Treehouse Foods, Inc. v. SunOpta Grains & Foods Inc.

• Decision Date: 29 March 2019
• Docket Number: No. 18 C 1412,18 C 1412
• Parties: TREEHOUSE FOODS, INC.; BAY VALLEY FOODS, LLC; FLAGSTONE FOODS, INC.; TREEHOUSE PRIVATE BRANDS, INC.; and LLOYD'S SYNDICATE CVS 1919, as subrogee of Treehouse Foods, Inc., Plaintiffs, v. SUNOPTA GRAINS AND FOODS INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

TREEHOUSE FOODS, INC.; BAY VALLEY FOODS, LLC; FLAGSTONE FOODS, INC.;TREEHOUSE PRIVATE BRANDS, INC.; and LLOYD'S SYNDICATE CVS 1919,as subrogee of Treehouse Foods, Inc., Plaintiffs, v. SUNOPTA GRAINS AND FOODS INC., Defendant.

No. 18 C 1412

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

March 29, 2019

Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

Plaintiffs TreeHouse Foods, Inc. and affiliated entities (collectively, "TreeHouse") are producers, manufacturers, resellers, processors, and packagers of various food products in the United States. Defendant SunOpta Grains and Foods Inc. is a seller, distributor, manufacturer, supplier, and merchant of sunflower kernels. In May and June 2016, Defendant announced three recalls of sunflower kernels it had sold to TreeHouse after determining that they might be contaminated with listeria. In their First Amended Complaint, TreeHouse and its insurer, Plaintiff Lloyds Syndicate CVS 1919 ("Starr"), bring seven claims against Defendant in connection with the recalls, including claims for negligence (Count I), negligent misrepresentation (Count II), products liability (Count III), and contribution and indemnity (Count VII). Plaintiffs also assert claims for breach of contract and warranty based on the same underlying conduct. Before the court is Defendant's partial motion to dismiss Plaintiffs' tort claims, Counts I, II, and III, based on Illinois' economic loss doctrine, which bars recovery in tort for economic losses that stem from disappointed contractual or commercial expectations. See Moorman Mfg. Co. v. Nat'l Tank Co., 91 Ill. 2d 69, 91, 435 N.E.2d 443, 452, 450, 61 Ill. Dec. 746, 756 (1982). Defendant also moves to dismiss Count VII, which seeks contribution and indemnity relating to the tort counts. For the following reasons, Defendant's motion is granted.¹ Plaintiffs' contract and warranty claims remain for decision.

BACKGROUND

The following facts are taken from Plaintiffs' First Amended Complaint and recounted in the light most favorable to Plaintiffs. See Hutchison v. Fitzgerald Equip. Co., 910 F.3d 1016, 1025 (7th Cir. 2018).

A. The Parties

Plaintiffs TreeHouse Foods, Inc., Bay Valley Foods, LLC, and Flagstone Foods, Inc., are Delaware corporations with their principal places of business in Oak Brook, Illinois. (Plaintiffs' First Amended Complaint [39] ("First Am. Compl."), ¶¶ 1-3.) Plaintiff TreeHouse Private Brands, Inc., is a Missouri corporation with its principal place of business in Oak Brook, Illinois. (Id. ¶ 4.) TreeHouse purchases raw materials from suppliers and uses them to process and manufacture food products. (Id. ¶ 8.)

Plaintiff Starr is an insurance underwriting entity with its principal place of business in the United Kingdom. (Id. ¶ 5.) It is authorized to issue insurance policies within the United States, including in Illinois. (Id.) Starr provided "Product Contamination Insurance" to TreeHouse effective June 27, 2015 to June 27, 2016. (Id. ¶ 9; Ex. A to First Am. Compl. [39-1], 1.)

Defendant is a Minnesota corporation with its principal place of business in Minnesota. (Id. ¶ 6.) As previously referenced, it manufactures and sells sunflower kernels. (Id. ¶ 10.) TreeHouse purchased sunflower kernels from Defendant and used them "in its production of various food products." (Id. ¶ 11.)

B. The Sunflower Kernel Recalls

On May 2, 2016, Defendant announced a voluntary recall of certain sunflower kernel products, including those it had sold to TreeHouse, "because of the presence of Listeria monocytogenes." (Id. ¶ 13.)² Listeria is an organism that "can cause serious and sometimes fatal infections" in humans; short-term symptoms like "high fever, severe headache, stiffness, nausea, abdominal pain and diarrhea"; and "miscarriages and stillbirths among pregnant women." (First Am. Compl. ¶ 14.) Defendant's initial recall covered sunflower kernels it had produced at its Crookston, Minnesota plant between February 1, 2016 and February 19, 2016. (Id. ¶ 13.) Defendant subsequently announced two expanded recalls: one on May 18, 2016 and another on June 1, 2016. (Id. ¶¶ 22-23.)³ These recalls covered kernels Defendant had produced at the same plant on different dates. (Id.) In total, the recalls affected five million pounds of sunflower kernels that TreeHouse had purchased from Defendant. (Id. ¶ 24.)

C. Defendant's Pre-Recall Representations to TreeHouse

Plaintiffs allege that, prior to the initial recall, Defendant made numerous representations to TreeHouse about the safety and quality of its sunflower kernels. First, Defendant stated that the kernels "were tested for microbial pathogens" and "produced Certificates of Analysis" stating that the kernels "were free of contaminants." (Id. ¶ 15.) Second, Defendant stated that the "oilroasters in its Crookston, Minnesota plant were properly validated and acted as a certified 'kill step' in preventing microbial population and pathogen control." (Id. ¶ 16.) Defendant's representation in this regard was "based on testing [it] performed." (Id.) Third, Defendant "provided Specifications to its customers, including TreeHouse," that "contained microbial requirements" and "promised" that Defendant would manufacture its sunflower kernels "in accordance with . . . the Code of Federal Regulations, 21 C.F.R. § 110." (Id. ¶ 17.)

According to Plaintiffs, Defendant "was in the business of supplying health and safety information to its customers, including TreeHouse, along with its products . . . ." (Id. ¶ 18.) Obviously conscious of the "economic loss" doctrine (discussed below), Plaintiffs allege that the information Defendant provided to TreeHouse "was intended to be used by TreeHouse for guidance in its processing and use of [Defendant's] sunflower kernel products." (Id. ¶ 19; see also id. ¶ 20 (alleging that Defendant "provided information to TreeHouse based upon [its] own directions, specifications, processing facilities, cleaning, processes, equipment, testing, environmental controls and analysis intended to prevent the sale of harmful and unhealthy products").) In addition, Plaintiffs allege that Defendant knew or had reason to know "the purposes for which TreeHouse purchased [its] sunflower kernels." (Id. ¶ 25.) Defendant likewise knew or had reason to know "that TreeHouse relied on [it] to provide products and materials that were safe and fit" for human consumption. (Id. ¶ 26.) Plaintiffs allege that they "reasonably relied on" Defendant to supply sunflower kernels that met these standards. (Id. ¶ 27.) Yet Defendant, Plaintiffs allege, negligently misrepresented that the kernels "were free of contaminants that would cause serious and potential deadly health and safety problems" for consumers. (Id. ¶ 28.) TreeHouse, in turn, "reasonably relied on [those] misrepresentations." (Id. ¶ 29.)

D. The Alleged Contamination and Damage to TreeHouse Property

Plaintiffs allege that the "contamination to" the recalled sunflower kernels "occurred suddenly and immediately" when they came into contact with listeria. (Id. ¶ 31.) Plaintiffs also allege that the recalled kernels "were defective and in an unreasonably dangerous condition atthe time" Defendant delivered them to TreeHouse. (Id. ¶ 30.) "The contaminated and defective condition" of the recalled kernels, Plaintiffs allege, "created a dangerous, unhealthy, and potentially deadly characteristic of [those] kernel[s]." (Id. ¶ 34.)

Plaintiffs further allege that the "defective" kernels caused damage to property apart from the kernels. (Id. ¶ 35; see also id. ¶ 33.) First, TreeHouse incorporated the kernels into products that it "formulated, mixed, manufactured," and sold to customers. (Id. ¶ 36.) The kernels caused "sudden[] and immediate[]" damage to those products upon coming into contact with them. (Id. ¶ 32.) Second, when the kernels came into contact with TreeHouse's equipment and machinery (hereinafter "equipment"), they "suddenly and immediately" contaminated it. (Id. ¶ 38.) The equipment became "inherently dangerous" because it could contaminate "other raw materials and finished products processed in TreeHouse's facilities." (Id.) Third, TreeHouse used that equipment "to process various products that did not contain the contaminated . . . kernels." (Id. ¶ 39.) Those products were "suddenly and immediately" damaged when they had contact with the equipment. (See id. ¶¶ 32, 39.)

Plaintiffs allege that, due to the recalls, TreeHouse had to "destroy contaminated products in its possession, including contaminated sunflower kernels, finished products that incorporated the contaminated sunflower kernels, and finished products that were made on equipment that had been contaminated by [Defendant's] sunflower kernels." (Id. ¶ 40.) In addition, TreeHouse had to recall products from customers; destroy them; and provide "credit memos and discounts." (Id.) Finally, TreeHouse "incur[red] extra expenses and business interruption losses." (Id.)

The product contamination insurance that TreeHouse obtained from Starr covered "losses sustained by TreeHouse as a result of SunOpta's recalls." (Id. ¶ 41.) TreeHouse has made a $16,165,000 claim on the policy, and, to date, Starr has paid $8,000,000. (Id. ¶ 42.) Plaintiff alleges that "Starr is legally, equitably, and contractually subrogated to claims against third parties responsible for the damages, including" Defendant. (Id. ¶ 43.)

E. Plaintiffs' Claims

In Counts I, II, and III of their First Amended Complaint, Plaintiffs assert claims for negligence, negligent misrepresentation, and products liability, respectively. In Count IV, Plaintiffs assert a claim for "breach of contract/breach of express warranty/indemnity." (Id. ¶ 65.) As part of that claim, Plaintiffs allege that Defendant "agreed to defend, indemnify, and hold harmless TreeHouse . . . against all damages, liabilities, claims, losses and expenses . . . resulting in any way from, any act or omission of" Defendant, its agents, or its contractors. (Id. ¶ 68....