Zayler v. U.S., No. 6:02-CV-570.

• Court: United States District Courts. 5th Circuit. United States District Court of Eastern District Texas
• Writing for the Court: Davis
• Citation: 279 F.Supp.2d 805
• Parties: Stephen ZAYLER, Trustee of the Estate of Supreme Beef Processors, Inc. Plaintiff v. THE UNITED STATES of America and the United States Department of Agriculture Defendant
• Decision Date: 12 August 2003
• Docket Number: No. 6:02-CV-570.

279 F.Supp.2d 805 Stephen ZAYLER, Trustee of the Estate of Supreme Beef Processors, Inc. Plaintiff
v.
THE UNITED STATES of America and the United States Department of Agriculture Defendant No. 6:02-CV-570. United States District Court, E.D. Texas, Tyler Division. August 12, 2003.

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James Patrick Kelley, Ireland Carroll & Kelley, Tyler, for Stephen. Chapter 7 Trustee for Supreme Beef Processors Inc, plaintiff.

Ruth Harris Yeager, AUSA, U.S. Attorney's Office, Tyler, for Department of Agriculture, defendant.

MEMORANDUM OPINION AND ORDER

DAVIS, District Judge.

Defendants United State of America ("United States") and the United States Department of Agriculture ("USDA") (collectively

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"Defendants") have filed a Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Having considered the parties' submissions, argument of counsel at the July 17, 2003 hearing, and the applicable law, the Court finds that Defendant's Motion to Dismiss should be GRANTED.

BACKGROUND

The following facts are taken from Plaintiff's First Amended Original Complaint and are assumed to be true for the purposes of Defendants' Rule 12(b)(1) and12(b)(6) motions.¹ None of the facts stated in this background section constitute findings of fact by the Court.

Plaintiff and Debtor Supreme Beef Processors, Inc. ("Supreme Beef") was one of the largest processors and grinders of beef products in the nation and operates a plant in Dallas, Texas. Supreme Beef and the USDA entered into a number of contracts whereby the USDA purchased beef from Supreme Beef for the National School Lunch program. In addition, Supreme Beef sold large quantities of ground beef and other beef products to wholesale distributors.

The USDA is responsible for insuring the safety of the beef. The Food Safety and Inspection Service ("FSIS") has the authority to enforce several statutes affecting meat processors. On July 25, 1996, FSIS issued a final rule pursuant to the Federal Meat Inspection Act ("FMIA"), known as the Pathogen Reduction/Hazard Analysis and Critical Points ("HAACP"), which required all meat processors to develop and implement a system of preventive controls to ensure the safety of their products. FSIS determined that it would test the level of salmonella in the plant's finished products in order to evaluate the overall effectiveness of a processor's HAACP plan.

In June 1998, Supreme Beef implemented a HAACP pathogen control plan. In November 1998, the FSIS began testing Supreme Beef's finished product for Salmonella. FSIS notified Supreme Beef that it would likely fail the test and wanted Supreme Beef to take immediate action to remedy the situation. Supreme Beef attempted to do so, but it failed the second round of tests. Subsequently, Supreme Beef appealed the decision. FSIS denied the appeal. Supreme Beef offered to implement additional procedures to remedy the situation.

In August 1999, FSIS began a third round of tests. On October 19, 1999, FSIS notified Supreme Beef that it would not pass the test. FSIS also issued a Notice of Intended Enforcement Action ("Notice") wherein it stated that it would suspend activities at the plant. The Notice gave Supreme Beef until October 25, 1999 to show that its HAACP controls were satisfactory. FSIS decided to withdraw its inspector even though Supreme Beef offered to achieve the standard within 180 days.

As a result of these actions, Supreme Beef's meat could not be stamped inspected and passed. Thus, the meat could not be sold. Supreme Beef brought suit against the USDA in the Northern District of Texas alleging that the USDA had overstepped its authority in creating the Salmonella tests and sought a temporary restraining order enjoining FSIS from removing its inspectors. A temporary restraining order and a preliminary injunction were granted. Thereafter, both sides filed motions for summary judgment.

The district court granted Supreme Beef's motion for summary judgment and

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denied the USDA's motion for summary judgment. The district court found that "[b]ecause the USDA's performance standards and Salmonella tests do not necessarily evaluate the conditions of a meat processor's establishment, they cannot serve as the basis for finding a plant's meat adulterated under § 604(m)(4)." Supreme Beef, 113 F.Supp.2d at 1052-53. The district court also determined that "[t]he flaw in such tests is that the presence of Salmonella is not solely — or even substantially — dependent upon sanitation in a grinder's establishment. Indeed, a plant could, in theory, be completely sanitized from top to bottom, but if the meat in it tests positive for Salmonella, the USDA could withdraw its inspectors, effectively closing a plant that is sanitary. The USDA admits as such." Id. at 1053.²

Supreme Beef filed a motion for reconsideration asking the court to prevent the USDA from enforcing the terms of the School Lunch contract. The court found that the "USDA's contractual rights as a purchaser are separate and distinct from its statutory authority as regulator." In essence, the district court held that its prior ruling did not affect the USDA's ability to enforce its contractual rights. The USDA decided to terminate its contract with Supreme Beef.

As a result of the loss of the National School Lunch program contract, bad press about failing the Salmonella test which resulted in lost contracts and the inability to procure new contracts, Supreme Beef filed for chapter 11 bankruptcy on September 25, 2000. Thereafter, the case was converted to Chapter 7 bankruptcy. The USDA filed four proofs of claim in Supreme Beef's bankruptcy. The USDA and FSIS filed two claims for $13,906.06 for services performed from April 9, 2000 through September 24, 2000.³ The USDA Marketing Service ("AMS") filed two claims for $18,847.04 for services performed between July 23, 2000 through September 25, 2000.⁴

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On September 24, 2002, Stephen Zayler, Trustee of the Estate of Supreme Beef, filed an adversary complaint against the United States and the USDA. On October 31, 2002, a motion to withdraw reference was filed by the Defendants. This court granted the Defendant's motion to withdraw reference on December 4, 2002 pursuant to 28 U.S.C. § 157(d). On January 31, 2003, Supreme Beef filed a first amended original complaint ("amended complaint") asserting five causes of action, all of which sound in tort: (1) tortious interference with prospective business relations; (2) tortious interference with existing contracts; (3) slander; (4) business disparagement; (5) breach of duty to perform proper inspection. The amended complaint alleges that this court has jurisdiction pursuant to 28 U.S.C. § 1334. The substantive statute upon which the amended complaint is based is the Federal Tort Claims Act ("FTCA") and the amended complaint asserts that sovereign immunity has been waived pursuant to 11 U.S.C. § 106.

In the instant motion, Defendants argue that: (1) the USDA has not waived its sovereign immunity under § 106(b); (2) Supreme Beef is not entitled to a right of setoff pursuant to 11 U.S.C. § 106(c); (3) § 106 does not create a right of action; (4) Supreme Beef's claims are barred by the FTCA because (a) Supreme Beef failed to exhaust administrative remedies, (b) Supreme Beef's claims are barred by the statute of limitations, (c) an analogous state law duty bars Supreme Beef's claims, and (d) § 2680 exceptions to suit bar Supreme's claims; and (5) the USDA is not a proper party defendant.

STANDARD OF REVIEW

A motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) "is viewed with disfavor and is rarely granted." Lowrey v. Texas A & M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997). The standard of review for motions to dismiss under Federal Rule of Civil Procedure 12(b)(1) is the same as the standard for reviewing dismissals for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). See Benton v. United States, 960 F.2d 19, 21 (5th Cir.1992). A district court should not dismiss a complaint, or any part of it, for failure to state a claim upon which relief can be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In reviewing a Rule 12(b)(6) motion, the court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). The court cannot look beyond the face of the pleadings when ruling on such a motion. Id. The ultimate question for the court in a Rule 12(b)(6) motion is whether the complaint states a valid cause of action when it is viewed in the light most favorable to the plaintiff and with every doubt resolved in favor of the plaintiff. Lowrey, 117 F.3d at 247. However a plaintiff, must plead specific facts, not mere conclusory allegations, to avoid dismissal. Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir.1992).

WAIVER OF SOVEREIGN IMMUNITY

The USDA claims that the doctrine of sovereign immunity applies in this case. Sovereign immunity bars all lawsuits against the United States in the absence of express Congressional consent. Block v. North Dakota ex rel. Bd. of Univ. and Sch. Lands, 461 U.S. 273, 103 S.Ct. 1811, 75 L.Ed.2d 840 (1983); Lehman v. Nakshian, 453 U.S. 156, 160, 101 S.Ct. 2698, 69 L.Ed.2d 548 (1981) (quoting United States v. Sherwood, 312 U.S. 584, 586,

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61 S.Ct. 767, 85 L.Ed. 1058 (194)1) ("United States, as sovereign, `is immune from suit save as it consents to be sued, ... and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.'"). The USDA, as an agency of the United States, enjoys the same protection. See Blackmar v. Guerre, 342 U.S. 512,...