Int'l Foodsource, LLC v. Grower Direct Nut Co.
| Decision Date | 03 August 2016 |
| Docket Number | Civ. No. 16-cv-3140 (WHW)(CLW) |
| Parties | INTERNATIONAL FOODSOURCE, LLC, Plaintiff, v. GROWER DIRECT NUT CO., INC. and AARON MARTELLA, Defendants. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
This matter arises out of a dispute between Plaintiff International Foodsource, LLC, a food product wholesaler, and Defendant Grower Direct Nut Co., Inc., a supplier of walnuts, over two contracts for the sale of a large quantity of walnuts. Arbitration of the Parties' dispute is pending before a private organization in California, as provided by an arbitration provision in the contracts. Plaintiff seeks a declaratory judgment declaring the arbitration provision unenforceable and brings various New Jersey state law claims against Defendants Grower Direct Nut Co. and Aaron Martella for representations they allegedly made when negotiating the contracts. Plaintiff moves for a temporary injunction staying the arbitration proceedings, and Defendants move to compel arbitration and dismiss this action for lack of jurisdiction. Plaintiff has also filed a motion seeking a temporary restraining order and order to show cause staying the arbitration proceedings pending the Court's resolution of Plaintiff's motion for a preliminary injunction. Decided without oral argument under Fed. R. Civ. P. 78(b), Plaintiff's motions are denied and Defendants' motion is granted in part.
Except where noted, the following facts are taken as alleged in Plaintiff's complaint. Notice of Removal Ex. A, ECF No. 1-1. Plaintiff International Foodsource LLC ("IFS"), a New Jersey corporation with its principal place of business in Dover, New Jersey, is an "importer, repacker, manufacturer, and wholesaler of specialty foods." Id. ¶¶ 5, 9. Defendant Grower Direct Nut Co., Inc. ("GDNC"), a California corporation with its principal place of business in Hughson California, is a "large and established walnut supplier in the U.S., with presence in markets throughout the country." Id. ¶¶ 6, 11. Defendant Aaron Martella, who resides in Hughson, California, is a principal of GDNC. Id. ¶ 7. "For many years and through 2013, GDNC acted as a supplier of walnuts to IFS." Id. ¶ 12. Non-party American Dried Fruit & Nut Company ("American") is a broker that sells walnuts for GDNC throughout the northeastern United States. Id. ¶ 13. Non-party DFA of California ("DFA") is a California-based trade organization composed of California dried fruit and nut packers and processors, including GDNC. Id. ¶ 25.
In the spring of 2015, non-party Al Kadouri, a purchaser for Plaintiff IFS, met with Defendant Martella to discuss the possibility of Plaintiff purchasing walnuts from Defendant GDNC. Id. ¶ 14; Decl. Aaron Martella in Supp. Def. Mot. Compel Arbitration, ECF No. 6-3 ¶ 5. According to Defendant Martella, Mr. Kadouri met with representatives of Defendant GDNC, including Martella, at GDNC's facility in Hughson, California on April 21, 2015. ECF No. 6-3 ¶ 7. Defendant Martella states that they discussed walnut prices and delivery times during this meeting and continued to negotiate by email after the meeting, and that Mr. Kadouri requested that Defendant GDNC send walnut samples to his office in New York. Id. ¶ 8. Defendant Martella priced "light amber halves and pieces" at $3.60 per pound and "light amber pieces" at$3.70 per pound, representing to Mr. Kadouri that these prices were consistent with prevailing United States market prices for walnuts. ECF No. 1-1 ¶¶ 15-16. Defendant Martella also told Mr. Kadouri that the market price would soon increase because Chinese purchasers had begun heavily purchasing walnuts from American suppliers, and he urged Mr. Kadouri to purchase a large quantity of walnuts before the price increased. Id. ¶ 16. According to Plaintiff, Defendant Martella knew at the time of this conversation that (a) the prevailing market price for walnuts was not $3.60/$3.70 per pound and (b) walnut prices were not going to increase. Id.
As a result of the conversation between Mr. Kadouri and Defendant Martella, Plaintiff IFS and Defendant GDNC entered into two sales contracts, contract numbers 14922 and 14923, on May 1, 2015 (the "walnut contracts"). Id. ¶ 20. Defendant Martella alleges that Mr. Kadouri received the walnut contracts in New York, sent them to Dan Baron, the CEO of Plaintiff IFS, for execution, and returned them to GDNC. ECF No. 6-3 ¶ 8. In contract number 14922, Plaintiff agreed to purchase 168,000 pounds of light amber walnut halves from Defendant GDNC at $3.60 per pound, for a total contract price of $604,800.00. Id. ¶ 21; see also Contract Number 14922, ECF No. 1-1 Ex. A. In contract number 14923, Plaintiff agreed to purchase 84,000 pounds of light amber walnut pieces from Defendant GDNC at $3.70 per pound, for a total contract price of $310,000.00. ECF No. 1-1 ¶ 22; Contract Number 14923, Decl. Aaron Martella in Supp. Def. Mot. Compel Arbitration, ECF No. 6-3 Ex. B. Plaintiff claims that it agreed to purchase a larger quantity of walnuts than it otherwise would have because of Defendant Martella's representations about the walnut market forecast. Id. ¶ 18. The contracts specified that shipments could begin on May 1, 2015 and would run through October 31, 2015. Id. ¶ 23; see also ECF No. 1-1 Ex. A; ECF No. 6-3 Ex. B. The contract "Delivery Terms" listed "HUGHSON CA" as the "FAC - INCOTERM 2010 - FREE CARRIER (NAMED PLACE OF DELIVERY)," ECF No.1-1 Ex. A; ECF No. 6-3 Ex. B, which Defendant Martella states meant that Plaintiff IFS was required to take delivery of the walnuts during the contractual period at Defendant GDNC's facility in California. ECF No. 6-3 ¶ 9.
Shortly after the Parties entered into the walnut contracts, the market price for walnuts dropped, id. ¶ 28, and Plaintiff was unable to find purchasers willing to pay higher prices for the walnuts than the contract prices. Id. ¶ 31. Plaintiff represents that Defendant GDNC had been willing to renegotiate earlier contracts when market prices changed, and that this is a "common industry practice in the dried fruit and nut industry." Id. ¶¶ 32-33. On October 14, 2015, two weeks before the end of the contractual shipment period, Plaintiff received an email from a principal at American stating that Defendant Martella "recognizes market has fallen" but still wanted to ship the walnuts specified in the contracts, and that Defendant Martella had asked American to "work something out with" IFS "on his behalf." Id. ¶ 35; see also October 14, 2015 email from Robert Ferrara to Dan Baron, ECF No. 1-1 Ex. B. Mr. Kadouri called Defendant Martella on the telephone to discuss the email from American, but Defendant allegedly informed Mr. Kadouri that GDNC intended to "screw" Plaintiff IFS. ECF No. 1-1 ¶ 37. Plaintiff allowed the contractual shipping period to expire without taking delivery of any walnuts from Defendant GDNC. Id. ¶ 31. At the end of the contractual shipping period, Defendant GDNC allegedly destroyed the walnuts. Id. ¶ 39.
The walnut contracts were drafted by GDNC, ECF No. 1-1 ¶ 20, and included a section labeled "Buyer Conditions" that reads: "Upon signing, the Buyer agrees to purchase the named goods, in the quantities, at the prices (s), and at the terms and conditions provided herein. Any claim relating to this contract shall be settled by arbitration in California by the DFA with itsrules, and judgment may be entered upon ". Id. ¶ 24; ECF No. 1-1 Ex. A (the "arbitration clause") (no period at end of statement in original). At the time they entered into the walnut contracts, Defendant GDNC and Plaintiff IFS did not discuss DFA or its arbitration rules and procedures. ECF No. 1-1 ¶ 26.
On January 20, 2016, DFA issued a letter to Plaintiff IFS informing Plaintiff that Defendant GDNC had requested arbitration regarding the two contracts and directing Plaintiff to pay a $3,500 arbitration fee. Id. ¶ 38; see also January 20, 2016 Arbitration Letter, ECF No. 6-3 Ex. D. Mr. Baron contacted DFA on behalf of Plaintiff on February 9, 2016 seeking "plenty of extension time in order to defend this action appropriately," and DFA responded the next day with a request for Plaintiff's consent to the arbitration. See February 9 and 10 Emails between Dan Baron and E. Jeremiah Szabo, Association Secretary of DFA, ECF No. 6-3 Ex. E. On March 11, 2016, DFA issued another letter to Plaintiff requesting Plaintiff's consent to the arbitration proceeding and informing Plaintiff that "DFA will still move forward with the arbitration." March 11, 2016 Arbitration Letter, ECF No. 6-3 Ex. F. DFA provided Plaintiff with a copy of DFA's arbitration procedures on March 16, 2016. Arbitration Procedures, Decl. Adam K. Derman in Further Supp. P. Mot. Stay Arbitration and Reply D. Mot. Compel Arbitration, ECF No. 12-1 Ex. C. Counsel for Plaintiff continued to correspond with DFA, informing DFA by email on April 4, 2016 that Plaintiff was "prepared to participate and defend the arbitration" but "reserves its rights to dispute the jurisdiction of the arbitration over this claim." March 12-April 4, 2016 Emails between Adam K. Derman and E. Jeremiah Szabo, ECF No. 12-1 Ex. E at 1. In response to another letter from DFA seeking the arbitration fee and informing Plaintiff that DFA would "begin moving forward with the selection of arbiters," see April 22, 2016 Arbitration Letter, ECF No. 12-1 Ex. F, counsel for Plaintiff submitted a letter to DFA repeating that "IFSintends to defend the arbitration demand but reserved its right to dispute the jurisdiction of the arbitration over this claim," stating Plaintiff's belief that the arbitration provisions of the contracts are unenforceable under New Jersey law, and requesting that DFA stay the arbitration proceedings pending an adjudication of the enforceability of the arbitration provisions in...
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