Farrar & Farrar Dairy, Inc v. Miller-St. Nazianz, Inc , 477 F. App'x 981 ( 2012 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1427
FARRAR & FARRAR FARMS,
Appellant,
FARRAR & FARRAR DAIRY, INCORPORATED, on behalf of itself and
all others similarly situated,
Plaintiff – Appellant,
v.
MILLER—ST.NAZIANZ, INCORPORATED,
Defendant – Appellee
and
HYPLAST NV; KLERK’S PLASTIC PRODUCTS MANUFACTURING,
INCORPORATED,
Defendants.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh. James C. Dever, III,
Chief District Judge. (5:06-cv-00160-D)
Argued: March 22, 2012 Decided: April 27, 2012
Before Sandra Day O’CONNOR, Associate Justice (Retired), Supreme
Court of the United States, sitting by designation, TRAXLER,
Chief Judge, and HAMILTON, Senior Circuit Judge.
Affirmed by unpublished per curiam opinion.
ARGUED: Scott Crissman Harris, WHITFIELD, BRYSON & MASON, LLP,
Raleigh, North Carolina, for Appellants. Ross Alan Anderson,
WHYTE HIRSCHBOECK DUDEK S.C., Milwaukee, Wisconsin, for
Appellee. ON BRIEF: Daniel K. Bryson, LEWIS & ROBERTS, PLLC,
Raleigh, North Carolina, for Appellants. R. Thompson Wright,
HILL, EVANS, DUNCAN, JORDAN & BEATTY, Greensboro, North
Carolina; Karen L. Tidwall, WHYTE HIRSCHBOECK DUDEK S.C.,
Milwaukee, Wisconsin, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Farrar & Farrar Dairy, Inc., and Farrar & Farrar Farms
(collectively “Farrar”) appeal a district court order granting
summary judgment against them in their products liability action
against Miller-St. Nazianz, Incorporated (“Miller”). Finding no
reversible error, we affirm.
I.
Farrar & Farrar Dairy, Inc., is a North Carolina
corporation that owns and operates a small dairy farm. Farrar &
Farrar Farms is a North Carolina partnership that owns the
farm’s land and livestock. Miller is a Wisconsin corporation
that sells farm equipment and products.
In late 2004, Miller purchased the operating assets and
inventory of Ag-Bag International, Inc. (“Ag-Bag”), a company
that sold agricultural silage bags under the name “Ag-Bag.” 1
After purchasing the assets, Miller decided to continue
distributing silage bags under the “Ag-Bag” brand name. At the
1
Silage is green forage or fodder that has been chopped
and compacted into an anaerobic container such as a bunker or
fixed silo. Silage storage bags are designed to provide an
alternative method of protecting such farm feed from spoilage.
While inside the bag, silage undergoes an acid fermentation
process that prevents it from spoiling. A bagging machine
mechanically inserts the silage into the silage bag. The bags
can be as long as 300 feet and up to 14 feet wide.
3
time of the asset purchase, Ag-Bag had a contractual
relationship with Up North Plastics, Inc. (“Up North”), which
manufactured the Ag-Bag bags. Miller terminated that
relationship, however, and found another manufacturer, Hyplast
NV (“Hyplast”). Because Miller did not receive Ag-Bag’s plastic
formula when it purchased Ag-Bag’s assets, Miller provided
Hyplast with a bag that Up North had manufactured, and Hyplast
reverse-engineered a new formula.
Farrar purchased twelve 10-foot X 250-foot Ag-Bag silage
bags from an authorized dealer on April 18, 2005, and fourteen
more bags of varying size on August 15 of the same year. Some
of these 26 bags had been manufactured by Up North, and others
by Hyplast.
The warranty accompanying Farrar’s Ag-Bags stated in part:
Ag-Bag® . . . guarantees our “Bonded”[] silage
bags to be free of defects in workmanship and
materials. If a properly packed bag should fail from
a defect during normal useful life, Ag-Bag® will
replace the bag without charge. If the feed in the
damaged bag requires rebagging[,] Ag-Bag® will replace
the bag with two bags.
J.A. 1304. Additionally, each Ag-Bag box contained a document
titled “Flat-Folded Bag Installation Instructions,” which
included the following language:
All recommendations or suggestions of use are made
without guarantee, since conditions of use are beyond
our control[.] Ag-Bag . . . maintains no obligations
or liabilities for consequential damages arising out
of, or in connection with[,] use of this product,
4
including but not limited to inconvenience, loss of
profit, commercial use, food loss of any type, or
costs o[f] removal, installation or reinstallation.
J.A. 239.
Shortly after purchasing the bags in April 2005, Farrar
notified Miller that several of the bags had split.
Accordingly, Miller contacted Arthur Schuette, a Miller
representative who lived near Farrar, to investigate. Schuette
visited the Farrar farm soon after and visually inspected the
split bags. He noticed some stretching that he knew, more times
than not, was the result of the bags being overpacked. However,
he also learned that the type of crop that had been packed was
rye silage, which, in his experience, tended to “cause more bag
stretching than a lot of other crops.” J.A. 1028. For that
reason, Schuette “decided to give . . . Farrar the benefit of
the doubt” and submit a warranty claim to Miller on his behalf
with the recommendation that Farrar receive replacement bags.
J.A. 1028. Miller then processed the warranty claims and
provided Farrar with replacement bags. At least one of the
replacement bags also split. The record does not reflect
whether another replacement bag or bags were provided.
As a result of the bags’ splitting, Farrar incurred costs
associated with lost feed, re-bagging, disposal of spoiled
silage, acquiring new bags and techniques and new silage, and a
5
decrease in farm profitability due to the resources that it was
required to expend addressing the bag failures.
Farrar subsequently brought suit in federal district court
against Miller, asserting claims of negligence, breach of
express warranty, breach of implied warranty of merchantability,
unfair trade practices, and unjust enrichment. In response to a
motion for summary judgment filed by Miller, Farrar abandoned
the latter two claims. The district court granted Miller’s
motion regarding the remaining three claims.
II.
Farrar first argues that the district court erred in
granting summary judgment on its negligence claim. We disagree.
We review the district court’s grant of summary judgment de
novo, viewing the facts and the reasonable inferences therefrom
in the light most favorable to the nonmoving party. See EEOC v.
Navy Fed. Credit Union, 424 F.3d 397, 405 (4th Cir. 2005).
Summary judgment is appropriate when “the movant shows that
there is no genuine dispute as to any material fact and [that]
the movant is entitled to a judgment as a matter of law.” Fed.
R. Civ. P. 56(a). “Because we are sitting in diversity, our
role is to apply the governing state law, or, if necessary,
predict how the state’s highest court would rule on an unsettled
6
issue.” Horace Mann Ins. Co. v. General Star Nat’l Ins. Co.,
514 F.3d 327, 329 (4th Cir. 2008).
Under North Carolina law, which the parties agree applies
to the claims before us, a plaintiff bringing a products
liability action based on negligence must “prove (1) the product
was defective at the time it left the control of the defendant,
(2) the defect was the result of defendant’s negligence, and (3)
the defect proximately caused plaintiff damage.” Red Hill
Hosiery Mill, Inc. v. MagneTek, Inc., 530 S.E.2d 321, 326 (N.C.
Ct. App. 2000).
Farrar sought to prove that had Miller exercised reasonable
quality control practices with respect to the silage bags that
it purchased from Hyplast to resell under the Ag-Bag brand, it
would have discovered that they were defectively designed. In
moving for summary judgment on the negligence claim, Miller
maintained, as is relevant here, that Farrar failed to create a
genuine dispute regarding whether the failed bags were defective
or whether the defect was the result of Miller’s negligence.
In response, Farrar pointed to evidence that Miller, aware
that other companies had experienced problems with their silage
bag manufacturers, had contemplated sending the Hyplast bags to
an independent lab for analysis. Farrar also pointed to
evidence that many other of Miller’s customers experienced
problems with their bags in the summer of 2005, and that several
7
Miller employees expressed concerns about the quality of the
plastic Hyplast used to make the bags and theories regarding why
some of the bags were failing. Farrar further offered evidence
of a PowerPoint presentation, apparently given by Hyplast in
late 2005, stating an “[i]ntermediate conclusion” that bags it
examined split due to a combination of factors including that
the three-ply bags had a transparent middle layer, J.A. 1301, in
contrast to Up North’s bags, which had utilized a white middle
layer. The presentation suggested that a white middle layer
better reflected the sun’s rays and therefore better protected
the bags from the effects of high temperatures. After this
presentation, Hyplast informed Miller that “a certain ‘batch’”
of the bags Hyplast had shipped to Miller appeared to have “a
possible higher than normal failure rate” and were “possibly
defective.” J.A. 1979, 1713. Miller, in turn, notified its
territory managers and dealers of that information, and the
territory managers notified their dealers that “if any of the
specific lot of potentially problematic silage bags identified
by Hyplast were in their possession, they should be returned to
[Miller] and they would be exchanged for new silage bags.” J.A.
1979.
Farrar maintained that by producing the above-mentioned
evidence, it had proffered both direct evidence of the
defectiveness of the bags in question and proven their
8
defectiveness by showing “(1) [that] the silage bags
malfunctioned; (2) that the silage bags were put to ordinary
use; (3) [the occurrence of] similar accidents involving the
same product; and (4) [the] elimination of other possible causes
of the accident.” J.A. 966. Farrar contended that the direct
evidence it had referenced gave rise to an inference of
negligence on the part of the manufacturer. 2 It further
maintained that Miller had been “on notice of potential problems
with the silage bags, and that a reasonable man would have
exercised greater care in inspecting and testing” them. J.A.
972.
On reply, as is relevant here, Miller argued that much of
Farrar’s evidence would not be admissible at trial and therefore
could not be considered at the summary judgment stage. Miller
further emphasized that Farrar had not produced any direct
evidence of a product defect that would be admissible at trial
and no direct evidence of Miller’s negligence. Miller therefore
asserted that Farrar had failed to create a genuine dispute
regarding the negligence element of its negligence claim.
2
Farrar maintained that Miller, “as the apparent
manufacturer of the silage bags, . . . had a duty to use
reasonable care in the design and manufacture of its products.”
J.A. 969.
9
Farrar filed a sur-reply in which it defended the
admissibility of its proffered evidence.
In granting summary judgment against Farrar on this claim,
the district court agreed with Miller that Farrar had failed to
create a genuine dispute regarding whether any defect in the
bags sold to Farrar was the result of negligence on Miller’s
part. The court noted that, under North Carolina law,
defectiveness of a product may be established by indirect
evidence and negligence can sometimes be inferred from the
existence of a product defect. However, the court ruled that
negligence cannot be inferred from the existence of a defect if
the defect has been established entirely by indirect evidence.
Determining that Farrar had not offered direct evidence (such as
expert testimony) that the bags were defective, the court ruled
that, in order to prove Miller’s negligence, Farrar would have
to present “evidence that suggests what a reasonable person
would do in similar circumstances.” J.A. 2610-11 (internal
quotation marks omitted). Concluding that “the record lacks any
information as to quality control mechanisms that distributors
generally employ for goods manufactured by an independent
manufacturing company,” J.A. 2612, the court granted summary
judgment against Farrar on the negligence claim.
Farrar advances several challenges to the court’s analysis,
which we address seriatim.
10
Farrar first contends that the district court
mischaracterized North Carolina law when it concluded that when
a products liability plaintiff relies on indirect evidence to
prove that the product was defective, it cannot rely solely on
the same evidence to prove the defect was the result of the
defendant’s negligence. Farrar is incorrect, however, as that
proposition is established both by Dewitt v. Eveready Battery
Co., 550 S.E.2d 511, 520 (N.C. Ct. App. 2001), aff’d on other
grounds, 565 S.E.2d 140 (N.C. 2002), and by Red Hill Hosiery
Mill, Inc., 530 S.E.2d at 327 n.7. See also Carlton v. Goodyear
Tire & Rubber Co., 413 F. Supp. 2d 583, 588 (M.D.N.C. 2005)
(explaining that products-liability plaintiff “may not prove
negligence by stacking inference upon inference”). Farrar
insists that the principle that a products liability plaintiff
cannot prove negligence simply by offering circumstantial
evidence of a product defect is “inconsistent with the North
Carolina Supreme Court’s statement in DeWitt that a plaintiff
need not satisfy each of the factors explicitly stated in DeWitt
to prove a product defect through circumstantial evidence.”
Appellants’ brief at 24. That is not the case, however.
Rather, the principle simply reflects that “[t]o prove a product
defective is one thing,” but “to prove that the defect flowed
from a failure to exercise reasonable care is quite
11
another.” Red Hill Hosiery Mill, Inc., 530 S.E.2d at 326 n.5
(internal quotation marks omitted).
Farrar alternatively contends that it presented direct
evidence of a design defect in Farrar’s split bags, from which
Miller’s negligence could be reasonably inferred. Relying on
the testimony of Miller’s Rule 30(b)(6) witness, Steve Pesik,
Farrar contends Miller tested plastic samples from each of the
eight silage bags at issue, and determined, based on the
testing, that each was defective. See Appellants’ brief at 26
(citing J.A. 1869-70). Farrar’s characterization misstates
Pesik’s testimony, however. Pesik testified that Miller treated
Farrar’s warranty claims as viable losses under the limited
warranty that covered defects in material and workmanship.
Pesik did not testify that Miller tested each bag, and he
certainly did not testify there was any defect in the bags’
design. In any event, because Farrar did not rely on the
existence of this testimony in opposing Miller’s summary
judgment motion in the district court, the court was not
required to consider it. See Fed. R. Civ. P. 56(c)(3).
Miller also argues that Hyplast’s PowerPoint presentation
constituted direct evidence of the defectiveness of the bags’
design. However, evidence of this presentation was inadmissible
hearsay. See Maryland Highway Contractors Ass’n v. State of
Md., 933 F.2d 1246, 1251 (4th Cir. 1991) (“[H]earsay evidence,
12
which is inadmissible at trial, cannot be considered on a motion
for summary judgment.”). Farrar did not identify or depose the
author of the presentation, and no one at Hyplast was questioned
concerning its contents. Farrar argues conclusorily that
evidence of the presentation would fall under the business
records hearsay exception, see Fed. R. Evid. 803(6), but Farrar
fails to explain how the elements of that exception could be
established. In any event, while the presentation does suggest
steps for Hyplast to take in an effort to improve the bags, it
does not appear to conclude that any problem with the design of
the bags rose to the level of a design defect.
In its reply brief, Farrar contends for the first time that
Miller’s negligence could be reasonably inferred not simply from
evidence of the bags’ defectiveness but from direct evidence
that Miller failed to “perform an adequate investigation or
inspection of the silage bags or issue a recall for
approximately six months” and to warn its customers of the
problems. Appellants’ reply brief at 27. In this regard,
Farrar asserts that Miller learned of a problem with its
Hyplast-manufactured silage bags during the weeks of May 30 and
June 6, 2005.
Because Farrar did not make this argument in its opening
brief, it is waived. See Edwards v. City of Goldsboro, 178 F.3d
231, 241 n.6 (4th Cir. 1999) (claim not properly raised in
13
appellant’s opening brief is deemed abandoned); Cavallo v. Star
Enter., 100 F.3d 1150, 1152 n.2 (4th Cir. 1996) (argument not
raised in opening brief, but raised for first time in reply
brief, is waived). In any event, the district court rejected
this same argument on the bases that (1) “the record lacks any
information as to quality control mechanisms that distributors
generally employ for goods manufactured by an independent
manufacturing company” and (2) neither Miller’s awareness of
problems other companies had experienced with their silage bag
manufacturers nor the fact that Miller contemplated sending
Hyplast’s bags to an independent lab for testing is sufficient
“to show whether a reasonable person, in similar circumstances
to Miller, would have conducted such an independent lab analysis
or adopted some other quality control measure.” J.A. 2612. In
its reply brief, Farrar simply argues that the district court
erred in concluding that Farrar failed to create a jury issue
with this theory without addressing, or even acknowledging, the
basis for the district court’s ruling. See Appellants’ reply
brief at 25-29. Thus, Farrar’s argument is waived for this
reason as well. See Eriline Co. S.A. v. Johnson, 440 F.3d 648,
653 n.7 (4th Cir. 2006) (holding that conclusorily assigning
error without providing supporting argument is insufficient to
raise issue).
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III.
Farrar next maintains that the district court erred in
granting summary judgment against it on its claims for breach of
Miller’s express warranty and breach of an implied warranty of
merchantability. We disagree.
The district court ruled that Miller owed Farrar a duty
both under its express warranty and under an implied warranty of
merchantability. Under North Carolina’s implied warranty of
merchantability, Farrar could recover “the difference . . .
between the value of the goods accepted and the value they would
have had if they had been as warranted.” N.C. Gen. Stat. § 25-
2-714(2). Additionally, “[i]n a proper case any incidental and
consequential damages under . . . [§ 25-2-715] may also be
recovered.” N.C. Gen. Stat. § 25-2-714(3). North Carolina
statutory law also permits written warranties to limit the
remedy available in the event of a breach; however, when
“circumstances cause an exclusive or limited remedy to fail of
its essential purpose, remedy may be had as provided” in the
absence of the warranty limitations. N.C. Gen. Stat. § 25-2-
719(2). Finally, “[c]onsequential damages may be limited or
excluded unless the limitation or exclusion is unconscionable.”
N.C. Gen. Stat. § 25-2-719(3).
Miller’s express warranty provided that should an Ag-Bag
fail from defect, it would be replaced without charge and that
15
should the damaged bag require the farmer to rebag the feed,
Miller would provide two replacement bags. The district court
treated this remedy and the remedies granted under North
Carolina statutory law as consistent and therefore cumulative.
The court concluded that since Farrar chose to remedy the breach
by accepting replacement bags, it was not entitled to any
additional remedy under N.C. Gen. Stat. § 25-2-714. As for
Miller’s exclusion of consequential damages, the district court
noted it was valid unless it was unconscionable, which the court
concluded it was not. Farrar offers several challenges to the
district court’s analysis, which we consider seriatim.
Farrar first maintains that the district court erred in not
recognizing that Miller’s warranty failed of its essential
purpose, and therefore that Farrar was entitled to all of the
remedies listed in § 25-2-714, including consequential damages. 3
A limited, exclusive remedy fails of its essential purpose when
“unanticipated circumstances preclude the seller from providing
the buyer with the remedy to which the parties
agreed.” Computer Network, Inc. v. AM Gen. Corp., 696 N.W.2d
3
In this regard, Farrar claims that “Farrar never
actually made the warranty claim under the express warranty.”
Appellants’ brief at 33-34. However, Farrar, when asked at
deposition whether he ever submitted a written warranty claim,
responded that he dealt with Schuette and “[w]hatever he had me
do is what[] I did.” J.A. 2302.
16
49, 55 (Mich. Ct. App. 2005) (internal quotation marks
omitted); see Stutts v. Green Ford, Inc., 267 S.E.2d 919, 926
(N.C. Ct. App. 1980) (holding that a warranty fails of its
essential purpose when “there is a defect which is not or cannot
be repaired within a reasonable period as required by the
warranty”). We see no basis for concluding that Farrar showed
that it did not receive the remedy that Miller had promised.
Miller provided replacements for the defective bags within a
reasonable period of time, just as its warranty contemplated.
Although at least one of the replacement bags also ended up
splitting, Farrar offers no evidence that the replacement bag
was not also promptly replaced.
In the end, Farrar seems to suggest that the warranty
failed of its essential purpose because Miller did not
compensate Farrar for the substantial costs it incurred “with
purchasing new feed, the labor costs of rebagging the feed, and
the loss in milk production due to Farrar’s inability to
adequately feed his livestock.” Appellants’ brief at 36. Of
course, though, the fact that Farrar was not compensated for
those losses simply reflected Miller’s disclaimer of
consequential damages. It is to the effectiveness of that
disclaimer that we now turn.
Farrar argues that the disclaimer of consequential damages
was not effective because it was “not conspicuous as required by
17
[N.C. Gen. Stat. §] 25-2-316(2), and the warranty does not
mention merchantability.” Appellants’ brief at 32. However, as
the district court correctly determined, Miller’s disclaimer did
not need to meet § 25-2-316(2)’s requirements to be effective.
That section concerns only attempts to “exclude or modify the
implied warranty of merchantability or any part of it.” Here,
what Miller limited by disclaiming consequential damages was not
the warranty, but the remedy for a breach of the warranty.
North Carolina Code section 25-2-316(4) plainly provides that
“[r]emedies for breach of warranty can be limited in accordance
with . . . [N.C. Gen. Stat. §§] 25-2-718 and 25-2-719.” N.C.
Gen. Stat. § 25-2-316(4) (emphasis added). Section 25-2-719, in
turn, provides that “[c]onsequential damages may be limited or
excluded unless the limitation or exclusion is unconscionable.”
Thus, so long as the limitation is not unconscionable, it is
valid. See Billings v. Joseph Harris Co., 220 S.E.2d 361, 366
(N.C. Ct. App. 1975).
Farrar argues that the limitation is unconscionable for two
reasons. First, it contends that Farrar had no meaningful
choice regarding the terms of the warranty. In this regard,
Farrar contends that “when a manufacturer is aware that its
product is inherently defective, but the buyer has ‘no notice of
[or] ability to detect’ the problem, there is perforce a
substantial disparity in the parties’ relative bargaining
18
power.” Appellants’ brief at 37 (quoting Carlson v. General
Motors Corp., 883 F.2d 287, 296 (4th Cir. 1989)). Farrar
maintains that, at the time it purchased the bags in question,
Miller knew that Hyplast had changed the formula for the silage
bags, while Farrar had no way of knowing that. That fact is
certainly not much help to Farrar, however. When Farrar
purchased bags in April 2005, Miller had no reason to believe
that Hyplast would produce defective bags. And, it was shortly
thereafter that several of the bags split. Although Miller
learned that summer of other customers who had experienced
problems with its bags, by that point, Farrar was certainly on
notice of a possible problem as well. Thus, there was no
substantial disparity in bargaining power between the parties,
even regarding the August purchases.
Farrar also contends that Miller’s consequential-damages
exclusion was unconscionable because, with the exclusion, the
terms of the purchase were unreasonably favorable to Miller. We
do not agree. Any disclaimer of a customer’s right to recover
consequential damages as a warranty remedy can have significant
effects, but in a transaction between business entities, a
provision disclaiming consequential damages for commercial loss
is not presumptively unconscionable. See N.C. Gen. Stat. § 25-
2-719(3) (providing that limitation of consequential damages for
commercial loss is not prima facie unconscionable); Stan D.
19
Bowles Distrib. Co. v. Pabst Brewing Co., 317 S.E.2d 684, 690
(N.C. Ct. App. 1984) (“Courts rarely find limitation clauses in
transactions between experienced businessmen
unconscionable.”); Billings, 220 S.E.2d at 366.
In its reply brief, Farrar argues for the first time that
the exclusion of consequential damages was unconscionable
because at least one of the replacement bags that Miller
provided ended up breaking. Because Farrar did not make this
argument in its initial brief, it is waived. See Edwards, 178
F.3d at 241 n.6; Cavallo, 100 F.3d at 1152 n.2. In any event,
the consequential damages exclusion became effective when the
bags were purchased. Subsequent events have no bearing on the
issue of unconscionability. See Weaver v. Saint Joseph of the
Pines, Inc., 652 S.E.2d 701, 712 (N.C. Ct. App. 2007) (“The
question of unconscionability is determined as of the date the
contract was executed.”).
For all of these reasons, we conclude as a matter of law
that the consequential damages exclusion was valid and that the
court properly granted summary judgment on Farrar’s warranty
claims.
IV.
In sum, we affirm the district court’s order granting
summary judgment against Farrar.
AFFIRMED
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