Merrick v. Diageo Americas Supply, Inc.

• Decision Date: 18 March 2014
• Docket Number: NO. 3:12-CV-334-CRS,3:12-CV-334-CRS
• Parties: BRUCE MERRICK, et al. PLAINTIFFS v. DIAGEO AMERICAS SUPPLY, INC. DEFENDANT
• Court: United States District Courts. 6th Circuit. United States District Court of Western District of Kentucky

BRUCE MERRICK, et al. PLAINTIFFS v. DIAGEO AMERICAS SUPPLY, INC. DEFENDANT

NO. 3:12-CV-334-CRS

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE

March 18, 2014

MEMORANDUM OPINION

This matter is before the court on the following motions of the defendant, Diageo Americas Supply, Inc. ("Diageo"):

(1) Motion to dismiss Plaintiffs' First Amended Class Action Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim (DN 18); and

(2) Motion for leave to file supplemental authority (DN 28).

Also before the court is Plaintiffs' motion to strike Diageo's notice of supplemental authority. (DN 38). For the reasons set forth herein, Diageo's motion for leave to file supplemental authority (DN 28) will be granted, and Plaintiffs' motion to strike (DN 38) will be denied. The court will also grant in part and deny in part Diageo's motion to dismiss the First Amended Class Action Complaint (DN 18).

I. BACKGROUND

Diageo is a New York corporation that operates a whiskey distillery in Louisville, Kentucky. Diageo has aged whiskey in Louisville since 2000, and it contends that whiskey has been aged continuously in its Louisville facilities since at least 1935. In 2008, Diageo leased andconverted additional warehouses to be used for aging whiskey. Plaintiffs¹ are a class of individuals who allegedly own, lease, or rent real and/or personal property located in the vicinity.

As a natural result of the whiskey aging processes that occur in Diageo's warehouses, ethanol escapes and is emitted into the atmosphere. These ethanol emissions are regulated under the provisions of the Clean Air Act ("CAA"), 42 U.S.C. §§ 7401 et seq., as well as state and local regulations.² As an ethanol-emitting entity, Diageo is required to comply with the regulations adopted by the Environmental Protection Agency ("EPA"), the Kentucky Department for Environmental Protection, and the Louisville Metro Air Pollution Control District ("LMAPCD"). Diageo contends—and Plaintiffs do not appear to dispute—that its ethanol emissions are within the limits established by these federal, state, and local regulations. Diageo has also obtained a Title V Operating Permit, in addition to permits from the LMAPCD, which authorize its ethanol emissions within the limits prescribed by these federal, state, and local regulations.

Plaintiffs claim that once this ethanol is emitted from Diageo's facilities, it combines with condensation on Plaintiffs' real and personal property to "cause an invisible, naturally occurring fungal spore to 'germinate' (start growing) and become a living organism, visible to the naked human eye." According to Plaintiffs, this fungus is Baudoinia compniacensis, colloquially referred to as "whiskey fungus."³ Plaintiffs argue that whiskey fungus "creates an unsightly condition requiring abnormal and costly cleaning and maintenance, early weathering of surfaces," and "causes unreasonable and substantial annoyance and unreasonable interferencewith the use and enjoyment of the property, and, as a result of which, the value . . . of [their] property is reduced." Plaintiffs contend that whiskey fungus can only be removed through extreme cleaning measures, such as high-pressure washing or application of chlorine bleach, and that this cleaning must be frequently repeated to counteract Diageo's continuous discharge of ethanol.⁴ Plaintiffs have complained to local and state agencies about the proliferation of whiskey fungus on their properties. In response to these complaints, the LMAPCD issued a Notice of Violation letter to Diageo on September 7, 2012. In the letter, the LMAPCD stated that between June 2011 and May 2012, it received 27 complaints from residents living near Diageo's warehouses of a "black, sooty substance covering . . . . everything exposed to the outdoors."

On June 15, 2012, Plaintiffs filed a Class Action Complaint on the basis of diversity jurisdiction. (Compl., DN 1). Plaintiffs subsequently amended the complaint to include additional factual allegations to support their claims. (First Am. Compl., DN 15). In the First Amended Complaint, Plaintiffs seek to recover compensatory and punitive damages from Diageo under the following common law theories: (1) negligence and gross negligence; (2) temporary nuisance and permanent nuisance; and (3) trespass. Plaintiffs also seek injunctive relief on the theory that Diageo can correct or abate its ethanol emissions by implementing ethanol control technology in its warehouses. Plaintiffs allege that this technology has been successfully installed and used by brandy makers in California and, because brandy and whiskey aging allegedly involve "substantially similar" processes, the technology could be implemented by Diageo. For its part, Diageo controverts the feasibility of implementing such emission controltechnologies. It argues that Plaintiffs have not presented proof that these technologies have been successfully implemented in whiskey distilleries and its effect on Diageo's processes remains unknown.

Diageo has moved to dismiss Plaintiffs' First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Mot. to Dismiss, DN 18). Plaintiffs have asked the court to deny Diageo's motion to dismiss or, in the alternative, convert the motion to one for summary judgment. Nearly a year after filing this motion, Diageo asked the court for leave to file supplemental authority consisting of two recent cases from the Jefferson and Franklin Circuit Courts. These state trial court decisions also involved claims brought by property owners against whiskey distilleries for property damage that was allegedly caused by whiskey fungus. (DNs 28, 31). In both cases, the Kentucky lower courts addressed the issue of whether the plaintiff property owners' state common law tort claims were preempted by the Clean Air Act. Plaintiffs subsequently filed a motion to strike Diageo's notice of supplemental authority. (DN 38). These motions are now before the court.

II. STANDARD

Pursuant to Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a short and plain statement of the claims showing that the pleader is entitled to relief. The pleading standard in Rule 8(a)(2) does not require detailed factual allegations, but "demands more than an unadorned, the defendant-unlawfully-harmed me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

To withstand a Rule 12(b)(6) motion to dismiss for failure to state a claim, it is not enough that the complaint contains "facts that are merely consistent with a defendant's liability;" rather, a plaintiff must allege "facts—not legal conclusions or bald assertions—supporting a'plausible' claim for relief." Id. at 687 (quoting Twombly, 550 U.S. at 557)). A complaint that offers legal conclusions or a recitation of the elements of a cause of action will not meet this pleading standard. See id. "[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir. 2005). The court must take all of the factual allegations in the complaint as true, but is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). If the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has not shown the pleader is entitled to relief. Id. at 677-78.

As a general rule, a district court may not consider matters outside the pleadings when ruling on a Rule 12(b)(6) motion to dismiss without converting the motion into one for summary judgment. J.P. Silverton Indus. L.P. v. Sohm, 243 F. App'x 82, 86-87 (6th Cir. 2007) (unpublished); see Fed. R. Civ. P. 12(d) ("If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion."). However, "when a document is referred to in the complaint and is central to the plaintiff's claim . . . [,] the defendant may submit an authentic copy [of the document] to the court to be considered on a motion to dismiss, and the court's consideration of the document does not require conversion of the motion to one for summary judgment." Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999) (quotation omitted). If a motion to dismiss is converted to a motion for summary judgment, "all parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Fed. R. Civ. P. 12(d).

III. DISCUSSION

A. Diageo's Motion for Leave to File Supplemental Authority

The court will first address Diageo's motion for leave to file supplemental authority. (DN 28). In that motion Diageo argues—for the first time in this action—that Plaintiffs' state law claims are preempted by the Clean Air Act ("CAA"), 42 U.S.C. §§ 7401 et seq., a federal statute that contains various provisions aimed at reducing and limiting emissions, including ethanol emissions. Diageo asks that the court consider two cases recently decided by the Kentucky trial courts which are centered on facts and claims similar to the claims currently pending before this court. In these cases, the Jefferson and Franklin Circuit Courts reached differing conclusions regarding whether the CAA preempts state common law tort claims brought by property owners against whiskey distilleries.

Diageo also filed a notice of supplemental authority on December 2, 2013, in which it seeks to introduce an additional order from the Jefferson Circuit Court. (DN 37). In response, Plaintiffs filed a motion to strike Diageo's notice of supplemental authority. (DN 38). Plaintiffs argue that the court...