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Schilder Dairy, LLC, An Idaho Limited Liability Company v. Delaval

March 16, 2012

SCHILDER DAIRY, LLC, AN IDAHO LIMITED LIABILITY COMPANY, PLAINTIFF,
v.
DELAVAL, INC., A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Honorable Ronald E. Bush U. S. Magistrate Judge

MEMORANDUM DECISION, FINDINGS OF FACT, AND CONCLUSIONS OF LAW

I. INTRODUCTION*fn1

Plaintiff Schilder Dairy, LLC ("Schilder") owns and operates two dairies -- one in Buhl, Idaho (referred to herein as "Dairy No. 1"); the other in Castleford, Idaho (referred to herein as "Dairy No. 2"). Schilder contracted with Defendant DeLaval, Inc. ("DeLaval") to design, build, equip, monitor, inspect, and maintain a dairy barn and milking system at Dairy No. 1. Schilder alleges that, beginning in February 2008, and continuing through 2009, Dairy No. 1 experienced a mastitis outbreak as indicated by higher-than-normal somatic cell count ("SCC") measurements over a period of time. Schilder attributes the mastitis outbreak at Dairy No. 1 to the inability of its milking system to maintain consistently-stable vacuum levels, which allowed the spread of mastitis pathogens among the cows being milked at the dairy.

Schilder contends this condition arose from DeLaval's failure to adequately maintain Dairy No. 1's milking system, further contending that it has suffered substantial financial loss as a result, in the form of reduced milk payments and increased herd expense. In seeking compensation for those damages, Schilder asserts six claims against DeLaval: (1) breach of express contract; (2) breach of the implied covenant of good faith and fair dealing; (3) breach of the implied warranty of workmanlike performance; (4) breach of the implied warranty of merchantability; (5) breach of the implied warranty of fitness for a particular purpose; and (6) negligence. As the Plaintiff, Schilder's burden is to prove its claims, or any one or more of them, by a preponderance of the evidence.

DeLaval denies any liability for Schilder's alleged losses, and contests the allegations that either its equipment, or the maintenance of the equipment, caused the mastitis problems at Dairy No. 1. Specifically, DeLaval contends that the DeLaval-specific equipment comprising Dairy No. 1's milking system is not defective; that it properly maintained Dairy No. 1's milking system; and that any increase in SCC measurements at either of Schilder's dairies, and the related mastitis outbreak, are the result of Schilder's dairy practices, independent of DeLaval's equipment and/or service obligations.

A six-day bench trial began on July 6, 2011. During the trial, the following individuals testified: (1) John Schilder, (2) Todd Wells, (3) John "B.J." Schilder, (4) Sergio Estrada, (5) Jim Wathen, (6) Roger Sanderson, (7) Oren Devries, (8) Dr. Martin Lee, (9) David Bray, (10) Dr. James Reynolds, and (11) Dr. Terry Smith.

The case was well-tried, by counsel who were prepared and thoughtful advocates. As is often true for civil cases that come to trial, the issues and their economic consequences were important to both parties, and the parties were in significant disagreement about such matters. The Court has carefully considered the argument of counsel, the testimony of the witnesses, the exhibits admitted (including those containing studies and research in dairy science written by dairy science experts, some of whom testified in this case), and has weighed and compared the particulars of such evidence. The Court finds substantial agreement in much of the evidence about the potential causes and manifestations of mastitis in a dairy herd, and the economic consequences of mastitis for the dairy owner. The Court also finds substantial agreement in much of the evidence about the importance of the proper operation of milking equipment, and the proper procedures to be followed in a milking parlor, in helping to control mastitis. However, around the edges of such common ground in the evidentiary record are very different views of how and why a mastitis outbreak occurred at Dairy No. 1. The Court must measure the evidence, as it has done here, to draw findings of fact and conclusions of law as to how the Court is persuaded, or not persuaded, by the evidence presented at trial, considered against the legal standards setting out the elements that Schilder must prove to succeed on its claims, and the burden of proof Schilder must meet. Those findings and conclusions follow in this decision.

II. FINDINGS OF FACT*fn2

Having carefully considered the testimony of the witnesses called at trial,*fn3 thoroughly reviewed the exhibits admitted into evidence, and considered the parties' arguments, the Court makes and enters the following Findings of Fact pursuant to Federal Rule of Civil Procedure 52(a). All Findings of Fact referred to herein, unless otherwise qualified or limited, apply the preponderance of the evidence standard.

To the extent the Court has concluded that any evidence in the record does not support certain claims or defenses made by the respective parties, it will not be included in these Findings of Fact or otherwise referenced. The failure to mention an event or series of events in these Findings of Fact is not an oversight or unintentional omission but rather an indication that the evidence does not support a finding and/or conclusion in favor of the claims alleged. See White Indus., Inc. v. Cessna Aircraft Co.,845 F.2d 1497, 1499 (8th Cir. 1988) (Rule 52(a) does not require particularized findings on each piece of evidence parties present at trial). With these principles in mind, here follow the Court's Findings of Fact:

A. The Parties

1. Schilder is an Idaho limited liability company, having a business address of 1142 East 3700 North, Buhl, Idaho. Schilder is owned by Agnes Schilder, John Schilder, and John "B.J." Schilder.

2. DeLaval is a Delaware corporation that markets and services dairy equipment. It has a business address of 11100 North Congress Avenue, Kansas City, Missouri 64153-1296. DeLaval operates a business in Idaho known as DeLaval Direct, originally located in Buhl, Idaho, and now located in Jerome, Idaho.

B. Jurisdiction and Venue

1. This Court has jurisdiction over the subject matter of this civil action based on diversity of citizenship, pursuant to 28 U.S.C. § 1332(a). The amount in controversy, exclusive of interest and costs, exceeds the sum of $75,000.

2. Venue properly lies in this District, pursuant to 28 U.S.C. § 1391(a)(2) because it is the District in which a substantial part of the events giving rise to the claims occurred, or a substantial part of the property that is the subject of this action is situated.

C. Dairy No. 1 and the Milking System

1. Schilder operates two dairies. Dairy No. 1 is located in Buhl, Idaho; Dairy No. 2 is located in Castleford, Idaho.

2. In October 2005, John Schilder entered into a Purchase Agreement with DeLaval Direct for the purchase of certain dairy equipment (referred to herein as the "milking system"). This lawsuit relates to the milking system installed at Dairy No. 1; Dairy No. 2's dairy equipment is not at issue in this lawsuit.

3. The October 2005 Purchase Agreement between John Schilder and DeLaval Direct provides in relevant part:

The undersigned have read and agree to the TERMS AND CONDITIONS as well as the LIMITED WARRANTY of DeLaval Inc. On the reverse side of this Purchase Agreement.

4. The "Limited Warranty" set forth on the reverse side of the October 2005 Purchase Agreement between John Schilder and DeLaval Direct provides in relevant part:

Due to the wide variation in farm animals, management practices and other conditions beyond DeLaval's and Seller's control, no specific level of performance of the Equipment, or the system in which it is used, is guaranteed. . . . .

Other than this Limited Warranty, . . . . DELAVAL AND SELLER MAKE NO OTHER WARRANTY FOR THE EQUIPMENT OR THE SYSTEM IN WHICH IT IS USED, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. .

THE REMEDIES SET OUT ABOVE ARE THE OWNERS' EXCLUSIVE REMEDIES FOR BREACH OF THIS LIMITED WARRANTY. IN NO EVENT SHALL AN OWNER BE ENTITLED TO RECOVER DAMAGES OF ANY KIND, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL (INCLUDING BUT NOT LIMITED TO DAMAGES DUE TO DELAYS IN DELIVERY, LOSS OF PRODUCTION, LOSS OF PROFIT, LOSS OF PREMIUMS, EXCESS CULLING, INCREASED COSTS OF OPERATION, AND LOSS OF, INJURY TO, OR ILLNESS OF LIVESTOCK) IN EXCESS OF THE PURCHASE PRICE REFUND REMEDY SET OUT ABOVE. . . . .

The Owners have evaluated the risk of failure of the Equipment, and that risk is reflected in the price of the Equipment. It is the intention of the parties that their legal rights, remedies and liabilities be governed solely by the terms of this Limited Warranty. IN CONSIDERATION OF THIS LIMITED WARRANTY AND THE REMEDIES SET OUT ABOVE, THE OWNERS WAIVE ANY AND ALL OTHER CLAIMS AND CAUSES OF ACTION AGAINST DELAVAL AND SELLER RELATING TO THE DESIGN, MANUFACTURE, SALES, INSTALLATION, USE OR OPERATION OF THE EQUIPMENT INCLUDING BUT NOT LIMITED TO CLAIMS FOR DAMAGES OF ANY KIND BASED ON BREACH OF CONTRACT, STRICT LIABILITY, PRODUCTS LIABILITY, NEGLIGENCE OR OTHER FAULT OF DELAVAL OR SELLER.

5. The milking system was installed at the time of the construction of the new dairy barn at Dairy No. 1 in 2006.

6. The milking system includes, but is not limited to, two, 20 horsepower DeLaval lobe vacuum pumps. The two vacuum pumps -- the north vacuum pump and the south vacuum pump -- work alternate cycles (i.e., the north pump operates for one milking, and the south pump operates at the next milking, and so forth) to provide the suction for the milking system, thus creating the vacuum required for milking cows at Dairy No. 1. Milking at Dairy No. 1 occurs three times a day.

7. The vacuum pumps utilize a single exhaust and each pump is equipped with a metal butterfly valve on the exhaust.

8. When one vacuum pump is operating, the exhaust flow from that operating vacuum pump pushes open the butterfly valve for that operating vacuum pump; simultaneously, the butterfly valve for the non-operating vacuum pump is in the closed position, preventing the operating vacuum pump's exhaust from entering the milking system through the non-operating vacuum pump.

9. After the original installation, PVC flapper valves were installed on both vacuum pumps.

10. When one vacuum pump is operating, the flapper valve is pulled open by that vacuum pump's air flow. The flapper valve closes by gravity when the milking system is not in use and is held closed by suction when the vacuum pump on that same side is not in use.

11. The flapper valves are intended to operate as a redundant safeguard to the butterfly valves, preventing exhaust air from entering the milking system through the non-operating vacuum pump.

12. Entry of exhaust air into the milking system through a non-operating vacuum pump causes unstable vacuum levels, which can inhibit the milking system's ability to maintain an "effective reserve" of vacuum. That is, if excess air enters the milking system, effective reserve may decrease.

13. After milking began at Dairy No. 1, DeLaval entered into a separate verbal contract with Schilder for the maintenance of the milking system, by which DeLaval agreed to perform various monthly maintenance work on the milking system.

14. The verbal contract provided for no limitation on available remedies for breach of the contract.

15. Primarily, Sergio Estrada and Roger Sanderson were the employees of DeLaval responsible for maintenance work related to the milking system, which was described as checking the flapper valves, cleaning the vacuum pumps, and measuring the milking system's effective reserve.

D. Mastitis, Staphylococcus aureus, SCC, and Effective Reserve

1. Mastitis is an inflammation of a cow's mammary glands and is caused by several different pathogens, including Staphylococcus aureus ("Staph aureus").

2. Most dairies have Staph aureus-related mastitis present in the dairy herd at all times.

3. At Dairy No. 1, a "bulk tank" receives all of the milk obtained from the cows in the milking parlor. The bulk tank then holds the milk until it is removed to a milk tank truck to be delivered to the dairy's bulk milk customers. From testing done of the milk in the bulk tank, there has been ...


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