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Wm. Bolthouse Farms, Inc., Houston Casualty Co., and v. Ecolab

June 14, 2011

WM. BOLTHOUSE FARMS, INC., HOUSTON CASUALTY CO., AND
LIBERTY SURPLUS INSURANCE CORP., PLAINTIFFS,
v.
ECOLAB, INC.,
DEFENDANT.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

SCHEDULING CONFERENCE ORDER

Discovery Cut-Off: 8/1/12

Non-Dispositive Motion

Filing Deadline: 8/1/12

Non-Dispositive Motion

Hearing Date: 9/7/12 9:00 ) Ctrm. 8

I. Date of Scheduling Conference.

June 10, 2011.

Deadline: 8/31/12 Dispositive Motion Filing

Dispositive Motion Hearing Date: 10/1/12 10:00 Ctrm. 3 Settlement Conference Date: 8/7/12 10:30 Ctrm. 8 Pre-Trial Conference Date: 10/29/12 11:00 Ctrm. 3 Trial Date: 12/11/12 9:00 Ctrm. 3 (JT-10 days)

III. Summary of Pleadings.

1. This case arises out of Plaintiff Bolthouse Farms' purchase and use of Defendant Ecolab's Tsunami 100 antimocrobial process water treatment in the production of Bolthouse's ready-to-eat baby carrots. Bolthouse claims Ecolab's Tsunami 100 caused "early spoilage" of carrots, resulting in over $50 million of business losses. Ecolab denies Bolthouse's claims, and Ecolab contends Bolthouse's own failure to adequately design, maintain, clean, and sanitize its carrot production equipment created the problems about which it now complains.

IV. Orders Re Amendments To Pleadings.

1. The parties do not anticipate amending the pleadings at this time.

V. Factual Summary.

A. Admitted Facts Which Are Deemed Proven Without Further Proceedings.

1. Plaintiff Wm. Bolthouse Farms, Inc., is a corporation incorporated under the laws of the State of Michigan with its principal place of business in Bakersfield, California.

2. Houston Casualty Company is a corporation incorporated under the laws of the State of Texas and does a general property and casualty business in the State of California.

3. Liberty Surplus Insurance Corp. is a corporation incorporated under the laws of New Hampshire and doing business as a surplus lines carrier in the State of California.

4. Ecolabs, Inc. is a corporation incorporated under the laws of Delaware with its principal place of business in St. Paul, Minnesota.

5. Plaintiff Wm. Bolthouse Farms, Inc. processes and sells fresh food products, including fresh bagged baby carrots.

6. Defendant Ecolab Inc. manufactures and sells cleaning and sanitizing products, including certain products used in the production of food.

7. During the relevant time period, Bolthouse had two processing plants in the Bakersfield area: the "West Plant" and the "East Plant."

8. Beginning in or around 2007, Ecolab marketed to Bolthouse Tsunami 100 as an alternative to chlorine dioxide, the process water treatment Bolthouse had been using.

B. Contested Facts.

Bolthouse

1. Ecolab offered Bolthouse certain technical support in connection with the purchase of Tsunami 100, including support from its "SEALS Team," which Ecolab describes as "an elite group of highly trained and experienced specialists...."

2. According to Ecolab, Tsunami 100 controls surface microbial activity so product spoilage is minimized and shelf life is enhanced. A longer shelf life would enable Bolthouse to avoid the higher costs for refrigerated truck shipments during the summer season.

3. In May 2009, Bolthouse informed Ecolab that it wanted to replace chlorine dioxide with Tsunami 100 on one of its production lines at the East Plant, which produced baby carrots exclusively (the "North Short-Cut line" or NSC line).

4. Because Tsunami 100 is approximately ten times more expensive than chlorine dioxide, to induce Bolthouse to purchase Tsunami 100, Ecolab told Bolthouse that the higher cost of its product was justified by improved shelf life for baby carrots.

5. Ecolab never warned Bolthouse that there was any risk that Tsunami 100 would actually decrease the shelf life of the carrots being processed, even though studies, including those by Ecolab's own researchers, showed Tsunami 100 was ineffective at controlling the growth of yeast in treated produce and it would decrease the shelf life of carrots.

6. Ecolab also sought to induce Bolthouse to purchase and use Tsunami 100 by representing that Ecolab would provide valuable technical services to Bolthouse related to testing and converting to Tsunami 100.

7. On May 26, 2009, Timm Miller and David Walker (Ecolab's sales and technical representatives) instructed Bolthouse's personnel on the protocol that would be followed in converting the NSC line from chlorine dioxide to Tsunami 100.

8. From June 7 to 15, 2009, Mr. Walker personally supervised and directed the conversion of the NSC line from chlorine dioxide to Tsunami 100. Mr. Walker repeatedly assured Bolthouse personnel that Bolthouse was properly implementing Ecolab's advice and instructions.

9. On or around June 23, 2009, Bolthouse received its first customer complaints of abnormal decomposition. It quickly determined that all of the abnormally-decomposed carrots had been processed on the NSC line using Tsunami 100.

10. Bolthouse promptly checked its "retain samples" from the NSC line, and discovered that carrots treated with Tsunami 100 had a peculiar odor and were failing at an unprecedented 12 days after processing.

11. Subsequent testing determined that the fermentation odor and the accelerated spoilage were associated with significantly accelerated yeast growth (including the yeast Candida sake) on the carrots treated with Tsunami 100, as well as the growth of other microorganisms.

12. The "Food Service line" is the NSC's sister production line. Also located in the East Plant, it simultaneously processes carrots from the same agricultural fields and the same inbound trucks as those that supply the NSC line, using the same processing methods and types of equipment.

13. During the June 2009 time period at issue, the only difference between the carrots processed on the Food Service line and the NSC line was that the Food Service line continued to use chlorine dioxide to sanitize its hydro-cooler chill water, while the NSC line switched to Tsunami 100.

14. The carrots processed on the Food Service line had normal 28-day shelf lives and experienced no unusual spoilage or microbial growth. Most of the carrots processed on the NSC using Tsunami 100 were spoiled after 12 days and exhibited accelerated levels of Candida sake yeast growth as well as other microorganisms. Bolthouse has never experienced such abnormal decomposition of its carrots at any other time on any of its production lines.

15. Bolthouse promptly notified its customers of the need to remove the contaminated carrots from the market. Bolthouse sent replacement carrots and otherwise compensated its customers for the contaminated carrots.

16. Bolthouse's long-developed and hard-earned reputation was severely damaged. For example, Loblaw, Canada's largest food retailer, completely stopped making any purchases from Bolthouse, even though Bolthouse had, up to that time, been Loblaw's exclusive supplier of carrots.

17. Bolthouse's lost profits and other damages to date far exceed $20 million, and the discounted present value of future lost profits exceeds $30 million. Thus, total damages exceed $50 million.

18. In this action, Bolthouse asserts claims for breach of warranty, fraud/misrepresentation, negligent performance of services, and product liability.

Insurance Plaintiffs

1. Plaintiffs Houston Casualty Co. and Liberty Surplus Insurance Corp. paid $5 and $4 million, respectively, to Bolthouse under policies issued to Bolthouse.

2. Those insurers assert in this action subrogation claims against Ecolab.

Ecolab

1. To manufacture "ready-to-eat" baby carrots, Bolthouse uses water to wash and move carrots throughout its production line. This production water is referred to as "process water," and is recycled and reused throughout a production shift. Left untreated, recycled process water can contaminate carrots with bacterial or fungal cells. To help avoid contamination, Bolthouse adds antimicrobial agents to the recycled process water to inactivate bacterial and fungal cells in the water.

2. There are a variety of antimicrobial agents used to treat process water. Ecolab manufactures and sells an antimicrobial process water treatment known as "Tsunami 100."

3. Before selecting Tsunami 100, Bolthouse had previously used chlorine dioxide as a process water treatment. But, because of poor finished-product quality and shelf life using chlorine dioxide, Bolthouse switched to Ecolab's Tsunami 100 antimicrobial treatment on its entire ready-to-eat baby carrot production line at the West Plant, and portions of its ready-to-eat baby carrot production line at the East Plant. Bolthouse's decision to purchase Tsunami 100 was based on results of two Tsunami 100 test applications.

4. In March 2007 and October 2008, Bolthouse tested Ecolab's Tsunami 100 on its West Plant carrot production line.

5. Based on those test results, Bolthouse decided to use Tsunami 100 on its West Plant carrot production line in May 2009. Using Tsunami 100 at the West Plant, Bolthouse produced high-quality carrots with prolonged shelf life compared to those carrots previously produced using chlorine dioxide.

6. Based on its West Plant results, Bolthouse converted portions of the East Plant from chlorine dioxide to Tsunami 100 in June 2009. Bolthouse did not, however, test Tsunami 100 at the East Plant before switching to it in June 2009.

7. After Bolthouse received customer complaints on June 23, 2009 about carrots produced on the East Plant production line, Bolthouse's Tracy Parnell (quality Assurance Manager) and Joe Purcell (Maintenance Manager), and Ecolab's David Walker (Technical Service Representative) inspected the East Plant production line to search for the cause of the complaints. Parnell, Purcell and Walker located significant deposits of organic filth and debris throughout the production line equipment.

8. The June 28, 2009 joint inspection demonstrated that, based on production line design defects and sanitation and maintenance failures, Bolthouse had been manufacturing carrots under unsanitary conditions at the East Plant. Bolthouse identified several design modifications and repairs necessary for the East Plant production line. In addition, Bolthouse recognized the need to make certain improvements to its sanitation and maintenance policies and practices.

9. Nevertheless, Bolthouse discontinued using Tsunami 100 at both the East and West Plants, despite the fact that Bolthouse continued producing high-quality carrots ...


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