Carlin v. DAIRY AMERICA, INC.

• Decision Date: 09 February 2010
• Docket Number: No. 1:09-CV-00430-AWI-DLB.,1:09-CV-00430-AWI-DLB.
• Citation: 690 F. Supp.2d 1128
• Court: U.S. District Court — Eastern District of California
• Parties: Gerald CARLIN, John Rahm, Paul Rozwadowski, and Brian Wolfe, individually and on behalf of themselves and others similarly situated, Plaintiffs, v. DAIRY AMERICA, INC., and California Dairies, Inc., Defendants.

690 F.Supp.2d 1128

Gerald CARLIN, John Rahm, Paul Rozwadowski, and Brian Wolfe, individually and on behalf of themselves and others similarly situated, Plaintiffs, v. DAIRY AMERICA, INC., and California Dairies, Inc., Defendants.

No. 1:09-CV-00430-AWI-DLB.

United States District Court, E.D. California.

February 9, 2010.

Anthony David Phillips, Christopher Heffelfinger, Berman Devalerio, San Francisco, CA, Benjamin Doyle Brown, Brent W. Johnson, PHV, George F. Farah, PHV, Cohen Milstein Sellers & Toll PLLC, Washington, DC, for Plaintiffs.

Charles M. English, PHV, David A. Edelstein, PHV, E. John Steren, PHV, Wendy M. Yoviene, PHV, Ober Kaler, Washington, DC, Charles Kendall Manock, Christopher Daniel Bell, Kendall L. Manock, Baker Manock & Jensen, PC, Fresno, CA, Allison Ann Davis, Davis Wright Tremaine LLP, Lawrence Michael Cirelli, Sally Anne Johnson, Hanson Bridgett LLP, San Francisco, CA, for Defendants.

ORDER ON DEFENDANTS' MOTION TO DISMISS

ANTHONY W. ISHII, Chief Judge.

This is a putative class action in diversity arising from the alleged misreporting of pricing data by Defendants Dairy America, Inc., ("Dairy America") and California Dairies, Inc. ("California Dairies") (collectively "Defendants") which resulted in depressed prices paid to plaintiffs for raw milk during the period between January 1, 2002, through April 30, 2007. This case is the lead case of four cases that were consolidated by an order filed on May 29, 2009, 2009 WL 1518058. In this memorandum opinion and order, the court considers the separate motions of Dairy America and California Dairies to dismiss all claims set forth in the First Amended Complaint ("FAC") pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Diversity jurisdiction exists pursuant to 28 U.S.C. § 1391(a). Venue is proper in this court.

FACTUAL BACKGROUND

I. The Parties

The named plaintiffs are five dairy farmers located in states other than California who sold raw milk that was priced according to Federal Milk Marketing Orders ("FMMO's") during the time period between January 1, 2002, and April 30, 2007. The FAC asserts claims on behalf of a class of plaintiffs that sold raw milk under the same FMMO's during the same time period. The Plaintiffs in the cases that were consolidated by the court's order of May 29, 2009, are similarly situated dairy farmers whose complaints allege claims that are substantially similar to those set forth in the FAC.

Although there is some disagreement as to the specific details of its business identity, it is not disputed that Dairy America is an entity established by a group of nine dairy cooperatives for the purpose of marketing dairy products manufactured by the cooperatives. Relevant to this action, the products manufactured by the cooperatives and marketed by Dairy America include nonfat dry milk ("NFDM"), buttermilk and whole milk powder. California Dairies is a dairy cooperative formed in 1999 as a result of the merger of California Milk Producers and Danish Creamery Association. The parties agree that California Dairies is a major, but not the sole, stakeholder in the Dairy America marketing cooperative. Plaintiffs allege, and California Dairies vigorously disputes, that Dairy America is an agent of California Dairies.

II. Raw Milk Pricing Procedures

Pursuant to the Agricultural Marketing Agreement Act of 1937 ("AMAA"), the United States Department of Agriculture supports milk prices by establishing a minimum price structure for milk and milk products. The method by which this is accomplished is admittedly complex. The FAC, as well as the parties' pleadings describe the system in a level of detail that need not be repeated here. The parties appear to agree at least as to the general means by which the minimum price for raw milk is determined. The following is an abbreviated version of that process drawn primarily from the FAC.

The AMAA establishes ten geographical regions in which minimum milk pricing structures are determined by separate FMMO's¹ for each area. FMMO's set minimum prices for categories of products made from raw milk. Class I includes beverage products; Class II includes soft manufactured products, such as ice cream, cottage cheese and yoghurt; Class III includes hard cheese and cream cheese; and Class IV includes butter and dry milk products. Although FMMO's set minimum prices according to a tiered pricing system that is based on end use of the milk, a region-specific single minimum price for raw milk at the farm is determined by a weighted average of prices for milk products in categories I through IV.

During the period of time relevant to this action, the methods for calculating the minimum prices reflected in the FMMO's were mandated through the Dairy Market Enhancement Act of 2000 ("DMEA"). Pursuant to the DMEA, weekly surveys are conducted by the National Agricultural Statistics Service ("NASS") to collect wholesale prices for representative products within each category. The survey information is gathered from product manufacturers (sometimes referred to in pleadings as milk "handlers") who produce a million pounds or more of manufactured product per year. The FMMO minimum prices for milk for class III (hard cheese) and IV (dry milk and butter) products are determined by applying the wholesale prices reported in the weekly surveys to formulae specified by the FMMO. The FMMO minimum prices for products in Classes I and II are derived by mathematic formulae from the prices determined in Classes III and IV.

Of significance to this action, one of the major wholesale pricing inputs collected by NASS for computation of the FMMO minimum price for milk for Class IV products is the wholesale price for NFDM. The DMEA requires handlers to submit NASS survey information according to instructions that, among other things, direct the handler to exclude from the survey wholesale prices for NFDM for forward sales contracts. Forward sales contracts are defined as contracts in which the selling price is set more than 30 days before the completion of the transaction. It appears undisputed that forward sales contracts generally reflected lower prices for NFDM than were reflected in contracts that were completed at or near the time of the transaction during the time period in question.

It is not disputed that, during the time in question, Dairy America submitted pricing information to the NASS survey that improperly included wholesale prices for forward contracts for NFDM. Plaintiffs allege, and Defendants do not appear to dispute, that approximately ninety percent of the contracts executed by Dairy America and reported in the weekly NASS surveys were forward contracts that should not have been reported in the NASS surveys according to DMEA procedures. Plaintiffs contends that, because forward contract prices were significantly below spot prices during the time period in question, the minimum prices set by the FMMO's for raw milk were significantly lower than would have been the case if the information provided by Dairy America to NASS had been provided according to instructions.

The FAC alleges four claims for relief; each claim appears to be alleged against both Defendants. The first and second claims for relief allege negligent misrepresentation and Negligent Interference with Prospective Economic Advantage, respectively, both under California common law. Plaintiffs' third claim for relief alleges violation of California's Unfair Business Practices Law, California Business and Professions Code § 17200, et seq. Plaintiffs' fourth claim for relief alleges unjust enrichment under California common law.

PROCEDURAL HISTORY

The complaint in this action was filed on March 6, 2009. The currently operative FAC was filed on April 3, 2009. On April 15, 2009, Plaintiffs in this case moved for consolidation of five related cases: 09-CV-0607, 09-CV-0558, 09-CV-0237, 09-CV-0556, and 09-CV-0233. Plaintiffs' motion to consolidate was granted on May 29, 2009. Defendants California Dairies and Dairy America filed separate motions to dismiss on June 2, 2009. Defendant Dairy America filed a request for judicial notice on the same date. Plaintiffs filed separate oppositions to both motions on July 16, 2009. Defendants' replies were filed on August 13, 2009. Plaintiffs moved to file a sur-reply to address additional case authority on August 31, 2009. California Dairies filed an opposition to Plaintiffs' sur-reply on September 2, 2009. The hearing on Defendants' motion to dismiss was vacated and the matter was taken under submission as of August 31, 2009.

LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure can be based on the failure to allege a cognizable legal theory or the failure to allege sufficient facts under a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.1984). To withstand a motion to dismiss pursuant to Rule 12(b)(6), a complaint must be set forth factual allegations sufficient "to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ("Twombly"). While a court considering a motion to dismiss must accept as true the allegations of the complaint in question, Hospital Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738, 740, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976), and must construe the pleading in the light most favorable to the party opposing the motion, and resolve factual disputes in the pleader's favor, Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404, reh'g denied, 396 U.S. 869, 90 S.Ct. 35, 24 L.Ed.2d 123 (1969), the allegations must be factual in nature. See Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ("a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will...