ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT; ORDER DENYING AS MOOT 1) DEFENDANT’S SUPPLEMENTAL MOTION FOR SUMMARY JUDGMENT ON THE DOCTRINE OF RES IPSA LOQUITUR AND ANY SIMILAR THEORIES AND 2) PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT RE: CIRCUMSTANTIAL EVIDENCE UNDER STRICT PRODUCTS LIABILITY (“QUASI”-RESIPSA)
Before the Court are 1) Defendant Skretting Canada Inc. aka Skretting North America’s (“Defendant”) Motion for Summary Judgment, filed May 17, 2013; 2) Defendant’s Supplemental Motion for Summary Judgment on the Doctrine of Res Ipsa Loquitur and Any Similar Theories, filed July 8, 2013; and 3) Plaintiff Keahole Point Fish LLC’s (“Plaintiff’) Motion for Partial Summary Judgment Re: Circumstantial Evidence Under Strict Products Liability (“Quasi” — Res Ipsa), filed July 8, 2013.
These matters came on for hearing on August 29, 2013. David Nakashima, Esq., appeared on behalf of Plaintiff. Jeffrey Johnson, Esq., Patricia Napier, Esq., and Randall Whattoff, Esq., appeared on behalf of Defendant. After careful consideration of the motions, the supporting and opposing memoranda, the arguments of counsel, and the applicable law, the Court HEREBY GRANTS IN PART AND DENIES IN PART Defendant’s Motion, and DENIES AS MOOT Defendant’s Supplemental Motion and Plaintiffs Motion for the reasons set forth below.
BACKGROUND
I. Factual History
This action arises out of allegations that the Kona Pacific poultry meal feed that Plaintiff purchased from Defendant was defective because of nutrient deficiencies, namely taurine, and inferior ingredients.
A. Kona Blue
In late 2005 or early 2006, Kona Blue, Plaintiffs predecessor, requested that Defendant prepare a custom diet for its Seri-óla rivoliana. Def.’s CSF, Decl. of Jeffrey
In December 2007, Defendant began shipping the Kona Pacific poultry meal feed to Kona Blue. Id., Johnson Decl., Ex. D. Since 2007, all product sheets for the Kona Pacific diet contained the following disclaimer: “Individual results from the use of Skretting feed products may vary due to management, environment, genetic, health and sanitation differences. Therefore, Skretting does not warrant or guarantee individual results and reserves the right to modify it without prior notice.” Id., Beattie Decl. at ¶¶ 11-12, Exs. E & F. Kona Blue began feeding the Kona Pacific poultry meal feed to its Serióla rivoliana in early 2008. Id., Johnson Decl., Ex. D. According to Neil Sims, Kona Blue’s president, Chris Beattie, Defendant’s general manager, advised him that Kona Pacific feed would provide a balanced diet. Id., Johnson Decl., Ex. E; Pl.’s CSF, Additional Material Facts (“AMF”) at ¶ 3 & Ex. 3.
In July 2008, Kona Blue reported to Defendant that it experienced some of the best fish survival in company history. Pl.’s CSF, Ex. 20. In October 2008, Kona Blue complained of slower growth and reduced feed response. Id., AMF at ¶¶ 6-9. Eventually, Kona Blue determined that overstocking, strep infection, and skin flukes caused the issues, and mortality rates in 2008 were in fact low. Def.’s CSF, Johnson Decl., Ex. D; Def.’s Reply CSF at ¶¶ 6-8. Defendant represents that Kona Blue thereafter reported successful results for nearly two years while its fish were consuming the Kona Pacific poultry meal feed. Def.’s CSF, Beattie Decl. at ¶ 6. At the end of 2009, Kona Blue was successfully harvesting Serióla rivoliana at average weights over four-and-a-half pounds, which was at or exceeding the farm’s historical harvest weights. Id., Johnson Decl., Exs. A & D.
B. Acquisition by Plaintiff of Kona Blue
In February 2010, Plaintiff assumed control of the aquafarm. Id., Beattie Decl., Ex. D. Prior to its acquisition of the farm, Plaintiff conducted due diligence with respect to Kona Blue’s practices, harvest data, and financial data. Id., Johnson Decl., Exs. E & F. Kona Blue disclosed that it requested that Defendant replace some fishmeal with poultry meal, and recommended another feed company to enable Plaintiff to consider other feeds. Id., Johnson Deck, Ex. E.
Plaintiff claims that after it began operations, Defendant further reduced the amount of fishmeal in the feed and replaced it with alternative protein materials that contained less taurine by weight.
C. The Parties’ Agreement Regarding the Purchase of Kona Pacific Feed
On January 13, 2010, Todd Madsen, Plaintiffs president, signed Defendant’s Customer Record/Credit Application. The Application stated: “We hereby jointly and severally agree to pay your account ... according to your terms of sale and to pay interest at the rate set by [Defendant] on all amounts in arrears as outlined in the terms and conditions of sale.” Def.’s CSF, Beattie Decl., Ex. B. Invoices accompanying each order contained the terms and conditions of the sale of the feed, including payment terms, items purchased, quantity, and price. Id., Beattie Decl., Ex. C. Defendant also provided Plaintiff with product sheets containing its disclaimer that individual results may vary and that it does not warrant or guarantee individual results.
D. Plaintiffs Switch to High Fishmeal Feed
In early 2011, Plaintiff hypothesized that taurine deficiency was the cause of problems with its fish. Id., Johnson Decl., Ex. B. In an email dated May 18, 2011, Mr. Madsen inquired with Mr. Beattie about ingredient information and indicated that Plaintiff was investigating whether feed formulation changes were contributing to growth issues. Id., Beattie Decl., Ex. G. On June 7, 2011, Gavin Shaw provided estimated taurine levels in the feed and calculated a weighted average of taurine for all feed sizes of approximately 0.17%. Id., Johnson Decl., Ex. B. Just one day prior, however, Plaintiff stopped purchasing the Kona Pacific poultry meal feed and ordered the high fishmeal feed. Id., Beat-tie Decl., Ex. I.
In August 2011, Plaintiff began purchasing a high fishmeal feed from EWOS, Defendant’s competitor. By Plaintiffs accounts, following the switch to the EWOS feed, the health of the fish improved quickly and dramatically, mortalities dropped, and Plaintiff has since successfully raised four more Cohorts. PL’s CSF, Ex. 4. The EWOS feed had a higher taurine content than the Kona Pacific poultry meal feed.
II. Procedural History
Plaintiff commenced this action on November 8, 2011. On December 22, 2011, Plaintiff filed a First Amended Complaint, asserting the following claims: 1) negligence (Count 1); 2) intentional misrepre
Defendant filed a Counter-Complaint on December 29, 2011, alleging that Plaintiff breached its contract with Defendant by ordering and taking possession of Kona Pacific high fishmeal feed, but failing to pay $36,548.60.
STANDARD OF REVIEW
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a). “A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact.” Soremekun v. Thrifty Payless, Inc.,
Once the moving party has met its burden of demonstrating the absence of any genuine issue of material fact, the nonmov-ing party must set forth specific facts showing that there is a genuine issue for trial. T.W. Elec.,
If the nonmoving party fails to assert specific facts, beyond the mere allegations or denials in its response, summary judgment, if appropriate, shall be entered. Lujan v. Nat’l Wildlife Fed’n,
In considering a motion for summary judgment, “the court’s ultimate inquiry is to determine whether the ‘specific facts’ set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.” T.W. Elec.,
DISCUSSION
Defendant moves for summary judgment on all claims, including its counterclaim. The Court addresses each argument in turn.
I. Preemption
Defendant argues that it is entitled to summary judgment on Plaintiffs negligence, products liability, implied warranty of merchantability, and implied warranty of fitness claims because they are preempted by the Federal Food, Drug, and Cosmetic Act (“FDCA”). Specifically, Defendant maintains that it could not have consistently satisfied Plaintiffs desired taurine levels without supplementing its fish feed with crystalline taurine, a food additive, in violation of 21 C.F.R. § 573.980.
Under the Supremacy Clause, the laws of the United States “shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const., Art. VI, cl. 2. Accordingly, “state laws that conflict with federal law are ‘without effect.’ ” Mut. Pharm. Co. v. Bartlett, — U.S. -,
The FDCA does not contain a preemption clause. Riegel v. Medtronic, Inc.,
Conflict preemption, which Defendant argues applies here, implies Congress’s intent to preempt state law to the extent there is conflict between federal and state law. Whistler Invs., Inc. v. Depository Trust and Clearing Corp.,
The FDCA presumes that food additives are unsafe until the Food and Drug Administration (“FDA”) formally authorizes their use. 21 U.S.C. §§ 342, 348. The FDCA defines “food additive” as
any substance the intended use of which results or may reasonably be expected to result, directly or indirectly, in its becoming a component or otherwise affecting the characteristics of any food ... if such substance is not generally recognized, among experts qualified by scientific training and experience to evaluate its safety, as having been adequately shown through scientific procedures ... to be safe under the conditions of its intended use.
21 U.S.C. § 321(s). The FDA has deemed taurine safe for use in animal feeds provided that “[i]t is added to complete feeds so that the total taurine content does not exceed 0.054 percent of the feed.” 21 C.F.R. § 573.980(b).
Defendant asserts that given these restrictions on taurine, successfully and consistently meeting Plaintiffs taurine requirements would require illegal supplementation of the feed with crystalline tau-rine, a food additive, which would result in a conflict between federal and state law. Plaintiff claims that Defendant, as well as EWOS, sold and manufactured feed that met Plaintiffs minimum taurine level solely through the use of fishmeal. It is Plaintiffs position that because naturally occurring taurine is not a food additive, it does not implicate food additive regulations.
The issue before the Court is whether federal law preempts Plaintiffs state law claims alleging that 1) Defendant’s failure to produce and provide a fish feed that contained sufficient taurine caused it to breach its duty of care to Plaintiff; 2) the feed was defective in design and manufacture because it failed to perform as safely as an ordinary consumer would expect when used in an intended or reasonably forseeable manner; and 3) Defendant breached the implied warranties of fitness for purpose and merchantability by designing and manufacturing a defective feed that was not fit for consumption.
In evaluating preemption, the Court is guided by two cornerstones of ... preemption jurisprudence. First, “the purpose of Congress is the ultimate touchstone in every pre-emption case.” Medtronic, Inc. v. Lohr,518 U.S. 470 , 485,116 S.Ct. 2240 ,135 L.Ed.2d 700 (1996) (internal quotation marks omitted); see Retail Clerks v. Schermerhorn,375 U.S. 96 , 103,84 S.Ct. 219 ,11 L.Ed.2d 179 (1963). Second, “[i]n all pre-emption cases, and particularly in those in which Congress has ‘legislated ... in a field which the States have traditionally occupied,’ ... [the court] ‘start[s] with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.’ ” Lohr,518 U.S. at 485 ,116 S.Ct. 2240 (quoting Rice v. Santa Fe Elevator Corp.,331 U.S. 218 , 230,67 S.Ct. 1146 ,91 L.Ed. 1447 (1947)).
Wyeth,
For preemption to apply in the present case, the facts would have to undisputably demonstrate that Defendant could not manufacture a feed satisfying Plaintiffs minimum taurine requirement without tau-rine supplementation. As earlier discussed, taurine is a food additive that can only be added to animal feed under the limited circumstances set forth in 21 C.F.R. § 573.980. Thus, any supplementation of Defendant’s feed with taurine would violate the FDCA and 21 C.F.R. § 573.980, and any liability resulting from Plaintiffs
Based on the record before the Court, genuine issues of material fact exist that preclude summary judgment. Central to Plaintiffs negligence, products liability, implied warranty of merchantability, and implied warranty of fitness claims is Plaintiffs belief that a feed must contain a specific range of taurine to be optimal for Señóla ñvoliana. The parties dispute Defendant’s ability to manufacture a feed meeting Defendant’s minimum requirement without supplementation.
Plaintiff cites test results of feed manufactured by both Defendant and EWOS to support its assertion that its minimum tau-rine requirement was met, and could be met, through naturally occurring taurine in fishmeal and other raw materials. Defendant challenges that the test results demonstrate that it was impossible to meet Plaintiffs taurine requirement and comply with federal law. The Court agrees that the evidence tends to suggest that it would be difficult to consistently produce a feed with sufficient taurine. However, because Defendant and EWOS have successfully done so, even if unreliably so, it is possible. Viewing the evidence in the light most favorable to Plaintiff, there is a material factual dispute about whether Defendant could have manufactured a feed that included sufficient taurine without resorting to supplementation.
Consequently, the granting of summary judgment with respect to Plaintiffs negligence, products liability, and implied warranty claims on grounds of preemption would be improper.
II. Economic Loss Rule
Defendant also seeks a ruling that Plaintiffs negligence, intentional/negligent misrepresentation, and products liability claims are barred by the economic loss rule because Plaintiffs damages reflect purely economic losses. Plaintiff asserts that the rule is inapplicable because the defective feed damaged its “other property.”
The economic loss rule bars causes of action “where a plaintiff alleges a purely economic loss stemming from injury only to the product itself.”
marks the fundamental boundary between the law of contracts, which is designed to enforce expectations created by agreement, and the law of torts, which is designed to protect citizens and their property by imposing a duty of reasonable care on others. The economic loss rule was designed to prevent disproportionate liability and allow parties to allocate risk by contract.
City Express, 87 Hawai’i at 469,
The court concluded that the plaintiffs damages consisted of purely economic losses, and noted that the plaintiff did not seek damages for personal injuries. Id. at 294,
This district has interpreted Newtown Meadows to extend the reach of the economic loss rule to preclude “purely economic losses including ‘consequential damages’ to property other than the allegedly defective product.” Burlington,
“Economic losses encompass Marriages for inadequate value, costs of repair and replacement of [the] defective product, or consequent loss of profits-without any claim of personal injury or damage to other property.’” Newtown Meadows, 115 Hawai’i at 293,
Plaintiff submits that its tort claims are not barred by the economic loss rule because the feed damaged its fish, i.e. “other property.” An exception to the rule exists when the finished product causes damage to “other property.” Kawamata Farms, Inc. v. United Agric. Prods., 86 Hawai’i 214, 254,
The defendants filed a motion for judgment notwithstanding the verdict, arguing that the economic loss doctrine barred recovery in tort given the jury’s conclusion that the plaintiffs injuries were a result of “economic loss” rather than damage to soil or farm structures. Id. In denying the motion, the circuit court concluded in pertinent part that “[t]he majority of Plaintiffs’ compensatory damages awarded by the jury were for plant replacement costs for the damages to Plaintiffs’ plant inventory [that] constitutes ‘other property,’ which therefore brings this case out of the realm of the economic loss doctrine.” Id. (alterations in original) (quotations omitted). The Hawaii Supreme Court affirmed the circuit court decision, holding that
the Plaintiffs bargained for Benlate as the finished product, and this finished product damaged ‘other property’ consisting of the Plaintiffs’ crops upon which Benlate was applied. Where the finished product caused damage to other property, the economic loss doctrine does not apply, and, thus, the economic loss doctrine did not bar the Plaintiffs from recovering damages for their crop damage.
Id. at 254,
At first glance, Kawamata appears to be directly on point. However, upon closer examination of the facts, there are critical distinctions between Kawamata and this case. Plaintiff submits that it may recover in tort for the physical injury to its fish caused by the defective feed. Yet it does not seek damages for physical injury to its fish. Instead, it bases its damages theory “on a lost profits methodology which considers financial losses as well as avoided costs over a damage period, or period of restoration,” and it seeks damages for lost revenue, actual feed cost incurred, and additional costs incurred.
By contrast, the damages awarded in Kawamata were for injury to the plaintiffs’ plants; specifically, the replacement costs for the plants, i.e. “other property.” Insofar as Plaintiff does not seek damages for injury to its fish, the Court finds that the economic loss rule bars recovery with respect to Plaintiffs negligence, products liability, and negligent misrepresentation claims. Millenkamp,
This conclusion is consistent with the legal principles set forth in Newtown Meadows and Burlington, even though this case is factually distinguishable in that it is not construction litigation. Neither Newtown Meadows nor Burlington
Having concluded that the economic loss rule applies, the Court must determine whether it bars Plaintiffs intentional misrepresentation claim. As earlier discussed, the Hawaii courts have held that the rule applies to negligence, products liability, and negligent misrepresentation claims. They have not, however, authorized the application of the rule to intentional misrepresentation claims. In the absence of state court precedent extending the economic loss rule to intentional misrepresentation claims, the Court declines to extend the rule here. Accordingly, the Court finds that the economic loss rule bars Plaintiffs negligence, products liability, and negligent misrepresentation claims, and grants summary judgment in Defendant’s favor as to said claims.
Insofar as the economic loss doctrine bars Plaintiffs products liability claim, Plaintiff and Defendant’s summary judgment motions concerning the applicability of the res ipsa loquitur doctrine are denied as moot.
III. Intentional Misrepresentation
Defendant moves for summary judgment on the ground that it did not make any actionable misrepresentation claims. To prove a claim of intentional misrepresentation, a plaintiff must establish that “(1) false representations were made by defendants, (2) with knowledge of their falsity (or without knowledge of their truth or falsity), in contemplation of plaintiffs reliance upon these false representations, and (4) plaintiff did rely upon them.” Shoppe v. Gucci Am., Inc., 94 Hawai’i 368, 386,
A. Feed Formulation
The first alleged misrepresentation made by Mr. Beattie was that the Kona Pacific feed formulation did not change since early 2008. Defendant contends that this is not an actionable misrepresentation because minor changes in raw material concentrations between different feed orders do not constitute a change in the formula. Plaintiff accuses Defendant of manufacturing a distinction between the words “formula” and “raw material concentrations.” Plaintiff points to Defendant’s formulation data to establish that changes in raw material concentrations constitute a change in the formula. Pl.’s CSF, Ex. 11.
A close examination of the evidence reveals no disputed issues of material fact, even viewing such evidence in a light most favorable to Plaintiff. According to Defendant, it uses a “least cost formulation” to select the most cost effective ingredients in its inventory that still satisfy the nutrient requirements and raw material limitations set in the formula. Def.’s CSF, Johnson Decl., Exs. C & P. Indeed, Greg Deacon testified that that the feeds are produced using a feed formulation program, with ingredient parameters set by a formulator. Def.’s CSF, Johnson Decl., Ex. C. He further testified that when Kona Blue requested a change to the poultry meal feed in 2007, he probably lowered the feed’s fishmeal content to 20%. Id.
Mr. Shaw similarly testified that Defendant used a program called “Format” to formulate its diets, wherein minimum and máximums for every product by size were set within Format’s parameters. Defi’s CSF, Johnson Decl., Ex. P. Mr. Shaw also stated that Format determines which raw materials are best for use on a particular day. Id. The formulation data cited by Plaintiff establishes that ingredient percentages changed over time, which is consistent with the undisputed facts, including Mr. Madsen’s testimony that Mr. Beattie explained that ingredients may vary over time. PL’s CSF, AMF at ¶11, Ex. 2; Def.’s Reply CSF at ¶ 11; Def.’s CSF, Johnson Decl., Ex. B. Therefore, the evidence establishes that Mr. Beattie accurately represented that the formula did not change because any variation in the ingredient content still fell within the formula’s parameters/restrictions. For example, notwithstanding the fact that the ingredient percentages changed over time, as reflected in the formulation data, the fish-meal numbers referenced by Plaintiff demonstrate that the fishmeal level always exceeded the 20% formulation level set by Mr. Deacon for the Kona Pacific poultry meal feed.
Based on the foregoing, the Court hereby finds, as a matter of law, that Mr. Beattie’s statement about a lack of change to the formula since 2008 was not a false representation.
B. Successful Growth
The second alleged misrepresentation is Mr. Beattie’s statement that Kona Blue had successfully grown Serióla rivoliana on the Kona Pacific poultry meal feed, despite his knowledge that Kona Blue had experienced similar feeding and growth problems after switching to said feed. Kona Blue reported to Defendant in July 2008 that it experienced some of the best fish survival in company history. PL’s CSF, Ex. 20. Citing communications between Kona Blue and Mr. Beattie several months later, which expressed Kona Blue’s concern about feeding and growth issues,
The issues with growth and feeding around October 2008 were later determined to be caused by overstocking, skin flukes, and strep infection. Def.’s Reply CSF, Supplemental Johnson Deck, Ex. B. In addition, Kona Blue reported successful results for nearly two years while its fish were consuming the feed. Def.’s CSF, Beattie Decl. at ¶ 6. Thus, Plaintiff has not come forward with significant probative evidence tending to support its legal theory that Mr. Beattie misrepresented Kona Blue’s success with the Kona Pacific poultry meal feed.
It is worth noting too, that Plaintiff had access to Kona Blue’s records prior to its acquisition of the aquafarm, so Plaintiff had at its disposal information to confirm Kona Blue’s success, or lack thereof, using the Kona Pacific poultry meal feed. By the time Plaintiff assumed control of the aquafarm in February 2010, the fish had been consuming the Kona Pacific poultry meal feed for approximately two years. For these reasons, the Court grants Defendant’s Motion as to representations about the growth of the fish on Kona Pacific feed.
C. Taurine Concentration in Feed
The third alleged misrepresentation concerned the taurine concentration level in the Kona Pacific poultry meal feed, which Plaintiff alleges Mr. Shaw falsely represented. Mr. Shaw provided estimated levels of taurine and calculated a weighted average of taurine for all feed sizes around 0.17% on June 7, 2011, a fact undisputed by Plaintiff. However, just one day prior, Defendant stopped purchasing the Kona Pacific poultry meal feed and ordered the Kona Pacific high fishmeal feed. Defendant asserts that in view of these facts, Plaintiff cannot establish that it relied on Mr. Shaw’s representations about the taurine content. The Court agrees.
Plaintiff cannot reasonably contend that it relied on a statement/representation about taurine content in the Kona Pacific poultry meal feed when it had already stopped purchasing the feed and decided to purchase the high fishmeal feed. Plaintiff failed to respond to Defendant’s arguments about this alleged misrepresentation so the Court assumes that Plaintiff has waived any arguments concerning said representation. There being no opposition by Plaintiff, and the Court finding that no genuine issues of material fact exist, Defendant is entitled to summary judgment.
D. Appropriateness and Fitness of Feed
Lastly, Plaintiff claims that in July 2010, Mr. Beattie misrepresented that the Kona Pacific feed formulation was appropriate and fit for use with Serióla rivoliana. Defendant submits that this statement is not actionable because a misrepresentation claim cannot be based on mere broken promises or unfulfilled predictions or expectations. Defendant also characterizes Mr. Beattie’s statement as sales talk or “puffing.”
Plaintiff does not challenge Defendant’s argument that a representation cannot consist of broken promises of unfulfilled predictions or expectations, countering only that Mr. Beattie’s statement was not “puffing,” but an actionable statement that was sufficient to deceive. Hawaii law is clear that a misrepresentation claim
cannot be predicated on statements which are promissory in their nature or constitute expressions of intention, and an actionable representation cannot consist of mere broken promises, or erroneous conjectures as to future events, even if there is no excuse for failure to keep the promise, and even though a party acted in reliance on such promise.
Id. (quoting. Stahl v. Balsara,
IV. Implied Warranty of Merchantability
Defendant argues that it is entitled to summary judgment on Plaintiffs breach of implied warranty of merchantability claim because no warranty attached to the custom designed Kona Pacific meal feed, which was for an unknown species and thus had no ordinary purpose. Plaintiff counters that a warranty attaches to all products, even those that are custom made. Plaintiff submits that the issue of whether the feed was defective or unfit for the ordinary purposes for which it was used is disputed.
The implied warranty of merchantability is arguably the broadest warranty in the Uniform Commercial Code, and is “implied by operation of law into every sale of goods by a merchant seller.” Ontai v. Straub Clinic and Hosp. Inc.,
The Court begins its discussion by addressing the custom product exception advanced by Defendant. Relying on out of
Second, even if the Court were to consider the custom product exception, it would find that the exception does not apply. The basis for the rulings in the cases cited by Defendant was that there were no usual standards for determining ordinary performance in the new products. Given the facts presented here, the Court could not reach the same conclusion as those cases. The Kona Pacific poultry meal feed was not a newly created feed made especially for Plaintiff; it was created in 2007 for Kona Blue and had been sold for over two years by the time Plaintiff assumed control of the aquafarm. Arguably then, usual standards for determining ordinary performance could be ascertained.
In view of the inapplicability of the custom product exception, the issue is whether Defendant is entitled to summary judgment based on the evidence before the Court. The answer is clearly no. There is a genuine issue of material fact concerning the second element of this claim-whether the feed was defective or unfit for the ordinary purpose for which it was used. Accordingly, the Motion is denied as to Plaintiffs breach of implied warranty of merchantability claim.
In a footnote, Defendant also argues that Plaintiff cannot prevail because it is undisputed that the feed was merchantable given Plaintiffs resale of the excess Kona Pacific feed to other farmers. Plaintiff clarifies that it did not resell the feed to Serióla commercial farmers; it sold the feed to Kona Blue for a research trial, an agricultural managemenVconsulting service company, and a hotel and pond service company. Pl.’s CSF at ¶34. The Court rejects Defendant’s argument because “[t]he right of a buyer to bring suit against a seller for breach of an implied warranty of merchantability is not affected by the fact that the former has resold the goods to a third party.” 26 Am.Jur. Proof of Facts 2d 1. Thus, summary judgment is improper.
V. Implied Warranty of Fitness for a Particular Purpose
A. Disclaiming Language on the Product Sheet
Defendant’s first argument is that Plaintiffs breach of implied warranty for a par
The implied warranty of fitness for a particular purpose is narrower and more specific than the implied warranty of merchantability. Ontai,
The implied warranty of fitness may be disclaimed as long as it is in writing and conspicuous.
In the present case, Defendant’s disclaimer is not “conspicuous” as defined by HRS § 490:1-201.
Defendant’s disclaiming language is at the bottom of the product sheet, in the same font as the main text, but smaller. Moreover, there is no heading separating it from the text above.
The disclaimer at issue here contains no such heading or distinctive font to call attention to it. As a result, the Court finds that it is not conspicuous. Office Supply Co., Inc. v. Basic/Four Corp.,
The Court’s inquiry does not end there, however.
Whether a disclaimer is conspicuous is hot simply a matter of measuring the type size or looking at the placement of the disclaimer within the contract. A reviewing court must ascertain that a reasonable person in the buyer’s position would not have been surprised to find the warranty disclaimer in the contract.
Sierra Diesel,
Not only does the majority of case law involve contracts, but a finding of conspicuousness often involves undisputable evidence, generally in the form of testimony, that a buyer has seen and understood the disclaimer.
Without reaching the issue of whether the product sheet became part of the agreement, the Court finds that the evidence does not clearly establish that Mr. Madsen read and knew about the disclaimers, at the time the parties entered into the contract, even though Kona Blue produced the product sheets as part of Plaintiffs due diligence. In his position as president, Mr. Madsen should arguably have a fairly high level of sophistication in business dealings. Nevertheless, bearing in mind that exclusions are generally disfavored, and viewing the evidence in the light most favorable to Plaintiff, the Court concludes that Defendant has not presented sufficient evidence demonstrating that Plaintiff was aware of the disclaimer. Even if Plaintiff was aware of the disclaimer, the disclaimer itself is not conspicuous. Accordingly, considering the physical appearance of the disclaimer, the sophistication of the parties, and the circumstances of the negotiation and signing, the Court declines to find that Defendant disclaimed the implied warranty of fitness.
B. Reliance by Plaintiff on Defendant’s Expertise
Defendant’s second argument for granting summary judgment is that Plaintiff did not rely on Defendant in determining whether the feed was appropriate for the fish; that Plaintiff selected the feed based on Kona Blue’s success. Plaintiff represents that it relied on Defendant’s expertise to create a feed that met Serióla rivo-liana’s nutritional requirements. Based on the evidence submitted by the parties, a genuine issue of material fact exists as to whether Plaintiff relied on Defendant’s expertise in supplying a suitable product.
Mr. Madsen attests that he “relied on [Defendant’s] global expertise and skill in formulating fish feed in deciding to continue to purchase the Kona Pacific feed
VI. Unjust Enrichment
Defendant seeks dismissal of Plaintiffs unjust enrichment claim because there is an express contract between the parties. Plaintiff counters that if the Court finds that Plaintiff does not have an adequate remedy of breach of an implied warranty, then clear issues of fact exist about whether Plaintiff conferred a benefit upon Defendant and whether Defendant’s retention of the benefit would be unjust.
“To prevail on an unjust enrichment claim, a plaintiff must show that: 1) it has conferred a benefit upon the defendant, and 2) that the retention of the benefit was unjust.” State Farm Fire and Cas. Co. v. Chung,
Here, there is no dispute that there is a contract between the parties. Def.’s CSF at ¶¶ 9, 10, 43; Pl.’s CSF at 2 & ¶¶ 9, 10. Because Plaintiffs allegation that it “conferred a benefit upon Skretting by purchasing Kona Pacific feed and making payment to Skretting,” First Amend. Compl. at ¶ 54, arises solely out of the express contract for the sale of the feed, Plaintiff cannot maintain an unjust enrichment claim.
VII. Breach of Contract Counterclaim
Defendant lastly argues that it is entitled to summary judgment on its breach of contract counterclaim in the amount of $34,654.40 because it is undisputed that Plaintiff failed to pay for the high fishmeal feed that it admitted was satisfactory. To prevail on a claim for breach of contract, Defendant/Counterclaim Plaintiff must identify “(1) the contract at issue; (2) the parties to the contract; (3) whether [Defendant/Counterclaim] Plaintiff performed under the contract; (4) the particular provision of the contract allegedly violated by [Plaintiff/Counterclaim] Defendant ]; and (5) when and how [Plaintiff/ Counterclaim] Defendant] allegedly breached the contract.” Evergreen Eng’rg, Inc. v. Green Energy Team LLC,
Plaintiff contends that there are material issues of fact as to whether De
Based on the evidence before the Court, there was a valid contract between the parties for the Kona Pacific high fishmeal feed, Defendant delivered the feed, and Plaintiff failed to pay for the feed. Def.’s CSF, Beattie Decl. at ¶ 16 & Ex. J; Johnson Deck, Ex. R. Mr. Madsen has admitted that the high fishmeal feed was sufficient, but that Plaintiff did not pay for the feed because it had paid millions of dollars for defective feed.
CONCLUSION
Based on the foregoing, the Court HEREBY GRANTS IN PART AND DENIES IN PART Defendant’s Motion for Summary Judgment and DENIES AS MOOT 1) Defendant’s Supplemental Motion for Summary Judgment on the Doctrine of Res Ipsa Loquitur and Any Similar Theories and 2) Plaintiffs Motion for Partial Summary Judgment Re: Circumstantial Evidence Under Strict Products Liability (“Quasi” — Res Ipsa).
Defendant’s Motion is granted as to Plaintiffs negligence (Count 1), intentional/negligent misrepresentation (Counts 2 and 3); products liability (Count 4), and unjust enrichment claims (Count 7), and Defendant’s breach of contract counterclaim. Defendant’s Motion is denied as to Plaintiffs implied warranty of merchantability (Count 5) and implied warranty of fitness claims (Count 6).
IT IS SO ORDERED.
Notes
.Exhibits A, C, E, F, H, J, M, O, and P to the Johnson Declaration are filed under seal. Exhibits A, C, and D attached to Defendant's Reply CSF are filed under seal. The Court will limit the facts to those provided in the parties’ public filings, even if citing to sealed exhibits.
. Exhibit H to the Beattie Declaration is filed under seal.
. Exhibits 2, 3, 6, 8, 10, 13, 16, and 18 to Plaintiff’s CSF are filed under seal.
. Plaintiff disputes that the language on the product sheets are disclaimers as a matter of law. The Court uses the term disclaimer descriptively, and shall discuss the legal sufficiency of the disclaimer below.
.Plaintiff additionally asserts that Defendant could have obtained a "generally recognized as safe” (“GRAS”) determination, which would have permitted use of taurine supplementation. In response, Defendant emphasizes that it had no obligation to obtain a GRAS determination, and that a GRAS determination does not create a legally binding exception to the FDA regulation of food additives. Plaintiff has not cited any legal authority requiring a defendant to take all possible steps before preemption could apply. Plaintiff has obtained a GRAS determination for taurine supplementation in fish feed. However, a GRAS determination obtained after the relevant time period has no bearing on the applicability of preemption. The Court's inquiry focuses on whether Plaintiff's state law claims would impose a duty or liability on Defendant that conflicts with the FDCA. Absent a GRAS determination during the relevant time period, if the only way Defendant could consistently provide feed containing Plaintiff's minimum taurine requirements was to supplement with taurine, in violation of the FDCA and 21 C.F.R. § 573.980, Plaintiff's state law claims would be preempted.
. Defendant argues that the foregoing claims are impliedly preempted because they stand as an obstacle to accomplishing federal objectives. For the reasons stated above, this could only be so if there was no dispute that taurine supplementation was required to produce a feed with adequate taurine levels.
. This rule is codified at Hawaii Revised Statutes ("HRS”) § 663-1.2, BlueEarth Biofuels, LLC V. Hawaiian Elec. Co.,
(1) Violated a duty that is independently recognized by principles of tort law; and (2) Transcended the breach of the contract.” Haw.Rev.Stat. § 663-1.2.
. Defendant encourages this Court to adopt other jurisdictions’ "disappointed expectations” test. Plaintiff correctly asserts that the Hawaii Supreme Court has not adopted this test, and this Court declines to do so, However, Defendant’s focus on a plaintiff's expectations and value received are not without basis, as they both serve as the underlying rationale behind the economic loss rule.
. As noted by Defendant, the Intermediate Court of Appeals has clarified that the City Express court's rationale was not limited to design professionals. Leis, 126 Hawai’i 532, 538 n. 6,
. The plaintiff sought the following damages: “(1) damage to the units at Newtown Meadows; (2) a continuous exposure to conditions which resulted in damage to the units; (3) loss in value of the units; (4) the costs of experts; (5) an increase in maintenance costs; (6) the cost to remedy the defects; and (7) 'other consequential damages.' ” Newtown Meadows, 115 Hawai’i at 294,
. Plaintiff mischaracterizes the Burlington holding as dicta. In actuality, it was an alternative basis for the Burlington court’s ruling. Burlington,
. Plaintiff admits that this is its damages theory. PL’s CSF at 2.
. Burlington was an insurance declaratory action, but the underlying state court action involved a defective topcoat used in the repair and repainting of residential buildings. Burlington,
. "The legal principle enunciated in New-town Meadows is of general applicability.” Leis,
. Hawaii Revised Statutes ("HRS”) § 490:2-314 provides:
(1) Unless excluded or modified (section 490:2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the • serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as:
(a) Pass without objection in the trade under the contract description; and
(b) In the case of fungible goods, are of fair average quality within the description; and
(c) Are fit for the ordinary purposes for which such goods are used; and
(d) Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among till units involved; and
(e) Are adequately contained, packaged, and labeled as the agreement may require; and
(f) Conform to the promises or affirmations of fact made on the container or label if any.
(3)Unless excluded or modified (section 490:2-316) other implied warranties may arise from course of dealing or usage of trade.
Haw.Rev.Stat. § 490:2-314
. HRS § 490:2-315 provides:
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.
Haw.Rev.Stat. § 490:2-315.
. "Conspicuous”
means so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is "conspicuous” or not is a decision for the court. Conspicuous terms include the following:
(1) A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same or lesser size; and
(2) Language in the body of a record or display in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from surrounding text of the same size by symbols or other marks that call attention to the language.
Haw.Rev.Stat. § 490:1-201.
.Plaintiff argues that conspicuousness requires that language "make plain that there is no implied warranty” by using expressions such as "as is” or "with all faults,” and that such "magic words” must be used. Plaintiff is manufacturing requirements that do not exist. HRS § 490:2-316(a)(3) provides: "Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like ‘as is’, 'with all faults’ or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty." Haw.Rev.Stat. § 490:2-316(a)(3) (emphasis added). In other words, the disclaimer need not be limited to these "magic words”; other language may suffice.
. Because the copy presented to the Court is in black and white, the Court cannot discern whether the disclaimer language is a different color that the other text. Even if the disclaimer language was in a different color, it would not become conspicuous because the size of the text would need to be the same or larger than the surrounding text.
. The disclaiming language was in a column by itself (the remainder of the text on the label was in a separate column), in equal or larger size font than the other text on the label of the product, portions of the language were capitalized, and the language contained the bold, capitalized heading "LIMITED WARRANTY.” Strojny, Civil No. 11-00131 LEK-KSC, Doc. No. 36, Ex. B to Ex. 1. No such factors exist here.
. Defendant cites D.O.V. Graphics, Inc. v. Eastman Kodak Co.,
. Defendant further argues that actual knowledge obviates any need for conspicuousness. However, the cases cited by Defendant did not turn solely on actual knowledge; the courts there also found that the appearance of the disclaimers, which were included in contrast, were conspicuous. FMC Fin.,
. This argument rests in part on Plaintiff's treatment of the last contract for the high fishmeal feed as one of many installments. Haw.Rev.Stat. § 490:2-612(3) (“Whenever nonconformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a nonconforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.”). HRS § 490:2-612 is inapplicable because the contract at issue was not the same as the previous contract for poultry meal feed. Moreover, Plaintiff accepted the feed and this action pertains to alleged defects with the poultry meal feed, which were the subject of the prior “installment contracts.”
. Plaintiff submits that this issue should be decided by a jury when it decides whether the money paid for the defective feed should be returned. The Court disagrees. Whether or not Defendant is ultimately held liable and Plaintiff is awarded damages does not preclude summary judgment when no genuine issues of material fact exist. Issues of set off may be addressed if and when they arise.