By David Yucht, J.D.
The economic loss rule did not preclude a mink rancher from recovering in tort because his claimed loss was not to the feed he had purchased but, rather, to his other property the mink.
The federal district court in Oregon refused to dismiss product liability, gross negligence, and ordinary negligence claims filed by a mink rancher against a farm feed distributor who allegedly poisoned the rancher’s minks by selling botulism-contaminated feed. However, the court granted summary judgment dismissing related warranty claims (AMC, LLC v. Northwest Farm Food Cooperative, August 21, 2020, Aiken, A.).
An Oregon mink ranch received a shipment of mink feed from a Washington-based distributor in July 2016. The distributor had received the feed from a large volume egg producer that made the feed from "spent hens," which were hens that were euthanized once they ceased laying eggs. Typically, spent hens were sent to a rendering plant or landfill. However, the egg company in this case occasionally gave the spent hens to the feed distributor to use as mink food. It did not charge the distributor for the spent hens but, rather, avoided rendering plant or landfill expenses by giving the ground chicken away. To produce the feed, the egg producer euthanized the hens. The distributor immediately ground them in a machine and transported the ground chicken to one of its facilities for further processing, resulting in frozen, 50-pound blocks. The distributor then sold the feed to its member farms and ranches.
Within days of being fed from the July 2016 shipment, the ranch’s mink began to get sick and die. Approximately 11,000 mink died over the course of a week. Alleging that the mink feed was contaminated with botulism toxin, the ranch sued the distributor, alleging product liability, negligence, gross negligence, contract, and warranty claims. The distributor moved for summary judgment.
Choice of law. While the parties disputed whether Washington or Oregon law applied, the court found that because the outcome was the same under either law, there was no actual conflict of laws and the court did not need to conduct a choice of law analysis.
Product liability. The court denied the feed distributor’s motion for summary judgment on the product liability claim. The manufacturer argued that summary judgment was appropriate because the "economic loss rule" barred recovery for purely economic losses in a tort action. The court here noted that the Washington Supreme Court expressly stated that the independent duty rule applied to product liability cases. When someone seeks recovery for losses associated with damage to the product itself, a court must do a risk analysis to determine whether the manufacturer or seller breached a tort duty arising independent of contract. But when a recovery is sought for damage to other property, recovery may be based on tort. Here, the rancher did not claim loss to the feed he purchased. Rather, he claimed loss to his other property—the mink—and, consequently, was entitled to recover in tort. The court noted that the same result and analysis applied if Oregon law controlled. Under Oregon law, the mink loss was not a purely economic loss because it was not a financial loss that was incurred to repair or replace the mink feed product.
The distributor also argued that even if the independent duty rule applied, the rancher’s loss was not governed by an independent tort duty; it was governed by the express terms of the contract, which included an exculpatory clause. However, the court noted that when a seller’s product causes damages to other property, that seller breaches a tort duty that arises from the product liability statute, independent of the contract terms. Here, therefore, the tort duty to the rancher’s other property arose independent of the exculpatory contractual term.
Gross negligence. The court also denied the feed distributor’s motion for summary judgment on the negligence claims. The distributor argued that it was entitled to summary judgment on the gross negligence claim because the mink rancher failed to provide substantial evidence that the distributor failed to exercise even slight care in supplying mink feed. In Washington, an individual acts with "gross" negligence when exercising "substantially or appreciably" less than the care a "reasonably prudent person" would exercise when faced with similar circumstances. Here, it was undisputed that utilizing already-dead, sick, or recently fed chickens increased the risk of botulism in the mink feed. To mitigate that risk, the distributor required that the egg farm not feed the chickens for three days before it euthanized them and that the chickens were alive and well until they were killed. The rancher asserted that the distributor was aware that the egg farm was not complying with these requirements. The egg farmer could not have complied with the requirement to purge the chickens three days before killing them because it was required to feed them up to 24 hours of killing them. Moreover, a farm employee testified that occasionally, when processing the recently euthanized chickens, he would come across several that "appeared to have been dead a while." The rancher alleged that despite the distributor’s knowledge that the egg farmer was euthanizing unfit chickens, the distributor took no action to remedy this problem. The court concluded that the rancher presented substantial evidence to raise an issue of fact as to whether the distributor failed to exercise even slight care to protect the spent hen product from botulism toxin contamination.
Negligence—exculpatory contract provisions. Concerning regular negligence, the distributor argued it was entitled to summary judgment on the negligence claim because the rancher expressly waived any right to recover when it signed an agreement containing an exculpatory clause. Unlike product liability claims, common law negligence claims in Washington state can be contracted away by exculpatory clauses. However, exculpatory clauses are strictly construed and "are enforceable only if their language is sufficiently clear." To prevail on its motion for summary judgment, the distributor needed to show that the exculpatory provision was so conspicuous that no reasonable juror could conclude that the rancher unwittingly signed it. Here, the court found that the exculpatory provision was buried in a paragraph headed "ALLOCATION OF RISK." The heading did not alert a party to a waiver of its tort rights. In the first sentence of the paragraph, the distributor promised to use "reasonable endeavors" and to "maintain a reasonable standard." The next several sentences contained an "AS IS" warning and then 27 words in capitalized typeface containing warranty disclaimer language. According to the court, nothing in that paragraph alerted the reader of the shift from product disclaimers to tort liability waivers.
Other issues. The distributor’s motion for summary judgment was granted with respect to the mink rancher’s breach of implied warranty of merchantability and breach of implied fitness claims. The court denied summary judgment as to the contract claim. The court also ruled that the distributor was not entitled to summary judgment on the rancher’s breach of implied covenant of good faith and fair dealing claim.
The case is No. 6:17-cv-00119-AA.
Attorneys: Stanton R. Gallegos (Markowitz Herbold PC) for AMC, LLC. Jason H. Daywitt (Lewis Brisbois Bisgaard & Smith LLP) for Northwest Farm Food Co-operative. Robert D. Scholz (MacMillan Scholz & Marks, PC) for National Food Corp.
Companies: AMC, LLC ; Northwest Farm Food Co-operative ; National Food Corp.
MainStory: TopStory DamagesNews DefensesLiabilityNews JurisdictionNews GCNNews FoodBeveragesNews OregonNews
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