bodenhamer Farms, LLC v. Nature's Pearl Corp.
| Citation | 2018 NCBC 83 |
| Decision Date | 15 August 2018 |
| Docket Number | 16 CVS 217 |
| Court | Superior Courts of Law and Equity of North Carolina |
| Parties | KERRY BODENHAMER FARMS, LLC, Plaintiff, v. NATURE'S PEARL CORPORATION; JERRY SMITH; and LE BLEU CORPORATION, Defendants. |
Wyche P.A., by Wade S. Kolb III, Matthew T. Richardson, and Eric B Amstutz, and Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Kearns Davis and Jessica Thaller-Moran, for Plaintiff Kerry Bodenhamer Farms, LLC.
Nelson Mullins Riley & Scarborough, LLP, by G. Gray Wilson and Lorin J. Lapidus, for Defendants Nature's Pearl Corporation, Jerry Smith, and Le Bleu Corporation.
1. Over the last ten years, Plaintiff Kerry Bodenhamer Farms, LLC ("KB Farms") has sold hundreds of tons of muscadine grapes to Defendant Nature's Pearl Corporation. This dispute concerns a single shipment of grapes during the 2014 harvest. KB Farms contends that Nature's Pearl improperly refused to pay for the grapes. Nature's Pearl says they were fermented and thus unusable. Each accuses the other of breaching the governing contract (with KB Farms asserting that Nature's Pearl's owner, Jerry Smith, and an affiliate, Le Bleu Corporation, should also be liable for Nature's Pearl's alleged breach).
2. The parties' motions for summary judgment are pending. For the following reasons, the Court GRANTS Defendants' motion and GRANTS in part and DENIES in part Plaintiff's motion.
3. The Court does not make findings of fact in ruling on motions for summary judgment. The following background, describing the evidence and noting relevant disputes, is therefore intended only to provide context for the Court's analysis and ruling.
4. Nature's Pearl sells juices, nutritional supplements, and similar products made from muscadine grapes. (Compl. ¶ 7, ECF No. 1; Answer ¶ 7, ECF No. 3.) KB Farms is one of its grape suppliers. (See Compl. ¶¶ 12-14; Answer ¶¶ 12-14.) From 2008 through 2011, the two companies did business subject to yearly oral agreements in which Nature's Pearl purchased KB Farms' grape harvests, paying a fixed price per ton.
5. In January 2012, Nature's Pearl and KB Farms executed a written contract ("Agreement"). Nature's Pearl obtained "the sole and exclusive right to purchase all of [KB Farms'] muscadine grapes ('whole grapes') on an annual basis" for 20 years. (Compl. Ex. A ["Agreement"] ¶¶ 1, 8.) In return, it agreed to pay $700 per ton for the 2012 harvest, with future years' prices to be determined by "market conditions." (Agreement ¶ 2.) The Agreement was signed by each company's owner and principal-Jerry Smith for Nature's Pearl, and Kerry Bodenhamer for KB Farms. (See Agreement p.5.)
6. Grapes are, of course, perishable. The Agreement required KB Farms to ship all grapes "in refrigerated trucks" on "the same day that they [were] harvested." (Agreement ¶ 5.) So long as the grapes were of "good quality," Nature's Pearl was required to purchase them, though it reserved the right to "make the sole determination as to the quality of the product at the time of processing the whole grapes" and also "the right to reject any whole grapes" it determined "to be unusable." (Agreement ¶ 4.)
Specifically, [Nature's Pearl] will reject all whole grapes that it determines to be spoiled, rotten, molded, fermented or do not meet a minimum of 15 bri[x] sugar content at the time of processing. If [Nature's Pearl] rejects any whole grapes pursuant to the terms and conditions of this Agreement, it will immediately notify [KB Farms], and [KB Farms] shall have the right to come to [Nature's Pearl's] place of business to inspect the rejected whole grapes, pay to ship the rejected whole grapes back to its facility or authorize [Nature's Pearl] to dispose of the whole grapes.
(Agreement ¶ 4.) (The term "brix" is a metric for sugar content.) The Agreement also allowed Nature's Pearl to terminate the contract upon determining that KB Farms "failed to supply whole grapes of suitable quality." (Agreement ¶ 11.)
7. The 2012 and 2013 harvests passed without incident. (See Compl. ¶ 26; Answer ¶ 26.) Not so for the 2014 harvest. Nature's Pearl alleges that KB Farms delivered a load of fermented, unusable grapes in September 2014. (See Countercl. ¶¶ 13-14.) KB Farms denies the allegation, calling it a pretext for Defendants' later efforts to renegotiate the terms of their bargain, and also claims that Nature's Pearl improperly refused to pay for the shipment. .)
8. Some facts are undisputed. KB Farms picked the grapes at issue on September 6 and shipped them on September 8. (See Dep. K. Bodenhamer 116:3-8, ECF No. 74.5.) Nature's Pearl inspected the grapes, did not reject them, and then pressed them into juice on the day of delivery. (See Dep. A. Smith 41:6-8, 68:10-17, 71:9-10;[1] Aff. A. Smith ¶ 4, ECF No. 74.2.) Just over a month later, Jerry Smith sent KB Farms a letter refusing to pay for the shipment on the ground that the grapes "were approximately 18 brix and tested 0.70 alcohol." (Compl. Ex. B.)
9. According to Nature's Pearl, the grapes were fermented at the time of delivery. Achan Smith, Jerry's son and the supervisor in charge of processing grapes at Nature's Pearl, testified that the grapes' "general appearance and odor" upon delivery suggested that "something was amiss." (Aff. A. Smith. ¶¶ 1, 5.) The grapes "had a different smell than all the rest," an "alcohol smell." (Dep. A. Smith 40:3-6; see also Dep. A. Smith 64:14-18, 85:14-22.) Achan Smith further testified that Kerry Bodenhamer admitted the shipment contained grapes that "seem[ed] to ripen quicker than the others." (Dep. A Smith 39:6-11; see also Dep. D. Bodenhamer 62:15-25, ECF No. 74.8.)
10. Nature's Pearl asserts that it was unable to confirm that the grapes were fermented until it pressed them and pasteurized the juice. At that point, Achan Smith smelled "alcohol" again. (Dep. A. Smith 64:14-18.) He states that he tried to salvage the juice by blending it with "good" juice from a different shipment but was unable to reduce the alcohol content below the legal threshold for non-alcoholic beverages. (Dep. A. Smith 64:11-68:3; see also Aff. S. Mitchell ¶ 2, ECF No. 74.4; Aff. R. Fouts ¶ 3, ECF No. 74.3.)
11. KB Farms sees things differently. It points to evidence that the grapes were not fermented at the time of delivery. Kerry Bodenhamer recalls, for example, that Achan Smith characterized the grapes as "rough" but said nothing about fermentation or an alcohol smell. (Dep. K. Bodenhamer 140:15-19.) KB Farms also insists that the time for inspection and rejection under the Agreement was upon delivery, not after the grapes were processed. When Bodenhamer asked whether Nature's Pearl would reject the shipment, the answer from Achan Smith was no. (See Dep. A. Smith 68:10-17, 71:9-10; Dep. D. Bodenhamer 62:4-7.) According to KB Farms, Nature's Pearl was not free to change its mind, particularly after processing the grapes and blending their juice with juice from another shipment (which, it suggests, came from another vineyard).
12. Nearly a year of uncertainty ensued. Nature's Pearl threatened to terminate the Agreement, prompting unsuccessful negotiations to amend its terms. By June 2015, the parties' relationship reached the breaking point. Jerry Smith gave written notice of termination "for [KB Farms'] failure to provide suitable grapes for processing." (Compl. Ex. H.) KB Farms refused to recognize the termination, stating its intent to deliver the 2015 harvest, which Nature's Pearl turned away. (See Compl. ¶ 48, Ex. N.) In October 2015, Smith sent KB Farms "a check for the bad grapes" from the bank account of Le Bleu Corporation, another company owned by Smith. (Compl. Ex. M.) KB Farms rejected the check. (Compl. Ex. O; Dep. J. Smith 105:8-12.[2])
13. KB Farms filed this action in May 2016, asserting claims against Nature's Pearl for breach of contract, tortious breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair or deceptive trade practices. KB Farms also asserted those claims, along with an additional claim for tortious interference with contract, against Jerry Smith and Le Bleu. KB Farms alleged that Smith and Le Bleu should be liable for Nature's Pearl's debts in part because of their participation in the alleged breach, including Smith's use of Le Bleu to pay for grapes purchased by Nature's Pearl. In response, Nature's Pearl filed counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of the implied warranties of merchantability and fitness for a particular purpose.
14. Defendants moved for judgment on the pleadings on some but not all of KB Farms' claims. The Court granted the motion in part, dismissing the claims for tortious breach, unfair trade practices, and tortious interference. Kerry Bodenhamer Farms, LLC v. Nature's Pearl Corp, 2017 NCBC LEXIS 27, at *27 (N.C. Super. Ct. March 27, 2017). The Court also concluded that Jerry Smith and Le Bleu were not parties to the Agreement and therefore could not have breached it or the implied covenant of good faith and fair dealing. The Court allowed the claims against Smith and Le Bleu to proceed to the extent they "rested on a theory of veil piercing," though noting that, "[i]n the event discovery demonstrates that KB Farms' veil-piercing theory lacks substance, Smith and Le Bleu remain[ed] free to challenge it on summary judgment." Id. at *15.
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