Southern Minnesota Beet Sugar Cooperative v. Agri Systems

Background

Southern Minnesota Beet Sugar Cooperative (SMBSC) processes sugar beets for sugar production. Agri Systems (ASI), a Montana corporation, designs and constructs storage facilities. In April 2014, the parties entered into an agreement for ASI to design and construct six sugar-storage silos for SMBSC.

The silos used top-down reclaimer systems to move sugar toward the center so it could leave through the bottom. The reclaimer system included a walkway, rotating trolleys, pins, cables, and other equipment. On December 30, 2015, the reclaimer system in one silo fell to the bottom into the sugar. SMBSC stopped using the five remaining silos, obtained replacement storage in Eaton, Colorado, and arranged a market sale in Atlanta, Georgia. SMBSC shipped sugar to those destinations and invoiced ASI.

SMBSC sued ASI on six counts: breach of contract for failure to perform, breach of express warranty, breach of implied warranty, a claim that the contract was void as against SMBSC, professional negligence, and product defect. ASI sought partial summary judgment on Counts III through VI. Summary judgment is entered when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law.

Count III: Breach of Implied Warranty

ASI argued that the agreement was for services rather than goods, so the Uniform Commercial Code did not apply and the agreement’s warranty disclaimer barred SMBSC’s claim. The court applied Minnesota’s “predominant factor” test for agreements involving both goods and services. It concluded that the agreement was a contract for goods because its central purpose was obtaining six silos and the material costs greatly exceeded the labor, engineering, and construction costs. The Uniform Commercial Code therefore governed the agreement.

ASI also argued that a contractual waiver of consequential damages barred SMBSC’s approximately $1,700,000 claim. The court distinguished consequential damages from “cover” costs—the costs of obtaining substitute goods or arrangements after a seller’s breach. Viewing the evidence in SMBSC’s favor, the court held that a reasonable factfinder could determine that SMBSC’s replacement-storage expenses were cover costs incurred in good faith and without unreasonable delay.

ASI further argued that the agreement waived all implied warranties. The court found the relevant language unambiguous in disclaiming implied warranties except those related to professional design services. But it held that a factual dispute remained about whether the alleged breach involved a design defect or a workmanship problem. The court therefore denied ASI’s motion for summary judgment on Count III.

Count IV: Void-Contract Claim

SMBSC did not identify a genuine dispute of material fact concerning its void-contract claim and agreed at the hearing that ASI was entitled to judgment as a matter of law. The court granted ASI’s motion for summary judgment on Count IV.

Count V: Professional-Negligence Claim

ASI argued that SMBSC’s professional-negligence claim was barred because the alleged negligence arose from the agreement and overlapped with SMBSC’s contract claims. The court rejected that argument. Under Minnesota law, professional negligence is an independent tort, and the professional relationship between ASI and SMBSC created a duty to perform professional services with reasonable care and competence even apart from the contract.

ASI did not otherwise argue or establish that no genuine dispute of material fact existed or that it was entitled to judgment as a matter of law on this claim. The court denied ASI’s motion for summary judgment on Count V.

Count VI: Product-Defect Claim

The court explained that a tort claim fails when the duty alleged is indistinguishable from the duty imposed by a contract. SMBSC offered no response to ASI’s argument on this point. The court concluded that the product-defect claim was based on a duty indistinguishable from the duties underlying SMBSC’s breach-of-contract claims. It therefore granted ASI’s motion for summary judgment on Count VI.

Disposition

The court ordered that ASI’s motion for summary judgment was granted in part and denied in part: denied as to Count III, granted as to Count IV, denied as to Count V, and granted as to Count VI.