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Nucal Foods, Inc v. Quality Egg LLC; et al

August 14, 2012

NUCAL FOODS, INC., PLAINTIFF,
v.
QUALITY EGG LLC; ET AL., DEFENDANTS.



ORDER

This matter comes before the court on the motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) filed by defendants Environ/Wright County, Inc. ("Environ"), DeCoster Enterprises, LLC ("DeCoster Enterprises") and the DeCoster Revocable Trust's ("Trust") (collectively, "entity defendants"). (ECF 71.) Also before the court is the motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) by individual defendant Austin Jack DeCoster's ("DeCoster"). (ECF 73.) This matter was decided without a hearing in accordance with Local Rule 230(g). For the following reasons, defendants' motions are GRANTED.

I. FACTUAL BACKGROUND

Plaintiff filed its complaint on November 18, 2010, against three defendants -Quality Egg LLC ("Quality Egg"), Wright County Egg and Hillandale Farms of Iowa, Inc. ("Hillandale") - alleging seven claims: (1) breach of implied warranty of merchantability against all defendants; (2) breach of implied warranty of fitness for particular purpose against all defendants; (3) fraud against Quality Egg and Wright County; (4) negligence against all defendants; (5) equitable indemnification against all defendants; (6) negligent interference with prospective economic advantage against all defendants; and (7) unfair competition against all defendants. (ECF 1.) Quality Egg filed its answer on December 14, 2010 (ECF 9), and Hillandale filed its answer on February 14, 2010 (ECF 24).

On January 27, 2012, the court granted plaintiff's motion to modify the pretrial scheduling order and file an amended complaint. (ECF 60.) On January 30, 2012, plaintiff filed its first amended complaint ("FAC"), adding defendants Environ, the Trust, DeCoster Enterprises and DeCoster. (ECF 61.) The FAC makes the same claims as the original complaint, and also contains numerous additional allegations, and an additional claim for breach of express warranty against all defendants. (See generally id.)

A. Threshold Evidentiary Issues

Plaintiff requests that the court take judicial notice of the following documents:

(1) "Plaintiffs' Resistance To Defendants' Request For Modification Of Temporary Injunction And/Or Increase In Bond, filed May 23, 2011, in Austin J. DeCoster and Quality Egg LLC v. Boomsa's Inc. and John W. Glessner, Case No. LACV081-026 (Iowa District Court for Hardin County)"; (2) "Affidavit In Support Of Available Funds To Preform [sic] Under Option, filed May 23, 2011, in Austin J. DeCoster and Quality Egg LLC v. Boomsa's Inc. and John W. Glessner, Case No. LACV081-026 (Iowa District Court for Hardin County)"; (3) "Affidavit In Support Of Available Funds To Preform [sic] Under Option, filed May 23, 2011, in Austin J. DeCoster and Quality Egg LLC v. Boomsa's Inc. and John W. Glessner, Case No. LACV081-026 (Iowa District Court for Hardin County)"; (4) "Petition At Law, filed April 9, 2007, in A.J. DeCoster d/b/a/ Wright County Egg v. Kelly C. Silvey, Case No. LACV022734 (Iowa District Court in and for Wright County)"; (5) "Answer And Affirmative Defenses, filed October 23, 2007, in Inland Paperboard and Packaging Inc., f/b/a Tin, Inc. and Temple-Inland v. A.J. DeCoster, d/b/a Wright County Egg Production, Case No. LACV022734 (Iowa District Court in and for Wright County)." (See generally Pl.'s Request for Judicial Notice ("RJN"), filed April 13, 2012, ECF 98.) Plaintiff argues that the court may properly take judicial notice of these documents because they are "documents filed in other court proceedings" that "are publicly available from the state courts of Iowa." (Id. at 2:2124.) Moreover, plaintiff maintains that it "asks the [c]court to take judicial notice of the representations made by the parties in these documents, and not for the truth of those representations." (Id. at 3:10-12.)

Defendant DeCoster objects to plaintiff's request, arguing that the documents are beyond the scope of judicial notice under Federal Rule of Evidence 201. (See Def.'s Resp. to Pl.'s Req. for Judicial Notice, filed April 20, 2012, ECF 112 at 2:26-3:2.) Specifically, defendant maintains that "[p]laintiff's five exhibits are from cases that have no direct relation to the matters at issue," and thus, judicial notice is improper. (Id. at 3:21-22.) Moreover, defendant maintains that plaintiff improperly "asks the [c]court to accept its own opinion of how these documents should be interpreted." (Id. at 3:23-24.)

Under Federal Rule of Evidence 201, "[t]he court may judicially notice a fact that is not subject to reasonable dispute because it can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." FED. R. EVID. 201. Courts have consistently held that courts may take judicial notice of documents filed in other court proceedings. See Schulze v. FBI, 2010 WL 2902518, at *1 (E.D. Cal. July 22, 2010) (quoting United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007) ("A federal court may 'take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue.'"); Cartmill v. Sea World, 2010 WL 4569922, at *1 (S.D. Cal. Nov. 5, 2010) (taking judicial notice of documents filed in other court proceedings). While the court cannot accept the veracity of the representations made in the documents, it may properly take judicial notice of the existence of those documents and of the "representations having been made therein." San Luis Unit Food Producers v. United States, 772 F.Supp.2d 1210, 1216 n.1 (E.D. Cal. 2011).

In this case, the court may properly take judicial notice of the documents filed in the related Iowa state court proceedings involving DeCoster and Quality Egg. While the court cannot and does not accept the representations therein as true, it may take judicial notice of the fact that the representations were made in determining whether plaintiff has made a prima facie showing that defendants are subject to personal jurisdiction in California. As such, plaintiff's request for judicial notice is granted in its entirety.

B. Facts 1. The FAC

In August 2010, defendants Quality Egg and Hillandale*fn1 initiated a recall of shell eggs they previously distributed after an outbreak of Salmonella. (FAC, ECF 61 ¶ 1.) According to plaintiff, "defendants continued to sell eggs from contaminated farms, and from contaminated hens" after discovering the infection and without warning regulators, egg consumers or egg purchasers.*fn2 (Id. ¶ 9.) According to the FAC, plaintiff NuCal Foods, Inc. ("NuCal") is a farming cooperative based in California that purchased the allegedly tainted eggs from March 2010 to July 2010. (Id. ¶ 21.)

Plaintiff alleges that Quality Egg, an Iowa limited liability company, was engaged in the business of producing and selling eggs and "operated layers 1, 2, 3, 4 and 6" while operating layers 5 and 9 with Hillandale. (Id. ¶ 26.) Plaintiff alleges that the Trust, "[o]n information and belief, . . . owned and/or controlled Quality Egg during the relevant period." (Id. ¶ 27.) The complaint states that DeCoster is an Iowa resident who is the trustee of the Trust, has "ultimate authority over Quality Egg's Iowa operations, and was aware of [Salmonella] contamination at Iowa farms." (Id. ¶ 28.) Plaintiff alleges that DeCoster Enterprises is a Delaware limited liability company located in Iowa that "controlled and/or managed the DeCoster trust during the relevant period." (Id. ¶ 29.) Finally, according to the complaint, Environ is an Iowa corporation, located in the same office as DeCoster Enterprises and Quality Egg, that "was involved in the processing and sale of the recalled eggs from one or more of the Iowa farms." (Id. ¶ 30.)

Together, plaintiff maintains that these defendants "were part of a unified egg farming enterprise." (Id. ¶ 31.) Moreover, plaintiff maintains that when these defendants operated, they "used the fictitious business name 'Wright County Egg,'" through which they produced eggs "in facilities owned by one or more of the DeCoster [d]efendants from chickens raised by one of more" of the "DeCoster defendants." (Id. ¶ 32.) Plaintiff asserts that "the DeCoster [d]efendants shared common ownership, managers and interests," and that "each of the DeCoster [d]efendants w[ere] the agent of each of the other DeCoster [d]efendants with respect to the misconduct alleged" in the FAC. (Id. ¶ 24.)

Plaintiff alleges that it purchased from defendants a number of eggs through the Egg Clearinghouse, which defendants later shipped to its facilities in California, or to its retail customers. (Id. ¶¶ 78-79.) According to the complaint:

The listed counterparties to NuCal's purchases were "Wright

County Egg Production" and "Hillandale Farms of PA, Inc." However, other defendants were directly involved in these transactions. NuCal's purchases from "Wright County Egg" were shipped from either "DeCoster Egg Farms of Iowa" or "Quality Egg," and in some cases the invoices were remitted to Environ.

Other DeCoster [d]efendants were involved through their ownership and management of other DeCoster [d]efendants or through their direct supervision of Iowa farm operations. NuCal's purchases from Hillandale PA were processed by Hillandale Farms LLC and were shipped from Hillandale Farms in Alden, Iowa. When the recalls were announced, the entities announcing the recalls were "Wright County Egg" and Hillandale Farms, not Quality Egg and Hillandale PA. (Id. ¶ 80.)

Plaintiff alleges that, "despite widespread and ongoing Salmonella Heidelberg contamination at Midwest Hatchery's facilities and FDA warnings about the dangers posed by Salmonella Heidelberg, Quality Egg and DeCoster Farm of Iowa*fn3 continued to purchase chickens of Midwest Hatchery." (Id. ¶ 66.) Specifically, plaintiff maintains that when NuCal purchased eggs in 2010, "defendants knew about widespread contamination at the farms," yet, "[n]either the DeCoster [d]efendants acting as 'Wright County Egg' nor the 'Hillandale Defendants' informed Nucal" of the contamination. (Id. ¶¶ 82-83.) "Nor did [defendants] make such disclosures after the transactions, or after their eggs were delivered to NuCal, or after NuCal began processing packaging and shipping the tainted eggs to NuCal's customers" in California. (Id. ¶ 83.) Of the 397,575 dozens of eggs defendants shipped to NuCal's California facilities "Wright County Egg" recalled 272,310. (Id. ¶ 90.)

2. Plaintiff's Evidence in Support of Jurisdiction

Plaintiff argues that its amended complaint attaches exhibits showing, among other things, that: "(1) Before the recall in 2010, 'DeCoster farms of Iowa' was the entity that submitted samples to Iowa State University that were found to be contained with [Salmonella]"; and (2) "'Wright County Egg,' not Quality Egg LLC, was the entity named in the recall notices." (See Pl.'s Opp'n to Entity Defs.' Mot. ("ECF 94") at 4:3:12 (citing FAC, Exs. 2, 19).) Plaintiff also attaches an "organizational chart" to the FAC, which purports to demonstrate defendants' interconnected relationships. (FAC, Ex. 9.) Specifically, "[t]he spreadsheet shows that DeCoster Enterprises either owns or is owned by the DeCoster Revocable Trust, and that the DeCoster Revocable Trust owns Quality Egg." (ECF 94 at 4:10-12.)

After defendants filed their motions, plaintiff took the depositions of DeCoster Trust, DeCoster Enterprises and Quality Egg "on a limited set of topics related to personal jurisdiction." (Id. at 4:23-24.) "DeCoster Trust, DeCoster Enterprises, and Quality Egg all designated the same individual - attorney William Smith - to testify at the deposition."*fn4 (Id. at 4:27-51.) Plaintiff offers the following from that deposition: Quality Egg is the "operational arm of DeCoster operations in Iowa"; "Quality Egg admitted that it operated using trade names that had also been used by Jack DeCoster in his personal capacity, and that Quality Egg was formed to help Jack DeCoster reduce his personal liability and simplify estate planning"; and that "Quality Egg, DeCoster Enterprises, DeCoster Trust and Jack DeCoster engaged in a series of loan and credit agreements whereby they would cross-guarantee loans to be used for Iowa egg farm operations." (Pl.'s Opp'n to DeCoster's Mot. ("ECF 95"), at 13:7-15 (citing Smith Depo. at 31:24-33:18; 50:7-53:11; 92:4-95:3; 114:12-116:5).)

3. Defendants' Evidence in Support of Motion to Dismiss

In support of their motion to dismiss, the entity defendants proffer the declaration of Peter DeCoster, the Chief Operating Officer of Quality Egg.*fn5 (See Decl. of Peter DeCoster ("DeCoster Decl."), ECF 71-1.) According to the declaration, neither Environ, the Trust nor DeCoster Enterprises had any involvement in the production or sale of eggs to NuCal by Quality Egg, and Environ merely "owned the land and building at the 'Environ' farm level (Layer six) which it leased to Quality Egg." (Id. ¶¶ 5, 7.) Moreover, the entity defendants did not own or control Environ, nor did Environ own or control them. (Id. ¶ 6.) DeCoster further avers that Quality Egg has never been authorized to act as an agent for the other defendants; indeed, Quality Egg is a completely separate legal entity from the entity defendants, which "always has maintained its own bank accounts." (Id. ¶¶ 3-4.) Finally, according to DeCoster's declaration, "[d]uring the time periods relevant to this lawsuit, [Environ] did not share any employees, managers or directors with Quality Egg, DeCoster Revocable Trust or DeCoster Enterprises." (Id. ¶ 9.)

II. LEGAL STANDARDS APPLICABLE TO MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION (FED. R. CIV. P. 12(b)(2))

The party seeking to invoke the federal court's jurisdiction bears the burden of demonstrating jurisdiction. Pebble Beach Company v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006); Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 (9th Cir. 1977). When resolving a motion to dismiss under Rule 12(b)(2) on written materials, the court accepts uncontroverted facts in the complaint as true and resolves conflicts in affidavits in plaintiff's favor. Mavrix Photo, Inc. v. Brand Technologies, Inc., 647 F.3d 1218, 1223 (9th Cir. 2011); Doe v. Unocal Corporation, 248 F.3d 915, 922 (9th Cir. 2001). It is "well established that where the district court relies solely on affidavits and discovery materials, the plaintiff need only establish a prima facie case of jurisdiction." Rano v. Sipa Press, Inc., 987 F.2d 580, 587 n.3 (9th Cir. 1993). In a similar vein, "when reviewing motions to dismiss" for lack of personal jurisdiction, the court "must 'accept all factual ...


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