Paramount Farms Inc. v. Ventilex B. V.

• Decision Date: 23 August 2010
• Docket Number: Case No. CV F 08-1027 LJO SKO
• Citation: 735 F.Supp.2d 1189
• Parties: PARAMOUNT FARMS, INC., Plaintiff, v. VENTILEX B.V., Defendant.
• Court: U.S. District Court — Eastern District of California

735 F.Supp.2d 1189

PARAMOUNT FARMS, INC., Plaintiff,

v.VENTILEX B.V., Defendant.

Case No. CV F 08-1027 LJO SKO.

United States District Court,

E.D. California.

Aug. 23, 2010.

Adam Phillip Zaffos, Christopher Van Gundy, Roll International Corporation, Legal Department, Mark D. Campbell, Robert Joseph Catalano, Loeb & Loeb LLP, Los Angeles, CA, for Plaintiff.

Alan Stanley Petlak, Pircher Nichols and Meeks, Los Angeles, CA, Donald H. Chase, Edward P. Gilbert, Latisha V. Thompson, Morrison Cohen LLP, New York, NY, for Defendant.

SUMMARY JUDGMENT DECISION (Docs. 49, 50.)

LAWRENCE J. O'NEILL, District Judge.

INTRODUCTION

This action arises out of plaintiff Paramount Farms, Inc.'s ("Paramount Farms' ") purchase of an almond pasteurization system designed and manufactured by defendant Ventilex B.V. ("Ventilex BV"). Ventilex BV seeks summary judgment on Paramount Farms' breach of contract and warranty claims in the absence of its privity with Paramount Farms or vicarious liability. Paramount Farms seeks summary judgment on its claims based on preclusive effects of an arbitration award in its favor against Ventilex USA, Inc. ("Ventilex USA"), a United States-based subsidiary of Ventilex BV. This Court considered Paramount Farms and Ventilex BV's cross-summary judgment motions on the record ¹ without ahearing, pursuant to Local Rule 230(g). For the reasons discussed below, this Court DENIES Paramount Farms summary judgment and GRANTS Ventilex BV summary adjudication on Paramount Farms' breach of implied covenant of good faith and fair dealing claim and overhead and liquidated damages claims but otherwise denies Ventilex BV summary judgment.

The Parties

Paramount Farms, a Delaware corporation, processes, produces and markets almonds and pistachios and describes itself as "the world's largest vertically integrated supplier of pistachios and almonds." Paramount Farms performs almond processing at its facilities in Lost Hills, California. Beginning in 2004, Paramount Farms initiated efforts to pasteurize almonds to achieve a "5-log" reduction of Salmonella bacteria ² which was expected to be imposed by federal and California almond regulators.

Ventilex BV is a Dutch company and a manufacturer of nut pasteurization systems, including the 11 THP Deluxe Ventilex Nut Pasteurization System ("Ventilex System"), which was designed and largely manufactured by Ventilex BV. Ventilex BV specializes in manufacturing industrial machinery, particularly fluid bed drying equipment used in food, concrete and spice industries.

Ventilex USA is not a defendant in this action. Ventilex USA is a Delaware corporation with its principal place of business in Ohio. Ventilex BV is Ventilex USA's sole shareholder. Ventilex BV notes that Ventilex USA was set up as a separate corporation "to serve the U.S. market independent of Ventilex B.V." and manufacturers its own products and sells third-party products in addition to those of Ventilex BV. Ventilex BV points out that Ventilex USA's purpose is to gain a foothold in the United States in that prior to Ventilex USA's creation, Ventilex BV sold its products to United States customers directly or through contracted agents.

Salmonella Reduction

In 2004, after a salmonella outbreak, the Almond Board of California ("ABC") and Paramount Farms investigated reduction of salmonella risk to almonds. The ABC developed an action plan for pasteurization of almonds sold in North America. The ABC created the Technical Expert Review Panel ("TERP") to review almond pasteurization technologies and to validate whether particular technology was able to provide required salmonella reduction. Paramount Farms attributes to Ventilex ³ repeated guarantees "that its technology would obtain all necessary governmental approvals within a reasonable period of time."

In summer 2004, Paramount Farms began discussions with Ventilex USA regarding potential purchase of the Ventilex System. Paramount Farms claims that it "refused to consider purchase of the Ventilex system until it could 'prove' its technologyby obtaining TERP approval of another of its machines installed at California Nut (another almond processor)." Paramount Farms further claims that it communicated that it was interested to purchase the Ventilex System "to comply with current and future governmental regulations." Paramount Farms notes that on November 8, 2005, it decided to purchase the Ventilex System after former Ventilex USA President Thomas Schroeder ("Mr. Schroeder") informed Paramount Farms that "its machine at California Nut had obtained TERP approval."

Agreement To Purchase Ventilex System

Paramount Farms entered into a November 9, 2005 three-page Proposal Contract ("Proposal Contract") to purchase for more than $765,000 the Ventilex System. ⁴ The Proposal Contract identifies Paramount Farms as "Owner" and Ventilex USA as "Contractor" and is signed by Paramount Farms and Ventilex USA, ⁵ the only parties listed in the Proposal Contract's notice provision. The Proposal Contract identifies no other party and identifies to "constitute the contract" between "Owner and Contractor" several documents. Such documents were assembled by Paramount Farms' Shawn Tremaine ("Mr. Tremaine") and included: (1) Mr. Schroeder's November 8, 2005 letter ("November 8 letter") followed by four pages of specifications ("specifications") and a two-page addendum; ⁶ (2) the nine-page November 9, 2005 Paramount Farms Inc. Standard Conditions ("Paramount Standard Conditions"); and (3) the six-page Attachment No. 1 Paramount Farms Site/Safety/Environmental/Sanitation Rules and Regulations for Contractors ("Paramount Rules and Regulations"), created on January 11, 2000. Ventilex BV claims that Ventilex USA's four-page General Terms and Conditions of Sale-Revised January 2004 ("Ventilex USA General Terms and Conditions") ⁷ was included in the overall agreement.

The November 8 letter is entitled "Ventilex Pasteurization System" and references "VENTILEX USA Inc.," "VENTILEX B.V.," and "VENTILEX." The November 8 letter includes a signature for "Tom Schroeder President," with no entity specified.⁸ The November 8 letter states in pertinent part:

VENTILEX USA Inc. and VENTILEX B.V. hereby certifies [sic] that the equipment that we supply will be accepted by the FDA and USDA for the Pasteurization of Almonds. The installation will be repeatable, verifiable, and that data logging will take place, thus allowing for trace ability and long term storage of data.

In addition, VENTILEX will work hand in hand with Paramount Farms to makesure that the "system" is accepted and "validated". VENTILEX guarantees the VENTILEX equipment will be validated and will correct any item found to deficient at our cost.

VENTILEX appreciates your confidence in our company and our equipment, and we will work hard to meet your expectations.⁹

Page 4 of the specifications notes: "F.O.B.: VENTILEX B.V., Heerde, The Netherlands" and "Terms and Conditions: See Attached 'Terms and Conditions' Exhibit A Attached and made part of this proposal." Page 4 of the specifications further notes:

VENTILEX appreciates your interest and will work diligently with Paramount Farms on this project. We appreciate your trust. We will not let you down.

Page 4 of the specifications includes a signature "Tom Schroeder Ventilex USA." The last three pages of the specifications contain a footer noting "VENTILEX" and an Ohio address and telephone and fax numbers.

Page 5 of the Paramount Standard Conditions provides the following "Contractor's Guarantee":

(a) In addition to warranties, representations and guarantees stated elsewhere in the contract documents, the Contractor unconditionally guarantees and warrants that all materials and workmanship furnished hereunder shall be without defect and shall conform to the Plans and Specifications, and agrees to replace at its sole cost and expense, and to the satisfaction of the Owner, any and all materials which may be defective, improperly installed, or which do not conform to the plans and specifications.

...

(b) The Contractor shall repair or replace to the satisfaction of the Owner any or all such work that may prove defective in workmanship or materials, which is improperly installed, or which does not conform to the plans and specifications, ordinary wear and tear expected, together with any other work which may be damaged or displaced in so doing.

(c) In the event of failure to comply with the above stated conditions within a reasonable time, the Owner is authorized to have the defect repaired or replaced at the expense of the Contractor who will pay the costs and charges therefore immediately upon demand, including any reasonable management and administrative costs, and engineering, legal and other consulting fees incurred to enforce with section.

(d) Except as otherwise provided in this Contract, the guarantees and warranties shall remain in effect for one year after the completion of the project. (Bold added.)

Page 3 of the Proposal Contract contains a "Warranty" by which "The Contractor warrants that all the equipment covered by this quotation will be free of defects to workmanship and materials for a period of 12 months from start up. Which is estimated to be: (1, March, 2006)." (Underlining in original.)

The Ventilex USA General Terms and Conditions were not attached to the version of the Proposal Contract signed bythe parties or to the other documents included with the Proposal Contract although Ventilex BV claims that all Ventilex Systems were to be resold by Ventilex USA subject to the Ventilex USA General Terms and Conditions as per the original sale.¹⁰ Ventilex BV acknowledges that the parties dispute whether the Proposal Contract includes the Ventilex USA General Terms and Conditions. Section 23 of the Ventilex USA General Terms and Conditions addresses "Liability For Defects" and states: "The Supplier's liability is limited to defects, which appear within a period of one year from delivery." Section 33(b) of...