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Off-Spec Solutions, LLC v. H.J. Heinz Company, L.P.

United States District Court, D. Idaho

March 28, 2018

OFF-SPEC SOLUTIONS, LLC, an Idaho limited liability company, Plaintiff,
H.J. HEINZ COMPANY, L.P., a Delaware limited partnership, Defendant,


          Honorable Ronald E. Bush, Chief U.S. Magistrate Judge

         Pending is Plaintiff's Motion for Partial Summary Judgment (Dkt. 27), in which Plaintiff Off-Spec Solutions, LLC (“Off-Spec”) seeks the entry of an order making three specific holdings related to its claims. Having reviewed the briefing and supporting filings, participated in oral argument on March 13, 2018, and otherwise being fully advised, the Court enters the following Decision and Order:

         I. BACKGROUND

         Off-Spec is in the business of managing and distributing food waste commodities. Am. Compl. ¶ 4 (Dkt. 21). Its core business involves transporting food waste away from production facilities and delivering it to animal producers that can use it as animal feed. Id. Defendant H.J. Heinz Company, L.P. (self-referred to as “Kraft-Heinz, ” but referred to herein as “Heinz”), operates a potato processing plant in Ontario, Oregon. Id. ¶ 5. In September 2014, Heinz held an auction to sell the right to purchase and haul away “press cake, ” one of several kinds of potato processing by-products, from its Ontario, Oregon potato processing plant. Plf.'s Statement of Fact ISO Mot. for Partial Summ. J. ¶¶ 6-8 (Dkt. 27-1). Off-Spec bid in and won the auction. Id.

         After the auction, the parties worked on and entered into a final, written, agreement. In that process were sown the seeds of this dispute. Off-Spec alleges that on October 2, 2014, its principals Chris Salvador and Daniel Salvador met with Bob Pedracini, Heinz's plant manager, and Ashli Perdue, Heinz's plant operational risk manager, to discuss the contract terms. Am. Compl. ¶ 6 (Dkt. 21). During this meeting, Off-Spec alleges, Mr. Pedracini and Ms. Perdue told Messrs. Salvador that Heinz wanted Off-Spec to haul away all potato by-products and not just press cake. Id. ¶ 9. Because certain of the other by-products are more valuable than press cake, Off-Spec was eager to agree to this expansion of the rights they had won at the auction. Id. Thus, Off-Spec alleges, it was not surprised when the draft agreement Heinz presented to Off-Spec on October 18, 2014 purported to apply to all potato by-products and not just press cake. Id. ¶ 10. The parties ultimately executed a written agreement on or about November 22, 2014. Id. Ex. A (the “Agreement”). The agreement references “all solid potato by-product such as cull potatoes, fries, etc., Press Cake, dry peel, (hereinafter collectively referred to as ‘Plant by-products') which results from Heinz's operation of” its Ontario plant. Agreement ¶ 2 (Dkt. 21).

         After the agreement was executed, Heinz delivered press cake to Off-Spec but no other by-products. Am. Compl. ¶ 17 (Dkt. 21). As a result, Off-Spec brings this lawsuit and alleges that it is entitled to declaratory relief as well as damages for breach of contract, breach of warranty, and unjust enrichment. Id. ¶¶ 25-45. Heinz counterclaimed, seeking reformation of the Agreement in addition to damages for breach of contract and trespass. Def.'s Ans. and Aff. Defenses to Plf.'s First Am. Compl. and Def.'s Countercls. ¶¶ 58-77 (Dkt. 44).

         Heinz disputes many of Off-Spec's allegations. Most significantly, Heinz says that no one told Messrs. Salvador in October 2014 that Heinz wanted to sell to Off-Spec all by-products rather than only press cake. Pedracini Decl. ¶¶ 3-7 (Dkt. 59-9); Perdue Decl. ¶ 29 (Dkt. 32). As set out in Ms. Perdue's declaration, Heinz asserts it already had a contract to provide its cull potatoes and “fries” (potatoes lost during the production process) to another third party, so it would not have even contemplated providing those by-products to Off-Spec. Id. ¶¶ 12, 17. Heinz says that Off-Spec was aware of this. Id. ¶¶ 12, 15. Heinz maintains that it intended to sell Off-Spec only press cake.

         According to Ms. Perdue, the first draft of the agreement she sent to Off-Spec mentioned only press cake. Id. ¶ 37. The redlined version of the draft agreement Daniel Salvador returned to Ms. Perdue retained, unedited, the paragraph indicating that Heinz would provide Off-Spec only press cake. Id. ¶¶ 38-39. However, when Ms. Perdue forwarded the redlined draft to an attorney in Heinz's out-of-state in-house legal staff, a revised draft was returned which included several changes. Id. ¶¶ 42-43. Among these were a redefinition of the agreement's scope to state it applied to all by-products rather than just press cake. Id. Ms. Perdue declared she noticed and removed certain other incorrect changes, but she did not notice the agreement scope had been redefined to include all plant by-products rather than only press cake. Id.

         The central issue in Off-Spec's motion is whether the Agreement unambiguously requires Heinz to deliver to Off-Spec all plant by-products. Off-Spec maintains that the Agreement is unambiguous on its face and that even if there were a mistake in the drafting the Agreement is nonetheless enforceable against Heinz. Heinz counters that the Agreement is ambiguous and that extrinsic evidence shows there was no meeting of the minds as to by-products other than press cake. Heinz argues the reference to plant by-products rather than just press cake was a drafting error. Def.'s Opp. to Plf.'s MPSJ 2 (Dkt. 30).

         Off-Spec moves for partial summary judgment, seeking an order holding that (1) the Agreement's language specifying it applied to “all solid potato by-product such as cull potatoes, fries, etc., Press Cake, dry peel” is unambiguous; (2) this language plainly required Heinz to sell to Off-Spec all solid potato by-product produced at Heinz's Ore-Ida plant, including cull potatoes, fries, press cake, and dry peel - and not just press cake; and (3) Heinz breached the written agreement by delivering only press-cake to Off-Spec. Mot. for Partial Summ. J. re: Breach of Contract 1-2 (Dkt. 27). Off-Spec's motion was filed concurrently with a statement of fact in support (Dkt. 27-1), a memorandum in support (Dkt. 27-2), and a declaration of Daniel Salvador (Dkt. 27-3).

         In response, Heinz filed a memorandum in opposition (Dkt. 30), a statement of disputed facts in opposition (Dkt. 31), and a declaration of Ashli Perdue (Dkt. 32). Heinz also moved to continue or deny the motion for partial summary judgment under Fed.R.Civ.P. 56(d) (Dkt. 33). Off-Spec's response to the motion to continue included a second declaration of Daniel Salvador (Dkt. 36-1). Off-Spec also filed a reply memorandum supporting its partial summary judgment motion (Dkt. 37).

         Heinz also moved to strike the second declaration of Daniel Salvador, alternatively seeking leave to file a surreply memorandum in opposition to the motion for partial summary judgment. (Dkt. 38). Heinz then filed a reply supporting its motion to continue (Dkt. 39). Off-Spec responded to the motion to strike (Dkt. 43) and Heinz replied (Dkt. 46).

         The Court granted the motion to continue, to allow the parties to conduct targeted discovery prior to deciding the partial summary judgment motion (Dkt. 52). The Court's order set a schedule for supplemental briefing after some discovery had occurred. The Court also declined to strike the second declaration of Daniel Salvador but granted Heinz leave to file a surreply. (Dkt. 63.)

         Off-Spec filed “Objections to Declaration of Ashli Perdue” in which it argued that the Court may not consider those statements of Ms. Perdue's that are “speculative, conclusory, misleading, and not based on personal knowledge.” (Dkt. 57.) Heinz then filed a supplemental brief opposing Off-Spec's motion for partial summary judgment, accompanied by several declarations (Dkts. 59, 59-1 through 59-9). Finally, Off-Spec filed a supplemental brief supporting its partial summary judgment motion, accompanied by a declaration of counsel and a declaration of John Hepton (Dkts. 62, 62-1, 62-2).

         A hearing on Off-Spec's partial summary judgment motion was held March 13, 2018.


         1. Summary Judgment Standard

         Summary judgment is appropriate where a party can show that, as to any claim or defense, “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). One of the principal purposes of summary judgment “is to isolate and dispose of factually unsupported claims . . . .” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It is “not a disfavored procedural shortcut, ” but is instead the “principal tool[ ] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources.” Id. at 327. “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). There must be a genuine dispute as to any material fact - a fact “that may affect the outcome of the case.” Id. at 248.

         The evidence must be viewed in the light most favorable to the non-moving party, and the court must not make credibility findings. Id. at 255. Direct testimony of the non-movant must be believed, however implausible. See Leslie v. Grupo ICA, 198 F.3d 1152, 1159 (9th Cir. 1999). However, the Court is not required to adopt unreasonable inferences from circumstantial evidence. See McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th Cir. 1988).

         The moving party bears the initial burden of demonstrating the absence of a genuine dispute as to material fact. See Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001). To carry this burden, the moving party need not introduce any affirmative evidence (such as affidavits or deposition excerpts) but may simply point out the absence of evidence to support the non-moving party's case. See Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000). This shifts the burden to the non-moving party to produce evidence sufficient to support a jury verdict in his favor. See Devereaux, 263 F.3d at 1076. The non-moving party must go beyond the pleadings and show “by [his] own affidavits, or by the depositions, answers to interrogatories, or admissions on file” that a genuine dispute of material fact exists. Celotex, 477 U.S. at 324. Where reasonable minds could differ on the material facts at issue, summary judgment should not be granted. Anderson, 477 U.S. at 251.

         2. Other Applicable Legal Standards

         This motion presents an issue of whether a contract is clear, or whether it is ambiguous. Under Oregon law, [1] “[u]nambiguous contracts must be enforced according to their terms.” Pac. First Bank v. New Morgan Park Corp., 876 P.2d 761, 764 (Or. 1994). “Extrinsic evidence regarding the circumstances underlying the formation of a contract may be considered to determine whether a contractual provision is ambiguous.” State ex rel. Dept. of Educ. v. Vantage Techs. Knowledge Assessment, LLC, 261 P.3d 17, 22 (Or. App. 2011); see also ORS 41.740, [2]42.220.[3] “A provision is ambiguous when it is reasonably susceptible to more than one meaning.” Vantage Techs., 261 P.3d at 22. “If a contract is ambiguous, the trier of fact will ascertain the intent of the parties and construe the contract consistent with the intent of the parties.” Pac. First Bank, 876 P.2d at 764. “To interpret a contractual provision, ” courts first “examine[] the text of the disputed provision, in the context of the document as a whole. If the provision is clear, the analysis ends.” Yogman v. Parrott, 937 P.2d 1019, 1021 (Or. 1997). If “the contractual provision at issue is ambiguous” the court proceeds “to examine extrinsic evidence of the contracting parties' intent.” Id. at 1022 (citing ORS 41.740 for the proposition that “extrinsic evidence is admissible to ‘explain an ambiguity' in a contract”).

         Stated simply, extrinsic evidence relating to the formation of an agreement can be used to show an ambiguity. And where there is an ambiguity, regardless of how it is shown, extrinsic evidence may be used to ...

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