Bright Harvest Sweet Potato Company, Inc. v. H.J. Heinz Company, L.P.

Filing 272

MEMORANDUM DECISION AND ORDER The motion in limine (Dkts. 206 ) is DENIED. The motions in limine (Dkts. 211 and 212 ) are GRANTED in part and DENIED in part. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

BRIGHT HARVEST SWEET POTATO
COMPANY, INC., and Oregon
corporation,

Case No. 1:13-cv-00296-BLW
MEMORANDUM DECISION AND
ORDER

Plaintiff,
v.
H. J. HEINZ COMPANY, L.P., a
Pennsylvania limited partnership,
Defendant.

INTRODUCTION
The Court has before it motions in limine (Dkts. 206, 211 and 212), as well as
related supplemental briefs on the burden of proof of good faith, preclusion of new
evidence and theories, and evidence that the Co-Pack Agreement was a long-term option
contract.
MEMORANDUM DECISION AND ORDER - 1

ANALYSIS
1.

Co-Pack Agreement as Option Contract
Although not always consistent, Heinz has, throughout this litigation, suggested or

inferred that the Co-Pack Agreement is an option contract, a long-term option contract,
an unenforceable long-term option contract, or something to that effect. To finally put the
matter to bed, the Court asked Heinz for legal authority showing that the Co-Pack
Agreement could be an enforceable long-term option contract if it lacked consideration.
Heinz filed a brief but provided no legal authority on that issue.
Instead, Heinz argues the Co-Pack Agreement was an enforceable option contract
because it was supported by sufficient consideration. Heinz first contends consideration is
found in several events occurring before the Co-Pack Agreement became enforceable on
December 7, 2009. But Heinz never explains how these past events constitute bargained
for consideration inducing Bright Harvest to hold out the Co-Pack Agreement as an
option contract. See, e.g., Collord v. Cooley, 451 P.2d 535, 538 (Idaho Sup. Ct. 1969) (“A
promise is never held to be made enforceable by reason of past events unless those events
have such a relation to the promise as to constitute its inducing cause.”) (quotation marks
and citation omitted); 4 Williston on Contracts § 8:11 (4th ed. 2015) (“In short, the
doctrine that past consideration is no consideration represents the overwhelming weight
of authority and has represented the weight of authority since the early common law”).
These events do not provide sufficient consideration to allow the Court or a jury to
construe the Co-Pack Agreement as a binding option contract.

MEMORANDUM DECISION AND ORDER - 2

Heinz next contends consideration is found in Sections 3(ii) and 11 of the Co-Pack
Agreement. Section 3(ii) obligated Heinz to provide regular forecast statements to Bright
Harvest, on which Bright Harvest would base production. Section 11 obligated Heinz to
pay for excess or obsolete material Bright Harvest acquired in reliance on Heinz’s
forecast. Heinz’s option contract theory, however, would freely permit it to reduce its
Section 3(ii) forecasts down to zero. A forecast of zero, in turn, would clear Heinz of its
Section 11 obligation to pay for excess or obsolete material. Thus, the Court rejects this
argument because it would render Heinz’s obligations under Sections 3(ii) and 11
illusory. See, e.g., Thomas v. Cate, 296 P.2d 1033, 1034 (Idaho Sup. Ct. 1956) (“[A]
reservation to either party of an unlimited right to determine the nature and extent of his
performance renders his obligation too indefinite for legal enforcement, making it . . .
merely illusory.”) (quotation marks and citation omitted); 4 Williston on Contracts § 7:7
(4th ed. 2015) (“Where an illusory promise is made . . . it cannot serve as consideration.
Even if it were recognized by law, it would impose no obligation, since the promisor
always has it within his power to . . . escape performance of anything detrimental to
himself or beneficial to the promisee.”).
Heinz also contends that consideration is found in the parties’ Non-disclosure
Agreement (NDA) and cites the Court to Coulter & Smith, Ltd. v. Russell, 966 P.2d 852
(Utah Sup. Ct. 1998). Russell involved an option to sell real property in return for the
prospective buyer’s promise to “proceed posthaste to annex and develop [the property.]”
Id. at 859. In Russell, consideration for the option existed because there was “no reason”
for the prospective buyer’s promise, “absent the option . . . to purchase the property.” Id.
MEMORANDUM DECISION AND ORDER - 3

In contrast, here the key reason for the NDA was the parties’ mutual confidentiality
concerns. The Court is therefore not persuaded that Heinz agreed to the NDA in return
for Bright Harvest agreeing that the Co-Pack Agreement was a binding option contract.
In sum, the Co-Pack Agreement was not an enforceable option contract. Because
this contention lacks factual and legal support and carries a substantial risk of confusing
jurors, Heinz is precluded from arguing at trial that the Co-Pack Agreement was an
option contract. See Fed. R. Evid. 403.
Heinz also asserts an individual contracts argument. Heinz argued at the February
5, 2016 hearing and throughout its motion that “Heinz and Bright Harvest entered into a
new contract each time it ordered and Bright Harvest accepted that order by delivery or
otherwise.” Heinz Br. at 1, Dkt. 267. While that argument may be legally accurate, the
Court finds that argument is not relevant. This case concerns whether the Co-Pack
Agreement bound the parties, and if so, to what extent. Thus, arguing that each
transaction created individual contracts separate from the Co-Pack Agreement is, at best,
tangential to this case’s primary issues. Any relevance is substantially outweighed by a
risk of confusing jurors. Accordingly, the Court will not permit Heinz to argue at trial
that new contracts were created in each of the parties’ transactions. See Fed. R. Evid.
403.
2.

Bright Harvest MIL 7 (Breach of the Co-Pack Agreement), Bright Harvest
MIL 8 (Enforceability of the Co-Pack Agreement), Good Faith and New
Theories.
At the pretrial conference, the Court asked the parties to submit briefs on the

burden of proof regarding the requirement that a buyer or seller act in good faith if they
MEMORANDUM DECISION AND ORDER - 4

depart from the stated estimate of a requirements contract. Neither party provided the
Court with Supreme Court or Ninth Circuit cases on point, and the Court has not
identified any on its own. However, both parties cited Empire Gas Corp. v. American
Bakeries Co., 840 F.2d 1333 (7th Cir. 1988), and the Court finds the case instructive.
The court in Empire Gas noted that Empire Gas had the burden of proving its
breach of contract claim, and therefore the burden of proving that American Bakeries
acted in bad faith when it reduced its requirements to zero. Empire Gas, 840 F.2d at 841.
The court explained that Empire Gas met that burden by putting on evidence that
American Bakeries still had the fleet of trucks and financial wherewithal to go through
the conversion process needed to meet its original requirements estimate. Id. The court
then noted that to avoid a directed verdict, American Bakeries would have had to
introduce at least some evidence concerning its reasons for reducing its requirements –
which required at a minimum that the reduction not have been motivated solely by a
reassessment of the balance of advantages and disadvantages under the contract. Id.
American Bakeries did not offer any evidence, which essentially allowed the district
court to grant the directed verdict.
Application of the burden of proof in Empire Gas comports with this Court’s
intuitive belief of how the burden should be applied, as well as with well-settled law on
the burden of proof of a breach of contract claim. Here, Bright Harvest has the burden of
proving its breach of contract claim, which means Bright Harvest has the burden of
proving that Heinz acted in bad faith when it reduced its orders to zero. Presumably this
could be done through evidence that Heinz provided no explanation for this step, and
MEMORANDUM DECISION AND ORDER - 5

from the deposition testimony of Heinz officials as to why the orders were so reduced.
Then, to avoid a directed verdict, Heinz would need to provide evidence of good faith.
But this is not necessarily burden shifting as suggested by Bright Harvest. If Bright
Harvest provides the jury with evidence of bad faith, and Heinz provides the jury with
evidence of good faith, the jury will need to weigh that evidence and make its decision.
However, the burden will always remain with Bright Harvest because it has the burden of
proving its breach of contract claim.
Turning to the issue of presenting evidence of good and bad faith by the parties,
the Court notes that the issue is a bit nuanced. Obviously, Bright Harvest must present
evidence of bad faith, and the Court will allow it do so. If Bright Harvest fails to offer
any evidence of bad faith, the Court will direct a verdict in favor of Heinz. This is
unlikely considering the evidence from the first trial, and the Court assumes Bright
Harvest will clear that first hurdle.
The Court will not then prevent Heinz from submitting evidence of good faith.
Although Bright Harvest asks the Court to do that, either because Heinz did not present
such evidence during the first trial or because the jury did not believe such evidence,
Bright Harvest has not provided the Court with authority requiring it to do so. At most,
Bright Harvest suggests that such a step is within the Court’s discretion. Under the
circumstances of this case, the Court believes Heinz must be allowed to present evidence
of good faith, noting that if that evidence contradicts evidence from the first trial, Bright
Harvest will be free to impeach a witness where appropriate.

MEMORANDUM DECISION AND ORDER - 6

However – and here is where things get a bit nuanced – Heinz may not present
evidence or argue that it acted in good faith because it believed that the Co-Pack
Agreement was something other than a requirements contract that somehow unilaterally
allowed Heinz to reduce its orders to zero. That is not the good faith question. The jury
will only be asked to decide whether Heinz acted in good faith if it has already found that
the parties’ intention in executing the Co-Pack Agreement was to create a binding
requirements contract. Simply put, if the jury concludes that Heinz intended for the CoPack Agreement to be a binding requirements contract, it cannot then conclude that Heinz
believed, in good faith, that it was not a binding requirements contract. That would be an
utterly inconsistent verdict.
As noted above, the Court will not allow Heinz to present evidence or argue that
the Co-Pack Agreement is anything other than a requirements contract, or a failed attempt
to create a contract and therefore not an enforceable contract. Allowing argument or
evidence that the Co-Pack Agreement was anything else is not supported by the law, and
is therefore irrelevant and will only confuse the jury. Fed. R. Evid. 402, 403.
This ruling addresses the issues brought up in Bright Harvest MIL 7 (Breach of the
Co-Pack Agreement), and Bright Harvest MIL 8 (Enforceability of the Co-Pack
Agreement). In those motions, Bright Harvest suggests that Heinz has argued that the CoPack Agreement is an enforceable contract that was breached, and that Heinz should be
judicially estopped from arguing otherwise at the second trial. The Court did not
understand Heinz’s previous arguments to be that succinct, and all the motions in limine
for the second trial seem to support the Court’s belief. Nevertheless, the matter is now
MEMORANDUM DECISION AND ORDER - 7

cleared up – Heinz may argue that the Co-Pack is a requirements contract that it did not
breach because it acted in good faith, but Heinz may not argue that the Co-Pack
Agreement is any other type of contract, and it may not make such an argument in the
guise of arguing good faith. Alternatively, Heinz may argue that the Co-Pack Agreement
is a failed attempt to create a contract, and therefore not an enforceable contract at all.
3.

Heinz MIL 4 (Settlement Agreement Ambiguous or Heinz committed to
purchasing products from bright Harvest after October 2012)
Before the first trial, neither party suggested the May 2011 settlement agreement

(“Settlement Agreement”) was ambiguous, and the Court noted that it was unaware of an
ambiguity. Court Order, Dkt. 125, p.9. Accordingly, the Court ruled that evidence of a
party’s subjective intent in entering into the Settlement Agreement was irrelevant. Both
parties still suggest the Settlement Agreement is unambiguous, but each party suggests it
unambiguously states something very different.
In its motion in limine, Heinz argues that the Settlement Agreement
unambiguously states that Heinz had no obligation to purchase product after October
2012. Heinz asks the Court to prevent Bright Harvest from presenting evidence to the
contrary or evidence that the Settlement Agreement is ambiguous. In response, Bright
Harvest argues the Settlement Agreement states no such thing, and asks the Court to
prevent Heinz from presenting evidence that it does. Thus, the Court is now called upon
to determine whether the terms of the Settlement Agreement are ambiguous as a matter of
law. Carpenters Pension Trust Fund v. Underground Constr. Co., 31 F.3d 776, 778 (9th
Cir.1994).
MEMORANDUM DECISION AND ORDER - 8

A disagreement about a contract’s meaning does not necessarily render the
contract ambiguous. Int'l Union of Bricklayers & Allied Craftsman Local No. 20 v.
Martin Jaska, Inc., 752 F.2d 1401, 1406 (9th Cir.1985). To be ambiguous, the terms of
the contract must be susceptible to two different and reasonable interpretations – each
being consistent with the language of the contract as a whole. Kennewick Irrigation Dist.
v. United States, 880 F.2d 1018, 1032 (9th Cir.1989) (citation omitted). “If a contract’s
terms are clear and unambiguous, the contract’s meaning and legal effect are questions of
law to be determined from the plain meaning of its own words.” Bream v. Benscoter, 79
P.3d 723, 726 (Idaho 2003).
The Court agrees with Bright Harvest that the only reasonable interpretation of the
Settlement Agreement forecloses any argument that Heinz had no obligation to purchase
product after October 2012. It is undisputed that the original term of the Co-Pack
Agreement was December 1, 2009 – November 30, 2015. The Settlement Agreement
required Heinz to “revise its forecast and provide some firm orders,” and required Bright
Harvest to “support Heinz in acquiring some raw sweet potatoes in May and June,” as set
forth in Exhibit A to the Settlement Agreement. The Settlement Agreement goes on to
state,
In consideration of this accommodation, Bright Harvest
acknowledges and agrees that under the Co-Pack Agreement and
otherwise, (i) Heinz is under no obligation to commit any volume to
Bright Harvest, except as set forth in Exhibit A and any 5 weeks of
firm production orders as set forth in any subsequent electronic
rolling weekly demand files submitted to Bright Harvest; (ii) Heinz
is permitted to self-manufacture Products as defined under the CoPack Agreement and any frozen processed sweet potatoes; (iii)
MEMORANDUM DECISION AND ORDER - 9

Heinz has satisfactorily performed and is not now nor at any time
been in breach of Heinz's obligations to Bright Harvest under the
Co-Pack Agreement.
Trial Ex. 13. Heinz suggests this language indicates Heinz had no obligation to purchase
product from Bright Harvest beyond what was stated in Exhibit A, which had no
forecasts beyond April 2012.
But the Settlement Agreement does not end there. It goes on to state that each
party releases and discharges the other party from any claims, damages, liability, etc.
accruing on or before April 25, 2011, the effective date of the Settlement Agreement. Id.
And, notably, it then states that “[e]ach party’s respective obligations and duties under
the [Co-Pack] Agreement and each of the Related Agreements, . . . shall continue on and
after the Effective Date and this mutual release does not discharge or alter the duties and
obligations of the parties under the [Co-Pack] Agreement or Related Agreements but
releases any breach of such agreements to the extent arising prior to the Effective Date.”
Id.
The Settlement Agreement simply resolved any disputes that arose on or before
April 25, 2011. It did not amend the Co-Pack Agreement to reduce the term from
November 30, 2015 to April 2012. The language about the parties’ respective obligations
and duties continuing after the effective date of the Settlement Agreement would be
nonsensical if that were the case. And as noted above, to be reasonable, an interpretation
of a contract must be consistent with the language of the contract as a whole. Kennewick,
880 F.2d at 1032. The language of the Settlement Agreement only makes sense if it is

MEMORANDUM DECISION AND ORDER - 10

interpreted to mean the Co-Pack Agreement will continue through November 30, 2015 as
originally stated in that agreement.
The question for the jury is still whether Heinz may source sweet potato fry
products from its own factories or from any other source during the term of the Co-Pack
Agreement without restriction, or whether Heinz is limited to doing so only when its
demands exceed Bright Harvest’s capacity, in which case it is an enforceable
requirements contract in which the quantities to be provided under the contract is set by
the stated estimate set forth in the Co-Pack Agreement.
Heinz’s alternative arguments about the Co-Pack Agreement are unsupported by
the evidence. Heinz cannot argue that the Settlement Agreement is consistent with
Heinz’s interpretation that it had the right to self-manufacture all products after October
2012 without limitation or restriction pursuant to the original terms of the Co-Pack
Agreement because that argument necessarily assumes facts that would make the CoPack Agreement unenforceable. As noted above, the Court will not allow Heinz to make
that argument. Likewise Heinz cannot argue that the Settlement Agreement modified the
Co-Pack Agreement because the Settlement Agreement says in no uncertain terms that it
“does not discharge or alter the duties and obligations of the parties under the Agreement
. . . .” Settlement Agreement, Dkt. 45-5 (emphasis added).
Accordingly, Heinz’s motion will be denied, and Heinz shall not submit evidence
or argue that the Settlement Agreement terminated Heinz’s obligation to purchase
product after October 2012.

MEMORANDUM DECISION AND ORDER - 11

ORDER
IT IS HEREBY ORDERED:
1. The motion in limine (Dkts. 206) is DENIED.
2. The motions in limine (Dkts. 211 and 212) are GRANTED in part and
DENIED in part as explained above.
DATED: February 18, 2016

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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