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Travelers Indemnity Co. v. Dammann & Co.

December 22, 2008

THE TRAVELERS INDEMNITY COMPANY, PLAINTIFF,
v.
DAMMANN & CO., INC. AND INTERNATIONAL FLAVORS & FRAGRANCES, INC., DEFENDANTS.
DAMMANN & CO., INC., DEFENDANT/THIRD-PARTY PLAINTIFF,
v.
COOPERATIVE BUSINESS INTERNATIONAL, INC., AND NATIONWIDE MUTUAL INSURANCE COMPANY, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Debevoise, Senior District Judge

FOR PUBLICATION

OPINION

Plaintiff, The Travelers Indemnity Company ("Travelers"), filed a complaint on November 17, 2004 seeking a declaration of non-liability under two insurance policies that it issued to defendant, Dammann & Co., Inc. ("Dammann"). Dammann filed a counterclaim seeking a declaration that Travelers is obligated to provide coverage related to the claims of International Flavors & Fragrances, Inc.("IFF"), and brought additional counterclaims for breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. Dammann then commenced a third-party claim for indemnity against Cooperative Business International, Inc. ("CBI") and CBI's liability insurance company, Nationwide Mutual Insurance Company ("Nationwide").

On February 8, 2008, IFF filed a notice of motion for leave to file cross-claims against its co-defendant, Dammann, for the losses IFF sustained as a result of the fact that several shipments of vanilla beans sold by Dammann to IFF were tainted with mercury. IFF claimed damages totaling $5,189,924. Magistrate Judge Shipp denied IFF's motion in an order dated August 13, 2008 (hereafter, "Judge Shipp's Order"). On August 22, 2008, IFF filed an appeal of Judge Shipp's Order, pursuant to Local Rule 72.1(c)(1). Dammann and CBI opposed IFF's motion. On September 29, 2008, concurrent with its reply brief in support of its appeal of Judge Shipp's Order, IFF filed a second, separate motion "in further support of its appeal" of Judge Shipp's Order and for leave to file an amended and supplemental cross-claim. Dammann, CBI and Travelers opposed this second motion. For the reasons set forth below, both of IFF's motions will be denied.

I. BACKGROUND

Dammann produces raw foods, including vanilla beans, and distributes them to processed food manufacturers who pass the products on, in various reincarnations, for consumption. IFF manufacturers food flavorings, including vanilla extract. Dammann and IFF entered into a contract (the "Contract") pursuant to which Dammann agreed to deliver vanilla beans to IFF. On or about March 29, 2004, IFF discovered that certain lots of Indonesian vanilla beans supplied to it between January 14 and 30, 2004 by Dammann may have been contaminated with mercury. Thereafter, IFF sent a letter enumerating its claims for damages against Dammann for the alleged failure to deliver vanilla beans that conformed to the Contract.

In a letter to the Recall Coordinator of the Food & Drug Administration (FDA), dated April 2, 2004, counsel for IFF indicated that IFF had discovered that two lots of Indonesian vanilla beans that it had received were contaminated with mercury. Shortly thereafter, in a letter dated April 5, 2004, IFF informed Dammann of its alleged discovery of mercury contamination in the 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. By a letter dated May 25, 2004, from IFF to Dammann, IFF set forth a claim for damages totaling $5,189,924, allegedly caused by the mercury contamination of the vanilla beans.

Dammann filed an insurance claim with Travelers, which Travelers denied. Apparently in anticipation of actions against it by Dammann and IFF, Travelers commenced this suit on November 17, 2004, seeking a declaration of non-liability for IFF's claims under the insurance policies Dammann held with Travelers. Dammann filed a counterclaim seeking a declaration that Travelers was obliged to provide coverage on IFF's claims against Dammann, and brought additional counterclaims for breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. Travelers filed a motion for summary judgment, on June 1, 2007, seeking a declaration of no coverage. On February 11, 2008, this court denied that motion and held that IFF's property damage claims "are covered by [the Commercial General Liability policy]" (Slip Op. at 14) and that IFF's loss of use claims "may be covered by the Policies." (Slip Op. at 20.)

Dammann and Travelers executed a settlement agreement, on September 16 and 18, 2008, which settled all claims by Travelers against Dammann and all counterclaims by Dammann against Travelers. (See Stipulation and Order of Dismissal dated Oct. 20, 2008 (Doc. No. 119) and Letter from Michael Frantz, Jr. dated Nov. 24, 2008 attaching signature pages of the settlement agreement (Doc. No. 126).)

A. IFF's First Motion

Through its first motion, IFF appeals Judge Shipp's Order denying IFF leave to amend its answer to assert a products liability cross-claim against Dammann. IFF seeks to assert a claim against Dammann for the economic losses IFF sustained from the adulterated vanilla beans, including the damages to its vanilla extract, other food flavors and the manufacturing equipment that was contaminated in the extraction process. IFF claims damages totaling $5,189,924.00.

IFF's original motion for leave to amend its answer, filed on February 8, 2008, included cross-claims against Dammann for (1) breach of express warranty, (2) breach of implied warranty, and (3) products liability. In its reply brief, however, IFF stated that "[b]ecause virtually all of the vanilla beans delivered by Dammann have been processed by IFF into vanilla extract and other food products, IFF makes no claim for damages related to any non-processed vanilla beans," and that it was "agreeable" to the withdrawal of the warranty claims.*fn1 (Def.'s Motion to Amend (Doc. No. 77) at 2.)

Judge Shipp's Order denied IFF leave to assert the products liability cross-claim based upon a finding that the proposed claim was subject to the four-year statute of limitations in the relevant portion of the Uniform Commercial Code ("U.C.C.") and that, because the statute of limitations had run on IFF's claim, the proposed amendment would not survive a motion to dismiss. (Aug. 13, 2008 Slip Op. at 3 (citing Doe v. Div. of Youth & Family Servs., 148 F. Supp. 2d 462 (D.N.J. 2001).) Because IFF filed its motion for leave to file a cross-claim on February 8, 2008--less than four years after IFF discovered the defect in the beans but more than four years after receiving the beans--Judge Shipp first determined whether the cause of action accrued when the beans were accepted or when the defect was discovered. As Judge Shipp noted, the U.C.C. states, in relevant part:

[A] cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.

N.J. Stat. Ann. 12A:2-725. Judge Shipp held that there was no explicit warranty of future performance in the contract between Dammann and IFF:

The Memorandum of Agreement... states, "Seller guarantees that all chemical substances or mixtures of chemical substances sold to IFF hereunder comply with the Federal Toxic Substances Control Act."

IFF has not claimed that the mercury content of the beans violated the Federal Toxic Substances Control Act. Indeed, the FDA, after receiving information concerning the mercury content of the beans, stated that the mercury content was not high enough to pose a health risk. As there was no explicit warranty of future performance, this Court finds that the cause of action accrued when delivery was tendered in January 2004, not when the defect in the beans was discovered in February 2004. (Aug. 13, 2008 Slip Op. at 4 (internal citations omitted).) Thus, because IFF did not seek leave to file its cross-claim until more than four years after the delivery of the beans, Judge Shipp held that the statute of limitations had run on the claim. (Id.)

Judge Shipp also addressed IFF's argument that tort law preempts the U.C.C. in this situation. IFF contends 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," applies to its proposed cross-claim. N.J. Stat. Ann. 2A:58C-2. Under the NJPLA, "harm" is defined as "physical damage to property, other than the product itself." Id. at 1(b)(2). The statute of limitations for such a tort claim is six years. N.J. Stat. Ann. 2A:14-1. Judge Shipp held that:

IFF bases its claim to damages under the NJPLA on its assertion that it is not seeking a remedy for the defective product itself, but for damages to IFF's other products which were rendered unmarketable by the incorporation of the adulterated beans. However, it is settled law in New Jersey that in the case of a buyer seeking damages for economic loss resulting from defective goods, the UCC preempts tort principles. Spring Motors Distributors, Inc. v. Ford Motor Co., 98 N.J. 555, 579 (1985).... Therefore, while IFF is entitled to economic damages consequential to the breach of contract, they are limited to what they are entitled to under the UCC, not under NJPLA.

(Aug. 13, 2008 Slip Op. at 6.) Judge Shipp also briefly addressed IFF's delay in bringing this cause of action, finding that it had "little excuse" for its delay because it knew of the presence of mercury in the beans on March 29, 2004, and knew that Dammann refused to honor IFF's claim for damages incurred as a result of the contaminated beans by the time that Travelers filed suit for a declaration of non-liability against Dammann in November 2004. (Id. at 6.)

B. IFF's Second Motion

If the court determines that IFF does not state a cognizable products liability claim and thus denies IFF's first motion, IFF seeks, through its second motion--the "further support" of its appeal of Judge Shipp's Order and the motion for leave to file an amended and supplemental cross-claim--to amend its answer to assert the following cross-claims against Dammann: (1) breach of express warranty of future performance; (2) breach of implied warranty of merchantability and fitness; (3) express indemnification; and (4) implied common law indemnification.

II. DISCUSSION

A. IFF's First ...


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