Travelers Ins. Cos. v. Demarle, Inc. USA

Traveler’s Insurance v. DeMarle, No. 826-99 Cncv (Katz, J., Sept. 22,
2003)
[The text of this Vermont trial court opinion is unofficial. It has been
reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is
not guaranteed.]
STATE OF VERMONT SUPERIOR COURT
Chittenden County, ss.: Docket No. 826-99 CnCv
TRAVELERS INS. CO’S.
V.
DEMARLE, INC. U.S.A.
ENTRY
Greyston Bakery and their insurance company Travelers (hereinafter
Bakery) seek compensation from the defendant Demarle, Inc. based on four
counts: 1) Products Liability, 2) Warranty, 3) Negligence, and 4) Indemnity
and Compensation. Demarle seeks to dismiss all claims on a motion for
summary judgment.
Greyston Bakery is a New York Corporation that manufacturers
baked goods. These goods are not sold through retail but to other
companies that incorporate them into their products or repackage them as
their “house” brand. Bakery bakes several hundred pounds of brownies
each year for their single largest customer, Ben & Jerry’s Ice Cream, which
uses them in its New York Super Fudge Chunk Brownie ice cream and
yogurt. In the beginning of October 1997, Quality Assurance at Ben &
Jerry’s noticed small fibers in the brownies from Bakery. Ben & Jerry’s
notified Bakery about the problem. Further sampling led to more fibers,
and Ben & Jerry’s decided to dispose of 47,000 gallons of potentially
contaminated brownie ice cream and yogurt. In response, Bakery inspected
its facilities and tools for a potential source of the fibers. Bakery concluded
that Silpats, a silicon-based baking pad used to keep the brownies from
sticking to the oven pans, were responsible.
Between October 1 and 6, 1997, Bakery disposed of its entire stock
of Silpats including every Silpat that had been in production the previous
month. Bakery did not mark or in any way take note of the age, number, or
individual condition of any Silpats at that time. On October 22, 1997,
Bakery informed Demarle, Inc. of Ben & Jerry’s claim. Demarle, Inc. is a
New Jersey-based company that is the sole distributor of Silpats in the
United States and is owned by Ets. Guy Demarle, SA, their French
manufacturer and designer.
Demarle began selling Silpats to Bakery in August of 1993 when
Bakery bought an initial 650 Silpats. Bakery used the Silpats in production
and purchased additional Silpats as needed. In 1995, Bakery purchased 100
Silpats in February, and again in March, April, May, and August. In 1996,
Bakery purchased 60 Silpats in June and 150 in September and October.
Bakery’s ninth and final purchase of Silpats before September 1997
occurred in January 1997 with 250 purchased. Over a four year period
Bakery purchased over 1750 Silpats from Demarle.
Bakery, at any given time between August 1993 and October 1997,
had 300 to 400 Silpats in the production process. Bakery kept between 100
and 200 Silpats in reserve for ones that became damaged or worn-out. This
number fluctuated as reserve Silpats were put into production. Steven
Spencer, a Bakery employee who oversaw inventory, would re-order once
the Silpat reserve dropped to 25. The new Silpats not immediately drafted
into use would refill the reserve supply. Silpats are made of tightly woven,
silicon covered fibers. Their size and texture give them the appearance and
feel of rubberized place-mats. They are heat tolerant and provide a non-
stick baking surface between food and tray. Silpats by their nature wear
out. The average lifespan of a Silpat is between 1000 and 2000 uses. This
is dependant on a number of factors including care and maintenance,
frequency of use, degree of heat exposure, and type of goods being baked.
Each use of a Silpat wears away at the silicon coating. Eventually in
normal use, the silicon will wear off a Silpat causing the fibers to fray,
exposing them to the food product. To this end, each Silpat is marked with
a manufacturer’s date code. Demarle also tells its customers to discard a
Silpat if baking material begins to stick. With the initial sale, Demarle
provided Bakery with care and maintenance information. It did not advise
Bakery about tracking the age or use of Silpats or any potential effects of
wear.
Bakery was aware of the limited lifespan of Silpats and had
implemented an employee monitoring program to spot worn or frayed mats
in production. Apart from this program, however, Bakery did not monitor
the age or number of uses of each Silpat. After its initial purchase, a Silpat
would enter production only as a replacement for a damaged or worn-out
Silpat and would stay in production until visual signs of wear were noticed.
During this time period, Bakery was also using other non-stick baking
sheets purchased through other distributors. Deborah H. Gaynor, Ph.D.,
was hired by Bakery in 1998 to determine the source of the fibers in the
contaminated brownies. She concluded using an electron microscope that
they came from Silpats.
After the first purchase of Silpats in 1993, Demarle sent an invoice
memorializing delivery. The invoice contained a record of the transaction
and no additional terms concerning warranty or contract. Following the
second purchase, January 1995, Demarle began sending a different form
invoice. At the bottom of this invoice’s front is the phrase in all capital
letters, “PLEASE CAREFULLY READ OUR TERMS ON REVERSE
SIDE.” On the back of the invoice sheet were twenty paragraphs entitled
“TERMS AND CONDITIONS OF SALE.” Paragraph 15, in particular,
was printed in all capitals and has the subheading “WARRANTIES.” This
paragraph disclaimed all warranties, especially the “WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.”
At no point did Bakery or one of its agents explicitly agree to the
additional terms contained within the invoice, and at no time did Demarle
refuse to deliver the Silpats based on any lack of acceptance. In fact,
Demarle never discussed the terms on the invoice with Bakery.
In August 1998, Bakery and Travelers paid Ben & Jerry’s for the
price of the 47,000 gallons of ice cream as part of a settlement agreement.
In return Ben & Jerry’s gave up any claims it had against Bakery. Ben &
Jerry’s also turned over any claims it might have had against Demarle to
Travelers and Bakery.
DISCUSSION
The defendants have made this motion for summary judgment and
bear the burden of demonstrating there are no issues of material facts and
that they are entitled to judgment as a matter of law. Anderson v. Liberty
Lobby, 477 U.S. 242, 248 (1986). Plaintiffs, however, still carry the
ultimate burden of persuasion on each issue, and “summary judgment will
be granted if, after an adequate time for discovery, a party fails to make a
showing sufficient to establish an essential element of the case on which the
party will bear the burden of proof at trial.” Gallipo v. City of Rutland, 163
Vt. 83, 86 (1994). A summary judgment motion in a case such as this is
intended to “smoke out” the facts to see if anything remains to be tried.
Donnelly v. Guion, 467 F.2d 290, 293 (2d Cir. 1972).
Disclaimer of Warranty
Defendants argue that they have effectively disclaimed any
warranties through the disclaimer in their invoice. Defendants point out
that Bakery received the exact same invoice with the exact same disclaimer
on each and every purchase. Whether or not Bakery read or explicitly
accepted this disclaimer and accompanying terms, they became part of the
underlying bargain by its tacit acceptance demonstrated by the successive
re-orders.
We reject Demarle’s argument. Case law limits the applicability of
warranty disclaimers. As a general rule, disclaimers are not favored under
the law. Hartwig Farms, Inc. v. Pacific Gamble Robinson Co., 625 P.2d
171, 173 (Wash. 1981); Henningsen v. Bloomfield Motors, 161 A.2d 69,
77–78 (N.J. 1960). Under 9A V.S.A. § 2-316 a seller may disclaim a
warranty so long as it is in writing and conspicuous. Such disclaimers,
however, must be part of the contract. Lutz Farms v.Asgrow Seed Co., 948
F.2d 638 (10th Cir. 1991) (emphasizing that express 2-313 warranties must
be disclaimed with specificity in the contract); Bowdoin v. Showell
Growers, Inc., 817 F.2d 1543 (11th Cir. 1987). When disclaimers are
inserted after the contract, they do not become part of the contract, even
through a course of dealing. Hartwig, 625 P.2d at 174; Pennington Grain &
Seed, Inc. v. Tuten, 422 So. 2d 948 (Fla. App. 1982). Certain circumstance
may alter the application of this principle where the invoice contains critical
instructions or have been sent over the course of an extended relationship.
See Tolmie Farms, Inc. v. Stauffer Chemical Co., Inc., 862 P.2d 299 (Idaho
1992) (enforcing a warranty disclaimer that accompanied 160 invoices and
was contained in critical instructions for pesticide application). Such
circumstances, however, do not exist in this case.
Demarle’s disclaimer was printed on its invoices and were sent
either with or after each Silpat delivery. Demarle never conditioned receipt
of goods on accepting the terms contained in the invoice and never
requested Bakery to acknowledge the terms. While this may reward
Bakery for not reading the invoice, it more properly prohibits Demarle from
relying on an unbargained-for contract term that has such a material effect
on the natural and statutory contract rights of its customer. 9A V.S.A. § 2-
207. As a matter of law Demarle’s disclaimer is ineffective and cannot
prevent Bakery from pursuing its rights under warranty.
Causation of Silpat Fibers
Demarle points out that Bakery cannot actually prove that Demarle’s
Silpats were manufactured improperly or failed during their “lifespan” in
such a way that led to fibers in the brownies.
By their very nature, Silpats are disposable items. If used properly
and maintained correctly, a Silpat will still fray and shed fibers after a
certain number of uses. Since Bakery is arguing that the Silpats were
defective, it must ultimately prove that, through no fault of its own, the
Silpats began shedding fibers into the brownies before the reasonable end
of their lifespan. To do this Bakery must link the fibers in the Ben &
Jerry’s brownies to Silpats that were less than one year old or under a 1000
uses. Bakery, with all benefit of reasonable inference, Murray v. White,
155 Vt. 621, 628 (1991) (interpreting Rule 56 (c), V.R.C.P.), cannot
demonstrate that this is anything more than a mere possibility. The factual
complications are three: 1) Plaintiff knew the mats would not last more than
one year and had a “system” to detect and remove worn-out mats; 2)
Plaintiff's system was one of mere casual, unsystematic visual inspection,
which did not track the age or use of any given individual mat in
production; 3) Plaintiff destroyed all of the mats in both production and
reserve, right after Ben & Jerry’s complaint, so that neither plaintiff nor
defendant could thereafter identify which mats were in production, their
condition, or age.
Despite this situation, Bakery contends that it can demonstrate this
link between brownie fibers and the Silpats less than one year old as their
source. Bakery begins with its expert witness who can testify that the fibers
in the brownies were from Silpats and Silpats alone. This, at least for the
purposes of summary judgment, isolates the Silpat source from other mats
in production. The question is then narrowed to whether the fiber comes
from new Silpats or older Silpats still in production. Here the plaintiff’s
evidence falters. To link the fibers to the new Silpat, does Bakery say that
its employees tracked the age or use of the Silpats? Does Bakery have a
record of rotating out all of the old Silpats and replacing them with new
ones? Does Bakery have any mats to offer that are both frayed and less
than one year old? The answer to all is “no.” Even under the most liberal
of inferences, Bakery and its employees cannot offer any personal
knowledge linking a fiber or fray to the still-warranted mats. By the very
nature of Bakery’s hit-or-miss replacement system such knowledge is
precluded. More akin to natural selection, Bakery’s insertion of new mats
was based on a matter of need and depended on sporadic visual inspection.
While this system may have seemed to serve well for the four years prior to
Ben & Jerry’s discovery, it ultimately failed to pickup the fibers which
Bakery inherently concedes slipped from Silpat to product. Bakery’s
contention is finally undermined by the lack of Silpats from production for
it to use as direct evidence.
Bakery acknowledges this large gap of personal knowledge, the lack
of any systematic tracking system for Silpats in production, and the lack of
the actual Silpats involved for evidence. What Bakery argues is that it
deserves a mathematical inference based on circumstantial evidence. In
brief, Bakery points out that it frequently rotated Silpats out of production
and that its prior purchasing record is consistent with this practice. Further,
the purchase record corresponds to Demarle’s statement that Silpats will
last between 1000 and 2000 bakes. Bakery suggests that since it bought
550 Silpats in the year prior to September 1997 and put a number of them
into production at the end of August 1997, the Silpats responsible for
shedding their fibers were new.
Bakery’s logic is flawed because it rests upon the assumed premise
that all of the Silpats in production in September 1997 were new. While
this is theoretically possible, there is simply no foundation for inferring this
from the facts. The inference simply does not reach far enough. To argue
that most Silpats in production use were new is insufficient. Even arguing
that almost all those in use were is insufficient. For the fraying few still in
use beyond warranty become the more likely candidates because of age or
overuse to produce the fiber-laden brownies. Bakery cannot demonstrate
that the Silpats were regularly rotated in any consistent manner that would
ensure every Silpat on the verge of fraying was replaced. Their system
makes it equally likely that a 1993 Silpat would still be in production
simply because it had not shed its fibers in a detectable manner and thereby
been removed. Without this premise, the flaw in the plaintiff’s argument
becomes clear through the following syllogism:
$ All Silpats will not shed fibers into brownies unless they are old or
defective.
$ Some of the Silpats in production were less than a year old when the
fibers went into the brownies.
$ Therefore, the new Silpats were defective.
Bakery’s deduction is improper because it connects the defect with
the Silpats in a manner that is not covered by the evidence. If the new
Silpats shed their fibers they would, by deduction, have to be defective, but
the fact that only some Silpats in production were new does not allow us to
put the new Silpats into the category of defective. See Kristen K. Robbins,
Paradigm Lost: Recapturing Classical Rhetoric to Validate Legal
Reasoning, 27 Vt. L. Rev. 483, 493–94 (2003).
Bakery’s best argument is a mere possibility, which, given Bakery’s
burden of proof, cannot survive summary judgment. Smith v. Parrott, 2003
Vt. 64 ¶ 6. That burden is to prove that Silpats still under warranty actually
caused fibers to be released in Ben & Jerry’s brownies. Without a link
between the brownie fibers and new Silpats, Bakery cannot prove
causation. When the proof in the case, because of the system on the factory
floor, does not permit the conclusion that beyond-warranty Silpats were
removed from service, that proof fails.
Summary Judgment is particularly appropriate in this case because
there are a number of alternative theories of causation available ranging
from an outright failure of the product to employee misuse to a flaw in the
baking process. In light of the numerous possibilities, the plaintiff’s
evidence must create a probability since anything less would force a jury to
speculate on proximate cause. Parrott, 2003 Vt. 64 ¶ 6; Ruiz v. Whirpool,
Inc., 12 F.3d 510, 513 (5th Cir. 1994); Aerospatiale Helicopter Corp. v.
Universal Health Service, Inc., 778 SW2d 492, 497 (Tex. App. 1989), cert.
denied 498 U.S. 854 ( 1990) (“Where a finding of proximate causation
could only be reached by indulging in speculation and the stacking of one
inference upon another, such finding is against the great weight and
preponderance of the evidence.”); Marder v. G.D. Searle & Co., 630 F.
Supp.1087, 1089 (D.Md. 1986) (“This emphasis, where causation is
dispositive, upon ‘probability,’ ‘reasonable probability,’ ‘substantial
probability’ rather than mere ‘possibility’ as the proper test simply
bespeaks the special danger that in a matter so generally incapable of
certain proof jury decision will be on the basis of sheer speculation . . . .”).
This need for causation is equally applicable to Bakery’s theory of
warranty. See James White & Robert Summers, Handbook of the Law
Under the Uniform Commercial Code § 9-9 (3d ed. 1988) (discussing
plaintiff’s need for proof of causation to advance warranty claims).
Lacking proof that the Silpats either failed to be marketable or conform to
the “express promise” of 1000 bakes, Bakery’s warranty claim cannot
survive.
Negligence and the Economic Loss Rule
As to Bakery’s claim of negligence, it admits that the economic loss
rule precludes the issue regarding its own claim. Instead, Bakery argues
that it is asserting Ben & Jerry’s negligence claim against Demarle.
Roughly, this claim is that Demarle knew Bakery supplied brownies to Ben
& Jerry’s, therefore, it owed a duty to Ben & Jerry’s not to manufacture a
defective baking mat because Ben & Jerry’s would be the ultimate recipient
of defective brownies. Bakery had to cover Ben & Jerry’s loss and now
seeks to recover through indemnity and contribution from Demarle, “the
Tortfeasor.” Despite an argument couched in tort law duty terminology,
Bakery’s claim is little more than an attempted end-run around the rule of
economic loss. Ben & Jerry’s is not consumer of Bakery’s brownies and its
“damage” and loss were economic in their form and nature. Despite the
lack of a direct contractual relationship, Demarle’s relationship to Ben &
Jerry’s is primarily through contract. That is business to business to
business. The purpose of the economic loss rule is to separate the world of
tort, that is personal injury and property damage, from strictly economic
loss, the loss of profits and inventory. Our Court has explicitly adopted this
view and reasoning. Paquette v. Deere & Co., 168 Vt. 258, 260–63 (1998)
(citing East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S.
858 (1986)). To enforce tort negligence damages against Demarle by Ben
& Jerry’s, or in this case their contractual surrogates, Bakery and Travelers,
would confuse the concept of consumer protection oft enunciated in tort
with the commercial protections of warranty. Springfield Hydroelectric
Co. v. Copp, 172 Vt. 311, 315 (2001) (extending the economic loss rule to
claims of negligence); Board of Education of City of Chicago v. A, C, & S,
Inc., 546 N.E.2d 580, 586 (Ill. 1989) (“Damage resulting from
deterioration, internal breakage or other nonaccidental causes most likely
invokes contract law.”). Ben & Jerry’s claim of negligence is better left to
warranty and the U.C.C. which protect the underlying economic
relationships in this case by giving parties a clear method to contract for
damages and a greater level of predictability. See generally William K.
Jones, Product Defect Causing Commercial Loss: The Ascendency of
Contract Over Tort, 44 U. Miami L. Rev. 731 (1990) (advocating the
reduction of tort applications in commercial claims). For this reason, we
find Bakery’s negligence claims unpersuasive.
Finally, Bakery and Travelers argue for indemnity and contribution.
This claim, however, is dependant upon the prior causes of action that we
have addressed and must be likewise denied.
For the foregoing reasons. Defendant’s motion for summary
judgment is granted in full; plaintiffs have failed to prove their claims and
they must be dismissed.
Dated at Burlington, Vermont________________, 20_______.
________________________
Judge