Starbucks Corporation v. Amcor Packaging Distribution

          MEMORANDUM AND ORDER RE: MOTIONS FOR SUMMARY JUDGMENT

          WILLIAM B.SHUBB, UNITED STATES DISTRICT JUDGE

         Plaintiff Starbucks Corporation (“Starbucks”) filed this action against defendants Amcor Packaging Distribution, Amcor Packaging (USA), Inc. (collectively, “Amcor”), and Pallets Unlimited, LLC (“Pallets Unlimited”), alleging that defendants supplied it with defective wooden pallets that caused mold to develop on its unroasted (“green”) coffee and resulted in losses of approximately $5.3 million. (Compl. ¶¶ 9-11 (Docket Nos. 1, 6, 7).) The matter is now before the court, pursuant to Federal Rule of Civil Procedure 56, on (1) Starbucks’ motion for partial summary judgment against Amcor on certain purportedly invalid provisions of the contract between Starbucks and Amcor, (Docket No. 119); and (2) Amcor’s cross-motion for summary judgment on all of Starbucks’ claims, (Docket No. 111).

         I. Factual and Procedural Background

         Starbucks is an international company that distributes coffee products. Starbucks operates a coffee bean roasting facility in Minden, Nevada called the Carson Valley Roasting Plant (“CVRP”). Ozburn-Hessey Logistics, LLC (“OHL”) owned and operated a warehouse in Sparks, Nevada (“OHL Warehouse”) where Starbucks’ green coffee was stored on wooden pallets before being transported to CVRP for roasting. (Compl. ¶¶ 8-11.)^[1] Between December 14, 2011 and February 17, 2012, Starbucks contracted with Amcor, a manufacturer and distributor of packaging materials, to purchase 9, 480 wooden pallets for storing its green coffee at the OHL Warehouse. Starbucks provided Amcor with a specification sheet stating that the wooden pallets must consist of lumber that was kiln-dried to a moisture content of less than 19% (“Specification Sheet”). (Id. Ex. B.) Amcor subcontracted with Pallets Unlimited to manufacture the wooden pallets and deliver them to the OHL Warehouse. (Id. ¶¶ 7-11.)

         Upon delivery, OHL, acting on behalf of Starbucks, visually inspected the wooden pallets for damage, but did not measure the pallets for moisture content. Except for one shipment of wooden pallets that were found to be wet and returned to Pallets Unlimited, OHL accepted all of the pallet deliveries on behalf of Starbucks. Following the deliveries, Amcor issued invoices to Starbucks for the sale of the wooden pallets (“Invoices”). Each Invoice included a provision at the bottom as follows:

The following is made in lieu of all warranties, express or implied: seller’s only obligation shall be to replace such quantity of the product proved to be defective. Seller shall not be liable for any injury, loss or damage, direct or consequential, arising out of the use or inability to use the product. Before using, user shall determine the suitability of the product for his intended use and the user assumes all risk and liability whatsoever in connection therewith. The foregoing may not be changed except by agreement signed by an officer of seller.

(the “Disclaimers”). (Id. ¶ 8, Ex. A.)

         Starbucks paid these Invoices and loaded 68, 000 bags of green coffee on the wooden pallets it purchased from Amcor for storage at the OHL Warehouse and subsequent transportation to CVRP for roasting. (Id. ¶ 9.) On February 9, 2012, OHL personnel discovered mold growing on some of the wooden pallets in the OHL Warehouse. Shortly thereafter, Starbucks discovered mold on green coffee, coffee bags, and wooden pallets that were delivered to CVRP from the OHL Warehouse. (Id.)

         Starbucks retained independent surveyors to conduct an investigation into the source of the mold. The surveyors determined that many of the wooden pallets Starbucks purchased from Amcor did not meet specifications because they were constructed with lumber whose moisture content was considerably above the 19% requirement. (Parikh Decl. Exs. 14-15, 19 (Docket Nos. 111-5 to -27).) The surveyors concluded that the “formation of mold on the affected Bags [and] Green Coffee Beans was apparently due to the release of moisture from the lumber materials used in construction of the Pallets, principally due to excessive moisture contained within the lumber.” (Id. Ex. 19 at 5.)

         Upon Starbucks’ request, Amcor picked up all of the wooden pallets it had sold to Starbucks from the OHL Warehouse and sent them back to Pallets Unlimited. (Coons Decl. ¶¶ 11-12, Ex. 25 (Docket Nos. 111-28 to -32).) Starbucks demanded that Amcor reimburse it for the damage to its coffee beans caused by the mold. Amcor disputed its liability for any damage to Starbucks’ coffee as precluded under the Disclaimers contained in the Invoices it issued Starbucks for the wooden pallets. (Id. ¶ 16; Compl. ¶ 12.)

         Starbucks filed this action on August 23, 2013, alleging claims against Amcor for (1) breach of contract, and (2) breach of the express warranty that the wooden pallets would meet Starbucks’ moisture content specifications. (Compl. ¶¶ 26-34.) Starbucks additionally asserted claims against Amcor and Pallets Unlimited for (3) breach of the implied warranty of merchantability, (4) breach of the implied warranty of fitness for a particular purpose, (5) strict products liability, and (6) negligence. (Id. ¶¶ 13-25, 35-38.)

         Starbucks moves for partial summary judgment against Amcor that the Disclaimers in the Invoices are unenforceable and invalid as a matter of law because Starbucks neither bargained for nor assented to them. (Docket No. 119.) Starbucks seeks a ruling that Amcor is precluded from invoking the Disclaimers as a defense against Starbucks’ claims. Starbucks also seeks to strike Amcor’s thirteenth and forty-ninth affirmative defenses, which are premised on the Disclaimers.

         Amcor’s thirteenth affirmative defense states that Amcor “disclaimed, negated and excluded each and every warranty of the type and character alleged in the complaint so as to bar recovery based on any such warranty.” (Amcor’s Ans. at 9 (Docket No. 14).) Amcor’s forty-ninth affirmative defense states that “the warranties, disclaimers and any other exclusions in the invoices or contract between plaintiff and [Amcor] is valid and enforceable.” (Id. at 13.) Amcor has filed a cross-motion for summary judgment on all of Starbucks’ claims. (Docket No. 111.)

         II. Legal Standard

         A party may move for summary judgment on a “claim or defense.” Fed.R.Civ.P. 56(a). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id.; Summers v. Teichert & Son, Inc., 127 F.3d 1150, 1152 (9th Cir. 1997). A material fact is one that could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue exists if the evidence produced would allow a reasonable trier of fact to reach a verdict in favor of the non-moving party. Id.

         The moving party bears the initial burden of establishing that no genuine issue of material fact exists as to the particular claim or defense. Id. at 256. Where the moving party seeks summary judgment on a claim or defense for which it bears the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find for the non-moving party on that claim or defense. Soremekun v. Thrifty Payless Inc., 509 F.3d 978, 994 (9th Cir. 2007). If summary judgment is sought on a claim or defense for which the non-moving party bears the burden of proof at trial, the moving party must either (1) produce evidence negating an essential element of the non-moving party’s claim or defense, or (2) show that the non-moving party cannot produce evidence to support an essential element of its claim or defense. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

         Once the moving party has met its initial burden, the burden shifts to the non-moving party to produce concrete, specific evidence establishing a genuine issue of material fact. Id. at 324; Anderson, 477 U.S. at 256. To carry this burden, the non-moving may not rely “solely on conclusory allegations unsupported by factual data.” Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Rather, it must produce sufficient evidence beyond the pleadings that would allow a reasonable trier of fact to find in its favor. Anderson, 477 U.S. at 256. If it does so, then “there is a genuine issue of fact that requires a trial.” Id. at 257.

         In ruling on a motion for summary judgment, the court may not weigh the evidence, make credibility determinations, or determine the truth of the matters asserted, and it must view all inferences drawn from the factual record in the light most favorable to the non-moving party. Id. at 249, 255; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). “Thus, although the court should review the record as a whole, it must disregard all evidence favorable to the moving party” unless that evidence is “uncontradicted and unimpeached” and “comes from disinterested witnesses.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 151 (2000) (citation omitted).

         Where parties submit cross-motions for summary judgment, the court must consider each motion separately to determine whether either party has met its burden, “giving the nonmoving party in each instance the benefit of all reasonable inferences.” ACLU of Nevada v. City of Las Vegas, 333 F.3d 1092, 1097 (9th Cir. 2003).

         III. Discussion

         A. Starbucks’ Motion for Summary Judgment

         “[F]ederal courts sitting in diversity apply state substantive law and federal procedural law.” Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996). The court will thus apply California substantive law here. The interpretation of a contract is a question of law. United States v. King Features Entm’t, Inc., 843 F.2d 394, 398 (9th Cir. 1988). The California Uniform Commercial Code (the “Code”) applies to all “transactions in goods.” Cal. Com. Code § 2102.^[2] Goods are defined as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale.” Id. § 2105(1). It is undisputed that the wooden pallets Amcor sold to Starbucks are “goods” within the meaning of the Code. The Code thus governs the parties’ contract here.

         Starbucks argues that the Disclaimers are not part of the parties’ contract, are unconscionable, and are invalid because they materially alter the parties’ contract. Amcor, on the other hand, contends that the Disclaimers are part of the parties’ contract because Starbucks had assented to them during the parties’ prior course of dealing; thus, Starbucks’ remedy for breach of contract here is limited to the exclusive remedy provided in the Disclaimers.

         Amcor argues that Starbucks is precluded from challenging the validity of the Disclaimers because Starbucks judicially admitted in its Complaint that Amcor’s Invoices were part of the parties’ contract for the wooden pallets. (Amcor’s Mem. at 14-15 (Docket No. 111-1).) “Factual assertions in pleadings . . . are considered judicial admissions conclusively binding on the party who made them.” Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988). Starbucks alleges in its Complaint that the Specification Sheet and 26 Invoices Amcor issued to Starbucks for the wooden pallets “comprise the contract for the provision and sale of pallets from [Amcor] to plaintiff.” (Compl. ¶ 8.) Starbucks does not allege, however, that the Disclaimers in the 26 Invoices are valid and enforceable. Starbucks expressly alleges the “invoices contain fine print with purported disclaimer language, but the disclaimer[s] [are] invalid and ineffective.” (Id.) Amcor’s argument that Starbucks’ judicial admissions preclude it from challenging the validity of the Disclaimers is thus unpersuasive.^[3]

         1. Contract Formation

         To determine whether the Disclaimers are a part of the parties’ contract for the sale of the wooden pallets, the court must evaluate the manner in which the parties formed the contract. “[T]he rules of contract formation under the [Code] do not include the principle that the parties must agree to all essential terms in order to form a contract.” Steiner v. Mobil Oil Corp., 20 Cal.3d 90, 105 (1977) (en banc). Section 2204 provides that “[e]ven though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.” Cal. Com. Code § 2204(3). “[T]he omission of even an important term does not prevent the finding under [§ 2204(3)] that the parties intended to make a contract.” Steiner, 20 Cal.3d at 105 (alterations and citation omitted).

         To find an enforceable contract, the parties’ conduct must indicate a consummated process of offer and acceptance--and thus, an intent to contract--rather than inconclusive negotiations. Id. at 104. Any terms not agreed upon at the time of the contract’s formation are filled in by the Code’s gap-filling provisions. Id.; e.g., Cal. Com. Code § 2305 (open price terms), § 2307 (open delivery terms). “A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” Id. § 2204(1). An offer to make a contract may be accepted “in any manner and by any medium reasonable in the circumstances.” Id. § 2206(1)(a). A buyer’s order or offer to buy goods for prompt or current shipment is accepted by the seller’s “prompt promise to ship or by the [seller’s] prompt or current shipment of conforming or nonconforming goods.” Id. § 2206(1)(b).

         It is undisputed that, on December 14, 2011, Kerri Hardy, Starbucks’ CVRP distribution supervisor, called Rachel Carranza^[4] of Amcor and placed an order for wooden pallets to be supplied in accordance with a Specification Sheet that Hardy emailed to Carranza. (Hardy Decl. ¶ 5 (Docket Nos. 119-20 to -22); Kirsch Decl., May 6, 2016 (“Kirsch I Decl.”), Ex. A (“Carranza Dep.”) at 42:11-20 (Docket Nos. 119-23 to -39).) This constituted an offer by Starbucks “to buy goods for prompt or current shipment.” Cal. Com. Code § 2206(1)(b). Carranza acknowledges that, during her conversation with Hardy, Hardy “requested [that Amcor] build the pallets per the specification sheet” that she later emailed to Carranza. (Carranza Dep. at 51:1-17.) The terms of Starbucks’ offer therefore included the requirement that the wooden pallets conform to the Specification Sheet.

         Although Hardy and Carranza did not specifically discuss the 19% kiln-dry requirement that was contained in the Specification Sheet, it is undisputed that Carranza orally represented to Hardy that Amcor would supply the wooden pallets to Starbucks in accordance with the Specification Sheet. (Hardy Decl. ¶¶ 5-6; Carranza Dep. at 51:1-17.) Carranza’s prompt promise to ship the pallets thus constituted an acceptance of Starbucks’ offer and created an enforceable contract between the parties. See Cal. Com. Code § 2206(1)(b).

         Between December 2011 and February 2012, Starbucks placed additional orders for wooden pallets pursuant to the Specification Sheet. (Carranza Decl. ¶ 25 (Docket Nos. 111-33 to -37); e.g., Parikh Decl. Ex. 11 (email dated January 18, 2012 from Hardy to Carranza requesting confirmation that Starbucks’ first three orders were for 2, 000, 3, 800, and 1, 000 pallets respectively, for a total of 6, 800 pallets, and stating that Starbucks “will need to order more pallets”).) It is undisputed that Amcor ...