Summary of a Recent
Judicial Development in
Commercial Transactions

Court Hears Several Claims Arising from Failure
to Deliver Foreign Shipments of Honey

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Groeb Farms, Inc. v. Alfred L. Wolff, Inc., No. 08-CV-14624, 2009 WL 500816 (E.D. Mich. Feb. 27, 2009), the United States District Court for the Eastern District of Michigan held that a plaintiff had adequately alleged claims for breach of contract, specific performance, and equitable accounting, but dismissed its misrepresentation, breach of warranty, promissory estoppel, and breach of the duty of good faith claims due to insufficient pleadings and inconsistency with state law.

Background

Plaintiff brought this action against the defendant for, inter alia, breach of express and implied warranties, misrepresentation, and breach of contract for the sale and delivery of Korean honey. Id. at *1. The sales orders provided that the defendant-seller did not guarantee total fulfillment of the order or timely delivery in the event of Food and Drug Administration (FDA), U.S. Department of Agriculture (USDA), or U.S. Customs rejection or in case of non-shipment by the Korean producer, "due to unpredictability of USA import regulations and country of origin export regulations, and remoteness of source." Id. The honey was apparently rejected by the Department of Homeland Security, and the defendant was thus unable to fulfill the order. Id. at *2. In one of its three breach of contract claims, the plaintiff acknowledged that the shipment had been rejected by U.S. Customs because it was from China. Id. at *3. Defendant moved to dismiss the claims on the grounds that the plaintiff had failed to state a claim upon which relief could be granted. Id. at *2.

Arguments

Plaintiff argued that its allegation regarding the denial by U.S. Customs did not defeat its breach of contract claim because the allegation was an inconsistent and alternative pleading permitted by Federal Rule of Civil Procedure 8, and because its complaint sufficiently pointed to a contractual breach. Id. at *3. It also argued that its fraud claims were not barred by the economic loss doctrine because its complaint set forth an action for fraud in the inducement. Id. at *5. It also claimed that it had no adequate remedy at law because it could not get the same deal on honey elsewhere due to the state of the market, and was thus entitled to specific performance. Id. at *7.

Defendant argued that there had been no breach of contract because under the terms of the sales contracts, it was not responsible for non-delivery in case of rejection by U.S. Customs, the USDA, or the FDA. Id. at *3. It also argued that the economic loss doctrine barred the plaintiff from asserting tort causes of action, and that the promissory estoppel claim should be dismissed because the plaintiff's pleadings acknowledged the existence of an actual contract. Id. at *5, *7.

Analysis and Holdings

The court agreed that the plaintiff had adequately alleged a breach of contract against the defendant because the plaintiff alleged that the shipment was rejected by U.S. Customs because it originated from China rather than from Korea as represented in the sales contracts (i.e., the defendant breached the contract by shipping Chinese honey). Id. at *4. The court further found that although the plaintiff's negligent misrepresentation claim was barred by the economic loss doctrine, the fraudulent misrepresentation claim was not barred because the allegations in the pleadings supported the plaintiff's claim of fraud in the inducement. Id. at *5. However, the court concluded that the fraudulent misrepresentation claim "was not pled with requisite particularity under the Federal Rules of Civil Procedure," and therefore granted the defendant's motion to dismiss the plaintiff's misrepresentation claims. Id. at *6. The court also dismissed the breach of warranty claims because pursuant to UCC § 2-275, "breach of warranty occurs when tender of delivery is made," and the plaintiff had not alleged that the defendant tendered delivery. Id. at *6-7. It likewise dismissed the plaintiff's promissory estoppel claim because state law did not allow recovery for promissory estoppel when the plaintiff alleged the existence of an express contract. Id. at *7. The court further found that the facts supported the plaintiff's claims for specific performance and equitable accounting, but granted the motion to dismiss the breach of the duty of good faith claim because state law did not recognize an independent cause of action for breach of the duty of good faith. Id. at *8-10.

The case was decided on February 27, 2009.