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LEPRINO FOODS COMPANY v. GRESS POULTRY

August 1, 2005.

LEPRINO FOODS COMPANY Plaintiff
v.
GRESS POULTRY, INC. Individually and t/b/a Gress Refrigerated Services, and GRESS REFRIGERATED SERVICES Defendants.



The opinion of the court was delivered by: THOMAS VANASKIE, Chief Judge, District

MEMORANDUM

This action seeks recovery of the value of more than eight million pounds of mozzarella allegedly spoiled with an off-odor and off-flavor while stored at a warehouse operated by Defendant Gress Refrigerated Services. Asserting that Gress Refrigerated Services was a partnership, Plaintiff Leprino Foods Company named as Defendants the purported partners — Glenn Gress, Keith Gress, James Gress, Sr. and James Gress, Jr. — along with Gress Poultry, Inc., "individually and t/b/a Gress Refrigerated Services."*fn1 Defendants have moved for summary judgment, contending that Leprino cannot present sufficient evidence to warrant submission of its negligence claim to a jury. In the alternative, Defendants claim that, as a matter of law, any liability in this case is restricted by a limitation of liability provision set forth on warehouse receipts issued to Leprino after each shipment of cheese was delivered to the Gress warehouse. Because there exist genuine disputes of facts material to both the question of negligence and the enforceability of the limitation of liability provision, Defendants' summary judgment motion will be denied.

I. BACKGROUND

  A. The Parties

  Leprino is a Colorado corporation with its principal place of business located in Denver, Colorado. (Defs' Statement of Material Facts ("SMF") ¶ 1, Dkt. Entry 63.)*fn2 Leprino is the world's largest producer of mozzarella cheese. (Olsen Aff. ¶ 2, Ex. A, Dkt. Entry 70.) Leprino sells cheese to customers throughout the country, including its largest customer, Pizza Hut. (Id.)

  Defendant Gress Poultry, Inc. is a Pennsylvania corporation with its principal place of business located in Scranton, Pennsylvania. (Defs' SMF ¶ 2.) Gress Poultry was incorporated in 1976. (Ex. 23 at 5, Dkt. Entry 61.) Gress Public Refrigerated Services is a fictitious name registered in the Commonwealth of Pennsylvania in 1985 for Gress Frozen Foods, Inc., a Pennsylvania corporation. (Defs' SMF ¶ 4.) The Gress corporate entities also conducted business under the name, "Gress Refrigerated Services." (Id.) Gress operates a refrigerated warehouse business in Scranton, Pennsylvania.

  B. The Bailment

  To have a constant, adequate supply of cheese for its customers in all parts of the United States, Leprino stores vast quantities of cheese in cold storage warehouses located throughout the country. (Olsen Aff. ¶ 3, Ex. A, Dkt. Entry 70.) Leprino's first contact with Gress occurred in the late 1980s when a Gress account representative, Rich Charles, met with an employee of Leprino, Phil Gates, to advise Mr. Gates that Gress had a storage facility available in Scranton, Pennsylvania. (Gates Dep. at 37-38, Ex. 26, Dkt. Entry 65.) By letter dated January 11, 1988, Mr. Charles stated as follows:
Dear Phil:
I was pleased to hear that Leprino Foods is interested in refrigerated warehousing. Gress Frozen Foods operates a public warehouse within two hours of your facility in Waverly, New York.
. . . In response to our conversation, I am pleased to quote the following rates for refrigerated storage. . . .
Enclosed are documents varifying [sic] our inspection, extermination, security, and insurance. Our insurance information is explained in our tariff pamphlet at some length. However, briefly, we are insured as a member of the I.A.R.W. (Independent Association of Refrigerated Warehouses).
  The enclosed tariff referred to in the January 11th letter states, inter alia, that "insurance will be provided at [the] request of the storer at 4 [cents] per $100.00 declared value per month." (Id. at 5149.) Paragraph number 3 of the tariff contains a limitation of liability provision. Although the copy provided to the court is largely unclear, the tariff appears to state:

  Limited Liability —

 
. . . for losses other than breakage, misdelivery, or unexplained shortage, the value of the goods stored shall be conclusively presumed not to exceed 50 cents per pound, unless the person to whom the warehouse receipt is issued declares where such goods are offered for storage, that it is of greater value and such greater value is noted on the warehouse receipt by the warehouseman, in which case the value shall be conclusively presumed not to exceed that so declared.
(Id.) The enclosed tariff had an effective date of March 1, 1986. The discussions between Charles and Gates did not culminate in a business relationship.

  In early January, 1992, Leprino's Director of Product Management, Bob Ekstrom, engaged in business discussions with Glenn Gress about storing Leprino's cheese at the Gress warehouse. (Ekstrom Aff. ¶ 2, Ex. B, Dkt. Entry 72.) As the Director of Corporate Materials, Mr. Ekstrom was responsible for negotiating agreements on Leprino's behalf with food storage warehouses, and was familiar with the ordinary practices and customs in the food storage warehouse industry. (Id. ¶¶ 2, 3.) By letter dated January 15, 1992, Glenn Gress expressed an interest in doing business with Leprino and discussed the size of the Gress warehouse freezer, storage rates, and transportation services. (Dkt. Entry 85 at 989.)

  On February 4, 1992, Mr. Charles wrote to Mr. Gates and Don Kleck to quote handling and storage rates. (Defs' Ex. 19, Dkt. Entry 61.) On February 11, 1992, Mr. Ekstrom sent a letter to Mr. Charles summarizing the relevant terms of the business relationship between Leprino and Gress Public Refrigerated Services. (Defs' Ex. 20, Dkt. Entry 61.) The letter stated in relevant part:
Dear Rich:
This letter will outline the key items involved in storing our frozen product in your facility. This does not cover everything in detail as standard warehousing procedures are assumed to be followed as well:
1. You will primarily be storing two products for us which will be truck shipped in a frozen state and stored by you at 0 [degrees] F. or less.
. . .
3. When unloading the trucks, please keep a record of any damages to any cases both as to the type of damage (e.g., crushed cases, wet cases). . . . No damaged cases are to be shipped to our customer but rather set aside and the quantities notified to us, from which we will advise disposition. Damaged cases are defined as those that are not in their original condition and cannot stack straight (e.g., crushed), are punctured (e.g., forklift damage), or have dirt or stains (e.g., water) on them. It is essential that our customers receive consistent, quality packages and pallet loads.
. . .
6. The products must be stored in racks at all times.
7. Please send a detailed inventory printout monthly.
8. Storage rates are $.40/cwt and handling rates are $.45/cwt. Please feel free to contact me if you have any questions regarding the above or anything that I may have omitted. We are looking forward to doing business with your company and hope this is the beginning of a long-term relationship.
(Ex. E., Dkt. Entry 72.)

  After Mr. Ekstrom sent the letter to Mr. Charles on February 11, 1992, Leprino began storing cheese at the Gress warehouse. (Ekstrom Aff. ¶ 7, Ex. B, Dkt. Entry 72.) From time to time, Gress and Leprino modified the terms of their agreement set forth in the February 11, 1992 letter by changing the storage rates, handling rates, and the people authorized to release product. (Id.) There were also periods of time between 1992 and November of 2001 when Leprino did not have any product stored in the Gress warehouse. (Defs' SMF ¶¶ 22-23.)

  C. The Limitation of Liability Provision

  It appears undisputed that Gress issued nonnegotiable warehouse receipts to Leprino for each lot shipment. (Defs' Br. in Supp. of Mot. for Summ. J. at 6, Dkt. Entry 68.) The front of the receipt provides:
The above described merchandise . . . [is] subject to . . . all the terms and conditions contained herein and on the reverse hereof. Subject also to all Special Tariff Provisions on our tariff. Liability for loss or damage shall be limited to the actual value of the goods stored; and in no case shall the liability exceed 20 [cents]/lb. unless an excess value is declared by the storer at the time the goods are stored.
(Defs' Ex. 8.) Paragraph 3 on the back of the receipt provides:
3. Limited Liability — For the purpose of fixing storage rates and the maximum limit of the warehouseman's liability for losses other than breakage, misdelivery or unexplained shortage, the value of goods stored shall be conclusively presumed not to exceed 20 cents per pound; unless the person to whom the warehouse receipt is issuable declares, when such goods are offered for storage, that it is of greater value and such greater value is noted on the warehouse receipt by the warehouseman, in which case the value shall be conclusively presumed not to exceed that so declared. Except as otherwise provided, the specified tariff storage rates are minimum rates which apply where no value is so declared and noted, or where, if declared, it does not exceed the otherwise presumed limit, and where such declared value exceeds such otherwise presumed limit, an additional rate will be added and charge equivalent to 10% of the amount of such excess for each month [or] part thereof. The warehouseman's liability for losses other than breakage, misdelivery or unexplained shortage, is limited to and shall in no event exceed whichever is smallest of the bailor's cost, replacement value, or as the case may be, such presumed value of 20 cents per pound or declared limit of value in respect of which the storage rate is so fixed and payable.
(Defs' Ex. 8 ¶ 3.)

  Leprino maintains that it was unaware of this limitation of liability provision at the time that Mr. Ekstrom confirmed the terms of the parties' engagement in his February 11, 1992 letter. Leprino further maintains that it would not have entered into the bailment arrangement with Gress had it been aware of this limitation of liability. Gress, while disputing the assertion that Leprino was unaware of the limitation of liability provision before February 11, 1992, argues that the limitation of liability falls within the phrase "standard warehousing procedures" as used in the February 11, 1992 letter.

  According to Mr. Ekstrom, "standard warehousing procedures" include "measures relating to pest control, sanitation, general housekeeping, good manufacturing practices, building and equipment maintenance, and loading, handling, and shipping of product." (Ekstrom Aff. ¶ 6, Ex. B, Dkt. Entry 72.) Mr. Ekstrom asserts that standard warehousing procedures do not include a warehouse's invoicing procedures, warehouse receipts, or any limitations of liability imposed by the warehouse. (Id.) During Glenn Gress's deposition, he testified that standard warehouse procedures include invoicing. (Glenn Gress Dep. at 27, Ex. D, Dkt. Entry 72.) He further testified that he and Mr. Ekstrom discussed the terms and conditions on the standard warehousing receipt when they first met. (Id. at 30.)

  It does appear that Leprino was aware of the limitation of liability provision in the Gress warehouse receipt prior to the incidents of 2001 that give rise to this litigation. In this regard, in the late 1990s, Leprino's Vice President of Procurement and Logistics, Mr. Hegarty, looked through Leprino's files to determine whether Leprino had adequate insurance coverage for the inventory in storage. As part of this review, Mr. Hegarty reviewed Gress's nonnegotiable receipt. (Hegarty Dep. at 39-40, Ex. G, Dkt. Entry 72.) There is no evidence that Leprino objected to the limitation of liability at that time.

  It also appears, however, that Gress did not enforce the limitation of liability provision in the one incident of alleged damage to Leprino's product that preceded the present claim. In 1999, Leprino submitted an invoice to Gress for 1,935 pounds of cheese Gress allegedly had damaged. (Glenn Gress Dep. at 35-40, Ex. D, Dkt. Entry 72.) The invoice sought $3,207, which reflected the full value of the cheese at $1.6575 per pound. (Id. at 37.) Gress paid Leprino the full amount. (Id. at 36-37.)

  D. The Contamination of the Cheese

  After Leprino began storing its cheese at the Gress facility, a Leprino quality control auditor, Scott Hall, performed two formal inspections and one informal inspection of the Gress facility. (Hall Dep. at 11-12, Ex. 28, Dkt. Entry 65.) On February 27, 2001, Hall filled out an audit for Pizza Hut that required him to determine, inter alia, whether the product cases were clean and free from damage, whether only food products were stored above and next to Leprino food products, and whether there were any strong odors in the storage area. (Id. at 13; Ex. H at 6, Dkt. Entry 72.) At the time of his audit, the freezers were empty and there were no strong odors in the storage area. (Ex. H at 6; Hall Dep. at 60, Ex. I, Dkt. Entry 72.) The report noted, "[t]here are no activities or conditions observed that could potentially contaminate or adulterate the product." (Ex. H. at 5.) The front page of the audit report provides a score for the facility and a section for comments on what the facility can improve on. Mr. Hall noted that the Gress warehouse needs, inter alia, a written pest control program. The bottom of the first page provides for the auditor's signature and the facility manager's signature. Neither the auditor nor facility manager signed the audit. (Id. at 1.)

  In March 2001, Leprino began shipping cheese to Gress for storage after a period of zero inventory. By September, 2001, Leprino had over eight million pounds of cheese stored at the Gress warehouse. (Olsen Aff. ¶ 5, Ex. T, Dkt. Entry 72.) For each shipment of cheese, Gress employees signed bills of lading attesting to the apparent good condition of each truckload of cheese upon its arrival at the warehouse. (Ex. U, Dkt. Entry 72.) Gress employees inspected Leprino's products for obvious damage of the containers. (Charles Dep. at 40, Ex. W, Dkt. Entry 72.) Some time after inspection, Gress employees generally used a forklift to move the palletized loads of cheese from the trailer to their designated racks in the warehouse. (Id. at 44, Ex. 30, Dkt. Entry 65.)

  In the fall of 2001, Leprino began shipping cheese stored at the Gress warehouse to Pizza Hut's distribution center in Charlotte, North Carolina. Leprino also shipped some cheese directly from Leprino's Waverly facility to Pizza Hut. (Wilken Dep. at 180, 182-83; White Dep. at 15, Ex. O, Dkt. Entry 72.) On October 1, 2001, Leprino received eight complaints of an off-odor and off-flavor in the Leprino cheese that had been distributed to Pizza Hut stores in North Carolina. (White Dep. at 10, Ex. O, Dkt. Entry 72.) By October 5, Leprino received an additional 307 complaints about the cheese shipped to Pizza Hut. (Id. at 12, 17.)

  After receiving the first complaints, Leprino's Quality Assurance Division quickly traced all of the cheese involved in the complaints to Leprino's Waverly plant by using production plant codes Pizza Hut supplied with its complaints. (Wilkin Dep. at 166-68, Ex. J, Dkt. Entry 72.) The Quality Assurance Division also determined that all of the cheese subject to the complaints had been stored at the Gress warehouse in Scranton, Pennsylvania through Leprino's computerized "recall reports." (Id. at 175-76.) The employees at the Waverly facility also pulled production reports, composition test results, and microbiology tests for the lots of cheese that had generated complaints. (Id. at 176-79.) The records revealed that no conditions existed in the Waverly plant that could have caused the off-odor/flavor. Furthermore, Leprino did not receive any complaints about the cheese that bypassed the Gress warehouse and was shipped directly to Pizza Hut. (Wilken Dep. at 180, 182-83; White Dep. at 15, Ex. O, Dkt. Entry 72.)

  Because Leprino had trucked its cheese from its Waverly plant to Gress, Leprino also looked at trailer inspections at the Waverly plant, the temperatures of the product leaving the plant, and the settings on the refrigeration units in the trucks. (Defs' SMF ¶ 40; Wilkin Dep. at 239, Ex. J., Dkt. Entry 72.) The record is unclear as to the results of the trailer and truck inspections. (Id. at 239.)

  On October 1, 2001, Leprino's Quality Control personnel in both Denver, Colorado and at the Waverly plant tested "retention samples" from the production dates that triggered Pizza Hut's complaints.*fn3 None of the retention samples corresponding to the cheese stored at the Gress warehouse exhibited an off-odor/flavor. (Wilken Dep. at 175-78, Ex. J, Dkt. Entry 72.)

  Ms. Wilkin searched Leprino's records for any other recent complaints of an off-odor/flavor in its cheese. (Id. at 236-37.) In 2001, Leprino had stored a single shipment of cheese produced at its Roswell, New Mexico facility at the Gress warehouse. (Hegarty Dep. at 143, Ex. G, Dkt. Entry 72.) Around September 20, 2001, Leprino's quality assurance group received a complaint from Papa John's of an off-odor/flavor as to that shipment of cheese. (Id.; Wilken Dep. at 236, Ex. J, Dkt. Entry 72.) Leprino investigated the complaint but was unable to determine the cause of the off-odor/flavor because it could not get a sample of the damaged cheese. (Wilken Dep. at 236-37.)

  On October 2, 2001 three Leprino executives visited the Gress warehouse and several of the Pizza Hut stores that had complained about the cheese. The three executives were Rick Barz, the Senior Vice President of Quality Assurance and Research and Development, George Wittenberg, the Technical Manager of Materials Management, and Ms. Wilken. (Wilken Dep. at 173.) The Leprino executives were met at the ...


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