Starr Surplus Lines Ins. Co. v. Mountaire Farms Inc.

• Decision Date: 03 April 2019
• Docket Number: No. 18-1818,18-1818
• Citation: 920 F.3d 111
• Parties: STARR SURPLUS LINES INSURANCE COMPANY, as Subrogee to AdvancePierre Foods, Inc., Plaintiff, Appellant, v. MOUNTAIRE FARMS INC., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

920 F.3d 111

STARR SURPLUS LINES INSURANCE COMPANY, as Subrogee to AdvancePierre Foods, Inc., Plaintiff, Appellant,

v.MOUNTAIRE FARMS INC., Defendant, Appellee.

No. 18-1818

United States Court of Appeals, First Circuit.

April 3, 2019

Eileen K. Bower, with whom James J. Sanders, Emily A. Golding, Clyde & Co US LLP, Chicago, IL, Paul C. Catsos, Elizabeth K. Peck, and Thompson Bowie & Hatch LLC, Portland, ME, were on brief, for plaintiff-appellant.

Kevin King, with whom John J. Deboy, Washington, DC, Neil K. Roman, New York, NY, Covington & Burling LLP, David B. McConnell, Joseph G. Talbot, and Perkins Thompson PA, Portland, ME, were on brief, for defendant-appellee.

Before Lynch, Stahl, and Barron, Circuit Judges.

BARRON, Circuit Judge.

This appeal concerns a suit in the District of Maine by the insurer of a chicken products manufacturer to recoup the losses that it paid to the manufacturer for the losses that the manufacturer incurred when its products were recalled following a salmonella outbreak. Subrogated to the rights of the manufacturer, the insurer sought damages from the manufacturer's chicken supplier for claims under Maine law for breach of warranty and strict product liability. In support of those claims, the insurer's complaint alleged that the manufacturer received two truckloads of raw chicken from the supplier that was contaminated with Salmonella Enteritidis and was therefore "defective" under Maine law. The supplier filed a motion to dismiss, which the District Court granted as to all claims. The District Court did so after ruling that the complaint's allegations did not suffice to plausibly allege that the raw chicken that the supplier sent to the manufacturer was "defective." The District Court also concluded that the insurer's strict liability claim was independently barred by the economic loss doctrine. We affirm.

I.

The insurer is Starr Surplus Lines ("Starr"). Starr is subrogated to the rights that its insured, AdvancePierre, had under a contract with Mountaire Farms ("Mountaire"). Starr's complaint alleges the following facts, which we accept as true in reviewing the grant of a motion to dismiss. See Fantini v. Salem State Coll., 557 F.3d 22, 26 (1st Cir. 2009).

Mountaire is a regional fresh chicken producer located in North Carolina. In December 2014, Mountaire entered into a contract (the "Contract") with AdvancePierre, which is a national manufacturer of "value-added proteins and sandwich products to foodservice, retail, schools, and convenience channels." AdvancePierre's products are sold under various brand names, including Barber Foods.

Mountaire agreed under the Contract to deliver raw chicken parts to AdvancePierre's Barber Foods facility in Portland, Maine (the "Portland Facility"). In February 2015, Mountaire shipped 120,000 pounds of fresh boneless chicken breasts to the Portland Facility in connection with three separate purchase orders that AdvancePierre made under the Contract. AdvancePierre logged each purchase order, which was assigned a unique lot number, into its computer system, along with the supplier information and the time and date that the products that had been ordered were received.

The fresh chicken that AdvancePierre purchased from Mountaire was "contaminated with Salmonella Enteritidis at the time of delivery to AdvancePierre." AdvancePierre used this chicken from Mountaire to produce value-added raw chicken products, such as frozen raw stuffed chicken breasts (e.g., "Chicken Kiev, Chicken Cordon Bleu, [Chicken Stuffed with] Broccoli Cheese"), at the Portland Facility.

Between February and June of 2015, clusters of individuals (initially a total of six) in Minnesota and Wisconsin became infected with Salmonella Enteritidis. These cases were reported to the federal Food Safety Inspection Service ("FSIS") on June 24, 2015.

Through genetic testing, the FSIS identified "PFG pattern combinations" of the salmonella pathogen in all six of these patients that were "unique and new to the [Centers for Disease Control (‘CDC’) ] Pulse Net Database." The FSIS then linked the unique PFG pattern combinations to chicken products made by AdvancePierre at the Portland Facility. Later, the FSIS learned of two additional individuals who had contracted a Salmonella Enteritidis infection after being exposed to AdvancePierre products produced at the Portland Facility on the same production dates as the products linked to the other infected individuals.

Based on this testing, the FSIS issued a public health alert on July 1, 2015. On July 2, 2015, AdvancePierre initiated a recall with respect to 58,320 pounds of chicken products made on specific dates in 2015 at the Portland Facility. "[A]t the insistence of [the] FSIS," AdvancePierre soon thereafter expanded the recall to encompass a total of 1,707,494 pounds of raw chicken products produced by AdvancePierre at the Portland Facility on specific production dates between February 2015 and May 2015. Using its computer system, AdvancePierre determined that the chicken products associated with the Salmonella Enteritidis outbreak and the subsequent recall were made with chicken from the two truckloads of raw chicken parts that Mountaire had supplied in February 2015.

As a result of the recall, AdvancePierre incurred losses in excess of $ 10 million, "including but not limited to return and destruction of the recalled chicken products, lost sales opportunities, loss of business, and loss of customers." Starr paid AdvancePierre $ 10 million for the losses that it had sustained in connection with the recall. Starr subrogated to the rights of AdvancePierre under the Contract with Mountaire.

Starr then filed suit against Mountaire in Cumberland County Superior Court in Maine. Starr brought claims under Maine law for breach of the implied warranty of merchantability, see Me. Rev. Stat. tit. 11, § 2-314, breach of the implied warranty of fitness for a particular purpose, see id. § 2-315, and strict product liability, see Me. Rev. Stat. tit. 14, § 221, based on the allegation that the chicken that Mountaire had supplied to AdvancePierre was contaminated with Salmonella Enteritidis. Mountaire removed the action to the United States District Court for the District of Maine on the basis of diversity jurisdiction. See 28 U.S.C. § 1332(a).

Mountaire filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), which the District Court granted as to all claims. See Starr Surplus Lines Ins. Co. v. Mountaire Farms Inc., No. 2:18-CV-00067-JDL, 2018 WL 3676839, at *3 (D. Me. Aug. 2, 2018). The District Court concluded that, under Maine law, salmonella is an inherent, unavoidable, and recognized component of raw chicken that is eliminated by proper cooking methods and that the complaint failed plausibly to allege that the chicken from Mountaire was contaminated with any pathogen other than such salmonella. See id. The District Court thus concluded that Starr's complaint did not sufficiently allege a "defect" in the chicken from Mountaire, as it was required to do in order to state a claim for breach of warranty and strict product liability. See id. The District Court also determined that Starr's strict liability claim was independently barred by the economic loss doctrine, which precludes recovery in tort for economic loss unaccompanied by personal injury or property damage. See id. at *3-4. Starr then filed this timely appeal.

II.

We review the grant of a motion to dismiss de novo. See Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). We "accept[ ] all well-pleaded facts as ... true and draw[ ] all reasonable inferences in favor of [the non-moving party]." Fantini, 557 F.3d at 26. "We may augment these facts and inferences with data points gleaned from documents incorporated by reference into the complaint, matters of public record, and facts susceptible to judicial notice." Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011).

In undertaking our review, we first set aside legal conclusions and those factual allegations "too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture." In re Curran, 855 F.3d 19, 25 (1st Cir. 2017) (internal quotation marks omitted). We then consider whether the remaining well-pleaded allegations are "sufficient to support the reasonable inference that the defendant is liable for the misconduct alleged." García-Catalán v. United States, 734 F.3d 100, 103 (1st Cir. 2013) (citations and internal quotation marks omitted).

III.

We begin with Starr's breach of warranty claims. Under Maine law, "in order to maintain a claim for breach of the implied warranties of merchantability and fitness for particular purpose," the "plaintiff must show some defect in the product at the time it was sold." Walker v. Gen. Elec. Co., 968 F.2d 116, 119 (1st Cir. 1992) (citing Lorfano v. Dura Stone Steps, Inc., 569 A.2d 195, 197 (Me. 1990) ; Faulkingham v. Seacoast Subaru, Inc., 577 A.2d 772, 774 (Me. 1990) ; Sylvain v. Masonite Corp., 471 A.2d 1039, 1040–41 (Me. 1984) ) (footnotes omitted). Starr's challenge to the dismissal of its breach of warranty claims turns in part on whether the complaint plausibly alleges that the raw chicken that Mountaire supplied to AdvancePierre -- as opposed to the chicken products that AdvancePierre made using that raw chicken -- contained Salmonella Enteritidis. But, the success of Starr's challenge does not turn only on the plausibility of that allegation.

Starr accepts that, under Maine law, raw chicken that contains salmonella that can be eliminated by proper cooking cannot be considered "defective." See, e.g., Kobeckis v. Budzko, 225 A.2d 418, 423-24 (Me. 1967) (holding that raw pork containing trichinar was not defective because "[t]he usual use of meat as a food is when cooked, not when raw" and the "warranty implied ... on the sale of uncooked pork ... is that the pork ... is reasonably fit for human consumption...