Kornegay Family Farms LLC v. Cross Creek Seed, Inc.

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 (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 .

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

. 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 , and agreed with all parties that guidance from this

Court is needed, id. at .

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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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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