Pulp friction: $9.62M verdict for juice maker upheld

A judge correctly read an ambiguous contract to find that a juice maker had been squeezed by one of its buyers for millions of dollars in rebates that the buyer wasn’t entitled to, the 4th U.S. Circuit Court of Appeals has ruled, affirming a $9.26 million verdict in the juice maker’s favor.

Gregory Packaging Inc., or GPI, makes juice cups that it supplies to schools and hospitals. In 2011 it signed a contract with Foodbuy, a group purchasing organization that pools institutional purchasers’ buying power to negotiate lower prices. GPI agreed to pay a rebate, known as a volume allowance, based on the quantity of its products purchased “through the Foodbuy program at the Foodbuy price” by customers through Foodbuy’s designated distributors.

In early 2015 the relationship turned sour, as GPI discovered that for the length of the agreement, Foodbuy had been claiming rebates for every case of juice purchased by its customers, not just the ones purchased through the Foodbuy program. GPI stopped issuing further rebates, alleging that it’d already overpaid more than $6 million of them.

When mediation between the parties failed, Foodbuy sued GPI, alleging breach of contract. GPI countersued, alleging breach of contract based on over-invoicing and violations of North Carolina’s Unfair and Deceptive Trade Practices Act.

After a bench trial in 2018, U.S. District Judge Frank D. Whitney entered two alternative holdings, finding that the contract was unambiguous and required GPI to pay a rebate only for purchases made through Foodbuy’s program, and even if the contract was ambiguous, the rules of contract interpretation still yielded the same result. He awarded GPI $7.06 million in compensatory damages and $2.21 million in prejudgment interest but dismissed GPI’s UDTPA claim, finding that it was barred by the economic loss rule.

Both parties appealed. Writing in a Feb. 1 opinion in Foodbuy LLC v. Gregory Packaging Inc. (VLW 021-2-045),  Judge G. Steven Agee said the Fourth Circuit affirmed the verdict, rejected Foodbuy’s other contentions and reversed dismissal of the UDTPA claim.

“We find the agreement to be ambiguous,” Agee wrote. “Therefore, the proper framework for resolving the breach of contract claim involves the tools for interpreting ambiguous contracts. The district court undertook that analysis in its alternative holding wherein it concluded that the parties’ intent was to require GPI to pay a volume allowance on only those purchases made through the Foodbuy program at the negotiated price.”

‘Eggs in the wrong basket’

The crux of the appeal centered on Foodbuy’s argument that Whitney had erred in interpreting the contract. Foodbuy took the position that Whitney had correctly found that the agreement was unambiguous, but read its provisions incorrectly, negating several parts and rendering others surplusage.

“At no point in its [brief], however, does Foodbuy engage with the district court’s alternative holding should the agreement be deemed ambiguous,” Agee wrote. “Instead, it assumes the language is plain, unambiguous, and should be interpreted in its favor. In doing so, Foodbuy has thrown all of its eggs in the wrong basket because we find the agreement to be ambiguous.”

The language of the agreement provided ample support for the constructions put forth by both GPI and Foodbuy, Agee said. Two contradictory sections of the deal, when read in context of the agreement as a whole, created an ambiguity that couldn’t be resolved on its face, and so the contract was “fairly and reasonably susceptible” to either of the constructions.

As such, Whitney correctly engaged in an analysis of the intent of the parties, a ruling Foodbuy didn’t challenge, although Agee said the court would have affirmed Whitney’s reasoning even if it had been challenged. The court also rejected all of Foodbuy’s other appeals.

Cup runneth over

GPI’s refreshment didn’t stop there, as the 4th Circuit also reversed the dismissal of its UDTPA claim. To date, North Carolina’s appellate courts have limited the application of the economic loss rule to negligence claims, Agee wrote, which “is certainly reasonable given that the UDTPA is not a tort; it is ‘the creation of statute’ and ‘neither wholly tortious nor wholly contractual in nature.’”

“We have previously cautioned that ‘the North Carolina courts have never addressed whether UDTPA claims are subject to the economic loass rule, and in the absence of such direction, we are well-advised to rely on other grounds,’” Agee wrote. “And we see no reason to depart from the same circumspect approach here.”

Agee also found that the district court had erred in conflating GPI’s UDTPA and fraud claims, agreeing with GPI that it sufficiently stated aggravating circumstances to sustain its UDTPA claim.

“Given the district court’s misapprehension of these threshold considerations, we will vacate and remand the judgment on this issue so that it can consider GPI’s UDTPA claim in the first instance through a fresh lens in conformity with the holdings of this opinion,” Agee wrote.

The case had an unusual wrinkle in that Judge A. Marvin Quattlebaum Jr. and Thomas S. Kleeh, a district court judge sitting by designation, sat for oral argument but Quattlebaum later recused himself, as he was previously a partner at Nelson Mullins, which represented Foodbuy. Rather than have a two-judge panel decide the case, as is permissible, Judge Paul V. Niemeyer took the unusual step of electing to participate on the earlier recorded oral argument, briefs, appendices and district court record.

Russ Ferguson, who practices in Charlotte, North Carolina, represented GPI.

“We were really, really happy with the 4th Circuit’s decision,” Ferguson said. “This was such an odd case — our client got sued for $1 million and we won $9.2 million in the district court. We weren’t planning on appealing, but when Foodbuy did, we brought a cross-appeal on the UDTPA claim and now have a new shot at that.”

The decision provides some clarity on UDTPA claims, Ferguson said, which will help practitioners.

“The 4th Circuit really limited application of the economic loss rule to negligence claims and provided two concrete actions that, as a matter of law, constitute aggravating circumstances for purposes of a UDTPA claim.”

William Clifford Wood Jr. of Columbia, South Carolina, represented Foodbuy. He did not respond to a request for comment.