United States District Court, D. Arizona
ROSEMARY MARQUEZ, District Judge.
Plaintiff Driskill Agricultural Services ("Driskill"), as assignee of Mexican tomato-grower Agricola Beltran ("Beltran") and Beltran's agent Top Yields, initiated this lawsuit by filing a Complaint against Defendant DiMare Fresh ("DiMare") for breach of contract and breach of the duty of good faith and fair dealing. DiMare asserted counterclaims for breach of express warranty, breach of the warranty of merchantability, and breach of the warranty of fitness. On November 22, 2013, DiMare moved for summary judgment and Driskill moved for partial summary judgment. Pending before the Court is a Report and Recommendation ("R&R") issued by Magistrate Judge Leslie A. Bowman that recommends denying both parties' summary judgment motions.
The dispute between the parties arises out of a produce sales agreement in which Beltran agreed to supply DiMare with "good and marketable" tomatoes for a set price per box during the 2012 growing season. DiMare argues that there is no genuine dispute of material fact that Beltran failed to supply "good and marketable" tomatoes as required by the sales agreement. Driskill argues that there is no genuine dispute of material fact that all tomatoes presented to DiMare for delivery under the sales agreement were in "good and marketable" condition and that DiMare breached the agreement by refusing to take delivery of the tomatoes presented. Driskill also argues that undisputed evidence demonstrates that DiMare clearly and unequivocally repudiated the sales agreement.
The Magistrate Judge found that there is a genuine dispute as to whether the term "good and marketable" in the sales agreement incorporated a color requirement, and recommended denying both parties' summary judgment motions on this ground. The Magistrate Judge further found that there is a genuine issue of material fact as to whether DiMare's behavior constituted an anticipatory repudiation of the sales agreement.
Both parties filed objections to the Magistrate Judge's R&R. In its objections, DiMare argues that there is no factual dispute that a color requirement was a term of the sales agreement because there is no dispute that "good and marketable" tomatoes must meet USDA marketing standards, and USDA marketing standards require no less than 90% of mature green tomatoes in each load to be "green and breakers" in color. Driskill alleges that both parties to the sales agreement understood the "good and marketable" requirement to mean tomatoes grading 85% or better on United States Department of Agriculture ("USDA") inspection certificates, and that a color requirement was never agreed to by the parties. Driskill argues that the Magistrate Judge erred by relying upon inadmissible evidence in finding a genuine dispute as to whether the "good and marketable" requirement incorporated a color standard. Driskill further argues that the Magistrate Judge erred in finding that DiMare offered admissible evidence sufficient to controvert Driskill's evidence of anticipatory repudiation.
I. The "Good and Marketable" Requirement
DiMare argues that USDA marketing standards require no less than 90% of mature green tomatoes in each load to be "green and breakers" in color, citing USDA Inspection Instructions and USDA Standards for Grades of Fresh Tomatoes. The USDA Inspection Instructions note that "[c]olor, ripeness and firmness are important factors in determining the marketability of tomatoes, " and that "practically all tomatoes are green" at shipping point. (Doc. 68-1, ex. 4 at 26-27). The USDA Standards provide color classifications that "may be used, when specified in connection with the grade statement, in describing the color as an indication of the stage of ripeness of any lot of mature tomatoes of a red fleshed variety." 7 C.F.R. § 51.1860. If a color classification is specified in connection with the grade statement, at least 90% of the tomatoes in the lot must be of the color specified, but there is no requirement that at least 90% of the tomatoes be "green and breakers" for the tomatoes to be considered "good and marketable." See 7 C.F.R. § 51.1861(f).
The only record evidence clearly specifying a 90% "green and breakers" requirement is the report and testimony of DiMare's expert, Thomas A. Leming. In his report, Mr. Leming states: "In my opinion, DiMare could expect to receive, " under the sales agreement, "tomatoes with less than 15% total defects, including no more than 1% decay and showing no less than 90% Green & Breakers, as reflected on USDA inspection certificates." (Doc. 68-1, ex. 5 at 1). Mr. Leming testified that the 15% total defects and 90% "green and breakers" requirements were "the two criteria that, in my mind, would establish that tomatoes coming across the border would meet the definition of good and marketable.'" (Doc. 72-1, ex. 3 at 28:15-20 (emphasis added)). Mr. Leming indicated that he "used the figure of 90 percent or more Green & Breakers" as one of the criteria because "the contract was for mature green tomatoes." ( Id. at 28:21-24).
Driskill argues that Mr. Leming's opinion is not admissible to determine the parties' intended meaning of the term "good and marketable, " and that the Magistrate Judge accordingly erred in relying upon it. Where, as here, a contractual term is ambiguous, courts applying Arizona law may admit parol evidence to clarify and explain the document. See Johnson v. Earnhardt's Gilbert Dodge, Inc., 132 P.3d 825, 828 (Ariz. 2006). Evidence of "a professional custom within a particular geographic area may be used to establish the terms of a contract." Nat'l Hous. Indus., Inc. v. E.L. Jones Dev. Co., 576 P.2d 1374, 1378 (Ariz. App. 1978). The Magistrate Judge assumed that Mr. Leming based his opinion regarding the meaning of the term "good and marketable" on the use of that term in the relevant market, but the Court has not found support in the record for that assumption. Mr. Leming's report does not demonstrate that Mr. Leming has experience in the particular geographical area at issue, and it does not state that Mr. Leming based his opinion regarding the meaning of the term "good and marketable" on professional custom within that area. Both Mr. Leming's report and testimony indicate that the 90% "green and breakers" requirement arises from Mr. Leming's own interpretation of the terms of the produce sales agreement. Expert witnesses are generally not permitted to provide legal opinions concerning the meaning and effect of contractual terms. See Energy Oils, Inc. v. Mont. Power Co., 626 F.2d 731, 737 (9th Cir. 1980) (district court erred by "admitting testimony of expert witnesses concerning their opinions as to the legal effect of the agreements and also by permitting a witness to express the subjective intent of the parties in entering into the agreements"); Marx & Co. v. Diners' Club Inc., 550 F.2d 505, 509 (2d Cir. 1977) (district court erred by allowing expert to provide "legal opinions as to the meaning of the contract terms at issue"); Messina v. Midway Chevrolet Co., 209 P.3d 147, 152-53 (Ariz. App. 2008) (trial court did not abuse discretion in refusing to consider expert testimony concerning the meaning of a contractual term); Tavilla v. Blue Cross & Blue Shield of Ariz., Inc., 2014 WL 4473638, at *4 (Ariz. App. Sept. 11, 2014) (trial court did not abuse discretion in refusing to consider expert opinion because opinion would not have assisted court in interpreting contract at issue); see also Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134, 1139 (Ariz. 1993) (courts should not consider parol evidence "that has no probative value in determining the parties' intent").
"When interpreting a contract... it is fundamental that a court attempt to ascertain and give effect to the intention of the parties at the time the contract was made if at all possible.'" Taylor, 854 P.2d at 1139 (quoting Polk v. Koerner, 533 P.2d 660, 662 (Ariz. 1975)). If "parties use language that is mutually intended to have a special meaning, and that meaning is proved by credible evidence, a court is obligated to enforce the agreement according to the parties' intent." Id. Here, the testimony of both signatories to the produce sales agreement establishes that the parties intended the term "good and marketable" to mean tomatoes that met the standards to grade 85% or better on USDA inspection. Angel Antonio Beltran Soberanes, who signed the agreement on behalf of Beltran, testified:
Q. What was the requirement under that contract in terms of the quality or condition of the tomatoes?
A. 85 percent or better.
Q. That was your understanding when you entered into ...