Access Business Group International, LLC v. Refresco Beverages US Inc.

Background

Access Business Group International, LLC, and Refresco Beverages US Inc. entered into an agreement for the production of sports drinks. Access was responsible for designing the drinks, including their formulas and packaging specifications. Refresco was responsible for manufacturing the drinks so they conformed to those specifications and industry standards, including merchantability requirements.

Refresco became concerned that the drinks’ electrolyte levels could corrode the cans and can liners selected by Access. In two later letter agreements, Refresco accepted no liability for corrosion caused directly by, or to the extent caused by, Access’s formulas. The agreements also stated that Refresco’s other obligations remained in effect. The second letter agreement remained effective while Refresco produced the designated products.

After production began, cans stored in Access’s warehouses started leaking. Access discarded its remaining inventory and sued Refresco for breach of contract, seeking reimbursement for the defective goods and cleanup costs. The parties filed cross-motions for summary judgment, asking the court to resolve the case without a trial because they claimed no genuine dispute of material fact existed.

Disputed facts

The court identified factual disputes about whether Access substantially performed its own contractual obligations. Refresco argued that Access failed to conduct required testing of the formulas and packaging. The court found that the agreement did not clearly define what testing was required, that some testing had occurred, and that the evidence did not establish whether Access’s testing satisfied its obligations.

The parties also presented competing evidence about the cause of the corrosion. Access relied on expert testimony that Refresco, through subcontractors, applied the can liners unevenly, creating weak spots. Refresco relied on expert and other evidence that the formulas’ saltiness caused the corrosion. Evidence included employee communications, warnings about the formulas’ corrosion risks, testing of empty cans, and an investigation by a neutral third party. The court found that the evidence was sufficient for a reasonable factfinder to reach either side’s conclusion.

Contract interpretation

The court rejected Access’s argument that Refresco’s general warranty made Refresco responsible even if Access’s formulas caused the corrosion. The warranty required Refresco’s work to conform to Access’s specifications and industry standards and required the products to be merchantable and free from defects in workmanship and materials. The court interpreted that warranty as addressing the quality of Refresco’s manufacturing. If Refresco properly manufactured a defective design, it had fulfilled that warranty; the warranty did not make Refresco responsible for defects in Access’s specifications.

The court also rejected Refresco’s argument that the two letter agreements assigned all corrosion-related responsibility to Access. The agreements relieved Refresco of liability only for corrosion caused directly by the formulas or to the extent the formulas caused it. They did not release Refresco from responsibility for problems unrelated to the formulas. Thus, if faulty can liners contributed to the corrosion, the agreements did not fully shield Refresco. The court stated that the formulas and the liners could both be substantial causes, and determining causation was a factual question.

Ruling

Because genuine disputes remained about Access’s performance and the cause of the corrosion, the court denied both parties’ motions for summary judgment. The court directed the Clerk of Court to close the two docket entries for those motions. The opinion did not enter judgment for either side on the breach-of-contract claim.