Sticky Fight Over|Licorice Will Continue

OAKLAND, Calif. (CN) - A federal judge again rejected in part a molasses seller's motion to dismiss a lawsuit over recall of Red Vine licorice adulterated with lead.

American Licorice Company sued Total Sweeteners in 2013, claiming the company had sold it 1.5 million lbs. of spoiled syrup.

Total Sweeteners dba Batory Foods in turn filed a third-party complaint against Imperial Sugar Co., Imperial Distributing and its subsidiary Savannah Sugar Refinery, and Domino Foods, alleging breach of warranty and indemnity agreements.

American Licorice, which makes red and black licorice, says it uses molasses - aka bulk refiners syrup - as "the major constituent" of its black licorice.

The California Department of Public Health in 2012 discovered excessive lead in the Total Sweeteners-sold syrup, which led to a total recall of Red Vines product, American Licorice claimed.

"Testing of all ingredients contained in Red Vines black licorice showed that the elevated level of lead was due to the molasses received from defendants, not other ingredients," American Licorice said. It claimed it had incurred "substantial costs and lost sales in excess of $2 million."

"As a result of the testing, and based on the permissible limit or 0.1 ppm of lead for candy, American Licorice was compelled to expand its recall to include all Red Vines black licorice available for sale and in possession of consumers throughout the United States, including packaging containing mixed red and black licorice, and to halt production of Red Vines black licorice to ensure that all relevant product was removed from commerce and not available for consumption," the company said.

U.S. District Judge Edward Chen refused to dismiss the lawsuit in 2013, citing "ambiguous" conduct.

Though the molasses maker and distributor claimed a February 2012 purchase order prepared by American Licorice was never adopted as part of a December 2011 contract between the parties, Chen found that "the parties' actions and intent were ambiguous, and a jury could reasonably infer that there was an intent that the purchase order modify the contract, but a jury could also reach the contrary conclusion."

Chen added that a sales contract between the parties was a "valid and binding agreement," but that the purchase order's validity could not be determined on a motion to dismiss.

On Wednesday, ruling on Total Sweeteners' motion for summary judgment, Chen granted in part and denied in part the company's request.

Chen ruled in the defendant's favor that the purchase order was not a valid modification of the sales contract, and that a consequential damages limitation in the sales contract was enforceable.

Chen denied in part Total Sweeteners' motion, however, finding American Licorice's claims were not barred for failure to comply with the contract's 45-day notice period, and that the contract did not effectively disclaim both express and implied warranties.

Neither party was available for comment before press time.

"Defendant argues that most of plaintiff's claims are barred by a provision in the sales contract that provides that plaintiff 'hereby waives any claim or defense based on the quality of the commodities specified herein' unless plaintiff notifies defendant of any such claim 'within 45 [days] after receipt of notice of arrival of said commodities at destination,'" the 20-page ruling states. "Because plaintiff admits it did not notify defendant within 45 days of receipt of the lion's shard of the allegedly adulterated molasses, defendant argues that all claims with respect to those shipments are waived."

Chen added: "Because plaintiff contends that it had no reason to suspect the molasses would contain significant amounts of lead, it argues that it would be unreasonable to bar its claims for failing to notify defendant of this latent defect within 45 days of receipt of the molasses. ... The competing evidence demonstrates the existence of a genuine issue of material fact regarding the reasonableness of the duration of the notice provision sufficient to defeat defendant's motion for summary judgment."

But ruling finding in Total Sweeteners' favor, Chen ruled that a consequential damages limitation of the sales contract was not "substantively unconscionable."

"Plaintiff chose to sign a contract which allocated the risks to itself, and then further chose not to take steps (i.e., test its product or ingredients for adulterants) to mitigate those risks," Chen wrote.

Chen also ruled that an American Licorice employee, in deposition testimony, said "he never discussed the terms of the purchase order with defendant's employees, that he assumed the purchase orders were issued 'pursuant to' the existing sales contract, and that he did not believe the purchase orders created a separate binding contract."

Because Total Sweeteners' performance was consistent with both the contract and order, Chen added, American Licorice failed to establish assent to the terms of the order.

"Thus, defendant is entitled to partial summary judgment that the sales contract applies unmodified by the purchase order," the ruling states.

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