Opinion
Civil Action No: 02-1185, Section: "R"(1)
November 1, 2002
ORDER AND REASONS
In two separate contracts, plaintiff Commercializadora Portimex, S.A. de C.V., agreed to buy and defendant Zen-Noh Grain Corporation agreed to sell two shipments of sorghum. On April 19, 2002, Portimex filed this lawsuit alleging that Zen-Noh breached both contracts by delivering sorghum with a mycotoxin, zearlenone, in excess of the contractual limit. On September 12, 2002, the Court granted defendant's motion for summary judgment as to the first shipment of sorghum. The Court held a three-day trial on the second shipment of sorghum. for the following reasons, the Court finds that Zen-Noh fully complied with its contractual obligations to Portimex.
I. Findings of Fact
A. The Parties
Portimex is a Mexican corporation engaged in the importation of grain, including sorghum. In 2001, the company handled 1,000,000 tons of grain. of the grain that it imports, roughly 80% is pre-sold to buyers before it arrives in Mexico. The remaining 20% arrives in Mexico at the risk of Portimex.
Test. of Javier Sobrino.
Id.
Id.
Id.
Zen-Noh is a Louisiana corporation that exports grain, including sorghum, from its grain elevator on the Mississippi River in Convent, Louisiana. Zen-Noh, which was incorporated in 1979, is currently the largest exporter of sorghum on the Mississippi River. Nevertheless, only 5-8% of the grain sold by Zen-Noh is sorghum, as the company primarily handles corn and soybeans.
Test. of Kevin Adams.
Id.
Id.
B. Background on Grain Industry: Loading Testing
1. Loading Vessels
Zen-Noh purchases grain and stores it in silos at its elevator along the Mississippi River. When it sells the grain, it unloads the grain from the silos and places it on a vessel provided by the purchaser. More specifically, the grain flows from the silo to one or more "shipping bins." During the transfer from the silo to the shipping bins, the Federal Grain Inspection Service ("FGIS") sets aside a random selection of grain for sampling and testing. The FGIS is an agency of the United States Department of Agriculture ("USDA"). The amount of grain in the shipping bins that the FGIS weighs, analyzes, and releases for loading is referred to as a "sublot." The entire shipment of grain loaded onto the barge is referred to as a "lot" or "shiplot" of grain.Zen-Noh's "Control Room Activity Reports" monitor Zen-Noh grain purchases by noting the date of unloading, the vessel on which the grain arrived, and the bin in the silo into which Zen-Noh unloaded the grain. Zen-Noh's sales of grain, by contrast, are recorded on "Bin Delete Records." When Zen-Noh loads a ship, the Bin Delete Record indicates the bins in the silo from which Zen-Noh drew the grain. As the grain is drawn from the bins, it is blended together with grain from other bins. Thus, each sublot prepared for loading contains grain from multiple bins. Not uncommonly, some of the grain that is prepared for loading in this manner does not make it onto the vessel. This may happen because the test results on a given sublot indicate that the grain does not conform, in grade or quality, to contract specifications. Or, the vessel may be full, and no further grain is needed. Zen-Noh returns grain that is not loaded onto a vessel to the silo. Because this grain represents a blend of grain coming from multiple bins, Zen-Noh does not attempt to trace the exact bins from which the grain was drawn and instead labels the grain "weigh back."
Portimex Ex. 53.
Portimex Ex. 54.
Id.; Test. of Ron Finck.
Test. of Kevin Adams.
Id.
Id.
Id.
Id.
Id.
2. Testing Grain for Grade and Quality
The grain export industry utilizes three methods for testing the grade and quality of grain. The first method is the "Composite Basis," which entails taking portions of grain from the entire shiplot, collecting these portions to form a single, composite sample of the entire shiplot, and then testing that composite sample for grade and quality. The second method is the "Sublot Basis." For testing on a Sublot Basis, a sample of the grain is taken from each individual sublot. Each sample is tested, and the results of each test are averaged together to determine the overall quality of the shiplot. The third method is called "No Sublot to Exceed." Under this method, a sample of grain is taken from each sublot, each sample is tested, and each sublot must meet the contractual specifications for grade and quality.Bill Gallo, Executive Vice President of grain broker Pasternak Baum Co., Inc., testified that it is common in the grain industry for the buyer to pay a $.02 premium in exchange for having the grain tested on a Sublot Basis, as opposed to on a Composite Basis. In exchange for No Sublot to Exceed, the buyer typically pays an even higher premium per bushel to reflect the increased risk. ( See discussion infra p. 8.)
Test. of Bill Gallo.
Id.
FGIS typically tests grain for certain grade factors before the grain is loaded onto the vessel. FGIS generally uses a refinement to the Sublot Basis called the "Cu-Sum Plan." Under the Cu-Sum Plan, FGIS tests each sublot of grain for a particular grade factor. If the sublot does not meet the grade required by contract, the seller of the grain has two options. The seller may reject the sublot and send the grain back into the silo, where it can be blended together with other grain to form new sublots; or, the seller can load the grain onto the vessel and designate the grain a "material portion." FGIS maintains a running average of the quality of each sublot to determine whether, overall, the grade of the shiplot conforms to contract specifications.
Test. of Kevin Adams.
Id.
Id.
Id.
Id.
Id.
There are, however, certain quality factors for which FGIS does not perform tests. For example, FGIS does not test for the mycotoxin, zearlenone. Zearlenone is a by-product of mold that can cause harm to animals when the grain is used as animal feed. If a contract requires testing for zearlenone, the contract typically provides for the seller to select an independent lab to test the grain and certify the results. Unlike the tests conducted by FGIS, tests conducted by independent labs do not take place at the dock during loading. Rather, sealed samples of the grain must be sent to the independent lab. Certification of the grain's quality can take several days and may not be known until after the vessel has completed loading and left port. Furthermore, test results can vary considerably depending on the sample taken, the lab performing the testing, and the method that the laboratory uses. Test results may vary even when the same laboratory uses the same test method on the same sample. For example, according to Marcelo Zavala of Laboratorio de Constatacion Agroindustrial, S.A. de C.V. ("LCA"), it is not uncommon for his laboratory to use the high pressure liquid chromeography method ("HPLC") to determine that a sample has 400 ppb zearlenone and then to test the same sample again using the HPLC method and find 332 ppb zearlenone.
Id.
Id.
Test. of Javier Sobrino and Bruce Malone. This mycotoxin appears in the record under numerous spellings, including "zearalenone" and "zearalenona." The Court will use the spelling that appears in the contract: "zearlenone."
Test. of Bill Gallo.
Test. of Jane Parks.
Id.
Test. of Jane Parks, Bruce Malone, Boyce Butler and Marcelo Zavala.
Test. of Jane Parks, Boyce Butler and Marcelo Zavala.
Test. of Marcelo Zavala; Portimex Ex. 17.
Because the test results of independent labs can vary and because the results of these tests are not known until after the vessel has left port, it is risky to sell sorghum with testing for zearlenone on a No Sublot to Exceed basis. Indeed, Kevin Adams, CEO of Zen-Noh, stated that Zen-Noh has never sold sorghum on a No Sublot to Exceed basis. Adams added that Zen-Noh would sell on a No Sublot to Exceed basis only if it could obtain test results before loading the sublots onto the vessel.
Test. of Kevin Adams.
Id.; see also Test. of Charles Colbert.
Test. of Kevin Adams.
C. The Contract
In November of 2001, representatives from Zen-Noh traveled to Mexico to meet with Mexican grain importers. On November 14, 2001, Ron Finck and Charles Colbert represented Zen-Noh at a breakfast meeting with Portimex. Also in attendance at this meeting were Javier Sobrino, CEO of Portimex; Bill Gallo of Pasternak Baum Company; and representatives of Inagro de Mexico S.A. de C.V., a grain broker based in Mexico. It is common for Zen-Noh and its broker, Pasternak, to work with a grain broker based in a foreign country where Zen-Noh transacts business.
Test. of Bill Gallo and Ron Finck.
Test. of Bill Gallo.
Id.
Id.
At the breakfast meeting, the parties discussed the price of a proposed purchase of sorghum. The parties also discussed whether the grain would be tested on a Composite Basis or "by sublot." On the day following the breakfast meeting, Pasternak delivered a written contract, in English, to Inagro providing that Portimex agrees to purchase and Zen-Noh agrees to sell "25,000 metric tons (in bulk) — tolerance 10% more or less at contract price" of "NO. 2 SORGHUM OR BETTER — 14% Moisture Maximum." The agreement further provides that "[a]ll grade factors, including moisture, to comply with U.S.D.A. standards on a sublot basis." The "[s]eller shall provide an independent laboratory analysis certifying on a sublot basis . . . [a] Maximum 100 ppb zearlenone." Last, the contract provides that "FGIS weights and grades final at port and time of loading," and that "[c]ertificaton of quality and weight at [origin] will be final for both parties. However, buyer has the right to appeal following the procedures established by FGIS in this respect." As is customary in the grain export industry, the written instrument was not signed.
Test. of Javier Sobrino and Bill Gallo.
Id.
Id.; and Zen-Noh Ex. 1 and Portimex Ex. 1, Contract.
Contract.
Id.
Id. The contract provides that "quality and weight at original will be final. . . ." (Emphasis added.) The parties do not dispute that "original" is a typographical error and that they intended the word to be "origin."
Test., of Bill Gallo.
Most of Zen-Noh's buyers do not request testing for zearlenone. Portimex, however, intended to sell the sorghum for use as animal feed and therefore requested that the sorghum contain a maximum 100 ppb zearlenone. Zen-Noh agreed to this term. According to Javier Sobrino, Portimex paid a $.02 per bushel premium to have the sorghum tested "by sublot," as opposed to on a Composite Basis. At the breakfast meeting where Javier Sobrino and Ron Finck discussed the contract, no mention was made of testing on a No Sublot to Exceed basis. Sobrino testified that he was aware of the term "No Sublot to Exceed," and when asked at trial if he requested testing on a No Sublot to Exceed basis, Sobrino responded, "only sublot." At the breakfast meeting, the parties did not discuss the contract provision regarding procedures for appeal, as the provision is standard.
Test. of Ron Finck.
Test. of Javier Sobrino.
Contract.
Test. of Javier Sobrino.
Test. of Ron Finck and Bill Gallo.
Test. of Javier Sobrino.
Id.
D. Loading, Testing and Certifying the MELINI
In January of 2002, several weeks before Zen-Noh was to load sorghum onto a vessel provided by Portimex, Portimex became concerned that Zen-Noh's supply of sorghum contained high levels of zearlenone. This concern stemmed from an earlier shipment of sorghum that Zen-Noh delivered to Portimex in December of 2001. Portimex was so concerned about the quality of Zen-Noh's sorghum that it sought to cancel the contract that is now in dispute. Zen-Noh refused to cancel the contract. Portimex then requested that it be allowed to select the independent laboratory that would test the sorghum for zearlenone. Again Zen-Noh refused. Portimex then requested that it be allowed to send a representative to the loading of its vessel and that this representative be given samples sealed by FGIS to send to another lab for testing. As it is customary in the grain industry for the buyer to send a representative to the loading of a vessel and to obtain sealed samples of the grain, Zen-Noh acceded to this request. Zen-Noh also agreed to a request that the independent tester selected by Zen-Noh use the precise HPLC method.
Id.
Id.
Id.; Test. of Charles Colbert.
Test. of Charles Colbert.
Id.
Id.
Id.
Id.
Test. of Javier Sobrino.
Meanwhile, Zen-Noh prepared for delivery of sorghum to Portimex by attempting to ascertain whether its sorghum contained high levels of zearlenone. Zen-Noh believed that heavy rains in certain parts of the country had caused sprout damage that, in turn, gave rise to zearlenone. Therefore, in late January 2002, Zen-Noh tested sorghum that came from these areas. For example, Zen-Noh sent samples of sorghum that had arrived on BUNGE barge 437 to Central Analytical Laboratories, an independent testing lab. Central determined that this barge contained 33,780 ppb zearlenone. Central also determined that BUNGE 104 contained 1,295 ppb; BUNGE 89 contained 19,790 ppb; and BUNGE 235 contained 7,310 ppb. Dale Street, an employee of Zen-Noh, instructed that no sorghum from these four barges be loaded onto the vessel provided by Portimex. In an e-mail to Zen-Noh employees, Street wrote, "DO NOT PUT ANY OF THE [SORGHUM] FROM THESE 4 BARGES ON [PORTIMEX' VESSEL]. WE CAN'T TAKE ANY CHANCE OF HAVING THE VESSEL SAMPLES COMING BACK BAD." Adams testified that this sorghum was delivered to other customers that had not requested testing for zearlenone. Central also determined that the sorghum located in Zen-Noh's Bin 322 contained 460 ppb zearlenone.
Test. of Kevin Adams.
Test. of Kevin Adams and Ron Finck.
Test. of Kevin Adams.
Portimex Ex. 30.
Portimex Exs. 30 and 33.
Test. of Ron Finck; Portimex Ex. 33.
Portimex Ex. 33.
Test. of Kevin Adams.
Portimex Ex. 30, at 5.
Portimex nominated the M/V MELINI to carry sorghum from Zen-Noh's facility on the Mississippi River to Tuxpan, a port city in Mexico on the Gulf of Mexico. Zen-Noh loaded sorghum onto the MELINI on February 2 and 3, 2002. The shiplot was comprised of 18 sublots, including sorghum that had been delivered to Zen-Noh on 12 barges, four trucks and one train. of the sorghum that Zen-Noh tested for zearlenone in late January, only one batch was loaded onto the MELINI — sorghum located in Bin 322 that contained 460 ppb zearlenone. This sorghum comprised less than 10% of the overall shiplot delivered to Portimex.
Test. of Ron Finck
Zen-Noh Ex. 2.
Test. of Kevin Adams; Portimex Ex. 54.
Portimex Ex. 54.
Id.
Zen-Noh selected Thionville Laboratories, Inc., an independent laboratory, to test and certify the sorghum for, among other things, zearlenone in excess of 100 ppb. Neither Boyce Butler, the Thionville employee who conducted the tests, nor George Zoller, Thionville's Manager of the Grain Department, was aware that Zen-Noh was concerned about high levels of zearlenone. In 2001, Butler tested samples of grain for zearlenone one to ten times per week. Zen-Noh also used Thionville to certify the sorghum sold to Portimex back in December of 2001. Portimex obtained samples sealed at loading and sent these to CII Laboratory Services, an independent lab in Kansas City, Missouri.
Test. of Kevin Adams and Boyce Butler; Zen-Noh Exs. 5 and 6.
Test. of Boyce Butler.
Id.
Test. of Javier Sobrino.
Test. of Jane Parks.
The MELINI left port on February 3, 2002, and arrived in Tuxpan, Mexico several days later. On February 6, 2002, Thionville reported its test results. Using the HPLC method, Thionville determined that one sublot contained 180 ppb zearlenone and the remaining 17 sublots contained less than 100 ppb. Thionville determined that the mathematical average of the 18 test results equaled 20 ppb, so Thionville certified that the sorghum contained less than 100 ppb. Portimex could have attended Thionville's testing, but it did not. Portimex could have requested hard copies of Thionville's laboratory results, but it did not. On February 8, 2002, CII reported that eight of the 18 sublots contained zearlenone in excess of 100 ppb. CII also conducted a 19th test on a composite sample drawn from the entire shiplot loaded onto the MELINI. The test of the composite sample indicated that zearlenone did not exceed 100 ppb.
Test. of Javier Sobrino.
Zen-Noh Ex. 6.
Zen-Noh Exs. 6 and 7.
Id.
Test. of Boyce Butler, George Zoller and Ron Finck.
Id.
Portimex Ex. 10.
Id.
Id.
E. Unloading the MELINI
When the MELINI arrived in Tuxpan, buyers requested that the sorghum be tested for zearlenone. According to Javier Sobrino, Portimex recognized that the Mexican buyers would not make their purchases based on the tests conducted at loading by Thionville. Portimex assumed the risk that the test results in Mexico might differ from the results reported in the United States. Unloading the MELINI required several days, during which time the hatch of the vessel remained open. Portimex employees took samples from the sorghum as it was discharged, and these samples were tested by LCA. Using the ELISA and then the HPLC method, LCA found zearlenone in excess of 100 ppb. LCA's results ranged from 165 ppb to 1007 ppb. Javier Sobrino testified that buyers refused to purchase the sorghum. Portimex was forced to fill its sales contracts by purchasing expensive Mexican sorghum. Portimex also incurred extra storage charges for the sorghum discharged from the MELINI. Portimex also claimed that it lost future business because one or more Mexican buyers that used to purchase entirely from Portimex said they will now purchase from other grain suppliers.
Test. of Javier Sobrino.
Id.
Id.
Test. of Javier Sobrino and Marcelo Zavala.
Id.
Id.; Portimex Ex. 17.
Portimex Ex. 17.
Test. of Javier Sobrino; Portimex Ex. 39.
Id.
Id.
Based on the reports of CII and LCA, Portimex requested that FGIS release additional samples sealed on the day of loading for further testing. According to Zen-Noh, it is not an ordinary business practice to consent to release of such samples absent an agreement that additional testing may not be used to impeach the certification obtained at loading. As Portimex would not agree to this condition, Zen-Noh did not consent to the release of FGIS samples. To obtain the samples, Portimex filed this lawsuit. Trilogy Analytical Laboratory tested these additional samples in August 2002, approximately six months after loading. Trilogy reported zearlenone far in excess of 100 ppb, with levels ranging from 67 to 2677 ppb.
Test. of Javier Sobrino.
Test. of Kevin Adams.
Test. of Javier Sobrino and Kevin Adams.
Portimex Ex. 19.
Id.
Thionville received a Petition to Perpetuate Evidence on February 22, 2002. Thionville labs do not generate hard copies of test results; all laboratory files exist only on computer. Thionville deletes its computer files every two to three months. When Thionville received the Petition, George Zoller and Boyce Butler looked for the computer records of their tests, but the computer files had already been deleted.
Test. of George Zoller and Boyce Butler.
Id.
Id.
Id.
II. Discussion
A. The Meaning of "On a Sublot Basis"
Portimex asserts that the contractual provision requiring testing "on a sublot basis" means that no sublot could contain zearlenone in excess of 100 ppb. A district court sitting in diversity applies the law of the forum state. Guaranty Nat. Ins. Co. v. Azrock Industries, Inc., 211 F.3d 239, 243 (5th Cir. 2000). Under Louisiana law, the law of the state whose policies would be most impaired governs an issue of conventional obligations. LA. CIV. CODE ANN. art. 3537 (West 2002). Important factors to consider include the place of negotiation, formation and performance of the contract, the location of the object of the contract, the place of domicile or residence of the parties, and the policy of facilitating orderly transactions and promoting multistate commercial intercourse. Id. Because Zen-Noh is a Louisiana corporation and the sale, delivery and acceptance of the sorghum was to take place in Louisiana, Louisiana law governs the interpretation of the contract.
The interpretation of a contract is the "determination of the common intent of the parties with courts giving the contractual words their generally prevailing meaning unless the words have acquired a technical meaning." E.R. Campbell v. Melton, 817 So.2d 69, 74 (La. 2002); Phillips Oil Company v. OKC Corporation, 812 F.2d 265, see LA. CIV. CODE ANN. art. 2045— 2057 (West 2002). If the words of a contract are clear and explicit and do not lead to absurd consequences, then no further interpretation may be made in search of the intent of the parties. Campbell, 817 So.2d at 75. Unless the written expression of the parties is ambiguous, parol or extrinsic evidence is generally inadmissible. Id. The determination that a contract is ambiguous such that its interpretation requires the consideration of external evidence is a question of law. Concise Oil and Gas Partnership v. Louisiana Intrastate Gas Corporation, 986 F.2d 1463, 1469 (5th Cir. 1993). The Fifth Circuit has noted that under Louisiana law, when a contract is ambiguous "[e]ach provision of a contract must be interpreted in light of the other provisions . . . [and] contract provisions susceptible to different meanings should be interpreted to avoid neutralizing or ignoring any of them or treating them as surplusage." Texas Eastern Transmission Corp. v. Amerada Hess Corp., 145 F.3d 737, 742 (5th Cir. 1998) (internal citations omitted). Louisiana law provides that "[i]n case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text." LA. Civ. CODE ANN. art. 2056; see also Louisiana Gaming Corporation v. Kayell Enterprises, Inc., 804 So.2d 736, 741 (La.Ct.App. 2001).
The contract provides that the "[s]eller shall provide an independent laboratory analysis certifying on a sublot basis . . . [a] Maximum 100 ppb zearlenone." As the term "on a sublot basis" is ambiguous, the Court will consider parol evidence to determine the intent of the parties. In the grain industry, the term "on a sublot basis" possesses a technical meaning. The term means that samples of grain are taken from each sublot, each sample is tested, and the test results from each sublot sample are averaged together to determine the overall quality of the shiplot. Bill Gallo and Ron Finck, a feed grain merchandiser with Zen-Noh, participated in the contract negotiation and testified that their understanding of the contract term was consistent with industry usage. In addition, both FGIS and Thionville interpreted the term consistent with industry usage. When FGIS tested the grade of the sorghum "on a sublot basis," it used a formulation of Sublot Basis called the Cu-Sum Plan. Under the Cu-Sum Plan, the seller can elect to load sublots that exceed contract specifications onto the barge so long as the overall average of the shiplot does not. Thionville also interpreted the contract to require testing on a Sublot Basis. Thionville tested each sublot sample and then averaged the results to determine whether to certify the grain for compliance with contract specifications.
Contract.
Test. of Bill Gallo and Kevin Adams.
Id.
Test. of Bill Gallo and Ron Finck.
Zen-Noh Exs. 2-4.
Test. of Kevin Adams.
Zen-Noh Exs. 5 and 6.
Despite the technical meaning of "on a sublot basis," Portimex asserts that the contract instead required that no sublot exceed contract specifications. The Court does not find this assertion credible. Portimex is a sophisticated party with experience in the grain industry. As such, it is aware of the technical meaning of "sublot basis," and it is also aware that the grain industry uses the term "No Sublot to Exceed" when no sublot can exceed contract specifications. Javier Sobrino, Portimex' CEO since 1984, negotiated the contract himself. Sobrino testified that he is aware of the term "no sublot to exceed," but he made no mention of this term at the breakfast meeting at which the contract was initially discussed.
Test. of Javier Sobrino.
Test. of Javier Sobrino and Bill Gallo.
Id.
Further, the $.02 per bushel premium that Portimex agreed to pay for the sorghum was offered in exchange for testing on a Sublot Basis, as opposed to on a Composite Basis. According to Bill Gallo, Portimex would have had to pay an additional $.01 per bushel premium for testing on a No Sublot to Exceed basis to reflect the level of risk involved. Indeed, Kevin Adams, CEO of Zen-Noh, testified that Zen-Noh never contracts to test sorghum for zearlenone on a No Sublot to Exceed basis because of the risk involved in requiring that each sublot not exceed contract specifications under tests completed by independent labs after the vessel has already left port.
Test. of Bill Gallo.
Test. of Kevin Adams.
Accordingly, the Court will accord "on a sublot basis" its technical meaning, the same meaning attributed to it by Zen-Noh, Pasternak, FGIS, Thionville and the entire grain industry. This means that the contract required testing of samples drawn from each sublot, with the average of these results to indicate the overall quality or grade of the sorghum.
B. Certification By Thionville
Again, the contract provides that the "[s]eller shall provide an independent laboratory analysis certifying on a sublot basis . . . [a] Maximum 100 ppb zearlenone." In accordance with the contract, Zen-Noh selected Thionville to certify that the sorghum complied with contract specifications. On February 6, 2002, Thionville certified that the sorghum contained less than 100 ppb. The eighteen sublots ranged from 0 ppb to 180 ppb zearlenone, with the average of the 18 sublots equal to 20 ppb.
Contract.
Zen-Noh Exs. 5 and 6.
Zen-Noh Exs. 5 and 6.
When parties agree to be bound by the determination of a third party, that determination, absent bad faith or fraud, is binding on the parties. See Merchants Company v. Bartlett and Company Grain, 349 F.2d 294, 295 (5th Cir. 1965); Cities Service Company, Inc. v. Derby Co., Inc., 654 F. Supp. 492, 500 (S.D.N.Y. 1987). In Merchants, for example, the plaintiff purchased from the defendant four barge loads of corn. The parties agreed that the quality of the corn would be tested and certified at origin by a third party. The third party tested the corn at origin and certified its quality. Later, additional tests were conducted that determined that the quality of the corn did not match contract requirements. The Fifth Circuit, applying the law of Missouri, found that "the inspection certificate of the third party under a contract of the type in question is binding on both parties in the absence of fraud, or such gross mistake as would imply bad faith." Merchants, 349 F.2d at 295. The Court finds the reasoning of Merchants persuasive. When a contract provides that the quality of a product is to be certified by a third party, and that that certification is to be "final," the parties are bound by this certification. To hold otherwise would render that clause of the contract meaningless. Accordingly, the Court finds that the parties are bound by Thionville' s certification.
At trial, Portimex went to great lengths to cast doubt on whether Thionville's certificate discharged Zen-Noh's contractual obligations. Portimex attempted to do this by establishing that Zen-Noh, Thionville, or both, engaged in bad faith or fraud. First, Portimex tried in vain to establish that Zen-Noh intentionally loaded sorghum with high zearlenone content onto the MELINI and then engaged in a cover-up. In late January, Zen-Noh hired Central Analytical Laboratories to test certain stocks of its sorghum supply for zearlenone, and some of the tests indicated high levels of zearlenone. The "Bin Delete Record" that records the source of the sorghum loaded onto the MELINI, however, indicates that Zen-Noh loaded only one of these batches of sorghum onto the MELINI. This was the sorghum in Bin 322, which contained 460 ppb. As reflected in Thionville's test results, Zen-Noh blended this sorghum with other sorghum to ensure that, overall, the MELINI shiplot complied with contract specifications.
Portimex Ex. 30 and 33.
Portimex Ex. 54.
Portimex intimated that Zen-Noh loaded additional sorghum with high zearlenone content onto the MELINI and then hid its tracks on the Bin Delete Record by mislabeling the source of the sorghum as "Weigh Back." This effort to discredit Zen-Noh never rose above the level of innuendo. Loading "weigh back" grain onto a vessel is not uncommon. Moreover, Zen-Noh lacked any motive to deceive Portimex, as it could just as easily sell the sorghum with high zearlenone content to other buyers that did not request testing for zearlenone. Indeed, most of Zen-Noh's customers do not request such testing. Indeed, according to Kevin Adams, Zen-Noh loaded sorghum that contained high zearlenone content onto vessels provided by other buyers that had not requested zearlenone testing. Moreover, the evidence indicates that Zen-Noh went to great lengths to ensure that it complied with its contract with Portimex — not only did Zen-Noh conduct testing on its supply to determine which bins contained high zearlenone content, but Zen-Noh also instructed its employees not to load the "bad" sorghum onto the MELINI because "we can't take a chance of having the vessel samples coming back bad."
"Weigh Back" is the term that Zen-Noh uses for grain that is weighed and prepared for loading onto a vessel but, for some reason, is not loaded onto the vessel and is instead returned to the silo. When it prepares grain for loading, Zen-Noh blends grain from multiple bins together, making it impossible to determine with precision the source of "weigh back."
Test. of Kevin Adams.
Test. of Ron Finck and Charles Colbert.
Test. of Kevin Adams.
Portimex Ex. 33.
Second, Portimex intimated at trial that Thionville purposefully deleted back-up records that may have revealed the true results of its tests. Again, Portimex' assertion is completely unfounded. Boyce Butler, who works in Thionville's lab, and George Zoller, Manager of Thionville's Grain Department, flatly denied such an assertion. They testified that Thionville routinely deletes the computer records in its lab every two or three months, and that any deletions of relevant records occurred pursuant to routine business practices and before Thionville received notice of the Petition to Perpetuate Evidence. The Court notes that Portimex could have, but did not, send a representative to oversee Thionville's testing and obtain hard copies of the results.
Test. of Boyce Butler and George Zoller.
Id.
Id.
Third, and finally, Portimex attempts to impugn Thionville's results with evidence that other labs obtained different results. The most powerful evidence undermining this attempt, however, are the results of the independent tests that Portimex itself requested be conducted at loading. Concerned that Zen-Noh's sorghum supply contained high levels of zearlenone, Portimex obtained samples sealed at loading and sent these samples to CII Laboratory Services for testing. CII found that eight of the 18 sublots contained in excess of 100 ppb zearlenone. But CII also tested a composite sample, a sample representing sorghum from the entire shiplot, and determined that the composite sample contained less than 100 ppb. CII's results are thus within the same ballpark as those obtained by Thionville, especially given that Portimex' own witness, Marcelo Zavala, indicated that test results can vary considerably.
Test. of Javier Sobrino.
Portimex Ex. 10.
Portimex Ex. 10.
Test. of Marcelo Zavala.
Given that CII and Thionville both tested the sorghum at loading and that both achieved results in the same ballpark, the Court finds that the results obtained by Trilogy Analytical Laboratories six months after loading do not impeach Thionville's credibility. Nor, for that matter, do the results obtained by LCA, which tested the sorghum after it arrived in Mexico and determined that some samples contained 165, 565 and even 923 ppb. The LCA results are particularly weak evidence given that its samples were drawn by Portimex employees from the MELINI after the vessel had crossed the Gulf of Mexico and remained at the dock with its hatch open for several days during unloading. Portimex assumed the risk that tests conducted in Mexico might differ from those obtained at loading.
Portimex Ex. 19. Six months after loading, Trilogy tested samples sealed at loading and determined that the samples contained as much as 2,678 ppb zearlenone.
Portimex Ex. 17.
Test. of Javier Sobrino and Marcelo Zavala.
Test. of Javier Sobrino.
To summarize, Portimex tried in vain to establish that Thionville's certification failed to discharge Zen-Noh's contractual obligations. But the results of CII, the independent tester selected by Portimex to test samples at loading, tend more to confirm Thionville's results than to impeach them. While it is true that Zen-Noh had sorghum with high zearlenone content in its supply, there is no evidence that it loaded this sorghum onto the MELINI. To the contrary, there is evidence that Zen-Noh, in testing its supply of sorghum and instructing its employees not to load sorghum with high zearlenone content onto the MELINI, took measures to ensure that it did not breach its contractual obligations to Portimex. Therefore, the Court finds that Thionville's certification is binding on both parties.
C. Appeal According to Procedures Established by FGIS
Last, Portimex asserts that it was entitled to appeal Thionville's results. The contract provides that "Certification of quality and weight at [origin] will be final for both parties. However, [Portimex] has the right to appeal following the procedures established by FGIS in this respect." The Court finds this contractual provision unambiguous. The contract clearly states that Portimex can appeal following procedures established by FGIS.
Contract.
Plaintiff, however, makes no showing that it complied with FGIS procedures which, among other things, require that requests for appeal be filed "before the grain has left the specified service point where the grain was located when the original inspection was performed." 7 C.F.R. § 800.136(b). The Court is not inclined to create out of whole cloth an appeal procedure other than that called for in the contract. Therefore, the Court finds Portimex' assertion without merit.
III. Conclusion
For the foregoing reasons, the Court rejects Portimex' allegations that Zen-Noh is in breach of contract.