George's Inc. v. Lloyd's of London Syndicate 4000 Issuing Certificate No. CPP1877167

• Decision Date: 20 November 2020
• Docket Number: CASE NO. 5:20-CV-05086
• Parties: GEORGE'S INC., CAMPOS FOODS, LLC, and GEORGE'S PREPARED FOODS, LLC PLAINTIFFS v. LLOYD'S OF LONDON SYNDICATE 4000 ISSUING CERTIFICATE NUMBER CPP1877167 and PEMBROKE MANAGING AGENCY DEFENDANTS
• Court: U.S. District Court — Western District of Arkansas

GEORGE'S INC., CAMPOS FOODS, LLC,and GEORGE'S PREPARED FOODS, LLC PLAINTIFFS v. LLOYD'S OF LONDON SYNDICATE 4000ISSUING CERTIFICATE NUMBER CPP1877167and PEMBROKE MANAGING AGENCY DEFENDANTS

CASE NO. 5:20-CV-05086

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS FAYETTEVILLE DIVISION

November 20, 2020

MEMORANDUM OPINION AND ORDER

Defendants Lloyd's of London Syndicate 4000 Issuing Certificate Number CPP1877167 ("Underwriters") and Pembroke Managing Agency ("Pembroke") (collectively, "Defendants") have filed a Motion to Dismiss (Doc. 23) pursuant to Federal Rule of Civil Procedure 12(b)(6) seeking dismissal of the claims filed against them by Plaintiffs George's Inc. ("George's"), Campos Foods, LLC ("Campos"), and George's Prepared Foods, LLC ("George's Prepared Foods") (collectively, "Plaintiffs"). Alternatively, Defendants seek transfer of this action to the Southern District of New York pursuant to Rule 12(b)(3) and 28 U.S.C. § 1406. Plaintiffs filed a Response (Doc. 31), and Defendants replied (Doc. 36). The matter is now ripe for consideration. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion to Dismiss (Doc. 23).

I. BACKGROUND

The following facts are taken from Plaintiffs' Amended Complaint (Doc. 13) and are assumed to be true. Campos—a wholly-owned subsidiary of George's Prepared Foods—operates a food processing facility ("the Facility") in Caryville, Tennessee that makes ready-to-eat ("RTE") sausage patties. On April 24, 2019, the USDA informed Plaintiffs of a positive salmonella test at the Facility (Doc. 13, p. 7). Plaintiffs began an investigation and paused distribution of potentially affected product. Id. The USDA also continued to investigate the contamination.

Around June 10, 2019, Plaintiffs realized that substantial amounts of their product were likely contaminated by salmonella and would not be released for distribution. Id. Plaintiffs allege that their investigation concluded that the contamination was likely caused by employee error and a "temporary failure" of the Facility's "salmonella lethality processes." Id. Prior to June 10, Plaintiffs did not know whether their product would need to be condemned or withdrawn from the market. Id. Ultimately, based upon their investigation and a recommendation from the USDA, Plaintiffs condemned over one million pounds of the RTE patties and issued a voluntary Class I recall. Id. at p. 8. Plaintiffs put their incurred losses at $3,040,460.86. Id. at p. 9.

Plaintiffs were insured from recall losses pursuant to two policies issued by Underwriters. The 2018 Policy—Certificate No. CPP1877167—covered the period from August 31, 2018 through August 31, 2019. That Policy provided up to $10,000,000 in coverage to Plaintiffs "for all or any Loss caused by or resulted from any Insured Event first discovered during the Period of Insurance and notified to Underwriters . . . ." (Doc. 13-1, p. 3 (emphasis in original)). The 2018 Policy includes the following applicable provisions relating to coverage:

• "Loss" is defined as pre-recall and recall costs "which are in fact incurred by the Insured within 12 months following the date when the relevant Insured Event was first discovered by the Insured." Id. at p. 3 (emphasis in original).

• "Insured Events" include, as defined, "Accidental Contamination" and "Governmental Recall." Id.

• The notice provisions of the Policy hold that "[u]pon first discovery of incident that may be covered under the terms of this Policy and as a condition precedent to coverage, the Insured shall as soon as practical but in no case later than 30 days after discovery . . . (a) provide written notice of any Insured Event first discovered by the Insured during the Period of Insurance . . . ." Id. at p. 12.

The 2018 Policy also includes a choice-of-law provision which states that "[u]nless otherwise agreed, the construction, interpretation and meaning of the provisions of this Policy shall be determined in accordance with New York law." Id. at p. 10. The 2018 Policy does not contain a forum-selection clause.

As for the 2019 Policy, it covers August 31, 2019 to August 31, 2020. It is generally identical to the 2018 Policy, though it does include a forum-selection clause that reads as follows:

The Insured and Underwriters expressly agree that all claims and disputes will be brought for adjudication in the Supreme Court of the State of New York in and for New York County or in the United States District Court for the Southern District of New York.

(Doc. 13-1, p. 31).

Plaintiffs made a demand for coverage that Underwriters denied, leading to this action. The Amended Complaint seeks a declaration that the alleged contamination and recall are an Insured Event and that Underwriters owe Plaintiffs coverage for their losses. (Doc. 13, pp. 9-10). The Amended Complaint also names Pembroke as a separate Defendant in its role as "managing agent for Syndicate 4000." (Doc. 13, p. 3). The Amended Complaint makes the following five claims: (1) a request for a declaration that Underwriters owe Plaintiffs coverage under the Policies; (2) breach of contract against Underwriters; (3) breach of the duty of good faith and fair dealing against Underwriters;(4) statutory damages and attorneys' fees against all Defendants; and (5) bad-faith denial-of-coverage against all Defendants. Id. at pp. 12-13. Defendants responded by filing their Motion, in which they raise a series of arguments for either the dismissal or transfer of Plaintiffs' claims. Defendants also argue that New York law governs the Policies, while Plaintiffs argue that Arkansas law applies.

On September 29, 2020, the Court held a Rule 16 case management hearing where it heard arguments from the parties on all of the issues raised in Defendants' Motion and took the matter under advisement. After considering the parties' arguments, the Court's ruling is set forth below.

II. LEGAL STANDARD

A. Rule 12(b)(3) Motion to Transfer

Rule 12(b)(3) states that a party may move to dismiss a case for "improper venue." Fed. R. Civ. P. 12(b)(3). If a defendant prevails on a Rule 12(b)(3) motion, "[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." 28 U.S.C. § 1406(a).

The question of whether venue is "wrong" or "improper" is generally governed by 28 U.S.C. § 1391. Id. That provision states that "[e]xcept as otherwise provided by law . . . this section shall govern the venue of all civil actions brought in district courts of the United States." Id. (quoting § 1391(a)(1) (emphasis added)). Section 1391 further provides that:

a civil action may be brought in—(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located; (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of propertythat is the subject of the action is situated; or (3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court's personal jurisdiction with respect to such action.

28 U.S.C. § 1391(b). The Supreme Court has stated that "[w]hen venue is challenged, the court must determine whether the case falls within one of the three categories set out in section 1391(b)." Atl. Marine Const. Co., Inc. v. U.S. Dist. Ct. for Western Dist. of Tex., 571 U.S. 49, 56 (2013). "If it does, venue is proper; if it does not, venue is improper, and the case must be dismissed or transferred under § 1406(a)." Id.; see 28 U.S.C. § 1406(a).

When reviewing a motion to dismiss under Rule 12(b)(3), the Court applies the same standard used for other motions to dismiss. Transocean Grp. Holdings Party Ltd. v. S.D. Soybean Processors, 505 F. Supp. 2d 573, 575 (D. Minn. 2007). The Court must construe all facts in the light most favorable to the non-moving party, and take the facts alleged in the complaint as true. Id. at 575. Unlike motions to dismiss under Rule 12(b)(6), however, when ruling on a motion to dismiss for improper venue, the court may consider matters outside the pleadings. Spanier v. Am. Pop Corn Co., 2016 WL 1465400, at *10 (N.D. Iowa Apr. 14, 2016). The defendant, as the moving party, has the burden of establishing that venue is improper. United States v. Orshek, 164 F.2d 741, 742 (8th Cir. 1947).

B. Rule 12(b)(6) Motion to Dismiss

To survive a Rule 12(b)(6) motion to dismiss, a pleading must provide "a short and plain statement of the claim showing that [the claimant] is entitled to relief." Fed. R. Civ. P. 8(a)(2). The purpose of this requirement is to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The Court mustaccept all of the pleading's factual allegations as true. See Ashley Cnty., v. Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009). However, the pleading "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

"A claim has facial plausibility when the [claimant] pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does a [pleading] suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. In other words, while "the pleading standard that Rule 8 announces does not require 'detailed factual allegations,' . . . it demands more than an...