UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
June 14, 2011
WM. BOLTHOUSE FARMS, INC., HOUSTON CASUALTY CO., AND
LIBERTY SURPLUS INSURANCE CORP., PLAINTIFFS,
The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
SCHEDULING CONFERENCE ORDER
Discovery Cut-Off: 8/1/12
Filing Deadline: 8/1/12
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.
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.
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.
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 with prolonged shelf life at the West Plant.
10. Ecolab recently learned that, not long before the introduction of Tsunami 100 on the East Plant ready-to-eat baby carrot production line, Bolthouse laid off many sanitation workers. As a result, Bolthouse understaffed its Sanitation Department which was directly responsible for cleaning and sanitizing the East Plant production line.
11. In November 2008, several months before Bolthouse decided to implement Tsunami 100, Ecolab performed a Plant Sanitation Review at Bolthouse's West Plant and made several recommendations to improve Bolthouse's sanitary operations.
12. Based on the 2007 and 2008 Tsunami 100 test results and Ecolab's October 2008 Plant Sanitation Review, Bolthouse knew that it risked finished-product quality and shelf life if Bolthouse failed to properly clean and sanitize its carrot production lines.
13. At no time did Bolthouse hire Ecolab to design, clean or sanitize Bolthouse's ready-to-eat baby carrot production lines.
14. Under the Good Manufacturing Practices Act ("the Act"), Bolthouse is responsible for the "[o]verall sanitation of the plant" and has a non-delegable duty to maintain its plant in a "sanitary condition" and "in repair sufficient to prevent food from becoming adulterated." Id. at § 110.80. The Act describes the methods, equipment, facilities, and controls for producing processed food. The Act applies to food producers, including Bolthouse, and sets out minimum sanitary and processing requirements for producing safe and wholesome food.
15. Bolthouse failed, under the Act, to sanitize all food-contact surfaces as "frequently as necessary to protect against contamination of food," 21 CFR § 110.35(d), and further failed to maintain its East Plant in minimum sanitary condition for producing safe and wholesome food, as required under the Act. Bolthouse's failures to adequately maintain, clean and sanitize its carrot production equipment created a filthy environment unfit for the production of food, contaminating the carrots, and causing poor finished-goods quality and reduced shelf-life.
16. In addition, Bolthouse failed to design its plant equipment "to be adequately cleanable." 21 CFR § 110.40(a). Bolthouse knew or should have known about design flaws, preventing it from ever properly sanitizing its ready-to-eat baby carrot production line.
17. In July 2009, after Bolthouse stopped using Tsunami 100, Bolthouse made several repairs and modifications to its East Plant ready-to-eat baby carrot production line, and updated its sanitation policies and procedures.
18. Whether any failure by Bolthouse to sanitize and otherwise observe clean processing practices, contributed to its entirety, caused any failure of the product in dispute.
E. Relief Sought by Plaintiffs.
Damages for costs incurred and lost profits to date of
well over $20 million; future lost profits of at least $30 million; punitive damages; prejudgment interest; and attorney's fees and costs.
VI. Legal Issues.
1. Jurisdiction exists under 28 U.S.C. § 1332.
2. Venue is proper under 28 U.S.C. § 1392.
3. The parties agree that the substantive law of the State of California provides the rule of decision in this diversity action (Ecolab contends that federal law preempts state law in certain instances as to EPA-required product labels on Ecolab products).
1. Breach of contract.
3. Nature and extent of damages.
4. Whether and to what extent Plaintiff Bolthouse is a food processor within the meaning of the Good Manufacturing Practices Act (21 C.F.R. § 110, et seq.)
5. Whether and to what extent the Good Manufacturing Practices Act applies to Plaintiff Bolthouse.
6. Whether Ecolab breached any promise to, through the use of Ecolab's product, provide advice and expert services, decrease microbial growth and substantially increase the shelf life of Bolthouse carrots.
7. Whether Ecolab misrepresented to Bolthouse that Tsunami 100 would reduce microbial growth and increase shelf life.
8. Whether Ecolab negligently performed its services in providing Tsunami 100 as a substitute for chlorine dioxide in its NSC line.
9. Whether the Tsunami 100 product sold to Bolthouse was defective in its design and manufacture, and whether Ecolab failed to warn Bolthouse about the possible risks of Tsunami 100, assuming the foundation that Ecolab knew of any alleged risks.
1. Whether Bolthouse's violations of the Good Manufacturing Practices Act is evidence of negligence per se.
2. Whether Plaintiffs' warnings and/or instruction claims are barred by the doctrine of federal preemption.
3. Whether Plaintiffs' negligence and strict liability claims are barred by California's Economic Loss Rule.
4. Comparative fault.
VII. Consent to Magistrate Judge Jurisdiction.
1. The parties have not consented to transfer the case to the Magistrate Judge for all purposes, including trial.
VIII. Corporate Identification Statement.
1. Any non-governmental corporate party to any action in this court shall file a statement identifying all its parent corporations and listing any entity that owns 10% or more of the party's equity securities. A party shall file the statement with its initial pleading filed in this court and shall supplement the statement within a reasonable time of any change in the information.
IX. Discovery Plan and Cut-Off Date.
A. Subjects and timing of discovery.
1. The parties have scheduled a mediation for July 27, 2011, and have thus agreed to hold off on initiating formal discovery through August 1, 2011 (or until an agreed-upon earlier date if the mediation is postponed or the parties decide to not mediate at this time). In the meantime, the parties will informally exchange agreed-upon information prior to the mediation.
2. Bolthouse intends to conduct discovery on the following subjects:
a. Other customers of Ecolab that have experienced problems with Tsunami 100;
b. Marketing materials and any other representations made by Ecolab to the public or its customers as to the effectiveness of Tsunami 100 (including the alleged "certain conditions" that are required for Tsunami 100 to be effective);
c. The design and manufacture of Tsunami 100;
d. Testing and research concerning Tsunami 100;
e. Warnings given about Tsunami 100;
f. Regulatory approval of Tsunami 100;
g. Communications (including presentations) between the parties and nonparties concerning Bolthouse's purchase or use of Tsunami 100;
h. The use of Tsunami 100 by Bolthouse, including any related services, recommendations, or testing provided by Ecolab;
i. Any pre- or post-dispute investigation concerning Bolthouse's 2009 carrot spoilage problem or its legal claims;
j. The facts allegedly supporting Ecolab's affirmative defenses;
k. Sales and profits of Tsunami 100; and
l. Insurance coverage.
3. Ecolab intends to seek discovery on the following subjects:
a. East and West Plant ready-to-eat baby carrot production line and equipment design, manufacture, maintenance, design changes, improvements, and repairs.
b. East and West Plant baby carrot production from 2005 through 2010.
c. Communications by and within Bolthouse concerning its decision to purchase Tsunami 100.
d. Bolthouse's shelf-life history, expectations, and related information.
e. Customer complaints of abnormal decomposition of Bolthouse products.
f. Photographs and videos depicting the carrot production lines, including photographs taken during the post-discovery investigation.
g. Microbial tests on East and West Plants carrot production lines for previous five years.
h. FDA and other agency investigations at Bolthouse.
i. Process water monitoring information and documentation.
j. Bolthouse's policies and requirements concerning its carrot suppliers and other suppliers.
k. Inventory rotation policies.
l. Bolthouse's cleaning and sanitation practices and policies, cross-contamination controls, weather tracking data for harvesting, temperature and humidity data, and Sanitation Standard Operating Procedures for the previous ten years.
m. Bolthouse's purchase of cleaning and sanitation products and services for East and West Plants for previous five years.
n. Bolthouse employee training concerning Good Manufacturing Practices, cleaning, sanitation, personnel hygiene, food safety, and carrot production.
o. Temperature information and related documents for buildings, water, warehousing, transportation, and pallet RFIDs.
p. Bolthouse product recalls for similar contamination issues.
q. Documents and information supporting Bolthouse's alleged damages.
r. Bolthouse's reputation as a supplier of quality carrots and other products, and the alleged damage to Bolthouse's reputation as a result of the carrot quality issues.
s. Other incidents that have affected Bolthouse's reputation as a supplier of quality products.
t. Bolthouse's relationship with Loblaw and other customers, and information related to Bolthouse's claimed damages related to Loblaw and other customers.
u. Communications between Bolthouse and its insurance carriers concerning the claims and allegations in Plaintiffs' Complaint, including claims accepted and paid by insurance carriers, and claims rejected.
v. Bolthouse's layoffs of sanitation workers in 2008, and the effect on sanitation practices, policies, and results.
w. Changes in Bolthouse corporate culture and carrot production philosophies when the William Bolthouse family sold its majority interest in the business to a Chicago-based private equity group.
C. Issues concerning electronically stored information.
1. No issues have been identified at this time. The parties will continue to meet and confer about ESI, including the form in which it should be produced.
D. Issues concerning privileges.
1. No issues have been identified at this time.
E. Limits on discovery.
1. The parties have stipulated to a maximum of 30 written interrogatories and 30 requests for admission per side, with no limits on requests for production of documents. Responses to written discovery will be due 45 days after service (plus any additional time under Rule 6(d)).
F. Other orders.
1. The parties will file a proposed stipulated protective order to preserve the confidentiality of information. The parties will agree to the form of a protective order to protect confidential information identified and/or produced in discovery.
G. The case is scheduled as follows:
1. The parties have agreed that they shall make their Rule 26(a)(1) initial disclosures on or before June 29, 2011.
2. The parties are ordered to complete all non-expert discovery on or before March 16, 2012.
3. Plaintiffs are directed to disclose all expert witnesses, in writing, on or before April 16, 2012. Defendants are directed to disclose all expert witnesses, in writing, on or before May 15, 2012. Any rebuttal or supplemental expert disclosures by Plaintiffs will be made on or before June 15, 2012. Any rebuttal or supplemental expert disclosures by Defendants will be made on or before July 16, 2012. The parties will comply with the provisions of Federal Rule of Civil Procedure 26(a)(2) regarding their expert designations. Local Rule 16-240(a) notwithstanding, the written designation of experts shall be made pursuant to F. R. Civ. P. Rule 26(a)(2),
(A) and (B) and shall include all information required thereunder. Failure to designate experts in compliance with this order may result in the Court excluding the testimony or other evidence offered through such experts that are not disclosed pursuant to this order.
4. The parties are ordered to complete all expert discovery on or before August 1, 2012.
5. The provisions of F. R. Civ. P. 26(b)(4) shall apply to all discovery relating to experts and their opinions. Experts shall be fully prepared to be examined on all subjects and opinions included in the designation and their reports, which shall include every opinion to be rendered and all reasons for each opinion. Failure to comply will result in the imposition of sanctions.
X. Pre-Trial Motion Schedule.
1. All Non-Dispositive Pre-Trial Motions, including any discovery motions, shall be filed on or before August 1, 2012, and heard on September 7, 2012, at 9:00 a.m. before Magistrate Judge Sheila K. Oberto in Courtroom 8.
2. In scheduling such motions, the Magistrate Judge may grant applications for an order shortening time pursuant to Local Rule 142(d). However, if counsel does not obtain an order shortening time, the notice of motion must comply with Local Rule 251 and this schedule.
3. All Dispositive Pre-Trial Motions are to be filed no later than August 31, 2012, and will be heard on October 1, 2012, at 10:00 a.m. before the Honorable Oliver W. Wanger, in Courtroom 3, 7th Floor. In scheduling such motions, counsel shall comply with Local Rule 230.
XI. Pre-Trial Conference Date.
1. October 29, 2012, at 11:00 a.m. in Courtroom 3, 7th Floor, before the Honorable Oliver W. Wanger.
2. The parties are ordered to file a Joint Pre-Trial Statement pursuant to Local Rule 281(a)(2).
3. Counsel's attention is directed to Rules 281 and 282 of the Local Rules of Practice for the Eastern District of California, as to the obligations of counsel in preparing for the pre-trial conference. The Court insists upon strict compliance with those rules.
XII. Motions - Hard Copy.
1. The parties shall submit one (1) courtesy paper copy to the Court of any motions filed. Exhibits shall be marked with protruding numbered or lettered tabs so that the Court can easily identify such exhibits.
XIII. Trial Date.
1. December 11, 2012, at the hour of 9:00 a.m. in Courtroom 3, 7th Floor, before the Honorable Oliver W. Wanger, United States District Judge.
2. This is a jury trial.
3. Counsels' Estimate Of Trial Time:
a. Eight to 10 days.
4. Counsels' attention is directed to Local Rules of Practice for the Eastern District of California, Rule 285.
XIV. Settlement Conference.
1. A Settlement Conference is scheduled for August 7, 2012, at 10:30 a.m. in Courtroom 8 before the Honorable Sheila K. Oberto, United States Magistrate Judge.
2. Unless otherwise permitted in advance by the Court, the attorneys who will try the case shall appear at the Settlement Conference with the parties and the person or persons having full authority to negotiate and settle the case on any terms at the conference.
3. Permission for a party [not attorney] to attend by telephone may be granted upon request, by letter, with a copy to the other parties, if the party [not attorney] lives and works outside the Eastern District of California, and attendance in person would constitute a hardship. If telephone attendance is allowed, the party must be immediately available throughout the conference until excused regardless of time zone differences. Any other special arrangements desired in cases where settlement authority rests with a governing body, shall also be proposed in advance by letter copied to all other parties.
4. Confidential Settlement Conference Statement.
At least five (5) days prior to the Settlement Conference the parties shall submit, directly to the Magistrate Judge's chambers, a confidential settlement conference statement. The statement should not be filed with the Clerk of the Court nor served on any other party. Each statement shall be clearly marked "confidential" with the date and time of the Settlement Conference indicated prominently thereon. Counsel are urged to request the return of their statements if settlement is not achieved and if such a request is not made the Court will dispose of the statement.
5. The Confidential Settlement Conference Statement shall include the following:
a. A brief statement of the facts of the case.
b. A brief statement of the claims and defenses, i.e., statutory or other grounds upon which the claims are founded; a forthright evaluation of the parties' likelihood of prevailing on the claims and defenses; and a description of the major issues in dispute.
c. A summary of the proceedings to date.
d. An estimate of the cost and time to be
expended for further discovery, pre-trial and trial.
e. The relief sought.
f. The parties' position on settlement, including present demands and offers and a history of past settlement discussions, offers and demands.
XV. Request For Bifurcation, Appointment Of Special Master, Or Other Techniques To Shorten Trial.
1. The parties have not requested bifurcation. To the extent that punitive damages are sought, that issue of the amount, if any, of punitive damages, shall be tried in a continuous trial in a second phase before the same jury after the entitlement has been established, both as to liability and the existence of compensatory damages, and the grounds for the recovery of punitive damages, if any.
XVI. Related Matters Pending.
1. There are no related matters.
XVII. Compliance With Federal Procedure.
1. The Court requires compliance with the Federal Rules of Civil Procedure and the Local Rules of Practice for the Eastern District of California. To aid the court in the efficient administration of this case, all counsel are directed to familiarize themselves with the Federal Rules of Civil Procedure and the Local Rules of Practice of the Eastern District of California, and keep abreast of any amendments thereto.
XVIII. Effect Of This Order.
1. The foregoing order represents the best estimate of the court and counsel as to the agenda most suitable to bring this case to resolution. The trial date reserved is specifically reserved for this case. If the parties determine at any time that the schedule outlined in this order cannot be met, counsel are ordered to notify the court immediately of that fact so that adjustments may be made, either by stipulation or by subsequent scheduling conference.
2. Stipulations extending the deadlines contained herein will not be considered unless they are accompanied by affidavits or declarations, and where appropriate attached exhibits, which establish good cause for granting the relief requested.
3. Failure to comply with this order may result in the imposition of sanctions.
IT IS SO ORDERED.
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