Kornegay Family Farms LLC v. Cross Creek Seed, Inc. , 370 N.C. 23 ( 2017 )

IN THE SUPREME COURT OF NORTH CAROLINA
No. 187PA16
Filed 18 August 2017
KORNEGAY FAMILY FARMS LLC
v.
CROSS CREEK SEED, INC.
On writ of certiorari pursuant to N.C.G.S. § 7A-32(b) to review an order and
opinion dated 20 April 2016 entered by Judge James L. Gale, Chief Special Superior
Court Judge for Complex Business Cases appointed by the Chief Justice pursuant to
N.C.G.S. § 7A-45.4, in Superior Court, Johnston County, denying defendant’s motions
for partial summary judgment. Heard in the Supreme Court on 10 April 2017.
Ellis & Parker PLLC, by L. Neal Ellis, Jr.; and Jolly Williamson & Williamson,
by John P. Williamson, Jr., for plaintiff-appellees.
Poyner Spruill LLP, by Steven B. Epstein, Andrew H. Erteschik, and Saad Gul,
for defendant-appellant.
Pinto Coates Kyre & Bowers, PLLC, by Jon Ward; and Michael W. Patrick for
North Carolina Advocates for Justice, amicus curiae.
Smith Moore Leatherwood LLP, by Matthew Nis Leerberg and Kip D. Nelson,
for North Carolina Association of Defense Attorneys, amicus curiae.
H. Julian Philpott, Jr. and Phillip J. Parker, Jr. for North Carolina Farm
Bureau Federation, Inc., Tobacco Growers Association of North Carolina, Inc.,
North Carolina Soybean Producers Association, North Carolina Peanut
Growers Association, and Carolinas Cotton Growers Cooperative, Inc., amici
curiae.
JACKSON, Justice.
KORNEGAY FAMILY FARMS V. CROSS CREEK SEED
Opinion of the Court
In this case we consider whether defendant Cross Creek Seed, Inc. may enforce
several limitation of remedies clauses pursuant to Article 2 of the Uniform
Commercial Code (UCC) as codified in N.C.G.S. § 25-2-719(1)(a) against Kornegay
Family Farms, LLC and a number of other commercial farmers (plaintiffs) in defense
of lawsuits premised on defendant’s distribution of allegedly mislabeled tobacco seed.
Because it is the policy of this State, as expressed by the General Assembly in the
North Carolina Seed Law of 1963 (Seed Law), see N.C.G.S. §§ 106-277 to -277.34
(2015), to protect farmers from the potentially devastating consequences of planting
mislabeled seed, we conclude that defendant’s limitation of remedies clauses are
unenforceable against plaintiffs. Accordingly, we affirm the North Carolina Business
Court’s 20 April 2016 order and opinion denying defendant’s motions for partial
summary judgment.
Defendant is headquartered in Raeford, North Carolina, and is in the business
of breeding, developing, and producing tobacco seeds. The eight plaintiffs in this case
all are commercial farmers in North Carolina who had purchased one or more of four
varieties of defendant’s tobacco seed between January and February 2014. Between
June and August 2015, each plaintiff filed a separate suit against defendant alleging
that defendant had sold them mislabeled, certified tobacco seed for planting. The
complaints were filed in the superior courts of six different counties across North
Carolina. Plaintiffs complained that “[c]ontrary to the order and the labeling on the
containers delivered to [them], a substantial portion of the seed was of an unknown
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Opinion of the Court
variety” and not the type or types of certified seed each plaintiff contracted to receive
from defendant. Plaintiffs learned that they had not received the correct types of
seed after the seeds had been planted and consequently produced “plants which were
defective, disease prone, inferior, and unmarketable.” Several plaintiffs subsequently
filed complaints with the North Carolina Seed Board pursuant to relevant provisions
of the Seed Law. See N.C.G.S. §§ 106-277.30, -277.34. The Seed Board investigated
these complaints and determined that the yields of what it described as “off-type”
plants were “consistent with the presence of genetic abnormalities” in the seed. The
Seed Board also determined that the yields of “off-type” plants were not “consistent
with nutritional deficiencies” nor were they responses to “environmental or
agronomic factors” such as chemical injury. Defendant denied selling unknown
varieties of tobacco seed to plaintiffs—and most relevant to our review of this case—
argued that in accord with the limitation of remedies clause on each container of seed,
plaintiffs’ alleged damages were “limited to repayment of the purchase price of the
seed.”
On 7 July 2015, the Chief Justice of the Supreme Court of North Carolina
designated the suit by Kornegay Family Farms—the named plaintiff—as a
mandatory complex business case, and the matter was subsequently assigned to
Chief Special Superior Court Judge for Complex Business Cases James L. Gale. By
a consent order signed by Judge Gale on 15 October 2015, the other seven cases were
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Opinion of the Court
consolidated in a “Master File” established in conjunction with the case filed by the
named plaintiff.
In October and November 2015, defendant filed motions for partial summary
judgment against all eight plaintiffs seeking to bar recovery of any damages
exceeding the purchase price of the seed. The Business Court heard the motions on
4 February 2016. At the hearing, defendant reiterated its argument that any
damages sustained by plaintiffs were limited to the purchase price of the seeds as
stated in the limitation of remedies clause printed on the labels affixed to each
container of seed. Defendant argued that these limitation of remedies clauses
governed the transactions with plaintiffs pursuant to the provision of UCC Article 2
codified at N.C.G.S. § 25-2-719.1
On 20 April 2016, the Business Court issued an order and opinion denying all
of defendant’s motions for partial summary judgment on the grounds that limitation
of remedies clauses appearing on the labels of mislabeled seed must fail by virtue of
the public policy central to the Seed Law as interpreted and applied by this Court.
The Business Court observed that, faced with a set of facts similar to those presented
in the instant case, this Court held that a limitation of remedies clause was
unenforceable after determining that the Seed Law “has declared the policy of North
1 Section 25-2-719 states that “[c]onsequential damages may be limited or excluded
unless the limitation or exclusion is unconscionable.” N.C.G.S. § 25-2-719(3) (2015).
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Opinion of the Court
Carolina to be one of protecting the farmer from the disastrous consequences of
planting seed of one kind, believing he is planting another.” Kornegay Family Farms,
LLC v. Cross Creek Seed, Inc., No. 15 CVS 1646, 2016 WL 1618272, at *4 (N.C. Super.
Ct. Johnston Cty. (Bus. Ct.) Apr. 20, 2016) (quoting Gore v. George J. Ball, Inc., 279
N.C. 192, 208, 182 S.E.2d 389, 398 (1971)). In Gore we also referred to a packaging
disclaimer similar to the one at issue in this case as a “skeleton warranty.” 279 N.C.
at 208, 182 S.E. 2d at 398. Finding no definitive renunciation of Gore by either this
Court or the General Assembly, the Business Court “decline[d] to infer a legislative
intent for the UCC to supersede the public policy of the Seed Law in cases involving
the sale of mislabeled seed.” Kornegay Family Farms, 2016 WL 1618272, at *8.
Consequently, the Business Court ruled that this Court’s decision in Gore did not
allow defendant to enforce its limitation of remedies clauses against plaintiffs. Id. at
*9. At the same time, the Business Court recognized that this Court “has not squarely
confronted whether a limitation of remedies in a mislabeled-seed case governed by
the UCC is enforceable,” id. at *7, and agreed with all parties that guidance from this
Court is needed, id. at *8.
On interlocutory appeal from the order of the Business Court denying
defendant’s motions for partial summary judgment, defendant argues that its
limitation of remedies clauses are enforceable pursuant to the UCC and that this
Court’s prior analysis of the public policy underlying the Seed Law does not apply in
this case. We disagree.
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KORNEGAY FAMILY FARMS V. CROSS CREEK SEED
Opinion of the Court
The stated purpose of the Seed Law, codified in Chapter 106, Article 31 of the
General Statutes, is “to regulate the labeling, possessing for sale, sale and offering or
exposing for sale or otherwise providing for planting purposes of agricultural seeds
and vegetable seeds; to prevent misrepresentation thereof; and for other purposes.”
N.C.G.S. § 106-277. Accordingly, the Seed Law makes it unlawful “[t]o transport, to
offer for transportation, to sell, distribute, offer for sale or expose for sale within this
State agricultural or vegetable seeds for seeding purposes” if those seeds, inter alia,
are “[n]ot labeled in accordance with the provisions of this Article,” present a “false
or misleading labeling or claim,” or have “affixed names or terms that create a
misleading impression as to the kind, kind and variety, history, productivity, quality
or origin of the seeds.” Id. § 106-277.9(1).
In 1971 we first were confronted with determining whether and how the Seed
Law affects private, civil litigation premised on allegations of mislabeled seed. See
generally Gore, 279 N.C. 192, 182 S.E.2d 389. In Gore the plaintiff ordered a
particular type of tomato seed from the defendant. Id. at 195, 182 S.E.2d at 390. The
seed was delivered to the plaintiff in several packets that each bore the following
limitation of remedies clause:
LIMITATION OF WARRANTY: Geo. J. Ball, Inc.
warrants, to the extent of the purchase price, that seeds,
plants, bulbs, growers supplies and other materials sold
are as described on the container, within recognized
tolerances. We give no other or further warranty, express
or implied.
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Opinion of the Court
Id. at 195, 182 S.E.2d at 390. The plaintiff planted the seed and the seed produced
tomato plants. Id. at 195, 182 S.E.2d at 390. It was not until the young tomatoes
first appeared, however, that the plaintiff realized that they were not of the type that
he had ordered. See id. at 195, 182 S.E.2d at 390. Instead of producing tomatoes that
were “slightly flattened, uniform and free of cracks” and of “excellent size,” the plants
produced tomatoes of an “unusual shape” that “were a variety of tomato wholly
unsuited for sale for table use.” Id. at 194-95, 182 S.E.2d at 390. On the basis of
these facts, the plaintiff sued the defendant for negligence in mislabeling the seed
and for what this Court construed as “a breach of [ ] contract by failure to deliver the
seed ordered, a breach of warranty of fitness of the seed for the purpose for which the
plaintiff intended to use them and a failure of consideration.” Id. at 198-99, 182
S.E.2d at 392. The plaintiff sought consequential damages totaling $9966.00,
although he had paid only $5.00 for the seed. Id. at 195, 199, 182 S.E.2d at 390, 392.
The trial court granted the defendant’s motion for a directed verdict and dismissed
the action. Id. at 197, 182 S.E.2d at 391.
On appeal from the trial court, the Court of Appeals held the trial court had
erred in part in granting a directed verdict for the defendant and remanded the case
to the trial court on the breach of contract claim on the grounds that a jury could
award nominal damages on the plaintiff’s contract claim. Id. at 197, 182 S.E.2d at
391-92. On appeal to this Court, we held the judgment of the Court of Appeals to be
correct except as to its statement concerning the damages recoverable by the plaintiff.
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Opinion of the Court
Id. at 211, 182 S.E.2d at 400. We began our analysis of recoverable damages by
observing:
Even though the jury should find that the provision
entitled ‘Limitation of Warranty’ was so located and
printed in the catalogue and other documents relied upon
by the defendant as to bring it to the plaintiff’s attention
and so make it a part of the contract, it will not avail the
defendant if it is contrary to the public policy of this State.
A provision in a contract which is against public policy will
not be enforced.
Id. at 203, 182 S.E.2d at 395 (citing In re Receivership of Port Publ’g Co., 231 N.C.
395, 397, 57 S.E.2d 366, 367 (1950); Glover v. Rowan Mut. Fire Ins. Co., 228 N.C. 195,
198, 45 S.E.2d 45, 47 (1947); Cauble v. Trexler, 227 N.C. 307, 311, 42 S.E.2d 77, 80
(1947); Seminole Phosphate Co. v. Johnson, 188 N.C. 419, 428, 124 S.E. 859, 862
(1924); Miller v. Howell, 184 N.C. 119, 122, 113 S.E. 621, 622-23 (1922); and Standard
Fashion Co. v. Grant, 165 N.C. 453, 456, 81 S.E. 606, 607-08 (1914)). Given the
underlying facts of Gore, this Court looked to the Seed Law for guidance. After
considering the stated purpose of the Seed Law and the provisions regulating labeling
of seed, we concluded:
[T]he statute has declared the policy of North Carolina to
be one of protecting the farmer from the disastrous
consequences of planting seed of one kind, believing he is
planting another. To permit the supplier of seed to escape
all real responsibility for its breach of contract by inserting
therein a skeleton warranty, such as was here used, would
be to leave the farmer without any substantial recourse for
his loss.
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Opinion of the Court
Id. at 208, 182 S.E.2d at 398. According to this Court, such a result is necessary
because “the breach of the contract of sale of seed . . . . always causes disaster. Loss
of the intended crop is inevitable. The extent of the disaster is measured only by the
size of the farmer’s planting.” Id. at 208, 182 S.E.2d at 398. Accordingly, the Court
concluded that “the phrase, ‘to the extent of the purchase price,’ as used in the
‘Limitation of Warranty’ relied upon by the defendant, is contrary to the public policy
of this State as declared in the North Carolina Seed Law . . . and is invalid.” Id. at
208, 182 S.E.2d at 398 (citation omitted).
In the present case we consider facts that are nearly identical to those in Gore:
plaintiffs purchased particular types of seed, received packages of the wrong seed
mislabeled as the type or types ordered, and only discovered the mistake after the
planted seeds yielded crops different from those anticipated. Furthermore, both cases
involve contract clauses that purport to limit recoverable damages to the purchase
price of the seed in any action potentially arising from the seed purchase transaction.
Despite these nearly identical facts, defendant contends that our reasoning in Gore
should not be applied in the present case because the transaction at issue in Gore
predated the effective date of the UCC in North Carolina. Defendant contends that
although the Court in Gore may have accurately described and applied the law in
seed mislabeling cases in a pre-UCC world, the reasoning in Gore no longer remains
correct in view of current North Carolina law on the subject. We do not agree with
this argument.
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Opinion of the Court
Article 2 of the UCC, which was enacted in North Carolina in 1965, states that
a seller’s warranty “may limit or alter the measure of damages recoverable under this
article, as by limiting the buyer’s remedies to return of the goods and repayment of
the price or to repair and replacement of nonconforming goods or parts.” N.C.G.S.
§ 25-2-719(1)(a). If a limited remedy “is expressly agreed to be exclusive,” then “it is
the sole remedy,” id. § 25-2-719(1)(b), and “[c]onsequential damages may be limited
or excluded unless the limitation or exclusion is unconscionable,” id. § 25-2-719(3);
however, Article 2 also provides for exceptions to these general rules. Critical to this
case, Article 2 does not “impair or repeal any statute regulating sales to consumers,
farmers or other specified classes of buyers.” Id. § 25-2-102 (2015). The Seed Law
expressly regulates sale of seed to farmers and therefore, falls squarely within the
section 25-2-102 exception. As such, the labeling provisions of the Seed Law
considered by this Court in Gore were not “impair[ed] or repeal[ed]” by enactment of
the UCC. Id. Consequently, we conclude that this Court’s reasoning in Gore
regarding the public policy underlying the mislabeling provisions was not limited
solely to the facts of that case, and the analysis employed in Gore remains intact.
In addition, since our decision in Gore the General Assembly has taken no steps
to repudiate our construction and application of the Seed Law. “[T]he legislature is
always presumed to act with full knowledge of prior and existing law and [ ] where it
chooses not to amend a statutory provision that has been interpreted in a specific
way, we may assume that it is satisfied with that interpretation.” Polaroid Corp. v.
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Opinion of the Court
Offerman, 349 N.C. 290, 303, 507 S.E.2d 284, 294 (1998) (citation omitted), cert.
denied, 526 U.S. 1098 (1999), abrogated on other grounds by Lenox, Inc. v. Tolson,
353 N.C. 659, 663, 548 S.E.2d 513, 517 (2001); see also Hewett v. Garrett, 274 N.C.
356, 361, 163 S.E.2d 372, 375 (1968) (determining that when the General Assembly
had convened in seventeen regular sessions and several special sessions without
changing a particular statute, this Court could “assume [that] the law-making body
[was] satisfied with the interpretation this Court has placed upon [it]”). We also have
found the law on a particular point settled when the General Assembly chose not to
change a statute following a decision rendered by this Court only a year before. City
of Raleigh v. Mechs. & Farmers Bank, 223 N.C. 286, 292, 26 S.E.2d 573, 576 (1943).
Relevant to this case, since their enactment in 1965, the General Assembly has not
altered section 25-2-102 or section 25-2-719 to provide expressly for enforcement of
limitation of remedies clauses in mislabeled seed cases. See N.C.G.S. §§ 25-2-102, -
719. Neither has the General Assembly made any change to the Seed Law that
repudiates our understanding in Gore of the Seed Law’s underlying policy and
purpose. Such “[l]ong acquiescence in the practical interpretation of a statute is
entitled to great weight in arriving at its meaning.” Polaroid Corp., 349 N.C. at 303,
507 S.E.2d at 294 (quoting State v. Emery, 224 N.C. 581, 587, 31 S.E.2d 858, 862
(1944)).
Defendant next argues that, in accord with the opinion of the Court of Appeals
in Billings v. Joseph Harris Co., which was affirmed by this Court, limitation of
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Opinion of the Court
remedies clauses such as the one at issue here are enforceable pursuant to Article 2
of the UCC. The plaintiff in Billings purchased cabbage seed that was infected with
a seed borne disease that caused the plants to rot in the field. In Billings the plaintiff
argued before the Court of Appeals that its case was not governed by Article 2 of the
UCC but by the Seed Law and this Court’s decision in Gore. Billings, 27 N.C. App.
689, 696, 220 S.E.2d 361, 367 (1975), aff’d, 290 N.C. 502, 226 S.E.2d 321 (1976). As
defendant notes in support of its position here, the Court of Appeals rejected the
plaintiff’s argument in Billings and held that the disclaimers of warranties used by
the defendant were “beyond the parameters of the Seed Law.” Id. at 696, 220 S.E.2d
at 367. The Court of Appeals distinguished Gore on several grounds, including that
the defendant in Billings “shipped the precise seed ordered by [the] plaintiff.” Id. at
697, 220 S.E.2d at 367.
We do not agree that the decision of the Court of Appeals in Billings is
determinative in the present case. When this Court considered Billings on appeal,
we distinguished it from our preceding decision in Gore. Billings, 290 N.C. at 507,
226 S.E.2d at 324. We noted that in Gore “the defendant delivered the wrong kind of
seed, whereas, in [Billings], the plaintiff admit[ted] that he received the exact kind of
seed he ordered.” Id. at 507, 226 S.E.2d at 324. Therefore, we concluded that in
Billings “there was no violation of the North Carolina Seed Law through false
labeling” or mislabeling of seed. Id. at 507, 226 S.E.2d at 324. Because the present
case clearly involves mislabeled seed, it is clear that the reasoning of this Court in
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Opinion of the Court
Gore, not Billings, is controlling. Since there was no mislabeling issue in Billings,
the Court expressed “no opinion as to whether, where there has been such a breach,
a limitation of the buyer to the recovery of the purchase price is ‘reasonable in the
light of the anticipated or actual harm caused by the breach.’ ” Id. at 510, 226 S.E.2d
at 325 (quoting N.C.G.S. § 25-2-718). In contrast to the actual question in Billings,
the hypothetical issue referenced by the Court is the one we address in this case.
Defendant also argues that the legislature “did not intend for the Seed Law to
prevent a seller from enforcing its limitation of remedies in private litigation.” In
support of this position, defendant contends that the Seed Law is a regulatory statute
that does not create a private right of action by which an injured party may seek
damages for a violation. Defendant further contends that the Seed Law explicitly
affects private, civil litigation in only two ways: first, factual evidence and scientific
opinions contained in a report of the Seed Board may be introduced in court
proceedings pursuant to subsection 106-277.34(a), and second, subsection 106-
277.34(b) limits damages in private actions in which the buyer did not make a sworn
complaint against the dealer pursuant to the Seed Law to the “expenses incurred in
connection with the cultivation of the seed alleged to be defective.” N.C.G.S. § 106-
277.34. Applying the doctrine of expressio unius est exclusio alterius—“[w]here a
statute . . . sets forth the instances of its application or coverage, other methods or
coverage are necessarily excluded,” State ex rel. Hunt v. N.C. Reinsurance Facil., 302
N.C. 274, 290, 275 S.E.2d 399, 407 (1981) (quoting 12 Strong’s North Carolina Index
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Opinion of the Court
3d: Statutes § 5.10 (1978))—to these provisions, defendant argues that the Seed Law
cannot be construed to otherwise affect private, civil actions. Specifically, defendant
maintains that the underlying policy of the Seed Law as expressed in Gore cannot be
applied to prevent enforcement of a limitation of remedies clause in a private, civil
action.
Although the Seed Law is regulatory in nature, it does not bar aggrieved
parties from pursuing private, civil litigation for damages resulting from mislabeled
seed. In fact, certain provisions of the Seed Law clearly demonstrate that the General
Assembly contemplated such recourse. As defendant observes, the 1998 amendments
to the Seed Law provide for certain evidentiary constraints in “any court action
involving a complaint that has been the subject of an investigation under G.S. 106-
277.32,” quoting N.C.G.S. § 106-277.34(a), and outline recovery limitations in “any
court action where a buyer alleges that he or she suffered damages due to the failure
of agricultural or vegetable seed to produce or perform as labeled . . . and the buyer
failed to make a sworn complaint against the dealer as set forth in G.S. 106-277.30,”
quoting id. § 106-277.34(b). At the same time, although these two provisions do
explicitly regulate private actions involving mislabeled seeds, their existence does not
abrogate our reasoning in Gore. Again, because “the legislature is always presumed
to act with full knowledge of prior and existing law” and it has taken no action over
the last forty years to invalidate our interpretation in Gore of the policy of the Seed
Law regarding limitation of remedies, “we may assume that [the General Assembly]
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Opinion of the Court
is satisfied with that interpretation.” Polaroid Corp., 349 N.C. at 303, 507 S.E.2d at
294. Defendant’s reliance on the doctrine of expressio unius est exclusio alterius is
inapposite.
In Gore we interpreted the Seed Law to invalidate enforcement of limitation of
remedies clauses in private, civil actions based on mislabeled seed. 279 N.C. at 208,
182 S.E.2d at 398. For the reasons stated above, we apply our decision in Gore to the
present case and reaffirm our previous conclusion that it is the public policy of North
Carolina, as expressed by the General Assembly in the Seed Law, to protect farmers
from “the disastrous consequences of planting seed of one kind, believing [they are]
planting another.” Id. at 208, 182 S.E.2d at 398. For the purpose of resolving the
issue before us, we accept plaintiffs’ contentions that they were sold mislabeled
tobacco seed and could only recognize the mistake after planting the seeds and
witnessing yields of “off-type” plants that were “defective, disease prone, inferior, and
unmarketable.” In light of these facts, plaintiffs here fall squarely within the
protection afforded by the policy we recognized in Gore. Enforcing defendant’s
limitation of remedies clauses pursuant to Article 2 of the UCC in this case would
foreclose the possibility of plaintiffs’ recovering consequential damages for the
mislabeled seed and would, therefore, violate that policy. Accordingly, we hold that
defendant’s limitation of remedies clauses are unenforceable against plaintiffs, and
we affirm the opinion and order of the North Carolina Business Court denying
defendant’s motions for partial summary judgment against all plaintiffs.
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Opinion of the Court
AFFIRMED.
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