Hayton Farms, Inc. v. Pro-Fac Coop. Inc.
| Decision Date | 18 July 2011 |
| Docket Number | CASE NO. C10-520-RSM |
| Court | U.S. District Court — Western District of Washington |
| Parties | HAYTON FARMS, INC., et al., Plaintiff, v. PRO-FAC COOPERATIVE, INC., a New York cooperative corporation, Defendant. |
ORDER GRANTING DEFENDANT'S 12(c) MOTION FOR JUDGMENT ON THE PLEADINGS
This matter comes before the Court upon Defendant's motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c). Dkt. #95. For the reasons set forth below, Defendant's motion is GRANTED.
Plaintiffs are cucumber farmers and former members of Defendant, Pro-Fac Cooperative, Inc. ("Pro-Fac"), a cooperative corporation organized under the laws of New York. Plaintiffs originally filed suit against Pro-Fac and its directors, alleging claims for breach of contract;breach of covenant of good faith and fair dealing; promissory estoppel; negligent performance; negligent misrepresentation; conversion; tortious interference; breach of fiduciary duties; and declaratory/injunctive relief. Dkt. #18. The parties stipulated to dismissal of all of the directors for lack of personal jurisdiction (Dkt. #66), and the court dismissed several of Plaintiffs' claims in its order on Defendant's motion to dismiss (Dkt. #74). The Court also denied Defendant's motion for change of venue. Dkt. #73. Remaining are claims for breach of contract, negligence and breach of fiduciary duty against Defendant Pro-Fac.
Pro-Fac intends to liquidate at the end of 2012 and proceeds from the liquidation will be distributed to current and former members of Pro-Fac based on CMV credit. CMV credit is "the weighted average price paid by commercial processors for the same or similar crops, used for the same or similar purposes, in the same or similar marketing areas." Dkt. # 18, ¶3.9. Pro-Fac members earned CMV credit in proportion to the amount of deliveries they made to the cooperative. Plaintiffs allege that the proceeds from the liquidation are going to be distributed inequitably for a variety of reasons including Pro-Fac's dealings with other members, who are also members of the Board of Directors. Id. at ¶¶ 3.114-124. Plaintiffs allege damages resulting from Pro-Fac's actions in the form of diminished assets and lost profits.
The Court has summarized the remaining facts of this lawsuit in detail elsewhere. See Dkt. #s 73 & 74. Relevant to this motion are allegations surrounding a series of decisions made by Pro-Fac after 2007 that allegedly impacted Plaintiffs' share in the proceeds from the sale of Pro-Fac's assets and eventual dissolution, yet are unrelated to the Plaintiffs' cucumber operations (the "non-cucumber claims").
First, Plaintiffs point to the sale by Pro-Fac's subsidiary, Birds Eye Foods, Inc.1 (the "Subsidiary") of essentially all of its operating assets for its non-branded frozen vegetable business to Allen Canning Company (now Allens, Inc.). The Court will refer to this transaction as the "Allens Canning transaction". Several of Pro-Fac's board members are vegetable growers on the East Coast and these growers were impacted by the Allens Canning transaction. Dkt. #18, ¶3.86. Plaintiffs allege that, as part of the sale, Allens assumed the contractual duty of the Subsidiary to buy vegetables from Pro-Fac. Dkt. #18, ¶ 3.84. However, Allens wanted to buy the vegetables directly from the grower/board members. Id. at 3.87. Since such an arrangement would negate the grower/board members' ability to accumulate CMV credit (since the deliveries would be going to Allens, and not Pro-Fac), the grower/board members opposed the deal. Instead, "to assure themselves more CMV credit, these board members/growers created a scheme to make it appear they were continuing to deliver their vegetables to Allens through Pro-Fac," by forming an entity called Farm Fresh First, LLC, ("Farm Fresh"). Id. at ¶¶ 3.89-90. Farm Fresh served as Pro-Fac's exclusive sales agent for sales of agricultural products grown by Pro-Fac members in New York state and enabled those grower/board members to continue to accumulate CMV credit following the Allens Canning transaction. Id. ¶¶ 3.91 & 3.93. Plaintiffs allege that they were not offered a similar opportunity to continue to accumulate CMV credit when Pro-Fac terminated its contract with pickle-processor Bay Valley Foods before the 2008 growing season and thereby ceased accepting deliveries of cucumbers from Plaintiffs. As a result, the Allens Canning transaction was allegedly inequitable, improper, diminished Plaintiffs' share in capitalgains accruing from the sale of the Subsidiary and dissolution of Pro-Fac, and interfered with Plaintiffs' interests. Id. at ¶3.98.
Second, Plaintiffs also allege that since the Subsidiary was refinanced in 2007, "Pro-Fac has been operating as essentially a holding company" and that members delivering through Pro-Fac after 2007 should not receive CMV credit for those deliveries. Id. at ¶¶3.99 - 3.101. By allowing some members to continue to accumulate CMV credit, but denying "similar deals" to Plaintiffs, Plaintiffs suffered further diminution in the value of their share of the eventual sale of the Subsidiary and dissolution of Pro-Fac and further interference with their interests. Id. at ¶¶3.102-3.103.
Third, certain members "including interested board members" were allowed to continue to accumulate CMV credit for deliveries that happened after the sale of the Subsidiary in 2009. Id. at ¶ 104. This too was a deal not offered to Plaintiffs, caused their share in the proceeds of the sale to decrease in value, and constituted an interference with their interests. Id. at ¶3.105-106.
Fourth, Plaintiffs allege that Pro-Fac has retained approximately $11 million from the sale of the Subsidiary that should have been distributed to members. Id. at ¶3.112.
Finally, after the sale of the Subsidiary, Pro-Fac purchased back most of the common stock (and delivery rights) of most members, yet set the liquidation date for two years in the future. During this period, certain growers (including board members) were permitted to continue to deliver crops to Pro-Fac and continue to accumulate CMV credit. These actions diminished Plaintiffs' legal and equitable shares of the liquidation proceeds. Id. at ¶¶ 3.121-3.123.
Defendants move to dismiss each of these claims as improperly pled shareholder derivative claims or, in the alternative, as claims that should be brought against Pro-Fac's directors. Because the Court resolves the issue on other grounds, it does not reach the question of whether Plaintiffs must plead these claims as shareholder derivative claims.
"After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). The standard governing a Rule 12(c) motion for judgment on the pleadings is essentially the same as that governing a Rule 12(b)(6) motion. Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir.1989) ( ); Sandberg v. Van Boening 2010 WL 4983594, 1 (W.D.Wash.) (W.D.Wash.,2010). Thus, a motion for a judgment on the pleadings "is properly granted when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law." Fajardo v. County of Los Angeles, 179 F.3d 698, 699 (9th Cir.1999).
A federal district court sitting in diversity applies "the forum state's choice of law rules to determine controlling substantive law." Patton v. Cox, 276 F.3d 493, 495 (9th Cir.2002). Therefore, Washington choice of law rules apply. In Washington, "there must be an actual conflict between the laws or interests of Washington and the laws or interests of another state before Washington courts will engage in a conflict of laws analysis." Erwin v. Cotter HealthCenters, 161 Wash.2d 676, 692, 167 P.3d 1112 (2007) (citing Seizer v. Sessions, 132 Wash.2d 642, 648, 940 P.2d 261 (1997)). Where there is no conflict, presumptive local law is applied. Seizer, 132 Wash.2d at 648-49. Defendants contend, Plaintiffs do not dispute, and the Court confirms that there is no conflict between Washington and New York law with respect to the characterization of the action. Accordingly, the court applies Washington law.
Defendant argues that Dkt. #95, p. 6. Fed. R. Civ. P. 23.1 applies where "one or more shareholders or members of a corporation or an unincorporated association bring a derivative action to endorse a right that the corporation or association may properly assert but has failed to enforce." To bring a shareholder derivative action, the complaint must (1) "allege that the plaintiff was a shareholder or member at the time of the transaction complained of, or that the plaintiff's share or membership later devolved on it by operation of law;" (2) "allege that the action is not a collusive one to confer jurisdiction the court would otherwise lack;" and (3) "state with particularity... any effort by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members... and the reasons for not obtaining the action or not making the effort." Id. See also Kona Enterprises, Inc. v. Estate of Bishop, 179 F.3d 767, 769 (9th Cir. 1999) (). Thus, Defendant seeks dismissal on the basis that Plaintiffs' claims with respect to the non-cucumber claims are derivative...
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