Mountain Pure, L.L.C. v. Affiliated Food Southwest, Inc., Turner Holdings, L.L.C., Portola Packing, Inc., Stone Container Corporation and Consolidated Container Company, L.L.C.
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DIVISION IV
CA05-837
MOUNTAIN PURE, L.L.C.
APPELLANT
V.
AFFILIATED FOODS SOUTHWEST,
INC., TURNER HOLDINGS, L.L.C.,
PORTOLA PACKING, INC., STONE
CONTAINER CORPORATION and
CONSOLIDATED CONTAINER
COMPANY, L.L.C.
APPELLEES
October 25, 2006
APPEAL FROM THE PULASKI
COUNTY CIRCUIT COURT
[CV 01-12139]
HON. BARRY ALAN SIMS,
CIRCUIT JUDGE
REVERSED and REMANDED
L ARRY D. V AUGHT, Judge
This is a contract case. Appellant Mountain Pure L.L.C. sued Affiliated Foods
Southwest Inc. for breach of a supply agreement. Mountain Pure also sued vendors Turner
Holdings L.L.C., Portola Packaging Inc., Stone Container Corp., and Consolidated
Container Co. L.L.C. for selling defective jugs, caps, and cartons that Mountain Pure used
in its commercial water and juice bottling business.1 The vendors counterclaimed against
Mountain Pure for open-account debt. The trial court granted summary judgment to
Affiliated and to the vendors. We reverse and remand for trial.
1
Portola Packaging and Mountain Pure, by joint motion, asked us to dismiss the
appeal as it relates to Portola following a settlement agreement by the parties. We granted
the motion on September 20, 2006. A similar motion was filed on October 9, 2006, asking
that the appeal against Turner be dismissed. We now also grant this motion.
In January 2000, Mountain Pure’s predecessor in interest, Dairy Farms of America
Inc., purchased Mountain Pure from Affiliated. The sale was tied to a tandem, long-term
supply agreement. For eight years, Affiliated was obligated to buy water and juice products
from Mountain Pure in the same amounts—subject to agreed adjustments—that it had been
buying prior to the sale. As an essential condition of the sale, Mountain Pure would serve as
Affiliated’s “primary supplier of water and juice products,” until January 2008.
In the spring of 2001, the parties’ relationship became strained due to problems with
leaky jugs, leaking caps, and collapsing cartons. For several months Affiliated and Mountain
Pure worked together in an attempt to resolve the problems. However, on July 2, 2001,
Affiliated notified Mountain Pure by letter that it would begin buying water and juice from
other suppliers because the leakage problems had not been corrected to Affiliated’s
satisfaction.
In a letter dated July 9, 2001, Mountain Pure outlined the corrective measures it had
undertaken in an attempt to satisfy Affiliated. It also stated that it was committed to resolving
any future problems encountered by Affiliated. Mountain Pure also reminded Affiliated that
the supply agreement was a critical portion of the plant-purchase agreement.
Affiliated never resumed major purchases from Mountain Pure. In response, Mountain
Pure sued Affiliated, alleging breach of the supply agreement. Mountain Pure claimed that
it had cured the leakage problems but that Affiliated refused to honor the supply agreement.
Mountain Pure also sued the vendors—Turner, Portola, Stone, and Consolidated—from
2
which it bought jugs, caps, and containers for breach of contract and breach of warranties.
Each vendor filed a counterclaim for debt against Mountain Pure for unpaid bills.
The parties’ labyrinth of claims and counterclaims have produced a Gordian knot2 of
epic proportion. Because we have once before outlined “the long and convoluted procedural
history” of the case, we will now discuss only the procedural elements essential to this
second appeal. See Mountain Pure, L.L.C. v. Affiliated Foods Southwest, Inc., __ Ark. __,
__, __S.W.3d __, __ (Apr. 6, 2006) (quoting full outline of case’s procedural history
contained in an unpublished opinion of the Arkansas Court of Appeals).
After the parties conducted discovery, Affiliated and the vendors made a series of
summary-judgment motions. The circuit court granted Affiliated summary judgment on
Mountain Pure’s claim for breach of the supply agreement. The court concluded that no
genuine issues of material fact existed and held that Mountain Pure had repudiated the
2
The legend of the Gordian knot was aptly explained by the Eighth Circuit in
Prudential Insurance Co. of America v. National Park Medical Center, Inc., 154 F.3d
812, 819 n.4 (8th Cir. 1998), as follows:
Gordius, King of Phrygia, tied his chariot to a hitching post before the temple of an
oracle with an intricate knot, which, it was prophesied, none but the future ruler of
all Asia could untie. In the course of his conquests, Alexander the Great came to
Phrygia, and, frustrated with his inability to untangle the “Gordian knot,” simply
sliced through it with his sword. His subsequent success in his Asian campaign has
been taken to mean that his solution to the “Gordian knot” fulfilled the prophesy.
(Internal citations omitted.)
3
supply agreement. Initially, the court allowed Mountain Pure to nonsuit its defect-based
claims for breach of contract and breach of warranties. However, the court ultimately
vacated those nonsuits and granted the vendors summary judgment on those claims.
Mountain Pure had conceded that, while it could prove the total damages it suffered from
the allegedly defective jugs, caps, and cartons, it could not apportion those damages exactly
among the vendors. The court held that Mountain Pure could not “meet its burden of proof
on the causes of action for breach of contract” and could not apportion damages to each
vendor.
The circuit court later granted summary judgment to all the vendors on their debt
counterclaims. In doing so, the court relied on its earlier summary judgments on Mountain
Pure’s contract and warranty claims against the vendors. The court rejected Mountain Pure’s
argument that the record established genuine issues of material fact on Mountain Pure’s
affirmative defense of defect to the vendors’ claims for non-payment. Mountain Pure now
appeals, limiting its claims of error to the summary judgments for Affiliated on the supply
agreement and for the vendors on their debt counterclaims. Mountain Pure challenges the
circuit court’s grant of summary judgment on Mountain Pure’s contract and warranty claims
against the vendors only insofar as the court’s decision is incorporated into the defect and
debt issues on appeal.
We begin our plenary review of the record with the written supply contract between
Mountain Pure and Affiliated, viewing all evidence and resolving all inferences in Mountain
4
Pure’s favor. See Cole v. Laws, 349 Ark. 177, 185, 76 S.W.3d 878, 882 (2002) (outlining
summary-judgment review standard). According to Jerry Davis, the President and CEO of
Affiliated, the sale of the plant was conditioned on the execution of this agreement. John
Stacks, the President and CEO of Mountain Pure, concurred by stating that his company
“relied upon that agreement when [it] acquired the Mountain Pure business from Affiliated.”
The agreement, dated January 21, 2000, required that Mountain Pure supply Affiliated with
quality water and juice products; it obligated Affiliated to use Mountain Pure as its “primary
supplier of water and juice products” for eight years after the plant sale.
The supply agreement also outlined a procedure whereby, under certain conditions,
Affiliated could make major purchases of water and juice from other suppliers. The breachof-contract dispute now before us turns on this provision, which states:
Affiliated will only make major purchases of water and juice products from another
supplier only (i) after a “Failure to Cure,” when and this only so long as the Failure
to Cure continues experiencing or (ii) where Supplier cannot meet Affiliated’s needs
due to a condition beyond Supplier’s control (force majeure). “Failure to Cure” shall
mean Supplier’s failure to cure any quality problems within three (3) business days
after Affiliated shall have delivered to Supplier written notice specifying the nature
of the quality problem. The term “a condition beyond Supplier’s control” will mean
a delay if and to the extent caused by occurrences beyond the reasonable control of
Supplier, including, but not limited to, acts of God, embargoes, governmental
restrictions, governmental rationing, fire, flood, drought, earthquake, tornadoes,
hurricanes, explosions, riots, wars, civil disorder, failure of public utilities or
common carriers, labor disturbances, rebellion or sabotage.
As anticipated by this provision, beginning in April 2001, there were “quality” problems
with Mountain Pure’s products. The record contains several letters between Affiliated and
Mountain Pure documenting the parties’ efforts to address these problems. The majority of
5
the deposition testimony in this case outlines the various steps that the parties undertook to
resolve the leaky-product dilemma. Mountain Pure offered proof that it had cured most of
the problems no later than October 2001. Affiliated offered proof that the problems were
never resolved. It is undisputed that Affiliated failed to resume using Mountain Pure as its
“primary supplier” of water and juice products.
Giving Mountain Pure’s evidence the highest probative value, as we must, it is clear
that a question of material fact remains as to when—or if—Mountain Pure cured the
“quality” problems with its products. Affiliated responds that this question of fact
notwithstanding, summary judgment is still the proper remedy because the undisputed proof
establishes that the product inadequacies continued well beyond three days. However, such
a conclusion is based on a contorted reading of the supply agreement’s time-to-cure
provision.
Affiliated is mistaken as to what the contract’s cure provision does and—more
importantly—does not provide. The plain and unambiguous language of the contract
establishes an outward limit of three days for Mountain Pure to cure before Affiliated’s right
to buy from other suppliers is triggered. It does not establish an outward limit of three days
for Mountain Pure to cure before Affiliated can be released from a long-term supply
agreement that was inextricably linked to a multi-million dollar plant purchase. When
contracting parties express their intention in a written instrument in clear and unambiguous
language, it is the court’s duty to construe the writing according to the plain meaning of the
6
language employed. Holytrent Props., Inc. v. Valley Park Ltd. P’ship, 71 Ark. App. 336, 32
S.W.3d 27 (2000).
Affiliated alternatively argues that “under no circumstances” can it be said that there
is “no time limit” for Mountain Pure to cure, because the Uniform Commercial Code inserts
a “reasonable time” provision when a contract is silent as to cure time. See Ark. Code Ann.
§ 4-2-609 (Repl. 2001). Affiliated insists that once Mountain Pure failed to provide adequate
assurances of due performance within a reasonable time (not to exceed thirty days) the
contract was repudiated by Mountain Pure, and Affiliated had no further obligation to
perform under the supply agreement.
However, Affiliated underestimates the completeness of the contract into which it
freely entered. The sale-linked agreement bound the parties for a limited, eight-year period
and anticipates performance problems over the course of the parties’ relationship. If the
problems were not resolved within three days, Affiliated was permitted to buy product from
other suppliers “only so long as” Mountain Pure was in the process of curing, but no longer.
Because a question of material fact remains as to whether Mountain Pure had cured the
defect in its product, summary judgment was prematurely granted by the circuit court and
we reverse and remand the case for trial.3
3
Assuming arguendo that the contract’s cure provision did not supply a remedy for
chronic-performance failure (which would surely exceed a year and a half of an eightyear contract), a fact-intensive, UCC-based “reasonable assurance” repudiation inquiry
could be triggered. This inquiry usually presents a question of fact—what is
reasonable—which generally cannot be disposed of by summary judgment. See generally
7
Next, we turn our attention to Mountain Pure’s claim that the trial court erred by
granting Stone and Consolidated summary judgment on their debt counterclaims. According
to Mountain Pure, the vendors breached their contracts by providing defective goods and,
therefore, Mountain Pure should be allowed to deduct its damages from any amounts it
might owe them. It relies on Ark. Code Ann. § 4-2-717 (Repl. 2001), which permits a buyer,
after acceptance of nonconforming goods and notification to the seller, to deduct all or any
part of the damages resulting from any breach of the contract from any part of the price still
due under that contract. Mountain Pure correctly maintains that, according to Ark. Code
Ann. § 4-1-106(1) (Repl. 2001), this defense should be liberally applied.4
We agree that in a debt-defense context, Mountain Pure was not required to prove
vendor-specific damages with mathematical accuracy to defeat the vendors’ motions for
summary judgment; it simply had to offer evidence that it was damaged by defects in each
of the vendor’s products. Arkansas law has never required exactness of proof in determining
the amount of damages. Recovery will not be denied merely because the damages are
difficult to ascertain; if it is reasonably certain that some loss has occurred, it is enough that
damages can be stated only approximately. Morton v. Park View Apartments, 315 Ark. 400,
868 S.W.2d 448 (1993). Accordingly, the circuit court erred in requiring Mountain Pure to
allocate an exact amount of damages to each vendor in a debt-offset context.
Ford Motor Credit Co. v. Ellison, 334 Ark. 357, 974 S.W.2d 464 (1998).
4
This liberal administration of remedies was repealed by Act 856 of 2005. See Ark.
Code Ann. § 4-1-106 (Supp. 2005).
8
Also, Mountain Pure’s damage evidence created issues of fact for the jury. Evidence
was presented that the boxes supplied by Stone were not scored properly; that they were not
square and had inconsistent thicknesses; that they failed crush tests; that dry boxes fell apart;
that the inner and outer skins of the cardboard pulled apart; that the boxes sometimes arrived
damp; and that the flaps did not fold properly and were not uniform.5 Mountain Pure also
presented testimony that some of the bottles supplied by Consolidated contained carbon
specks resulting from the manufacturing process that could cause leaks; that some bottles
were not trimmed properly; and that one bottle demonstrated that its mold had been out of
alignment. Many of these alleged product defects were denied by the responsible vendor.
Others were admitted, but the impact of the defect on Mountain Pure’s debt was disputed.
Either way, a classic dispute of material fact is presented. Such disputes are to be resolved
by the trier-of-fact, which in this case is a jury.
It is certainly tempting to sever the stranglehold of this Gordian knot in true
Alexander the Great form with a swift slash of the summary-judgment sword. However,
because this case presents many disputed issues of material fact, we must rely on the jury to
untangle the knot, one strand at a time.
5
It is of no import that the boxes that Mountain Pure identified in discovery as
evidence proving its allegations were examined by Stone’s representative, Charles
Shelton, who found them to be within specifications. Once a question of fact is properly
established, a subsequent denial does not trigger an obligation to re-establish a material
dispute of fact. To condone such an approach in the summary-judgment context—the last
in time wins—would invite a childish denial dialogue: “did not,” “did too,” “did
not—infinity.”
9
Reversed and remanded.
G RIFFEN and R OAF, JJ., agree.
10
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