Maryland & Virginia Milk Producers Cooperative Ass'n v. Crowell Farms, Inc. ( 2004 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MARYLAND AND VIRGINIA MILK 
PRODUCERS COOPERATIVE
ASSOCIATION, INC.,
Plaintiff-Appellee,
 No. 03-1769
v.
CROWELL FARMS, INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-02-1847-A)
Argued: February 25, 2004
Decided: June 9, 2004
Before MOTZ, KING, and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Steven Walter Bancroft, TRICHILO, BANCROFT,
MCGAVIN, HORVATH & JUDKINS, Fairfax, Virginia, for Appel-
lant. Lloyd Lee Byrd, SANDS, ANDERSON, MARKS & MILLER,
Richmond, Virginia, for Appellee. ON BRIEF: Heather K. Bardot,
TRICHILO, BANCROFT, MCGAVIN, HORVATH & JUDKINS,
Fairfax, Virginia, for Appellant. Lisa T. Hudson, SANDS, ANDER-
SON, MARKS & MILLER, Richmond, Virginia, for Appellee.
2 MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Maryland & Virginia Milk Producers Cooperative Association,
Inc., (the "Cooperative"), filed this action against Crowell Farms
("Crowell"), alleging that Crowell breached the terms of the parties’
"Marketing Agreement" by delivering adulterated milk to Milkco,
Inc. ("Milkco"), one of the Cooperative’s milk processing customers.
On cross motions for summary judgment, the district court granted
summary judgment in the Cooperative’s favor. Crowell appeals. For
the reasons that follow, we affirm.
I.
The Cooperative, a member of the Advantage Dairy Group1
("ADG"), is a Virginia corporation that operates as an agricultural
cooperative, which is in the business of handling, marketing, and sell-
ing the raw milk of its producer members to commercial entities in
the food industry. The Cooperative has approximately 1,600 producer
members. Crowell, a North Carolina dairy farm, became one of the
Cooperative’s producer members when it entered into a Marketing
Agreement with the Cooperative on May 23, 2000. The Marketing
Agreement required Crowell to "produce milk in compliance with all
governmental laws and regulations applicable to [Crowell]." (J.A. 43
(Marketing Agreement C(2).). The Agreement further required Cro-
well to "deliver the milk to the [Cooperative] in pure and unadulter-
1
ADG is a group of "separate cooperatives that have further grouped
together." (J.A. 370 (Dep. James Howie - Director of Regulatory and
Legislative Affairs for the Cooperative)). "ADG is a cooperative corpo-
ration which was established in January 2000." (Id. 411 (Decl. Jay Bry-
ant - General Manager of the Cooperative).). It is comprised of five
member cooperatives, which function to more efficiently market the milk
to its processors. ADG has no facilities or employees; rather, ADG func-
tions solely through its respective cooperative members. Id. at 411-12.
MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS 3
ated condition suitable for sale or processing." Id. (emphasis added).
Most importantly, the Agreement provided that
in the event of a breach by [Crowell] of any material provi-
sion of this Agreement, particularly the provision relating to
the sale of the milk to the [Cooperative], the [Cooperative]
. . . may recover full damages for the breach.
Id. at C(8) (emphasis added).
Milkco is a milk processing facility in Asheville, North Carolina.
Milkco entered into a Supplemental Milk Supply Agreement
("Supplemental Milk Agreement") with the Cooperative, requiring the
Cooperative to supply milk to Milkco. (J.A. 45-46.) J. Rice Trucks,
Inc., ("Rice Trucks"), is a hauling company with whom Crowell had
contracted to deliver Crowell’s milk to Milkco.
On September 14, 2002, Rice Trucks delivered a load of raw milk
from Crowell to Milkco. The milk was tested for foreign substances,
as required by law, and Crowell’s load tested positive for antibiotics
in three separate tests. After Rice Trucks was notified that the load of
milk had tested positive for antibiotics, Tony Rice, the company’s
owner, called Michael Crowell, who was then President of Crowell
Farms, to inform him of the test results and that Crowell’s load of
milk had been rejected. During that conversation, Michael Crowell
told Tony Rice that he could not afford to lose that load of milk
because it was too costly for his milk farmers. (J.A. 331-32 (Crowell
Dep.).) In response, Tony Rice told Michael Crowell that he would
add another producer’s load of milk to Crowell’s adulterated load the
following day, which would dilute the levels of antibiotics in the milk
below the detectable level, thereby preventing a loss to Crowell and
his farmers. Id. at 332-33 (Crowell Dep.).
The following day, September 15, 2002, Tony Rice added a load
of another producer’s milk to Crowell’s antibiotic-contaminated milk
and delivered the mixed load back to Milkco. Upon delivery to
Milkco, the milk was tested again, and it no longer tested positive for
antibiotics. Thereafter, Milkco accepted the load of Crowell’s milk
and began processing it. However, on September 16, 2002, Milkco
officials realized they had received approximately forty thousand
4 MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS
more pounds of milk than expected. Upon investigation, the addi-
tional milk supply was traced to Crowell Farms, and Michael Crowell
admitted to adding non-contaminated milk to his previously rejected
load, which explained Milkco’s overage. Milkco immediately shut
down its plant, until the contaminated milk could be located. Fortu-
nately, most of the products containing the adulterated milk were
located on site, however, a load of cream containing the contaminated
milk had already been shipped to Kraft Foods, Inc. ("Kraft"), in New
York, before the embargo went into effect. New York authorities
ordered the Kraft product containing Crowell’s adulterated milk to be
destroyed, and the remaining contaminated milk product at Kraft’s
plant was segregated and destroyed.
As a result of receiving adulterated milk from Crowell, Milkco sus-
tained significant losses related to the detection, removal, and destruc-
tion of the adulterated product. The total loss amounted to
$441,963.69, not including lost profits. The Cooperative reimbursed
Milkco for the full amount of its losses, and thereafter the Coopera-
tive sought to be reimbursed by Crowell. The district court granted
summary judgment in the Cooperative’s favor, holding that the Coop-
erative was entitled to reimbursement from Crowell because it "had
the legal obligation under the commercial conduct of warranties of
merchantability . . . to pay Milkco for its damages." (J.A. 38.) We
agree.
II.
On appeal, we review the granting or denial of summary judgment
de novo. Nielson v. Gaertner, 96 F.3d 110, 112 (4th Cir. 1996). Sum-
mary judgment is appropriate for the moving party if there is no genu-
ine issue of material fact and the movant is entitled to judgment as a
matter of law. See Fed. R. Civ. P. 56(c). It is clear from our review
of the record that there is no genuine issue of material fact regarding
whether Crowell’s breach caused the Cooperative to suffer damages
in excess of $400,000.
III.
Crowell, while admitting that it deliberately delivered adulterated
milk to Milkco, nonetheless argues that it cannot be held liable to
MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS 5
reimburse the Cooperative for the money it paid to Milkco, because
the Cooperative was never contractually obligated to reimburse
Milkco. The basis for Crowell’s argument is that the Supplemental
Milk Agreement was not between the Cooperative and Milkco, but
rather between ADG and Milkco.2 Ultimately, Crowell maintains that
any payment the Cooperative made to Milkco was voluntary, and
therefore, Crowell has no indemnification liability.3 Conversely, the
Cooperative argues that it was contractually bound to Milkco, and
moreover, under the implied warranty of merchantability, the Cooper-
ative was obligated to reimburse Milkco for the losses Milkco suf-
fered as a result of Crowell’s breach. We agree with the district
court’s holding that the Cooperative, and not ADG, was the legal
party in interest, and that the Cooperative was legally bound to reim-
burse Milkco for the losses resulting from Crowell’s breach. Accord-
ingly, we hold that the Cooperative was entitled to summary
judgment, and we therefore affirm the district court’s ruling.
It is undisputed that Crowell and the Cooperative had a contractual
agreement, which required Crowell to deliver unadulterated milk to
the Cooperative, which, in turn, marketed and sold Crowell’s milk to
interested dairy processors. (J.A. 43-44 (Marketing Agreement).)
Additionally, as previously stated, supra, at 2, the Cooperative4 had
2
The Supplemental Milk Agreement states that "Advantage Dairy
Group will supply milk to Milkco. . . ." (J.A. 45 (emphasis added).)
3
Crowell also argues that Milkco could not have recovered from the
Cooperative due to Milkco’s own negligence in accepting Crowell’s milk
on September 15, 2002, despite knowing that Crowell had its permit sus-
pended the day before. However, Virginia is a contributory negligence
state, and the Virginia courts have held that contributory negligence is
not a proper defense in breach of implied warranty actions because such
actions are regarded as ex contractu. See, e.g., Wood v. Bass Pros Shops,
Inc., 462 S.E.2d 101, 103 (Va. 1995); White Consol. Indus., Inc. v.
Swiney, 376 S.E.2d 283, 286 (Va. 1989); Brockett v. Harrell Bros., Inc.,
143 S.E.2d 897, 902 (Va. 1965).
4
Crowell maintains that the Cooperative never had an agreement with
Milkco, because the signatories to the contract were the Advantage Dairy
Group and Milkco; not the Cooperative. We shall not tarry long on this
argument. As previously explained, supra n.1, ADG, which operates as
a conglomerate of cooperatives, has no employees or facilities of its own;
6 MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS
a contractual agreement with Milkco, whereby the Cooperative would
supply milk to Milkco. (J.A. 43 (Supplemental Milk Agreement).)
The parties agree that all relevant contracts, including the Market-
ing Agreement and the Supplemental Milk Agreement, are to be inter-
preted under Virginia law. The Virginia commercial code contains a
provision regarding the implied warranty of merchantability, which
states that, unless excluded or otherwise modified:
(1) a warranty that the goods shall be merchantable is
implied in a contract for their sale if the seller is a mer-
chant with respect to goods of that kind.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the
contract description; and ***
(c) are fit for the ordinary purposes for which
such goods are used.
Va. Code Ann. § 8.2-314. To be merchantable, goods must be "fit for
the ordinary purposes for which such goods are used." Id. § 8.2-
314(2)(c). The Code defines a "merchant" as someone
rather it operates solely through its member cooperatives, of which the
Cooperative is one. The Supplemental Milk Agreement, which was in
effect at the time of the incident in question, was prepared on the Coop-
erative’s letterhead and was signed by Jay Bryant, General Manager of
the Cooperative. (J.A. 45, 411.) Moreover, when the Cooperative pro-
vided milk to Milkco, the Cooperative, not ADG, would invoice Milkco.
Id. at 412. Likewise, when Milkco suffered its significant loss as a result
of processing Crowell’s adulterated milk, Milkco sent a statement of
damages requesting reimbursement from the Cooperative; not to ADG,
which the Cooperative, not ADG, paid. Id. at 413. Crowell does not dis-
pute that the Cooperative, not ADG, reimbursed Milkco for its losses.
Accordingly, there was no real dispute as to whether the Supplemental
Milk Agreement was a contract between Milkco and the Cooperative; not
between Milkco and ADG. Thus, Crowell’s argument that the Coopera-
tive and Milkco were never contractually bound to one another is merit-
less.
MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS 7
who deals in goods of the kind or otherwise by his occupa-
tion holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction or to
whom such knowledge or skill may be attributed by his
employment of an agent or broker or other intermediary
who by his occupation holds himself out as having such
knowledge or skill.
Id. at 8.2-104.
It is undisputed that both the Cooperative and Crowell were, at the
time of Crowell’s breach, merchants with respect to milk. In fact, both
parties stipulated that Crowell "at all times relevant to this matter, was
a dairy farm producer," and that the Cooperative "at all times relevant
and material hereto . . . was a milk cooperative. . . ." (J.A. 30.)
Accordingly, both the Cooperative and Crowell were bound by the
implied warranty of merchantability, obligating them to provide milk
suitable for its intended use, i.e., unadulterated and fit for human con-
sumption.
More specifically, Virginia courts have long held that the sale of
food for immediate consumption carries with it an implied warranty
of "wholesomeness." Kroger Grocery & Baking Co. v. Dunn, 25
S.E.2d 254, 256 (Va. 1943) (citing Colonna v. Rosedale Dairy Co.,
186 S.E. 94, 95-96 (Va. 1936) (holding that "in contracts for provi-
sions it is always implied that they are wholesome, and if they are not,
case lies to recover damages for the deceit) (internal citation omitted)
(emphasis added), superceded by statute on other grounds as stated
in, Friedman v. Peoples Service Drug Stores, Inc., 160 S.E.2d 563(Va. 1968)). That principle was reinforced in Swift & Co. v. Wells,
110 S.E.2d 203 (Va. 1959), when the court held as follows:
Since an early date, the courts have made a distinction with
respect to warranties between the sale of food and other arti-
cles of commerce. As far back as 1266 A.D., a statute of
England provided: ‘It is ordained that no one shall sell cor-
rupt victuals.’ 51 Hen. III, stat. 6. Early English decisions
repeatedly held that an action on the case lies against the
seller of corrupt food whether the same was warranted to be
good or not. Keilway’s 92, 72 Eng. Reprint 254; Roswel v.
8 MARYLAND AND VIRGINIA MILK PRODUCERS v. CROWELL FARMS
Vaughn, (1607) Cro. Jac. 196, 79 English Reprint 171. The
foregoing principle was adopted by early decisions in Amer-
ica. In Van Bracklin v. Fonda, (1815) 12 Johns. N.Y. 468,
7 Am. Dec. 339, the court held that in contracts for sale of
provisions for human use it is always implied that they are
wholesome and that if they are not the seller is liable in dam-
ages to the consumer.
Id. at 206. Ultimately, the court in Swift held that Virginia follows
"the common law doctrine that one who sells foodstuff for human
consumption impliedly warrants its fitness and wholesomeness for
such purpose, and . . . is also liable on the implied warranty where
there is privity of contract between the vendor and vendee." Id.Privity clearly exists between the Cooperative, as vendor, and
Milkco, as vendee. The Cooperative had a contractual agreement to
provide milk suitable for human consumption to Milkco, despite Cro-
well’s argument that Milkco did not contract with the Cooperative,
but that it contracted with ADG instead. As we previously explained,
supra n.4, the contract with Milkco was executed on the Coopera-
tive’s letterhead and was signed by the Cooperative’s General Man-
ager, thus ADG was not a party to the contract. The Cooperative
breached the implied warranty of fitness and wholesomeness and its
contract with Milkco by providing it with Crowell’s adulterated milk,
causing Milkco to suffer direct damages in excess of $400,000, which
the Cooperative paid. Because privity existed between the Coopera-
tive and Milkco, the Cooperative was legally obligated to pay Milkco
for the damages it suffered as a result of the Cooperative’s delivery
of Crowell’s adulterated milk to Milkco. Because it is undisputed that
Crowell was in privity of contract with the Cooperative, Crowell is
legally obligated to reimburse the Cooperative for the amount of dam-
ages it paid to Milkco.
IV.
For the aforementioned reasons, we hold that the district court’s
decision to grant summary judgment in the Cooperative’s favor was
proper, and we hereby AFFIRM.
AFFIRMED