In re Honey Transshipping Litig.

• Decision Date: 31 March 2015
• Docket Number: Case No. 13–cv–2905
• Citation: 87 F.Supp.3d 855
• Parties: In re Honey Transshipping Litigation
• Court: U.S. District Court — Northern District of Illinois

87 F.Supp.3d 855

In re Honey Transshipping Litigation

Case No. 13–cv–2905

United States District Court, N.D. Illinois, Eastern Division.

Signed March 31, 2015

MEMORANDUM ORDER & OPINION

JOAN B. GOTTSCHALL, United States District Judge

This consolidated matter consists of a class action and a parallel individual action (filed by members of the class who intend to opt out) against certain importers and suppliers of commercial honey. The class plaintiffs bring suit for alleged violations of the Lanham Act, 15 U.S.C. § 1125, and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq., (“RICO”) against several defendants. Only a few defendants, however, are relevant at this stage of the litigation: (1) Honey Holding I, Ltd. d/b/a Honey Solutions (“Honey Solutions”), HHI Management (“HHI”), and Douglas A. Murphy (collectively, the “Honey Solutions defendants”); and (2) Sunland Trading, Inc. (“Sunland”). The individual plaintiffs have sued many of the same defendants, including the Honey Solutions defendants, but not Sunland.¹ The individual plaintiffs' complaint also differs from the class complaint in the types of claims raised: the individual plaintiffs' complaint asserts claims arising under RICO and the Illinois common law, but not under the Lanham Act.

Now before the court are three motions to dismiss: (1) Sunland's motion to dismiss the class complaint; (2) the Honey Solutions defendants' motion to dismiss the class complaint; and (3) the Honey Solutions defendants' motion to dismiss the individual plaintiffs' complaint. For the reasons set forth herein, Sunland's motion to dismiss is granted, and the Honey Solutions defendants' motions to dismiss are granted in part and denied in part.

I. Background

Both the class complaint and the individual plaintiffs' complaint revolve around an alleged conspiracy to “transship” Chinese honey through intermediate countries into the United States. The Chinese-made honey arrived in the United States illicitly, under false labels identifying an intermediate country as the country of origin. The falsified labels enabled the importers to deceive U.S. Customs officials into believing that the honey did not originate from China. As a result, the importers were able to circumvent the anti-dumping duties that the United States government had imposed on Chinese-produced honey.

Once inside the United States, the Chinese honey—which allegedly contained prohibited antibiotics and other harmful contaminants—passed from importer to packer, packer to supplier, and supplier to commercial end user (which could be a retailer of honey or a producer of products that contain honey). The transshipping scheme, however, involved only importers and suppliers who knew the true origin of honey and participated in the transshipping process.

Why did the importers and suppliers go to great lengths to sneak Chinese-produced honey into the United States? Money. Chinese honey was inexpensive, especially compared to domestically-produced American honey. By obtaining Chinese honey in bulk and mislabeling it as originating from a country other than China, the participants in the scheme could sell honey in the United States at lower prices than their competitors could.

Both the class plaintiffs and the individual plaintiffs are domestic commercial beekeepers and packers of honey. They allege that the defendants' transshipping scheme suppressed the price of honey in the United States. The lower prices, in turn, undermined the plaintiffs' competitiveness in the marketplace and caused the plaintiffs to lose sales and market share.

For brevity's sake, the court will not delve further into the allegations in the two complaints, given that some defendants have settled, and only a few defendants have moved to dismiss. Instead, the court will summarize the pertinent allegations made against the defendants whose motions require ruling.

A. The Honey Solutions Defendants²

Honey Solutions is an industrial honey supplier structured as a Texas limited partnership with a principal place of business in Texas. HHI is the general partner of Honey Solutions. From 2003 to May 2008, Douglas A. Murphy (“Murphy”) was the Director of Sales at Honey Solutions. In that role, Murphy was responsible for the wholesale purchase of honey, maintaining relationships with honey suppliers, and the sale of honey in the United States. Murphy was also a principal and the managing member of HHI. In these positions, he exercised control over Honey Solutions and served as management's primary point of contact with Honey Solutions's customers regarding the company's policies and practices on food safety and the importation of honey.

Urbain Tran (“Tran”) is a citizen and resident of California. Beginning in at least 2006, Tran served as an agent for Honey Solutions. Tran's responsibilities including locating and sourcing honey for Honey Solutions. To carry out his responsibilities, Tran brokered transactions in which Honey Solutions purchased Chinese-origin honey from shell companies that were controlled by Chinese honey producers, including AHCOF USA, Inc., Bo Bay Corporation, Chengda Trading Inc., Glory Spring Enterprise Co., Ltd., Pineco Import/Export Ltd., SilverSpoon International, Inc., and Sweet Campo Co., Ltd. (“Sweet Campo”).

In June 2011, an undercover law enforcement agent took the role of director of procurement at Honey Solutions as part of an ongoing investigation into the illicit importation of Chinese honey. See Press Release, Dep't of Justice, Two Companies and Five Individuals Charged with Roles in Illegal Honey Imports, Avoided $180 Million in AntiDumping Duties 1 (Feb. 20, 2013), available at http://www.justice.gov/usao/iln/pr/chicago/2013/pr0220_02.html (“Press Release”). Based on information obtained during this investigation, the United States Attorney for the Northern District of Illinois initiated criminal proceedings against Murphy and Honey Solutions in February 2013. Murphy and Honey Solutions were charged with violating the federal Food, Drug, and Cosmetic Act for purchasing “discounted Polish-origin honey containing the prohibited antibiotic Chloramphenical from Alfred L. Wolff USA in 2006.” (Class Compl. ¶ 41) (quoting Press Release at 2.) On February 20, 2013, Honey Solutions entered into a deferred prosecution agreement with the United States government and admitted to, inter alia, (a) purchasing Chinese-origin honey from “seven shell and front companies that were controlled by various Chinese honey producers and manufacturers,” (b) processing and selling adulterated honey, and (c) defrauding its downstream customers. Id. Also on February 20, 2013, Murphy consented to a plea agreement. Murphy pled guilty for the role he played in introducing honey that was unlawfully adulterated with intent to defraud and mislead.

B. Sunland

Sunland is a privately-held wholesale honey import corporation. It is incorporated in Connecticut and has a principal place of business in Connecticut.

The class plaintiffs allege that Sunland knowingly sold contaminated honey of Chinese origin to another defendant in this matter, Groeb Farms, Inc. (“GFI”), on several occasions between 2008 and 2010. From September 2008 to April 2010, Sunland allegedly used labels indicating that its honey was made in Vietnam, the Ukraine, India, and Brazil, when the honey actually came from China. The batches of Chinese honey that Sunland sold to GFI were found to contain antibiotics that the Food and Drug Administration (“FDA”) has prohibited or strictly regulated for use in any food products in the United States, including chloramphenicol, fluoroquinolone, and norfloxacin. On at least one occasion, however, GFI rejected Sunland's tender of purportedly non-Chinese honey because it contained lead. The class plaintiffs allege that this shipment of honey must have originated from China because “[b]eekepers in China are well-known for using large, unlined, lead-soldered metal drums which leaches [sic] the lead into the honey.” (Class Compl. ¶ 214.) In 2010, United States Customs allegedly imposed a $500,000 duty upon Sunland, after finding that Sunland sold honey that had entered the United States illegally from China in 2008 as “Vietnamese Honey.” (Id. ¶ 220.)

II. Legal Standard

To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint must “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A complaint satisfies this pleading standard when its factual allegations “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555–56, 127 S.Ct. 1955 ; see also Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir.2010) (“[P]laintiff must give enough details about the subject-matter of the case to present a story that holds together.”). For purposes of the motion to dismiss, the court takes all facts alleged by the plaintiff as true and draws all reasonable inferences from those facts in the plaintiff's favor, although conclusory allegations that merely recite the elements of a claim are not entitled to this presumption of truth. Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir.2011).

Any fraud-based allegations, such as allegations of fraud in a civil RICO claim or a Lanham Act claim, must satisfy the heightened pleading standard of Federal Rule of Civil Procedure 9(b). See Slaney v. Int'l Amateur Athletic Fed'n, 244 F.3d 580, 597 (7th Cir.2001) ; Goren v. New Vision Int'l, Inc., 156 F.3d 721, 726 (7th Cir.1998) ; Vertical Web Media, LLC v. Etailinsights, Inc., 14–cv–3220, 2014 WL 2868789, at *4 (N.D.Ill. June 24, 2014) (applying Rule 9(b) to a Lanham Act claim that “sound[ed] in fraud”). A plaintiff alleging fraud must provide the time, place, and content of the alleged false representations, the method by which the representations were communicated, and...