Rayle Tech, Inc. v. DEKALB Swine Breeders, Inc., No. 95-8966

• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Writing for the Court: Before TJOFLAT and BIRCH; SMITH
• Citation: 133 F.3d 1405
• Parties: 34 UCC Rep.Serv.2d 641, 11 Fla. L. Weekly Fed. C 1041 RAYLE TECH, INC., d.b.a. Callaway Farms, Plaintiff-Appellant, v. DEKALB SWINE BREEDERS, INC., Defendant-Appellee.
• Docket Number: No. 95-8966
• Decision Date: 26 January 1998

Page 1405

133 F.3d 1405 34 UCC Rep.Serv.2d 641, 11 Fla. L. Weekly Fed. C 1041 RAYLE TECH, INC., d.b.a. Callaway Farms, Plaintiff-Appellant,
v.
DEKALB SWINE BREEDERS, INC., Defendant-Appellee. No. 95-8966. United States Court of Appeals,
Eleventh Circuit. Jan. 26, 1998.

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David E. Hudson, Hull, Towill, Norman & Barrett, Augusta, GA, for Plaintiff-Appellant.

Thomas William Tucker, Dye, Tucker, Everitt, Wheale & Long, Augusta, GA, Charles T. Patterson, Eidsmoe, Heidman, Redmond, Fredregill, Patterson & Schat, Sioux City, IA, for Defendant-Appellee.

Before TJOFLAT and BIRCH, Circuit Judges, and SMITH ^*, Senior Circuit Judge.

SMITH, Senior Circuit Judge:

Rayle Tech, Inc., d/b/a Callaway Farms, brought suit against DEKALB Swine Breeders for fraud and bad faith in selling diseased swine. The district court granted summary judgment, dismissing Callaway Farms' claims. For the following reasons, we affirm.

Facts ¹

In 1992 and 1993, Rayle Tech, Inc., d/b/a Callaway Farms ("Callaway Farms") operated a large swine breeding herd with approximately 5000 sows in Wilkes County, Georgia. Callaway Farms regularly introduced new breeding stock into its herd supplied by DEKALB Swine Breeders, Inc. ("DEKALB"). DEKALB is in the business of raising and selling swine breeding stock.

From 1989 through 1994, Callaway Farms and DEKALB executed numerous written contracts documenting Callaway Farms' purchase of breeding stock from DEKALB. Each contract states that "[t]his contract shall be governed by the laws of the State of Illinois." Moreover, each contract contains a limitation of liability in the case of disease, stating:

DEKALB CANNOT AND DOES NOT GUARANTEE THE ABSENCE OF ANY PATHOGENS OR DISEASE IN THE BREEDING STOCK SOLD BY DEKALB. PATHOGENS OR DISEASES MAY BE PRESENT AT TIME OF SALE OR MAY APPEAR LATER.

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The contracts recommend that the buyer have the swine tested at the buyer's expense prior to delivery. In the case of diseased swine, the contracts provide that replacement of the swine is the buyer's sole remedy. On the front page, in bold red letters, the contracts provide:

DEKALB GIVES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SWINE OR THEIR PROGENY. DEKALB GIVES NO WARRANTIES OF MERCHANTABILITY, HEALTH OR FITNESS FOR A PARTICULAR PURPOSE.

Each contract contains a merger clause, stating that "[t]his contract supersedes all prior written or oral agreements related to the swine sold hereunder, and this contract cannot be amended except in a writing which refers to this contract and which is signed by both parties." Moreover, the contracts provide a blank for the purchaser to state any promises or representations made by the seller not otherwise specified in the contract. In five of the six contracts, Eugene Callaway, Jr., an officer of Callaway Farms, wrote "none" in the blank.

Porcine Reproductive and Respiratory Syndrome (PRRS) is a swine disease caused by a virus. In sows, PRRS may cause abortions and birth of stillborn, underweight, or defective pigs. PRRS is highly contagious and widespread.

During 1992 and 1993, DEKALB knew that its herds had either been infected with or exposed to PRRS. During this time, DEKALB received 829 positive blood tests for antibodies to the PRRS virus. A positive test for the antibody does not necessarily mean that the virus is present or that the pig will develop PRRS, but that the pig has been exposed to the virus at some time and is a potential carrier. In November of 1992, DEKALB observed clinical signs of PRRS in one of its herds, and within fourteen months DEKALB found clinical signs of PRRS in eight of its twelve farms. Prior to March 11, 1993, two of DEKALB's customers complained that their herds had been infected with PRRS by animals purchased from DEKALB.

In late 1992 and early 1993, Callaway Farms considered replacing DEKALB with Pig Improvement Company ("PIC") as their supplier of breeding stock. Callaway Farms decided against this move, however, when it learned from a PIC veterinarian that PIC's herds had tested positive for PRRS. Callaway Farms explained to DEKALB's sales personnel that it wanted to avoid PRRS and that was the reason that they had decided to stay with DEKALB over PIC. Clinton Day, a DEKALB salesman, replied: "Well, that is a pretty good reason to stay with us."

Callaway Farms' herds tested negative for PRRS on March 1, 1993. On March 11, 1993, Callaway Farms received nineteen boars and gilts from DEKALB. The animals had no clinical signs of PRSS at the time of shipment or delivery. As was the conventional practice, a Callaway Farms farm manager signed the invoices upon delivery. Callaway Farms did not have any of these swine tested for the PRRS virus or antibodies prior to introducing them to the herd.

After the March 11 delivery of swine from DEKALB, Callaway Farms continued to accept new deliveries from DEKALB. On April 9, 1993, Callaway Farm's herds developed the PRRS virus. No swine were introduced to the Callaway Farms herds from any source other than DEKALB. At the time of delivery, six hogs received from DEKALB were isolated from Callaway Farms herds. After the outbreak of PRRS, these hogs tested positive for the virus.

Procedure

Callaway Farms filed suit in the United States District Court for the Southern District of Georgia alleging fraud and bad faith and seeking consequential damages in excess of $2,000,000. Callaway Farms amended the complaint to add a cause of action under the Illinois Diseased Animal Act and the Illinois Consumer Fraud and Deceptive Business Practices Act.

DEKALB filed a motion for summary judgment. The district court granted DEKALB's motion for summary judgment on all counts, finding: (1) that Callaway Farms could not rely on the Illinois statutes for recovery, (2) that Callaway Farms had not stated a cause of action for common-law fraud under Georgia law; and (3) that no

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cause of action for "bad faith" exists under Illinois law. See Rayle Tech, Inc. v. DEKALB Swine Breeders, Inc., 897 F.Supp. 1472, 1477 (S.D.Ga.1995).

Standard of Review

This court exercises a complete and independent review of the district court's grant of summary judgment, and applies the same legal standards used by the district court. See Haves v. City of Miami, 52 F.3d 918, 921 (11th Cir.1995); Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1117 (11th Cir.1993). As such, we must view all evidence and make all reasonable inferences in favor of the non-movant. See Dibrell Bros. Int'l S.A. v. Banca Nazionale Del Lavoro, 38 F.3d 1571, 1578 (11th Cir.1994). This court should affirm the district court's grant of summary judgment only if "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

Application of Illinois Statutes

Callaway Farms' amended complaint asserts causes of action under the Illinois Diseased Animal Act, 510 Ill. Comp. Stat. 50/24, and the Illinois Consumer Fraud and Deceptive Businesses Practice Act, 815 Ill. Comp. Stat. 505/2, 505/10. Callaway Farms contends that it is deserving of damages under these two statutes by virtue of the Illinois choice of law provision of the contract. We disagree.

We are bound by Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and its progeny to apply the choice of law provisions of Georgia to the facts of this case. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941); Velten v. Regis B. Lippert, Intercat, Inc., 985 F.2d 1515, 1519 (11th Cir.1993)(Because Georgia choice of law principles are matters of substantive law, Georgia's choice of law rules control.).

Georgia follows the approach to choice of law issues embodied in the First Restatement of Conflicts of Laws, employing the traditional rules of lex loci contractus and lex loci delecti. ² See Lloyd v. Prudential Securities, Inc., 211 Ga.App. 247, 248, 438 S.E.2d 703, 704 (1993). The rule of lex loci contractus mandates that "the validity,...