Problems in contract production of blended alcoholic beverage lead to suit against manufacturer. Bonus: we’ve got the docs (including the alcoholic beverage manufacturing agreement) for you.
A dispute over a contracted alcoholic beverage between the parties to this alcoholic beverage manufacturing agreement arose after the purchaser, a company that markets, sells, and distributes alcoholic beverages, raised quality control issues with the manufacturer, a brewery, distillery, and winery producing the purchaser’s “chocolate and cream based wine blends” and a “cream and coffee based alcohol blend.”
The complaint alleges that the manufacturer produced 3,126 cases of the purchasers iced coffee and at an August 2018 taste test, the purchaser noted the flavor was wrong. The manufacturer said it could safely adjust the taste by adding an additional ingredient. The purchaser alleges this was not true and that the additional ingredient resulted in an improper pH level in the product leading to product failure. The purchaser alleges that the manufacturer concealed the information about the failure from it and that by the time it discovered the product failure, half of the cases had already been distributed. The complaint also alleges that the manufacturer used substitute ingredients and not those specified in the contract and that in another batch of product in October of 2018, the purchaser learned that many of the cases from the additional batch were contaminated with bacteria. The purchaser claims this was from an unsanitary production environment – stating that in total, some 6,000 cases could not be sold.
There were claims brought for breach of contract as well as fraud and the manufacturer was recently successful in dismissing the fraud claims as the contract controlled and the basis for the fraud claims was actually contractual issues.
Put another way, the court found that the issues raised regarding the purported fraud, all arose under the contract and were part of the contract’s operations and representations. Identifying them each as:
- That defendant had failed to disclose the misblending or use of incorrect ingredients [#23 at ¶ 76].
- That defendant falsely represented to plaintiff that it could safely, legally, and properly add an additional ingredient to adjust the flavor without causing or increasing risk of an improper pH level [id. ¶ 77].
- That defendant falsely represented that it was producing products in a clean, sanitary, and sterile environment [id. ¶ 79].
- That defendant falsely represented that it could purchase an additional ingredient (the “coffee cream”) for future use, but, despite being paid to order it, defendant never ordered, received, or used the ingredient [id. at ¶ 81].
The court noted a “fraud claim independent of the contract is actionable, but it must be based upon a misrepresentation that was outside of or collateral to the contract, such as many claims of fraudulent inducement. That distinction has been drawn by courts applying traditional contract and tort remedy principles.”
Applying this principle to the allegations, the court held:
None of plaintiff’s fraud allegations survive this analysis. The allegation that defendant failed to disclose its improper blending, that it could fix the problem it created, and that it was producing the products in a sanitary environment all seem to be just another way of saying that defendant breached the contract—the damages are the same.
When the purchaser went on to argue that it had suffered additional damages such as the damage to its reputation and a delay in bringing its product to market, the court responded that the breach of contract suit was the place to deal with those damages as well. This is a good reminder that parties waive consequential damages and limit damages to contract fees at their own peril as the application of this doctrine of suing under the contract for these forms of damages (the economic loss doctrine) “encompasses consequential economic loss such as loss of profits and loss of good will or business reputation.” So a party that has agreed to such a limitation might find itself unable to collect the resultant losses and be made whole.
- You can read the court’s order regarding the motion to dismiss this lawsuit over defective alcoholic beverages here.
- You can read the amended complaint against the winery and view a redacted copy of the winery’s alcoholic beverage manufacturing agreement here. Here’s the redacted wine-based beverage manufacturing agreement on its own.
- You can read the memorandum in support of the motion to dismiss this lawsuit over wine-based alcoholic beverages here.
- You can read the memorandum in response to the motion to dismiss this lawsuit over wine-based alcoholic beverages here.
- You can read the reply in support of the motion to dismiss this lawsuit over wine-based alcoholic beverages here.