Safeway Stores, Inc. v. LD Schreiber Cheese Company

• Decision Date: 23 April 1971
• Docket Number: No. 2078.,2078.
• Citation: 326 F. Supp. 504
• Parties: SAFEWAY STORES, INC., Plaintiff, v. L. D. SCHREIBER CHEESE COMPANY, Inc., Defendant and Third-Party Plaintiff, v. STANDARD MILK COMPANY, Inc., Third-Party Defendant.
• Court: U.S. District Court — Western District of Missouri

326 F. Supp. 504

SAFEWAY STORES, INC., Plaintiff, v. L. D. SCHREIBER CHEESE COMPANY, Inc., Defendant and Third-Party Plaintiff, v. STANDARD MILK COMPANY, Inc., Third-Party Defendant.

No. 2078.

United States District Court, W. D. Missouri, Southwestern Division.

April 23, 1971.

Lloyd Buehner, Buehner & Thomas, Joplin, Mo., for third party defendant and plaintiff.

Harold Fisher, Allen, Woolsey & Fisher, Springfield, Mo., for third party defendant.

Gene C. Morris, Rogers, Field, Gentry, Benjamin & Robertson, Kansas City, Mo., for plaintiff.

MEMORANDUM AND OPINION: FINDINGS OF FACT AND CONCLUSIONS OF LAW

ELMO B. HUNTER, District Judge.

This is a diversity action originally brought by plaintiff Safeway Stores, Inc., (Safeway) against defendant L. D. Schreiber Cheese Company (Schreiber), a wholesaler and distributor of cheese, to recover damages incurred as the result of certain consumer claims against Safeway arising from the retail sale of certain defective cheese sold to Safeway by Schreiber. Shortly after this action was initiated, Schreiber filed its third-party complaint against Standard Milk Company (Standard), manufacturer of the cheese, seeking (1) indemnification for the Safeway claims, (2) recovery of attorney's fees and costs expended in the defense of this action by Safeway, and (3) recovery of certain costs expended for the testing of cheese. On July 8, 1970, judgment was entered in favor of Safeway and against Schreiber in the sum of $68,639.50.¹ The next day, upon the request of Safeway, the remaining counts of its complaint were dismissed with prejudice. The documents filed on August 7, 1970, by defendant Schreiber reveal that the judgment against it has been satisfied. Thus, there remain for resolution in this cause only the claims of defendant Schreiber against third-party defendant Standard.^1a

For several years prior to the occurrences involved herein, Schreiber purchased the entire output of cheese produced by Standard which, in turn, was sold by Schreiber to Safeway, its single largest customer, for resale to the consumer. The cheese, packaged in 40-pound blocks which were wrapped in various materials² and incased in fiber boxes, was delivered from Standard to Schreiber by truck at the dock of Refrigerated Services, Inc., a public warehouse at Carthage, Missouri. At the dock, samples from one or two cheese blocks of the same "vat"³ were taken by Schreiber personnel so that certain tests could be made in order to determine whether the product met the requirements of Safeway. The cheese was tested for extraneous matter, moisture content, hydrogen ion concentration, and fat content. The cheese was not normally tested at this stage for the presence of bacteria. After the samples were taken from the incoming cheese for use in this testing, the cheese was immediately placed in storage with Refrigerated Services, Inc., in the name of Safeway. Cheese from Standard was also stored at the Railway Ice & Service Company at Aurora, Missouri, and the Marionville Ice & Refrigeration Company at Marionville, Missouri. The only difference in procedure at these two other locations was that the cheese would be placed directly into storage and would be tested by a Schreiber employee later on the same day or in the next few days.

At all three of the storage locations, once the cheese was stored, it was considered to be the property of Safeway. Later, upon the request of Safeway, Schreiber would have the cheese withdrawn from storage. It then would be regraded and delivered to Safeway's own packaging plant in Carthage, Missouri. There, some of the cheese was wrapped for sale in Safeway stores and some of the cheese was sent out in bulk or block form to other distribution points.

In late September of 1965, Safeway began to receive complaints from its consumers on the West Coast who had purchased cheese from its stores and later had become ill. Samples of the cheese retrieved indicated that it was the product of Standard which had been sold to Schrieber and resold to Safeway.

As a result of the volume of complaints by consumers on the West Coast and upon the demand of various governmental agencies, including the Federal Food and Drug Administration, all cheese manufactured by Standard was removed from the shelves of Safeway stores and was taken from West Coast storage locations. That cheese was either destroyed or buried under the supervision of the Federal Food and Drug Administration, or was returned to Schreiber. Demand for reimbursement for this cheese was made on Schreiber by Safeway by invoice in the amount of $55,558.84, representing 82,719 pounds of cheese. In due time this invoice was paid by Schreiber. Schreiber, in turn, billed Standard in the same amount. In January of 1966, Safeway returned all of its inventory of Standard cheese, approximately three million pounds, which was in storage in the Carthage, Missouri, area. Both parties agree that Standard has satisfied any claims Schreiber may have regarding reimbursement for the cheese product itself.⁴

On January 12, 1966, Schreiber and Standard were made defendants in a civil action⁵ brought in this Court by the United States of America. Pursuant to that action, and on the same day, this Court entered a temporary restraining order which prohibited the selling or moving of the above-mentioned cheese in interstate commerce until tests could be performed to establish whether it contained "coagulase positive Staphylococci aureus" capable of producing enterotoxin.⁶ On February 15, 1966, all of the defendants in that action joined in a consent decree of permanent injunction which again prohibited the selling or moving of the cheese in interstate commerce until it could be tested to determine whether it was safe for human consumption.

At the time of the Government action, Schreiber had in its possession approximately four million pounds of cheese which had been manufactured by Standard. All of this cheese was required to be properly tested to assure that it did not contain Staphylococci capable of producing enterotoxin or the enterotoxin itself. However, at the time of the injunction, there were no tests generally recognized in the cheese industry to discover the actual existence of enterotoxin.⁷

Schreiber therefore undertook to contact scientists who had been doing research in this area of microbiology in order that an accurate testing procedure might be established. Coincidently, during this time period, a scientist at the University of Chicago, Dr. Merlin Bergdoll, had developed his research in the isolation of the Staphylococci enterotoxin to the point that he had discovered a testing method which could be used to determine the presence of the toxin. Working in connection with Dr. Bergdoll, the Federal Food and Drug Administration, and its own experts, Schreiber did, in fact, develop a testing procedure which accurately indicated the presence of enterotoxin in cheese. All of the cheese in Schreiber's possession which had been manufactured by Standard was tested either by Schreiber or by the Federal Food and Drug Administration. As the result of the testing, it was ascertained that approximately 130,000 pounds of the cheese manufactured by Standard contained enterotoxin-producing coagulase positive Staphylococci aureus or the enterotoxin itself. This cheese was not fit for human consumption and was destroyed.⁸ The remainder of the cheese was later sold by Schreiber in the open market.

From the uncontradicted expert testimony adduced at trial by plaintiff, it is clearly evident that the cheese which was found to be contaminated was manufactured by Standard between July 2, 1965 and July 20, 1965. That testimony also reveals that, prior to delivery to Schreiber, the contaminated cheese, as manufactured, contained either the enterotoxin or coagulase positive Staphylococcus aureus capable of producing the enterotoxin.⁹ Both parties have stipulated that the enterotoxin produced by coagulase positive Staphylococcus aureus is a poisonous and deleterious substance injurious to the health of the consuming human. Thus, in view of that stipulation and the testimony adduced at trial, plaintiff has established by a preponderance of the evidence that the cheese was defective before it reached the various Schreiber facilities.¹⁰

On February 21, 1966, a formal demand was made by Schreiber for Standard to assume the defense of all actions and claims against Schreiber arising out of the incident mentioned above and to hold Schreiber harmless from all claims. Schreiber advised Standard that it would look to Standard for the costs of defense relating to all claims based upon unfitness of the cheese for human consumption, including attorneys' fees, costs of investigation, court costs and any sums paid by way of settlement of judgment in those matters. On November 24, 1967, this action was initiated by Safeway against Schreiber. Schreiber, acting through its attorney, formally advised Standard of this litigation and demanded that Standard assume the defense. Schreiber also advised Standard that, upon the refusal of Standard to defend, Schreiber would conduct the defense of the action and that, in addition to the amount of any adverse judgment rendered against it, Schreiber would also seek recovery against Standard for its costs and reasonable expenses in defending the action, including reasonable attorneys' fees. In response, Standard refused to assume the defense of this action. Shortly thereafter, on January 19, 1968, Schreiber filed its third-party complaint against Standard.

Based upon the testimony and evidence presented at trial, it is clearly apparent that Schreiber is entitled to recovery as against Standard for the amount paid by Schreiber in satisfaction of the judgment rendered against it for the consumer claims initially incurred and paid by Safeway. As previously stated, the preponderance of the evidence adduced at trial established that, at the...