Seneca Foods Corporation v. Starbucks Corporation, No. 21860-1-III (WA 2/3/2005)
| Decision Date | 03 February 2005 |
| Docket Number | No. 21860-1-III,21860-1-III |
| Court | United States State Supreme Court of Washington |
| Parties | SENECA FOODS CORPORATION, Appellant, v. STARBUCKS CORPORATION, Respondent, INTERNATIONAL FLAVORS AND FRAGRANCES, INC., Defendant. |
Appeal from Superior Court of Yakima County. Docket No: 00-2-01647-5. Judgment or order under review. Date filed: 02/07/2003. Judge signing: Hon. Robert N Jr Hackett.
Counsel for Appellant(s), Douglas Larry Federspiel, Attorney at Law, PO Box 22550, Yakima, WA 98907-2550.
Counsel for Respondent(s), David F Taylor, Attorney at Law, Perkins Coie, 1201 3rd Ave Fl 40, Seattle, WA 98101-3029.
Seneca Foods Corporation produced a beverage concentrate for a Starbucks Corporation blended fruit drink, `Tiazzi.' Seneca ended the parties' relationship while holding a large inventory of certain flavor ingredients used in the beverage concentrate. Seneca demanded that Starbucks pay for those flavor ingredients, which had expired shelf lives. Starbucks refused and Seneca sued in Yakima County for breach of contract. Starbucks moved for summary judgment dismissal. The trial court granted that motion.
Seneca appeals, contending the court erred in granting Starbucks' summary judgment motion because there exist genuine issues of material fact that the parties had (1) an implied-in-fact contract, (2) an oral contract, (3) a written contract, (4) a requirements contract, (5) an implied-in-law contract, or (6) a situation governed by principles of estoppel—any one of which obligates Starbucks to pay Seneca for the flavor ingredient inventory. Seneca also contends the court erred in earlier denying, after in camera review, its discovery motion to compel Starbucks to produce documents withheld as work product or privileged attorney-client communications. We find no error and affirm the trial court.
In 1997, Starbucks began developing a new fruit beverage product, `Tiazzi,' for sale in its retail stores the following year. Tiazzi was to be prepared in store by mixing a bottled concentrate with ice. Starbucks engaged Seneca to co-pack the beverage concentrate exclusively for sale to Starbucks. The arrangement was turnkey, whereby Seneca directly ordered and purchased the Tiazzi raw ingredients for shipment to its Prosser, Washington plant. Seneca then blended the ingredients, including certain flavor concentrates manufactured by International Flavors & Fragrances, Inc. (IFF), into the bottled beverage concentrate. Starbucks sent purchase orders to Seneca and Seneca filled those orders by sending Starbucks the finished beverage concentrate in two flavors—Wild Berry and Mango Citrus. Starbucks had separately engaged IFF to develop the flavor ingredients. The Tiazzi and IFF flavorings and their formulas were proprietary to Starbucks.
Seneca's vice-president for industrial sales, David Watkins, oversaw the Tiazzi co-pack project for Seneca and was the communication contact with Starbucks. Mr. Watkins was also ultimately in charge of raw materials purchases. Eric Karlsen of Starbucks' purchasing department was Mr. Watkins' primary contact. Seneca early on signed a five-year agreement not to disclose any of Starbucks' confidential or proprietary information. Seneca began producing the Tiazzi beverage concentrate in April 1998. But the formulas had to be revised and finished product recalled prior to Starbucks' retail launch of Tiazzi. Starbucks paid Seneca for its entire finished inventory of recalled beverage concentrate. Seneca then worked overtime to produce front load quantities of reformulated beverage concentrate to stock Starbucks' warehouses in anticipation of a July 10 start of retail sales.
Aside from initial front loading for the July sales start-up, the parties' goal was for Seneca to have one month's finished beverage concentrate on hand at any given time, and be manufacturing the next month's anticipated supply in the current month. Thus, Starbucks expected Seneca to make reasonable purchases of flavor concentrates prior to receiving Starbucks' purchase orders. Mr. Karlsen said this benefited both parties. Starbucks issued a written purchase order to Seneca each time it purchased Tiazzi beverage concentrate. Both parties considered the terms and conditions of the purchase orders acceptable and binding. Since the purchase orders were only for finished beverage concentrate, they did not address the subject of financial liability for unused raw materials such as IFF flavor ingredients.
Besides the individual Tiazzi purchase orders and the previously-signed confidentiality agreement, the parties did not sign any other written contracts. Beginning in April 1998, however, they had begun negotiating a Tiazzi Supplier Agreement (TSA) that would, among other things, define their respective liability for unused raw materials purchased by Seneca. Starbucks' final draft sent to Seneca on July 12 provided that Starbucks would purchase Tiazzi raw materials from Seneca that could not otherwise be used by Seneca if (1) the TSA was terminated, (2) the raw materials met specifications, and (3) the raw materials were reasonably purchased based on historical usage.
As it stood, Seneca's executives in charge of its contract manufacturing business considered Seneca to be financially responsible for unused raw ingredients associated with Starbucks' production unless there was a written contract shifting that liability. Seneca did not sign the TSA in July.
When July consumer demand for Tiazzi drinks exceeded Starbucks' expectations, Starbucks began scrambling to replace dwindled front load quantities to prevent its retail stores from running out. Starbucks faxed purchase orders with tight turnarounds—sometimes as quick as 24 hours. This quickly depleted Seneca's inventories. On the morning of July 27, 1998, Mr. Karlsen stated in an e-mail to Mr. Watkins:
Mr. Watkins responded that he would communicate back shortly. But Mr. Karlsen meanwhile e-mailed back within an hour, CP at 533.
Mr. Watkins responded by e-mail later that morning:
We have enough supplies to make 6000 cases more of each flavor. Additional supplies for 12000 cases of each flavor are to arrive on Monday, August 3. Our plans are to produce 6000 cases each flavor on Friday, July 31. On Tuesday/Wednesday (August 4 & 5) we will produce 12000 cases of each flavor. We will then have another production run the week of August 10 and again two weeks after that.
Mr. Karlsen made no comment on this planned production schedule. He did respond by e-mail: CP at 534. And an internal Starbucks e-mail later that morning discussed the unusual shipment measures being taken to `minimize product outage.' CP at 536.
Given Starbucks' demand, and in view of Seneca's inventory situation on July 27, Seneca needed more raw materials to fill impending Starbucks purchase orders. Seneca thus issued two flavor ingredient purchase orders to IFF on July 27. These purchase orders were for certain quantities to be delivered on August 12 and during the first week of September. Starbucks was not aware of these purchase orders, as it did not involve itself in Seneca's direct raw materials purchases.
On August 6, Mr. Watkins e-mailed Mr. Karlsen to update the status of Seneca's completed product inventory and number of cases scheduled for shipment the following day. The e-mail also stated with regard to production: `Approx. 12000 cases of each flavor on Aug 18/19{.} Also R&D test run during week of Aug 10{.} Any questions, please let me know.' CP at 529.
Mr. Karlsen alerted Mr. Watkins on August 20 that Tiazzi was heading into the slow season and to watch the inventory closely. Mr. Watkins already knew by late August that Tiazzi sales had slowed to below forecast. And Seneca did not produce any more Tiazzi beverage concentrate after the August 18 and 19 production runs. But unbeknownst to Starbucks, Seneca still had a large inventory of unused IFF flavor ingredients that were purchased on July 27. Due to spoilage of fruit juices, the shelf life of these ingredients was three months—a fact apparently not realized by Seneca.
Meanwhile, Starbucks was still pushing Seneca to sign the TSA. Seneca delayed, however, telling Starbucks it was bogged down due to Seneca's impending sale of an East Coast facility. But unbeknownst to Starbucks Seneca was actually all-the-while also trying to sell its Washington-based juice business, i.e., the Prosser plant. And for strategic reasons, Seneca's chief executive officer, Kraig Kayser, did not want to enter into a contract with Starbucks that might interfere with the sale of the business. For that reason, the parties never signed the TSA. Seneca sold the Prosser plant to Tree Top in January 1999, thus terminating Seneca's and Starbucks' co-pack relationship.
Soon after the Tree Top sale, Seneca began demanding that Starbucks purchase its considerable inventory of unused IFF flavor ingredients. Starbucks refused.1 Seneca filed suit in Yakima County against Starbucks and IFF in June 2000, asserting claims against Starbucks for breach of contract under the common law and Uniform Commercial Code, and breach of warranty of fitness for particular purpose against both Starbucks and IFF. Seneca and IFF settled and IFF was dismissed from the case.
During discovery, Mr. Watkins testified in his deposition that in conjunction with the July 27 e-mail communications with...
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