Summary of a Recent
Judicial Development in
Food Safety

Product Liability Claim Governed By UCC Rather than
New Jersey Product Liability Act

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Travelers Indemnity Co. v. Dammann & Co., Inc., 592 F. Supp. 2d 752, 2008 WL 5348585 (D.N.J. 2008), the United States District Court for the District of New Jersey held that a party was properly denied leave to amend its answer to assert a cross-claim for product liability since the claim was governed by the UCC, and thus the four-year statute of limitations for the claim had expired.

Background

International Flavors & Fragrances, Inc. (IFF), a manufacturer of food flavorings, purchased vanilla beans from Dammann & Co. pursuant to a delivery contract. Id. at *1. In April 2004, IFF informed Dammann of its alleged discovery of mercury contamination in its vanilla beans, and its conclusion that the contamination was caused by injections of mercury by Indonesian farmers seeking to boost the weight of crop yields, and set forth a claim for damages totaling $5,189,924 allegedly caused by the mercury contamination. Id. Dammann filed an insurance claim with Travelers Indemnity Company, but Travelers denied the claim and brought an action seeking a declaration of non-liability for IFF's claims under Dammann's insurance policies. Id. at *2. Dammann filed a counterclaim seeking a declaration that Travelers was obliged to indemnify it against IFF's claims, and brought additional counterclaims for breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. Id. Dammann and Travelers subsequently settled all claims against each other. Id. The district court denied IFF's motion to amend its answer to assert a products liability cross-claim against Dammann because the four-year statute of limitations on the claim had run. Id. IFF's motion was filed less than four years after it discovered the defect in the beans but more than four years after it had received the beans, so the district court determined that the statute of limitations accrued when the beans were accepted, and IFF appealed. Id. at *3.

Arguments

IFF argued that the New Jersey Product Liability Act (NJPLA), which entitles a claimant to damages against a manufacturer or seller of a product as a result of harm caused by a product which is "not reasonably fit, suitable or safe for its intended purpose," applied to its products liability claim and preempted the UCC statute of limitations. Id. Alternatively, it sought leave to amend its answer to assert cross-claims against Dammann for breach of express warranty of future performance and breach of implied warranty of merchantability and fitness. Id. at *4.

Analysis and Holdings

The statute of limitations for a tort claim brought under the NJPLA is six years. Id. at *3. The lower court had observed the rule that "in the case of a buyer seeking damages for economic loss resulting from defective goods, the UCC preempts tort principles," and thus denied IFF's motion to amend. Id. IFF's position was that the NJPLA governed because it allowed for recovery for "physical damage to property, other than the product itself," and IFF claimed the injury occurred not to the adulterated vanilla beans themselves, but to other products (the vanilla extract and other flavoring derived from the adulterated vanilla beans). Id. at *5. However, the court found it clear that

claims arising out of transactions for goods among parties in the distribution chain sound in contract under the UCC, particularly where the damage is foreseeable, and thus the risk for such damage could have been allocated by the parties in the contract, and where the damage occurs at the core of the commercial contract.
Id. at *8.

The court also denied IFF's motion for leave to file amended cross-claims for breach of express and implied warranty based on the futility of the amendment; the claims were barred by the statute of limitations, and thus would not survive a motion to dismiss. Id. at *10.

The case was decided on December 22, 2008.