Richard Goldfarb
Richard Goldfarb is a partner of Stoel Rives LLP in the Corporate Group. He has a national reputation for expertise in all manner of commercial transactions, with particular emphasis on secured financing and sales and leases of goods. He has been active in the food and agricultural sector for over 25 years, and has done extensive work for clients in the dairy, fruit and biofuels industries, as well as lenders to farmers, packers and agricultural cooperatives.
New York "Big Gulp" Ban Bites It For Now
.jpg)
Among the ironies connected to New York's attempt to ban large cups of soda is the fact that the last time I was in the city, before the advent of 7-11 to its precincts, the one thing I really craved was a really large cup of Dr Pepper. When I visit New York, on business or for pleasure, I typically walk miles and miles, and on a hot day an icy cold cup of soda (I prefer the Diet) is what I need to refresh myself. I think I found one place that had it, but then again Dr Pepper is less common in the East.
A lot has been written about this ban both before and after a New York Supreme Court judge struck it down on Monday. Some of it has been fairly misleading and some of it has been relatively accurate. The case has nothing to do with equal protection under the U.S. Constitution, or indeed the U.S. Constitution at all. Rather, it was mainly decided based on an interpretation of a document that is, in its origins, older than the Constitution: the New York City Charter, a document that began in the reign of James II, the man for whom the city and state were named. Ultimately, the question was not so much the wisdom of the ban, but whether the Board of Health, a body appointed entirely by the Mayor without even City Council ratification, had the power to institute it, or whether that power was held by the City Council or the New York State Legislature, each of which had failed to pass similar legislation. Unless you are seriously concerned about the separation of powers doctrine under New York law (city or state), the vast majority of the case is of little interest and creates no precedent for what other jurisdictions may or may not do.
Much attention has been given to the judge's alternative ruling that the ban was "arbitrary and capricious" because it covered only some establishments and because it exempted certain drinks. The former of these is really a question of the authority of the Board of Health, which by a "memorandum of understanding" has ceded jurisdiction over grocery stores and convenience stores, as opposed to restaurants, to the state authorities. The court hints, however, that one problem with the ban is that that Board of Health did not seek, before imposing it, to coordinate with the state, which the MOU apparently required.
The latter can certainly be criticized. If you can get unlimited refills of a 16 ounce cup, have you accomplished anything? Some would argue that you have. Alcoholic beverages and milk-based beverages were exempt, which raises other issues. An article on the Bloomberg website, of all things, suggests that the result of the judge's action might be a broader ban. The director of the World Health Organization's Orwellian-sounding "Center on Public Health Law and Human Rights" argues that the ban was "legal and right." Mayor Bloomberg, not surprisingly, vows to succeed on appeal.
More interesting is the number of different ways in which New York restaurants had chosen to comply with the ban, and the cost of being required to be in a position to comply only to have the ban struck down just before it went into effect. 16 oz. cups were at a premium in the city before the ban was struck down; as the case goes through appeal, there will be more uncertainty about what those subject to the former ban may do, and if the mayor wins on appeal, how quickly they would have to comply with a reintroduced ban. While the organizations that challenged the law clearly had the right to do so, for many New York restaurant owners the real concern is certainty. They'd rather know what their duties are far in advance of having to implement them because they can't change their practices on a dime. This appeal doesn't do them any favors at all.
The Case That Makes You Go "Ewww"
You've heard about this case. It's the story of the cop whose burger was spat on in Vancouver, Washington.
The Washington Supreme Court's decision in Bylsma v. Burger King Corp., which covers a tiny but critical part of the policeman's lawsuit, has gotten a lot of publicity. Let me give you three quick points that most of the reporting misses:
- The guy who spat on the burger pled guilty to assault and was sentenced to 90 days in jail, was fired, and is not a defendant in the lawsuit.
- The lawsuit, as it currently stands, has nothing to do with respondeat superior or whether the restaurant was negligent in hiring the guy who spat.
- The case was decided under Washington law, and the real impact will be under Washington's Products Liability Act, which gives restaurants like the Burger King franchise here, and Burger King itself, few defenses to this action.
Much more after the jump.
Continue Reading...Food Security Act Doesn't Apply to Proceeds
The Food Security Act of 1995 is part of a matryoshka of statutes. In the center is the general rule of 9-320(a) of the UCC, that a buyer in the ordinary course of business takes free of a security interest created by its seller. The next doll is the Farm Products Exception, which I wrote about here: except, most notably, in California, the buyer in the ordinary course rule does not apply to a buyer of farm products. The next doll is the Food Security Act itself: if you fail to comply with its terms, then the Farm Products Exception does not apply. Finally, if you do comply, then the Farm Products Exception does apply.
If that's not entirely clear, don't blame the messenger.
An interesting case out of the U.S. Bankruptcy Court for the Central District of Illinois asked this question: does the Food Security Act apply to proceeds? Here are the basic facts of CNH Capital America LLC v. Trainor Grain & Supply Co.: Both CNH and Trainor had financed crops for farmers named Printz, who are now in bankruptcy. CNH had the earlier filed financing statement. Trainor was also the grain elevator which bought the crops. CNH did not comply with the notice provisions of the Food Security Act. Trainor had therefore, there was no dispute, purchased the crops free and clear of CNH's lien. But what about the proceeds? Trainor simply offset them against its debt and paid nothing to the Printzes. Would it be able to walk away without paying, despite CNH's earlier filed financing statement?
Your ordinary buyer, when it pays for the crops, is concerned about double payment, which is why it will check the Food Security Act filings or notices of its seller. In essence, Trainor wasn't making any payment at all; no cash was changing hands. If it was wrong, it still had its debt. That probably isn't worth much without collateral and with the farmers in bankruptcy, but also, as a secured party, it was clearly in second position behind another creditor.
And that, in essence, is what the court held. The Food Security Act protects a buyer. If a secured creditor does not comply with its notice provisions (which, in some states like Idaho and Oregon, are essentially the same as for filing a financing statement, while in others, like Washington and, presumably, Illinois, involve actually sending notice to known prospective buyers of the farm products), then the buyer gets full title to the goods. But what it does not get is priority in proceeds as well.
Think of it this way: if there were no Farm Products Exception--the rule that applies to purchasers of every kind of goods except farm products--would a buyer who also had a second security interest be able to take the goods by setting off its debt against the interests of a first priority secured creditor? I think not, and that is what the court ruled here.
What if Trainor had paid the farmers and the farmers had turned around and paid Trainor in cash? Under 9-332 of the UCC, unless Trainor and the farmers had been in collusion, Trainor would, outside of bankruptcy, have taken good title to the funds. Of course, in bankruptcy, this was likely to be a preference and thus recoverable just as the setoff in the actual case was.
It's not boilerplate, it's part of the contract
At the back of most contracts are provisions that lawyers and parties often refer to as "boilerplate". The Free Dictionary defines it as "inconsequential, formulaic or stereotypical language." A recent decision of the Wisconsin Supreme Court supports the interpretation I've given my colleagues for years: there is no such thing as inconsequential language in a contract. Yesterday's boilerplate is today's most critical wording.
The case involved the standard guaranty required by federal law. At the end of the guaranty form, the supplier had added, "This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature nor shall it extend to the benefit of persons or corporations other than" buyer. The goods that were shipped under this guaranty were found contaminated with E. coli and the buyer sued for, among other things, its consequential damages. The Wisconsin Supreme Court affirmed the intermediate appellate court's decision that this language was ineffective to disclaim consequential damages. After the jump, we'll discuss why.
Continue Reading...Farmers Can Be Article 2 Merchants (but not necessarily always)
A recent case from the Court of Appeals in Tennessee highlighted an important issue in connection with how contracts to purchase farm products will be handled under Article 2 of the Uniform Commercial Code. In Brooks Cotton Co. v. Williams, the court was faced with essentially a single question: may a farmer be a "merchant" within the meaning of Article 2? The court answered the question in the affirmative for the farmer at issue, but it is important to understand both why the question may be critical and that the court's decision does not answer the question for all farmers.
First, what is a "merchant" under Article 2? Section 2-104(1) of the UCC contains the definition.
"Merchant" means a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill may be attributed by the person's employment of an agent or broker or other intermediary that holds itself out by occupation as having the knowledge or skill.
After the jump, we'll explore why it's important to be or not be a merchant, how the Tennessee court applied it to farmers and what it means for the farmers from which you may buy farm products.
Continue Reading...Without Causation, a Plaintiff Has No Case
.jpg)
It is probably an article of faith out there among the lay populace that if you discover that the object causing your previously unexplained cough of two years’ duration is a two-inch long fragment of a plastic eating utensil that has somehow entered your lung, and if you find the logo of a well-known restaurant chain on the utensil, you expect that someone will show up delivering you a large sum of money. A recent decision of the United States District Court for the Eastern District of North Carolina reminds us, not so fast.
In a well-reasoned decision following North Carolina law, the judge found the plaintiff’s claim that the defendants had sold him a food item that contained the utensil and he had unwittingly digested it impossible to swallow. This was because the plaintiff had to stack “inference upon inference” in his attempt to prove that the restaurant had anything to do with this injury.
First, there was no proof that the object had been in any food (under the Uniform Commercial Code, food is "goods") the restaurant had sold him, a necessary factor in his theory of breach of the warranty of merchantability. The plaintiff relied only on circumstantial evidence—he claimed he had eaten at that restaurant, no other restaurant in its chain and no similar restaurant (though in other restaurants) in the relevant time period. But that was not enough. His doctors merely testified that the object caused his symptoms; they didn’t have anything to say about how it got there. Defendants’ experts, on the other hand, showed what you might expect: objects like that don’t get into your lungs when you simply eat them. Instead, there must be some “severe mental depression” that suppresses the coughing instinct. What can cause that? Drug or alcohol abuse. And there was substantial evidence the plaintiff was using both around the time he took ill.
Moreover, when foreign objects get into the lungs, unlike the stomach, they don’t degrade or degenerate. So the absence of any food-related objects in his lungs along with the plastic negated the likelihood that the plastic entered his lungs while he was eating the restaurant’s food.
The utensils were available free to anyone who came to the restaurant, or any other one in the chain, which again did not support any inference that the only way one could have entered his lung was through ingestion of the restaurant’s food. And there was no evidence that anything like this had ever happened before, or that among the tiny number of complaints of foreign objects in the restaurant’s food was there a fact pattern even remotely similar. So the complaint was dismissed on summary judgment.
This case demonstrates more than that there are successful defenses to claims for violation of the warranty of merchantability even in a case where a defendant’s logo is found in an unusual place. Causation is not something that can be assumed, or proven by piling “inference upon inference,” and is a defense that should always be examined.
Raw Milk Redux (and Ken Redux for an Instant)
Our former colleague and still good friend Ken Odza was in our offices last week; I was in a meeting and just had the chance to say hello.
By pure coincidence, one of Ken's favorite topics was in the news this week. Ken had written two big pieces on raw milk for this blog, which can be found here and here. Tyler wrote about another development here.
What happened in Oregon is sad: 20 people were apparently sickened in a single outbreak, including four children, and two of the victims may have long-term complications. E.Coli O157:H7 is not fun for anyone.
The real issue, as the article points out, is what the right level of regulation would be. It's not easy to answer. Drinking raw milk is simply dangerous; it's like playing Russian roulette without knowing how many chambers are in the gun or how many are filled. Ban it and the users go underground. Legalize it and yes, some bad batches will not be caught by inspectors (this happens with a lot of other foods, too, in case you hadn't noticed). You can try to educate people about it, but if there's anything we know now it is that official education on almost any topic will lead to dissent. There's no perfect solution in a free society.
The Best Thing. Ever.
.jpg)
In the conclusion to Aaron Bobrow-Strain’s White Bread: A Social History of the Store-Bought Loaf, he describes how he, a home bread baker, captures the microbes for his homemade sourdough. It’s not what we’d call hygienic, but it also apparently makes a delicious bread. Bobrow-Strain’s own behavior is really what tells you his conclusion: where bread is concerned, everything you’ve been told is wrong. Within limits.
Notwithstanding that its very title is a synonym for blandness, White Bread tells a compelling story in an accessible way. Over and over, we see how industry, government, science and the media gang up on their nemeses—home bakers and small-scale bakeries. Muckrakers warned of “disease-breeding bread” and a newspaper claimed, “Dough kneaded with the hands always runs the risk of contagion.” The result was the rise of industrially-baked bread, nearly all white bread.
Bobrow-Strain also tells the story of food evangelists like Sylvester Graham (namesake but probably not the inventor of the eponymous cracker) and how fortifying bread with vitamins was a factor in winning World War II. He reveals that much of America’s current industrial bread is actually owned by Grupo Bimbo, the Mexican baking conglomerate, which owns such iconic brands as Sara Lee, Arnold, Orowheat and Roman-Meal. He describes the counterculture’s push for whole wheat bread and how it has, with help from large-scale bakeries, overtaken white bread in the past few years for the first time.
The food liability takeaway here is nothing new, but a good reminder in a nice package: there is always a way to question conclusions from government or academia for their potential bias. If you are challenging a government mandate, find the bias and attack it. If you are on the side of the mandate, be ready for a challenge from the other side. The kind of research Bobrow-Strain has undertaken here is available on almost any government food mandate. Ignore it at your peril.
Continue Reading...
Accident in Search of a Cause of Action: the Alaska Supreme Court Strikes Out
The 20th century dramatist George S. Kaufman told the story, presumably apocryphal, of receiving a bill from his lawyer with the entry “For crossing the street to speak to you and discovering it was not you.” A recent Alaska Supreme Court case, Estate of Mickelsen v. North-Wend Foods, Inc., indicates that Kaufman may have been an optimist.
The case involves facts that wouldn't seem to implicate any issues we discuss on this blog. Simply put, a motorist made an illegal left turn across traffic mid-block in Anchorage and killed a motorcyclist heading in the opposite direction. The motorcyclist crashed into the car, so presumably he didn’t have enough time to swerve or stop. The unstated but obvious subtext, of course, is that the motorist did not have the resources to fulfill the damages caused.
So whom did the estate sue? The franchisee and owner of the land on which a fast food restaurant sits. Their alleged mistake: not taking sufficient steps to warn the motorist not to make an illegal left turn into the exit to their drive-through.
Understand, the case had been dismissed on a Rule 12(b)(6) motion, which presents a pretty high standard, "failure to state a claim on which relief can be granted." But it's hard to see where the claim is here.
Mickelsen’s complaint alleges that [defendants] created an entry and exit system that had the effect of enticing . . . patrons to enter the premises by making an illegal turn across two lanes of traffic, that . . . customers in fact regularly used the short-cut, that [defendants] w[ere] or should have been aware of such use, and that this dangerous condition led to the fatal accident.
This is notwithstanding that the left turn involved illegally turning across a double yellow line and that there are, not surprisingly, traffic laws that impose on a driver making any kind of left turn the duty to do so only when no oncoming driver might smash into your car. Neither of those traffic laws relate to whether there is a driveway the illegal and negligent driver is turning into or the identity of the business that driver may be trying to patronize. And just to make it clear, “[b]ecause the width of the curb-cut accommodates only one vehicle at a time, drivers must often roll one tire over the raised curb in completing the short-cut maneuver.” So drivers would need to violate two important traffic laws and roll over a raised curb to undertake this “short-cut.” This, in Alaska, is “enticement” that is sufficient to create a cause of action that must be defended at great cost. (more after the jump)
Continue Reading...
What I Learned on My Winter Vacation, or Is Water Good for You?
.jpg)
I spent the last three weeks mainly in Europe, and mainly on a cruise, but unlike Newt Gingrich, I don't purport to have learned anything about Europe's debt crisis, although the Greek, Italian and Spanish governments did all fall the moment we left each country. What I did learn, or was reminded of, is that there is a very different way of thinking in Europe. Instead of blaring out instructions at the security line at the airport, there is just one discreet sign, and if you don't do it right you are admonished for not having read or comprehended the sign. To rebook our flights when we missed a connection due to fog, we were given the instruction to "Like" KLM on Facebook, without the further instruction to then post a message asking to be rebooked (that didn't work for me, by the way, after I finally figured it out).
So I read with some interest the various stories that have circulated around the Internet with titles like "EU Says Water is Not Healthy" and "Now barmy EU says you CAN'T claim drinking water stops dehydration." And this, of course, is to answer yesterday's pop quiz, which you'll recall asked if the following statement is true:
The regular consumption of significant amounts of water can reduce the risk of development of dehydration and of concomitant decrease of performance.
This was the question asked of a particular European Union agency with respect to a particular European Union law and the answer they gave was negative. Which of course set off a firestorm of laughter and ridicule, followed by a reverse firestorm of alleged common sense explanations for why the EU was right. With respect, pretty much everyone has exaggerated something here, intentionally or unintentionally.
For reference, here are the EU Scientific Opinion and the EU regulation implementing the scientific opinion. I'm afraid they're not quite Shakespeare or even Stephen King.
First, let's parse the words a bit. The claim relates to "water" not "bottled water" or some particular brand of bottled water. The claim also states that "regular consumption" of water "can reduce" the development of dehydration, not that it is necessary for it, or that other beverages or water ingested in other ways are or are not another way to achieve it.
Now, let's affirm what the EU has done and not done. It has stated that in connection with a claim for foods within the EU, this claim is not authorized (20 days after publication in the official journal of the EU). It expressly states that it is "binding and directly applicable in all member states." Thus, the EU official who stated, as quoted in The Express as saying, "Either way the final decision is for member states", was saying something directly contradicted by the regulation's own words. A British bottled water seller has vowed to defy the ban and British health officials have not ruled out taking action against it.
Clearly, the EU has also not said water isn't good for you, or that it's bad for you, or anything of that sort. And there is some question as to whether the law the application was sent in under was the right one; is "dehydration" a disease or a condition, for instance? Yet even the most cogent defense of the ruling I've read, by a professor of nutritiion at Robert Gordon University in Aberdeen, takes liberties with the facts. I'm no nutritionist, and I'll accept that someone can live a perfectly healthy life without ever once ingesting water in its pure form (the comments on most of these articles include at least one person who suggests that beer is a fine substitute). I also accept that pure water alone may not solve all cases of dehydration. But the claim is not that drinking water as such is necessary, or that it is sufficient, but that it is useful. So when the professor, in defending the EU ruling, said, "Also, it could be used to imply that there is something special about bottled water which is not the case," he's simply wrong. If I say that Drug X may lower your cholesterol that doesn't imply that there is something about Drug X that is special compared to Drug Y which may also lower your cholesterol. The same is true of water.
