Opinion
Civil Action No: 02-1185, Section: "R" (1)
September 12, 2002
ORDER AND REASONS
Before the Court is defendant's motion for summary judgment on the first of two shipments of sorghum. Because defendant delivered this shipment of sorghum to plaintiff in full compliance with its contractual obligations, the Court grants defendant's motion for summary judgment.
I. Background
In November 2001, in two separate transactions, plaintiff Commercializadora Portimex, S.A. contracted to purchase from defendant Zen-Noh Grain Corporation two shipments of U.S. No. 2 Sorghum. In its complaint, Portimex asserts that Zen-Noh breached both of these contracts by delivering sorghum with levels of zearlenone, a mycotoxin, in excess of those allowed by the contract. Zen-Noh has moved for summary judgment on only the first of these two transactions.
Zen-Noh is in the business of purchasing, selling and exporting grain from its export elevator located on the Mississippi River in Convent, Louisiana. The elevator receives various types of grain primarily by barge. The grain is unloaded from the barge and placed in storage silos at the elevator. When the grain is sold, the grain is unloaded from the silos and placed on a barge 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, a random selection of grain is set aside for sampling. These samples, which are placed in sealed bags, are tested by the Federal Grain Inspection Service ("FGIS") before any of the grain is loaded onto the barge. If the grain in a particular shipping bin does not meet the federal regulations, then the grain in that shipping bin is rejected and returned to the storage silo. The amount of grain in the shipping bins that is weighed, analyzed, and released by the FGIS 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.
The FGIS is an agency of the United States Department of Agriculture ("U.S.D.A.") that was created under the Federal Grain Standards Act.
The maximum size of each "sublot" may be specified by contract, and each sublot may comprise more than one shipping bin. In the transaction at issue in this motion for summary judgment, Zen-Noh utilized two of its shipping bins for each sublot.
The Sale and Purchase Agreement at issue states 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 SORGHUN OR BETTER — 14% Moisture Maximum." (Def.'s Mot. for Summ. J., Ex. 1, Contract.) The agreement further provides that "[a]ll grade factors, including moisture, to comply with U.S.D.A. standards on a sublot basis. Sublot sizes to be a maximum 2,000 Metric Tons." ( Id.) The agreement states that the "Seller shall provide an independent laboratory analysis certifying on a sublot basis (approximately 2,000 metric tons)" a number of specific factors not otherwise tested by the FGIS, among them a "Maximum 100 ppb zearlenone." ( Id.) The mycotoxin, zearlenone, is a by-product of mold. Last, the contract provides that "FGIS weights and grades final at port and time of loading," and that "[c]ertification of quality and weight at original will be final for both parties." ( Id.)
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."
The sorghum was loaded onto plaintiff's barge on December 20, 2001. Plaintiff alleges that defendant breached the contract by delivering sorghum with zearlenone in excess of 100 parts per billon. Defendant moves for summary judgment, asserting that delivery of the sorghum complied in all respects with the contract.
II. Discussion
A. Legal Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. FED. R. Civ. p. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2551. (1986). The court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The moving party bears the burden of establishing that there are no genuine issues of material fact. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993). A factual dispute precludes a grant of summary judgment if the evidence would permit a reasonable jury to return a verdict for the nonmoving party. See Hunt v. Rapides Healthcare System, LLC, 2001 WL 1650961 (5th Cir. 2001) (citations omitted).
If the dispositive issue is one for which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. Celotex, 477 U.S. at 325, 106 S.Ct. at 2552; Lavespere, 910 F.2d at 178. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.
The Fifth Circuit has "arguably articulated an even more lenient standard for summary judgment in certain nonjury cases." Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 273 n. 15 (5th Cir. 1987). In Nunez v. Superior Oil Co., 572 F.2d 1119, 1123-24 (5th Cir. 1978), the Fifth Circuit explained:
"If decision is to be reached by the court, and there are no issues of witness credibility, the court may conclude on the basis of the affidavits, depositions, and stipulations before it, that there are no genuine issues of material fact, even though decision may depend on inferences to be drawn from what has been incontrovertibly proved."
Therefore, in a nonjury case, such as this case, the Court is encouraged to draw inferences, even when they appear to be factual, if a "trial on the merits would reveal no additional data." Id. at 1124; see also Professional Geophysics, Inc. v. Placid Oil Co., 932 F.2d 394, 398 (5th Cir. 1991).
B. Discussion
Zen-Noh asserts that it delivered the sorghum shipment at issue in full compliance with the Sale and Purchase Agreement. Zen-Noh first asserts that the contract calls for testing the sorghum when it is loaded onto the purchaser's barge in Louisiana, and not at the time that the sorghum is unloaded from plaintiff's barge in Mexico. Second, Zen-Noh asserts that the sorghum was tested at the time of loading and that the testers certified that the shipment complied in all respects with the factors specified in the contract, including the testing, "on a sublot basis," for zearlenone in excess of 100 ppb.
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 Sale and Purchase Agreement. Under Louisiana law, 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); 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).
Here, the contract explicitly and unambiguously indicates that the sorghum is to be tested for compliance with contract specifications at the time that it is loaded onto the barge in Louisiana. The contract states that FGIS weights and grades will be "final at port and time of loading." (Contract, at 1.) The contract further indicates that "[c]ertification of quality and weight at original [sic] will be final for both parties," but that the "buyer has the right to appeal following the procedures established by FGIS in this respect." ( Id.) As Zen-Noh asserts, the only reasonable way to interpret this contract provision is to recognize that "original" is actually a misspelling of the word "origin." This interpretation is consistent with the provision requiring FGIS weights and grades to be "final at port and time of loading." Further, the origin of the sale is the location at which the sorghum is loaded onto the purchaser's barge. It makes sense that the seller of the sorghum in Louisiana would not be responsible for the condition of the grain upon its arrival in Mexico, for once the grain is loaded onto the purchaser's barge it is beyond the seller's control. Portimex does not challenge this reading of the contract.
Defendant has produced evidence indicating that the FGIS and an independent testing lab tested the sorghum at the time of loading. The FGIS tested the sorghum for various factors and found that the sorghum complied in all respects with federal regulations. (Def.'s Mot. for Summ. J., Exs. 2 and 3.) The FGIS, however, does not test for each of the factors specified in the contract. Therefore, in an attempt to comply with the contract, Zen-Noh sent sealed samples of the sorghum to Thionville, an independent and official weigher, sampler, and chemist, for additional testing. For testing of zearlenone, Thionville uses a VICAM test kit, Zearalatest, which tests to a sensitivity of 100 ppb. (Pl.'s Supplemental Memo. in Opp. to Def.'s Mot. for Summ. J., Ex. 2, Dep. of Boyce Butler, at 33.) If the test comes up negative, then Thionville does no further testing. If the test comes up positive for zearlenone in excess of 100 ppb, then Thionville continues testing using the High Pressure Liquid Chromatography ("HPLC") method in order to get a more accurate quantitative result. ( Id.) Thionville reported that for each factor specified in the contract, including zearlenone, each sublot tested "negative." (Def.'s Mot. for Summ. J., Ex. 5 and Aff. of Boyce Butler, at 2-3.) Thionville presented the parties with an analysis certificate, signed by George Zoller, Grain Manager, certifying these results. (Def.'s Mot. for Summ. J., Ex. 4A.) In other words, at the time that the sorghum was loaded onto the barge for shipment, either the FGIS or Thionville certified that each sublot complied in all respects with each factor specified in the contract.
Portimex asserts that Thionville's tests failed to fulfill Zen-Noh's contractual obligations. First, Portimex notes that the samples tested by Thionville may not have been taken from the sorghum loaded onto its barge. Four of the 18 sublots tested by Thionville were numbered 50670, 50673, 50674 and 50676. (Def.'s Mot. for Summ. J., Exs. 4 and 5.) These numbers do not correspond with the sublot numbers in the FGIS Inspection Log listing the 18 sublots loaded onto the Portimex barge. (Def.'s Mot. for Summ. J., Ex. 3.) In place of these numbers, the FGIS logs list 50570, 50572, 50574 and 50576. Plaintiff acknowledges that this discrepancy may be the result of a clerical error, and the Court finds that it is. The numbers differ only slightly. Moreover, each of the sealed samples bears not only a seal number, but also large labels indicating both the sublot number and the barge on which that sublot is to be loaded. The Chief Chemist of Thionville attests that Thionville tested 18 bags of sorghum, "each bag being under an unbroken seal of the [FGIS] purported[ly] coming from cargo loaded aboard" the barge provided by Portimex. (Aff. of Boyce Butler, at 1-2.) Plaintiff presents no further evidence that either Thionville or the FGIS were careless or negligent in handling the sorghum in question. Therefore, the Court concludes that the negligible discrepancy in seal numbers is merely due to clerical error.
Second, plaintiff asserts that delivery of the sorghum failed to comply with U.S.D.A. standards. The contract required Zen-Noh to "provide an independent laboratory analysis certifying on a sublot basis" a maximum level of 100 ppb zearlenone. (Contract, at 1.) The contract further provided that "[a]ll grade factors, including moisture, to comply with U.S.D.A. standards. . . ." ( Id.) Plaintiff, however, has failed to identify a particular U.S.D.A. standard with which Zen-Noh failed to comply. Plaintiff has not provided the Court with U.S.D.A standards for levels of zearlenone. Indeed, it is likely that no such standard exists, for the U.S.D.A. does not regularly test for zearlenone. Indeed, that is the reason that Zen-Noh and Portimex contracted to have an independent tester test the sorghum for this particular mycotoxin.
Plaintiff next asserts that the testing methods used by Thionville, the independent tester, failed to comply with U.S.D.A. standards. Again, plaintiff has failed to establish the existence of a U.S.D.A. standard for testing zearlenone. The U.S.D.A. has identified two tests that are not approved for testing zearlenone: Thin-Layer Chromatography ("TLC") and the "minicolumn." (Pl.'s Opp. to Def.'s Mot. for Summ. J., Ex. 8, at 31.) The U.S.D.A. has also indicated that the HPLC method has been approved by the Association of Official Analytical Chemists. Absent from the record, however, is any showing that the U.S.D.A. has officially approved of any particular test for testing zearlenone. Indeed, plaintiff concedes that no "quick" test, such as the VICAM "quick" test used by Thionville, has yet been approved for testing zearlenone. (Pl.'s Supplemental Memorandum in Opp. to Def.'s Mot. for Summ. J., at 3.)
Although the U.S.D.A. has established a procedure by which quick tests for zearlenone could obtain official approval, no such test has yet been approved. (Pl.'s Supplemental Memo. in Opp. to Def.'s Mot. for Summ. J., Ex. 6)
The Court therefore concludes that Zen-Noh has complied with U.S.D.A. standards where such standards exist. Where such U.S.D.A. standards do not exist, of course, there is nothing for Zen-Noh to comply with. Plaintiff, in failing to identify a particular U.S.D.A. standard breached by Zen-Noh, has failed to create an issue of material fact.
Last, Portimex asserts that Zen-Noh failed to comply with the contractual standard requiring delivery of sorghum with a maximum 100 ppb zearlenone. Portimex' assertion is based entirely on tests of the sorghum conducted well after the date of loading. When the sorghum arrived in Mexico, for example, it tested at levels of zearlenone in excess of 100 ppb. (Pl.'s Opp. to Def.'s Mot. for Summ. J., Ex. 5.) Portimex then requested that Thionville retest samples that had been sealed on the day of loading. Thionville's retest, which used the more precise HPLC method, came up negative for zearlenone in excess of 100 ppb. (Aff. of Boyce Butler, at 3, and Def.'s Mot. for Summ. J., Ex. 8, Letter to Portimex.) Portimex also requested that Zen-Noh send a sample of the sorghum sealed on the day of loading to another laboratory. This sample was sent to Inspectorate Coastal Grain Services, Inc. ("Coastal"). Coastal tested the sample in mid-January — roughly four weeks after loading — and determined that the level of zearlenone was 125 ppb. (Pl.'s Opp. to Def.'s Mot. for Summ. J., Ex. 6.) Portimex requested that still more samples sealed by the FGIS on the day of loading be tested by another laboratory, Trilogy Analytical Laboratory ("Trilogy"). These tests were conducted eight months after loading, and many of the 18 samples tested by Trilogy contained zearlenone in excess of 100 ppb, with levels ranging from 497.8 ppb to 3612.2 ppb. (Pl.'s Supp. Memo. in Opp. to Def.'s Mot. for Summ. J., Ex. 1.)
Although Thionville failed to produce documents confirming that the retest took place, Thionville asserts that no written records are kept for tests, like the re-test, that come up negative. (Pl.'s Supplemental Memo. in Opp. to Def.'s Mot. for Summ. J., Ex. 4, Dep. of George Zoller, at 40.)
In conducting these tests, Trilogy used the U.S.D.A. — approved HPLC method. See discussion, supra. (Pl.'s Supp. Memo. in Opp. to Def.'s Mot. for Summ. J., Ex. 1.)
The problem with plaintiff's assertion is that the contract expressly provided that "FGIS weights and grades final at port and time of loading" and that "certification of quality and weight at [origin] will be final for both parties." (Contract, at 1, 3.) 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.
Here, the parties agreed that an independent third-party would test and certify the quality of the sorghum at loading. Thionville conducted these tests and certified the results. (Def.'s Mot. for Summ. J., Ex. 4A.) Portimex presents no evidence of bad faith or fraud. Nor does Portimex present evidence that Thionville is either unreputable or biased. Indeed, to the contrary, the record indicates that Thionville was, in this matter, completely independent. For example, Thionville wrote a letter to Portimex offering advice on how to test zearlenone and how to draft and execute future contracts so as to avoid a dispute like the one before the Court. (Letter to Portimex.) Therefore, the Court finds that the parties are bound by Thionville's certified test results.
Portimex' attempt to cast doubt on Thionville's certified results with a single test conducted one month after loading (by Coastal) and tests conducted eight months after loading (by Trilogy) is not a procedure called for by contract. Indeed, it is inconsistent with what they agreed to in the contract. Furthermore, the results of tests conducted so long after loading are of dubious value, for a number of environmental factors, such as heat and humidity, may have intervened to cause a rise in the level of zearlenone. (Aff. of Boyce Butler, at 4.) Bruce Malone, Trilogy's Senior Vice President of Technical Services, attests that because of the manner in which the samples were sealed and stored, "the zearlenone present in the sorghum samples (tested by Trilogy eight months after loading] was most likely produced during growth in the field." (Pl.'s Supplemental Memo. in Opp. to Def.'s Mot. for Summ. J., Ex. 7, Declaration of Bruce Malone.) Nevertheless, given that the parties are bound by Thionville's certified results, the testimony of Bruce Malone does not persuade the Court that Thionville's certified results should be ignored.
Specifically, Malone attests that zearlenone is a mycotoxin produced by various species of fusarium mold. Fusarium mold only grows when the moisture content is 22-25%. The moisture content of the sorghum samples was less than 14% throughout its storage and until which time it was tested by Trilogy. Therefore, Malone concludes that the levels of zearlenone did not change during the eight months in which the sorghum was kept in storage. (Declaration of Bruce Malone.)
The Court therefore finds that Portimex has failed to create an issue of material fact as to Zen-Noh's compliance with the contract. Thionville tested the sorghum at loading, each test on each sublot came up negative for zearlenone in excess of 100 ppb, and Thionville certified these results. (Def.'s Mot. for Summ. J., Ex. 3, 4A and 5.) Therefore, defendant is entitled to summary judgment on the first of two shipments of sorghum.
Portimex has also produced an e-mail indicating Zen-Noh's concern over the level of contaminants in grain to be delivered to Portimex. (Pl.'s Supplemental Memorandum in Opp. to Def.'s Mot. for Summ. J., Ex. 3.) This e-mail, however, pertains to the second shipment of sorghum (which was loaded onto the M/V MELINI) and not the first shipment of sorghum (which was loaded onto the M/V SANMAR PRIDE). Only the first shipment of sorghum is at issue in this motion.
The contract states that factors such as zearlenone must be certified "on a sublot basis." (Contract.) Portimex asserts that the contract should be interpreted to require that each of the 18 sublots of sorghum must satisfy each factor specified by "the contract. Under this interpretation of the contract, to prevail Portimex need only establish that one of the 18 sublots loaded onto its barge contained zearlenone in excess of 100 ppb. Zen-Noh, by contrast, asserts that the contract requires that the test results of each sublot are to be averaged, and that only the average must conform to the specified terms of the contract. The Court need not resolve this dispute at this time, as Thionville's tests for each factor, on each sublot, were negative. Thus, even if the Court were to interpret the contract as urged by Portimex, Portimex still fails to defeat defendant's motion for summary judgment.
III. Conclusion
For the foregoing reasons, the Court grants defendant's motion for summary judgment as to the first of two shipments of sorghum.