Certain Underwriters v. TNA NA Manufacturing

                                       447

        Argued and submitted October 12, affirmed December 29, 2022


          CERTAIN UNDERWRITERS AT LLOYD’S
          LONDON REPRESENTED BY XL CATLIN
               SYNDICATES 2003 AND 1209,
                 Liberty Syndicate 4472, and
                    Novae Syndicate 2007,
                    Plaintiffs-Appellants,
                               v.
             TNA NA MANUFACTURING, INC.,
          dba FOODesign Machinery & Systems; and
           Food Design, Inc., an Oregon corporation,
                   Defendants-Respondents.
               Clackamas County Circuit Court
                    18CV15868; A175864
                                   

    Plaintiffs (Lloyd’s London), the insurer for SunOpta, Inc. (SunOpta), brought
this lawsuit alleging that equipment SunOpta bought from Food Design, Inc.
(FDI) was defective. The trial court granted summary judgment in favor of FDI,
concluding that the sales contract between the parties unambiguously immu-
nized FDI from tort liability, and ordered Lloyd’s London to pay attorney fees
as a discovery sanction under ORCP 46 A(4). Lloyd’s London appeals and raises
two assignments of error. The first assignment of error challenges the grant of
summary judgment and contends that the sales contract did not clearly express
an intent to shield FDI from tort liability. The second asserts that the trial court
abused its discretion when it awarded FDI attorney fees. Held: The Court of
Appeals concluded that, by disclaiming liability of the seller “in any event,” in
a section separate from the one titled “Warranties” and with broad language as
to the types of damages disclaimed, the contract unambiguously expressed the
parties’ intent to immunize FDI from tort liability. As to the second assignment
of error, the trial court did not abuse its discretion in awarding attorney fees as
a sanction.
    Affirmed.



    Henry C. Breithaupt, Senior Judge.
   Sara Kobak argued the cause for appellants. Also on
the briefs were William J. Ohle, Aukjen T. Ingraham, and
Schwabe, Williamson & Wyatt, P.C.
   Ashley Lauren Vulin argued the cause for respondents.
Also on the briefs were P. Andrew McStay, Jr., Meagan A.
448     Certain Underwriters v. TNA NA Manufacturing

Himes, and Davis Wright Tremaine LLP; and Dayna J.
Christian, Nicole McMillan, and Immix Law Group PC.
  Before Tookey, Presiding Judge, and Egan, Judge, and
Kamins, Judge.
  KAMINS, J.
  Affirmed.
Cite as 

 (2022)                            449

        KAMINS, J.
         Plaintiffs (Lloyd’s London), the insurer for SunOpta,
Inc. (SunOpta), brought this lawsuit, alleging that equip-
ment SunOpta bought from Food Design, Inc. (FDI), was
defective. The trial court granted summary judgment in
favor of FDI, concluding that the sales contract between the
parties unambiguously immunized FDI from tort liability,
and ordered Lloyd’s London to pay attorney fees as a discov-
ery sanction under ORCP 46 A(4). Lloyd’s London appeals
and raises two assignments of error. The first assignment
of error challenges the grant of summary judgment and
contends that the sales contract did not clearly express an
intent to shield FDI from tort liability. The second asserts
that the trial court abused its discretion when it awarded
FDI attorney fees. We affirm.
          In 2012, FDI and SunOpta entered into an agree-
ment whereby SunOpta would purchase food-processing
equipment for use in its sunflower seed operation. In 2016,
there was an outbreak of listeria monocytogenes at
SunOpta’s facility which forced a sunflower seed recall.
SunOpta made claims to Lloyd’s London under its insur-
ance policy and received the full policy limit of $20 million.
Lloyd’s London subsequently sued defendants FDI and TNA
NA Manufacturing, Inc. (TNA), as FDI’s successor in inter-
est, for strict products liability and negligence. FDI and TNA
moved for summary judgment, and the trial court granted
the motion, determining that the terms and conditions of
the sales contract evinced an unambiguous intent to limit
FDI’s liability and responsibility for tort damages. The trial
court focused on sections 5, 7, 11, and 12 of the sales con-
tract and reasoned that, when read together, they reflected
an unequivocal choice by the parties to allocate liability
exposure to SunOpta.
         Beginning with Lloyd’s London’s first assignment of
error challenging the trial court’s summary judgment rul-
ing, “[w]e review for legal error a ruling that contract lan-
guage is unambiguous.” Milne v. Milne Construction Co., 

, 

, rev den, 

 (2006).
In construing a contract, “a court * * * examines the text
of the disputed provision in the context of the contract as
450       Certain Underwriters v. TNA NA Manufacturing

a whole[.]” Cryo-Tech, Inc. v. JKC Bend, LLC, 

, 

 (2021), rev den, 

 (2022).
Ambiguity in a contract means that “a provision, or mul-
tiple provisions read together, have no definite meaning or
are capable of more than one sensible and reasonable inter-
pretation.” American Wholesale Products v. Allstate Ins. Co.,

, 424, 

 (2017).
         A limitation of liability clause need not use the
word “negligence” in order to be effective against a negli-
gence claim. Estey v. Mackenzie Engineering Inc., 

, 

 (1996). However, “[w]hen a contracting
party seeks to immunize itself from liability for its own neg-
ligence, its intention to do so must be clearly and unequivo-
cally expressed.” American Wholesale Products, 288 Or App
at 423 (citation and internal quotation marks omitted). In
applying that standard, courts consider both (1) the lan-
guage of the contract; and (2) the possibility of a harsh or
inequitable result that would fall on one party if the other
party was immunized from the consequences of its own neg-
ligence. Id.
        Thus, the first question that we must address is
whether the contract clearly and unequivocally expressed
an intention to immunize FDI from tort liability. The par-
ties agree that the relevant provisions of the contract are
sections 5, 7, 11, and 12. As explained below, we conclude
that sections 5, 7, and 12 do not support a conclusion of an
unambiguous waiver of tort liability, but section 11 does.
         Section 5 provides, in relevant part:
      “WARRANTIES
      “Seller’s warranties are limited as follows:
      “There are no warranties which extend beyond the
   description on the face hereof.
       “FOODesign Machinery & Systems warrants to the
   original Customer that the equipment is free from manu-
   facturing defects. Seller agrees to repair or replace, F.O.B.
   any part of standard commercial manufactured items
   which are, within the warranty period of the manufactur-
   er’s item in question, found defective or otherwise unsat-
   isfactory owing to faulty material or workmanship. The
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 (2022)                                                 451

    warranty shall not apply to any product which has been
    damaged by improper usage, accident, neglect, alteration
    or abuse. The liability of the manufacturer is limited solely
    to replacing the defective product. In no event shall the
    manufacturer be liable for special or consequential damages
    to any Purchaser, user or other person.”
(Uppercase in original; emphasis added.) The trial court
concluded that that section supported a waiver of tort liabil-
ity, reasoning that a limitation of damages to “any * * * user
or other person” would only be consistent with tort claims,
because those persons would lack the privity to enforce
claims under the contract.
         We disagree. Section 5 on its own is not an unam-
biguous waiver of tort liability, because the provision is
related to warranties, which is typically a contract concept.
See Kaste v. Land O’Lakes Purina Feed, LLC, 

, 

, rev den, 

 (2017) (describ-
ing warranties as “a contract concept”). Additionally, the
trial court’s reasoning that the terms cannot be applied in
contract because “user[s] or other person[s]” lack privity to
enforce contract claims is not correct. As Lloyd’s London
points out, some warranties may be enforced by remote pur-
chasers even in the absence of privity. See Dravo Equipment
Co. v. German, 

, 

 (1985) (“We
hold that privity is not required to recover economic loss on
an express warranty.”); Larrison v. Moving Floors Inc., 

, 

 (1994) (privity of contract is
not required in a claim for breach of an express warranty).1
Because section 5 could plausibly be read to address con-
tract warranties, its terms do not clearly and unequivocally
disclaim tort liability.
        The relevant part of section 12 is similarly focused
on contract remedies:
        “DEFAULT, DAMAGES AND REMEDIES

     1
       By contrast, we have held that privity of contract is a necessary prerequi-
site in a breach of contract claim for personal injuries. Colvin v. FMC Corporation,

, 

 (1979); see Simonsen v. Ford Motor Co., 

, 

 (2004), rev den, 

 (2005) (“[P]rivity of
contract is a necessary prerequisite in a breach of contract claim for personal
injuries.”).
452        Certain Underwriters v. TNA NA Manufacturing

      “In the event of default by either party, all rights and
   remedies shall be governed by the law of the State of
   Oregon and venue for any litigation shall be laid in the
   Circuit Court of Oregon for the County of Clackamas.
     “Seller shall further not be liable for any consequential
   damages.”
(Uppercase in original.) The trial court considered sec-
tion 12’s disclaimer of liability for consequential damages
relevant to the analysis of the disclaimer of tort liability.
However, the terms “default” and “consequential damages,”
are ordinarily used in situations involving contracts. See
Kaste, 

 (“[T]he phrase consequential dam-
ages ordinarily refers to contract damages, not tort dam-
ages.” (Internal quotation marks omitted.)); cf. ORS 93.915
(giving instructions in the event of a default under a contract
for conveyance of real property). Section 12, like section 5,
addresses contract requirements and remedies, and does
not unambiguously reflect a clear and unequivocal waiver of
FDI’s liability in tort.
        Turning to section 7, that provision provides, in rel-
evant part:
      “MATERIALS AND WORKMANSHIP
      “* * * * *
      “Purchaser agrees to defend and indemnify Seller
   against any loss, cost, damage or expense (including rea-
   sonable attorney’s fees) resulting from any claims by
   Purchasers or by third parties (including Purchaser’s
   employees) of damage to property or injury to persons
   resulting from faulty installation or negligent operation of
   the equipment.”
(Uppercase in original.) The trial court determined that sec-
tion 7 effectively prohibited tort claims by Lloyd’s London
against FDI, reasoning that the only way the seeds could
have become infected would have involved “negligent opera-
tion of the equipment,” for which section 7 explicitly makes
SunOpta liable. However, that reasoning required drawing
an inference against Lloyd’s London regarding the cause of
the outbreak, which is contrary to the standard of review on
summary judgment. See Morehouse v. Haynes, 

,
Cite as 

 (2022)                                   453

320, 

 (2011) (“We take the facts from the sum-
mary judgment record and view those facts and all reason-
able inferences that may be drawn from them in the light
most favorable to plaintiff, the nonmoving party.”). By its
terms, section 7 reflects an agreement to indemnify FDI
against any negligence related to operating or installing the
equipment. It does not follow that, through that language,
the parties intended for SunOpta to immunize FDI from
any claims related to FDI’s negligence.
         Although we disagree with the trial court’s analysis
as to those other provisions, we conclude, as did the trial
court, that section 11 of the sales contract unambiguously
disclaimed any liability in tort when viewed in the context
of the contract as a whole. That section provides:
      “DISCLAIMERS
       “There are no warranties, express or implied, including
   the warranty of merchantability and the warranty of fit-
   ness for a particular purpose extending beyond those set
   forth in Section 5. Seller’s liability shall be limited to the
   repair or replacement of any defective equipment and the
   parties agree that this shall be Purchaser’s sole and exclu-
   sive remedy. Seller shall not be liable, in any event, for loss
   of profits, incidental or consequential damages or failure of
   the equipment to comply with any federal, state or local laws.
   Sellers shall under no circumstances be liable for the cost
   of labor, raw materials used or lost in testing or experimen-
   tal or production operations of any equipment sold, whether
   such testing, production or experimentation is done under
   the supervision of a representative of the Seller or of an
   employee or other representative of the Purchaser.”
(Uppercase in original; emphasis added.) By disclaiming lia-
bility of the seller “in any event,” in a section separate from
the one titled “Warranties” and with broad language as to
the types of damages disclaimed, we conclude that the con-
tract unambiguously expressed the parties’ intent to immu-
nize FDI from tort liability.
        First, the contract’s provision that the seller “shall
not be liable, in any event,” for lost profits or incidental
or consequential damages extends beyond warranties or
contract-related damages. A contract that contains a “broad
454       Certain Underwriters v. TNA NA Manufacturing

reference to ‘any liability’ suggests that the parties intended
for the provision to limit ‘any liability’ regardless of whether
that liability arose in tort or in contract.” Kaste, 

 (quoting Northwest Pine Products v. Cummins
Northwest, Inc., 

, 

 (1994));
see also Atlas Mutual Ins. v. Moore Dry Kiln, 

, 

 (1979) (contract unambiguous when
it disclaimed liability for “any loss, injury or damages to per-
sons or property resulting from failure or defective opera-
tion of any material or equipment” and for “direct, indirect,
special or consequential damages of any kind sustained by
you from any cause”) (emphases added)). Section 11’s state-
ment that FDI “shall not be liable, in any event” is substan-
tially similar to a disclaimer of “any liability.” See Northwest
Pine Products, 

 (disclaimer foreclosed
suit seeking to recover lost revenue that provided “any lia-
bility of [defendant] arising out of any material or services
provided hereunder shall not exceed the cost of correcting
or replacing such defective materials or services” and that
“in no event shall [defendant] be liable for any incidental or
consequential damages, including, without limitation, * * *
loss of revenue”).
        Second, the fact that the terms at issue were not
included in the “Warranties” section, but instead, in a sec-
tion labeled “Disclaimers,” indicates an intention for those
disclaimers to apply beyond contract liability. In general,
the “separation of the limitations-of-liability section from
the warranty section suggests that the parties intended for
the limitations to apply to claims beyond warranty claims.”
Kaste, 

 (citing Northwest Pine Products,

). The same is true for section 11 here.
          Finally, the disclaimer expressly applies to “loss of
profits, incidental or consequential damages or failure of the
equipment to comply with any federal, state or local laws,”
which implicates liability beyond that arising under the con-
tract. Specifically, we conclude that the disclaimer for “fail-
ure of the equipment to comply with any federal, state or
local laws” broadened the provision to encompass tort lia-
bility. As the trial court noted, a disclaimer of any liability
related to a violation of law necessarily implicates claims for
negligence per se, which is a concept in tort. See Scheffel v.
Cite as 

 (2022)                                   455

Oregon Beta Chapter of Phi Kappa Psi, 

,

 (2015) (outlining the requirements of a negli-
gence per se claim based on a violation of an administrative
rule).
          Lloyd’s London’s argument that the reference to
the equipment’s legal compliance could reasonably be inter-
preted as a disclaimer of implied warranties is not persua-
sive. Section 5 of the contract stipulates that “[t]here are no
warranties which extend beyond the description on the face
hereof,” and section 11 provides that “[t]here are no warran-
ties, express or implied, * * * beyond those set forth in Section 5.”
Under Lloyd’s London’s logic, the contract would have three
different provisions communicating the same information—
that the contract contains no implied warranties. When read
in the context of the agreement as a whole, that disclaimer
related to the equipment’s compliance with “federal, state
or local laws” is only capable of one “sensible and reasonable
interpretation.” American Wholesale Products, 288 Or App
at 424. Those elements, in combination, lead us to conclude
that the contract unambiguously reflects the parties’ clear
and unequivocal intent to immunize FDI from tort liability.
          In sum, we disagree with the trial court’s reasoning
suggesting that sections 5, 7, and 12 shielded FDI from tort
liability, because they all could be plausibly read as limita-
tions to contract damages. Section 11, on the other hand,
cannot be read in a way that restricts it to damages related
to contract liability, and therefore we agree with the trial
court’s ultimate conclusion that the text of the sales contract
unambiguously limited FDI’s tort liability.
          Turning to the second part of the test for assessing
whether a limitation of liability should apply, we consider
“the possibility of a harsh or inequitable result that would
fall on one party if the other party was immunized from the
consequences of its own negligence.” American Wholesale
Products, 288 Or App at 423 (internal quotation marks
omitted). That question “focuses on the nature of the par-
ties’ obligations and expectations under the contract.” Estey,

. We note that the trial court asked the wrong
question by assessing whether it would be harsh to impose
tort liability on FDI. Instead, the correct inquiry is whether
456       Certain Underwriters v. TNA NA Manufacturing

the result would be harsh to the non-immunized party. See

 (court’s inquiry focuses “on the possibility of a
harsh or inequitable result that would fall on one party by
immunizing the other party from the consequences of his or
her own negligence”).
          Despite that error, applying the correct standard
to this case results in the same outcome. The language of
the contract indicates that the parties expected that issues
involving the use of FDI’s equipment would be remedied by
either repairing or replacing the equipment. Nothing in the
nature of the parties’ relationship or bargaining power sug-
gests that the parties reasonably held different expectations
and, thus, it would not be harsh or inequitable to limit FDI’s
liability. See American Wholesale Products, 288 Or App at
424 (contract that simply “allocate[d] risk” did not create a
harsh or inequitable result).
         Next we address Lloyd’s London’s second assign-
ment of error, regarding the award of attorney fees to FDI
under ORCP 46 A(4). During the litigation, FDI requested
materials related to SunOpta’s investigation into the cause
of the outbreak and those involving or created by the con-
sultants hired as part of that investigation. Lloyd’s London
withheld documents pertaining to those consultants on
the grounds that they were privileged as experts hired in
advance of litigation. FDI filed a motion to compel, which
was ultimately granted by the trial court. FDI subsequently
requested attorney fees under ORCP 46 A(4), and the trial
court granted that request, finding that the withholding of
those materials was “unreasonable and not substantially
justified.”
          We review a decision to sanction a party under ORCP
46 A for abuse of discretion. See Burdette v. Miller, 

, 

 (2011) (so stating for ORCP 46 D);
Elliott v. Progressive Halcyon Ins. Co., 

,

 (2008), rev den, 

; 

 (2009)
(so stating for ORCP 46 C). ORCP 46 A(4) provides that if a
motion to compel discovery is granted, the court may award
attorney fees, “unless the court finds that the opposition
to the motion was substantially justified or that other cir-
cumstances make an award of expenses unjust.” The trial
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 (2022)                              457

court found that the consultants were hired to investigate
the root cause of the outbreak, not to provide expert advice
for litigation purposes, and cited evidence from the record
to support that finding. It therefore determined that what
the “two consultants saw, did, and recommended and why
they did so is, of course, subject to discovery.” Because it was
legally permissible to conclude that Lloyd’s London’s com-
plete opposition to any discovery related to their consultants
was not substantially justified, the trial court did not abuse
its discretion in awarding attorney fees as a sanction. See
Gwin v. Lynn, 

, 

 (2008) (“[W]e
hold that a witness may be both an expert witness and a
fact witness and, therefore, may be deposed concerning facts
that pertain to the witness’s direct involvement in or obser-
vation of the relevant events that are personally known to
the witness and that were not gathered primarily for the
purpose of rendering an expert opinion.”).
        Affirmed.