Woodnotch Farms, Inc. v. Agri-Mark, Inc.
| Decision Date | 13 April 2021 |
| Docket Number | Case No. 2:20-cv-180 |
| Court | U.S. District Court — District of Vermont |
| Parties | WOODNOTCH FARMS, INC., Plaintiff, v. AGRI-MARK, INC., Defendant. |
Plaintiff Woodnotch Farms, Inc. ("Woodnotch") operates a large dairy farm in Shoreham, Vermont. Prior to purchasing a second farm and thus increasing its milk production, Woodnotch requested and received assurances from its exclusive buyer, Defendant Agri-Mark, Inc., that Agri-Mark would purchase the additional milk without a volume limitation. Shortly after Woodnotch purchased the second farm, Agri-Mark allegedly changed its milk-purchasing policy such that it would pay one price for a producer's "allowed production base" amount, and a substantially lower price for milk produced in excess of that amount. Woodnotch now claims that as a result of the policy change it is unable to afford the debt on its purchase. Accordingly, Woodnotch brings this damages action against Agri-Mark alleging, among other things, fraud, negligent misrepresentation and breach of contract.
Agri-Mark has filed a motion to dismiss the Complaint, arguing that even if Woodnotch's factual allegations are accepted as true, Agri-Mark never imposed a volume limitation and never guaranteed prices. Woodnotch submits that it was nonetheless misled, and opposes the motion. For the reasons set forth below, the motion to dismiss is denied.
Woodnotch operates a large dairy farming operation in Shoreham, Vermont. Woodnotch is a member of Agri-Mark, a dairy cooperative formed and owned by farmers. Under the terms of a "Member Marketing Agreement," Woodnotch has contracted to sell its milk exclusively to Agri-Mark.
In or about April 2019, Woodnotch began negotiations to purchase Parent Hilltop Farm. Like Woodnotch, Parent Hilltop Farm was an Agri-Mark member and was bound by contract to sell its milk exclusively to Agri-Mark. In June 2019, Woodnotch signed a purchase and sale agreement ("PSA") with Parent Hilltop Farm and delivered a $50,000 deposit. The PSA contained a contingency allowing Woodnotch to terminate the sale and have its deposit refunded if it was unable to secure an adequate market for the milk produced at the Parent Hilltop Farm location.
Prior to closing on the purchase, Woodnotch and its lender, Yankee Farm Credit, ACA, asked Agri-Mark to confirm that itwould purchase the milk produced at Parent Hilltop Farm. The Complaint specifically alleges that Woodnotch and Yankee Farm Credit "made inquiries of [Agri-Mark] to confirm that Woodnotch" would be permitted to sell and Agri-Mark "would accept and purchase such quantities of milk from the Parent Hilltop Farm location as would make Woodnotch's purchase of that additional farm facility financially feasible." ECF No. 7 at 2, ¶ 7. The Complaint further alleges that Woodnotch and its lender sought such assurances "in light of rumors . . . that [Agri-Mark] had been considering policy changes of an undetermined nature which might in the future affect Woodnotch's anticipated production." Id., ¶ 8.
Agri-Mark responded to the inquiries from Woodnotch and its lender in two separate communications. First, in a letter dated July 12, 2019, Agri-Mark wrote that Id., ¶ 9. Item #2 in the Member Marketing Agreement read: Id. at 2-3, ¶ 10.
After receiving the July 12, 2019 letter from Agri-Mark, Woodnotch and Yankee Farm Credit asked for further assurance that Agri-Mark would purchase, as alleged in the Complaint, "a sufficient volume of milk from Parent Hilltop Farm to make Woodnotch's purchase financially feasible." Id. at 3, ¶ 12. In a letter dated August 1, 2019, Agri-Mark wrote that "on May 30, 2019, the Agri-Mark board of directors voted to allow you to move production to this location under your current Agri-Mark Member Marketing Agreement (attached) with no specific volume restrictions noted." Id., ¶ 13.
Based on the correspondence from Agri-Mark, Woodnotch moved ahead with its purchase, began buying additional cows, and made renovations to the Parent Hilltop Farm facility. In doing so, Woodnotch reportedly took on significant indebtedness to Yankee Farm Credit. The closing on the purchase took place on August 29, 2019.
On or about October 1, 2019, Agri-Mark announced a change in its milk purchasing policy. The change allegedly established a "supply management program" setting an "allowed production base" for each of its producers. Milk produced in excess of that allowed production base would receive a dramatically reduced price.
Woodnotch claims that when it purchased Parent Hilltop Farm, it expected to produce and sell a volume of milk significantly greater than the newly-imposed allowed production base. Because of Agri-Mark's new price structure, Woodnotch has allegedly lost substantial expected income and is unable to service its indebtedness, resulting in massive financial losses.
The Complaint sets forth several causes of action. Count One alleges fraud, claiming that when Agri-Mark sent letters to Woodnotch in July and August 2019, Agri-Mark "was aware that it would imminently be announcing and implementing the policy changes which set a limit on the quantity of milk which Defendant would purchase from Woodnotch at the previously-prevailing market rates." Id. at 4, ¶ 20. Agri-Mark allegedly had a duty to disclose its knowledge of those changes, failed to do so, and Woodnotch reasonably relied to its detriment. Woodnotch claims that Agri-Mark's communications were intentionally misleading, and that its failure to disclose material facts constituted either actual or constructive fraud.
Count Two asserts a claim for promissory estoppel. The claim alleges that certain representations by Agri-Mark constituted promises, inducing Woodnotch to move forward with its purchase. Woodnotch allegedly relied on those promises to its detriment. Count Three asserts a claim of negligent misrepresentation, again based on allegedly-misleadingcommunications from Agri-Mark and Woodnotch's resulting reliance.
Count Four claims breach of contract. Woodnotch asserts that the letters it received in the summer of 2019 constituted enforceable modifications to the Member Marketing Agreement, obligating Agri-Mark to purchase milk from Woodnotch without volume limitations. Woodnotch further contends that the allowed production base policy effectively imposed a volume limitation in breach of that agreement. The same reasoning forms the basis for Count Five, which alleges breach of the implied covenant of good faith and fair dealing.
Count Six of the Complaint brings a claim of quantum meruit, alleging that Woodnotch is entitled to compensation from Agri-Mark for the reasonable value of the milk produced, including the milk supplied from Parent Hilltop Farm above the allowed production base. Count Seven claims a right to attorney's fees under the Member Marketing Agreement.
Agri-Mark now moves to dismiss all claims pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). Agri-Mark argues that Woodnotch is mistakenly treating volume and price as the same thing, and that price was never guaranteed. Woodnotch opposes the motion, contending that the allowed production base policy was essentially an impermissible volume restriction, andthat Agri-Mark either misunderstands or is misconstruing its claims.
To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Matson v. Bd. of Educ., 631 F.3d 57, 63 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Although all allegations contained in a complaint are assumed to be true, this tenet is "inapplicable to legal conclusions." Iqbal, 556 U.S. at 678.
Woodnotch has raised choice of law as a threshold issue. Jurisdiction in this case is based on diversity of citizenship. A federal court sitting in diversity uses the law of the forum state to determine which state's substantive law applies. See Thea v. Kleinhandler, 807 F.3d 492, 497 (2d Cir. 2015) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). However, where there is no conflict of substantive law among the jurisdictions, a court should avoid the choice of law questionand apply the law of the forum state. Havill v. Woodstock Soapstone Co., 172 Vt. 625, 783 A.2d 423, 427 (2001) (citing cases).
Here, Woodnotch argues for application of Vermont law to each of its claims. In support, Woodnotch notes that it agreed to the Member Marketing Agreement in Vermont, performed under the contract in Vermont, is incorporated in Vermont, and suffered its alleged injury in Vermont. Agri-Mark, a Delaware corporation headquartered in Massachusetts, submits that for the majority of Woodnotch's claims there is no conflict between Vermont law and Massachusetts law. Agri-Mark also notes that while the elements for a quantum meruit claim may differ, the result is the same. Absent any meaningful conflicts between the substantive law of the two jurisdictions, the Court will apply Vermont law.
Agri-Mark moves to dismiss Woodnotch's fraud claim as a matter of law, arguing that it never...
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