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Foster Poultry Farms v. Alkar-Rapidpak-Mp Equipment

December 7, 2012


The opinion of the court was delivered by: Sandra M. Snyder United States Magistrate Judge


On August 13, 2012, Plaintiff Foster Poultry Farms moved for leave to amend its complaint to allege additional claims for promissory estoppel, breach of contract, and fraud. Defendant Alkar-Rapidpak-MP Equipment opposes the motion, contending that the motion is untimely, futile, and prejudicial. Following its review of the complete record and applicable law, the Court denies Plaintiff's motion.

I. Factual Background

According to the first amended complaint, in January 2002, Plaintiff, a producer of poultry products, and Defendant, a manufacturer of equipment and systems for cooking, chilling, and pasteurizing poultry and meat products, entered into a written agreement for Plaintiff's purchase from Defendant of equipment to pasteurize pre-cooked turkey products. (A copy of the agreement was appended to and incorporated by reference into the first amended complaint.) The equipment, and its delivery and installation by Defendant, cost in excess of $2.2 million. The agreement included a broad provision by which Defendant warranted the equipment against "all claims of others of any kind," including patent infringement:

By acceptance of the Agreement, Seller warrants to and for the benefit of Buyer . . . (d) that all goods delivered are validly owned by Seller and are delivered to Buyer free from all liens, encumbrances, and claims of others of every kind and nature . . . (f) that all goods delivered are absolutely free from infringement of any patent.

Doc. 45-1 at 20, ¶ 18.

Following installation of the system, Unitherm Food Systems, Inc., a competitor of Defendant, notified Plaintiff of a pending patent that might have application to the equipment. (Plaintiff had considered Unitherm's equipment before electing to purchase equipment from Defendant.) Plaintiff advised Defendant of the threat. On May 23, 2003, Robert Hanson, Defendant's vice-president of research and technology, wrote:

Regarding patent issues on our equipment, Alkar-RapidPak stands behind our products--including indemnification against patent infringement. Enclosed are the patent indemnification terms that we include in all of our standard contracts. Regarding the use of an Alkar-RapidPak surface pasteurizer as part of a process including pre-browning, bagging post-pasteurization, and cooling of pre-cooked food products, we are aware of industry installations in operation since at least as early as 1999 that follow that process.

Doc. 45-1 at 25.

Hanson attached the following provision:

14. PATENTS, TRADEMARKS AND COPYRIGHTS. Seller will, at its own expense, defend any suits instituted by anyone against Buyer for alleged infringement of any United States patent, trademark or copyright relating to any products manufactured and furnished by Seller hereunder, if such alleged infringement consists of the use of such products, or parts thereof, in Buyer's business and provided Buyer shall have made all payments then due hereunder, shall have given the Seller immediate notice in writing of any such suit, transmitted to Seller immediately upon receipt of all processes and papers served upon buyer, permitted Seller through its counsel, either in the name of Buyer or in the name of Seller, to defend the same and shall have given all needed information, assistance and authority to enable Seller to do so. If such products are in such suit held in and of themselves to infringe any valid United States patent, trademark or copyright, then: (a) Seller will pay any final award of damages in such suit attributable to such infringement, and (b) if in such suit use of such products by Buyer is permanently enjoined by reason of such infringement, Seller shall, at its own expense and at its sole option, either (i) procure for Buyer the right to continue using the products, (ii) modify the products to render them non-infringing, (iii) replace the products with non-infringing goods, or (iv) refund the purchase price and the transportation costs paid by Buyer for the products.

Notwithstanding the foregoing, Seller shall not be responsible for any compromise or settlement made without its written consent, or for infringements of combination or process patents covering the use of the products in combination with other goods or materials not furnished by the Seller. The foregoing states the entire liability of Seller for infringement, and in no event shall Seller be liable for consequential damages attributable to an infringement.

As to any products furnished by Seller to Buyer manufactured in accordance with drawings, designs or specifications proposed or furnished by Buyer or any claim of contributory infringement resulting from use or resale by Buyer of products sold hereunder, Seller shall not be liable, and Buyer shall indemnify Seller and hold Seller harmless from and against any and all loss, liability, damage, claim or expense (including but not limited to Seller's reasonable attorneys' fees and other costs of defense) incurred by Seller as a result of any claim of patent, trademark, copyright, or trade-secret infringements, or infringements of any other proprietary rights of third parties.


Doc. 45-1 at 26. ///

This language does not appear in the contract between Plaintiff and Defendant appended as Exhibit A to the first amended complaint. Following receipt of Hanson's letter, Plaintiff continued to produce food using Defendant's equipment. Unitherm's patent issued on October 23, 2007.

On March 17, 2009, Unitherm filed suit against Plaintiff in the U.S. District Court for the Northern District of Oklahoma, alleging that the equipment infringed on its patent (U.S. Patent No. 7,285,299: sometimes referred to as the "299 patent"). Unitherm Food Systems, Inc. v. Foster Poultry Farms, Inc., Case No. 4:09-cv-00154-CVE-TLW (N.D. Okla.). Plaintiff notified Defendant of the lawsuit on May 21, 2009.

According to the proposed second amended complaint, on an unspecified date after Unitherm filed its lawsuit, Yubert Envia, Plaintiff's vice-president of turkey and prepared foods, called Tim Moskal, Defendant's vice-president of sales. Moskal assured Envia that Unitherm's patent was not valid and that Defendant would pay Plaintiff for any expenses it incurred in defending the lawsuit.

On July 10, 2009, Plaintiff and Defendant entered into the "Agreement of Common Interest, Joint Defense and Tolling of Rights" (the "tolling agreement") to address defense of the lawsuit and preserve both parties' rights. The tolling agreement specified that it "in no way constitute[d] a waiver of any rights Foster Farms and Alkar have against each other, including any right of indemnity against infringement and/or warranty of non-infringement." Doc. 45 at 7, ¶ 23. The agreement also stated:

The Parties further recognize that unresolved issues exist between them relating to certain indemnities for and/or warranties against patent infringement, and the rights and liabilities appurtenant thereto. This Agreement does not waive any rights or defenses of the Parties with respect to these issues, given that such suit is brought within one year of the final resolution of the Litigation either by settlement or final, non-appealable judgment.

Doc. 45 at 7, ¶ 23.

During the pendency of the lawsuit, Defendant paid no expenses or fees to Plaintiff as indemnification. Plaintiff alleges that, based on the contractual provisions, and Hanson's and Moskal's representations, it assumed that Defendant would indemnify its costs and that it incurred legal fees and expenses totaling approximately $1,128,000 in its defense of the lawsuit. Through diligent investigation, Plaintiff uncovered evidence that Unitherm had marketed the patented invention before applying for the patent, invalidating the patent. On August 9, 2010, Plaintiff and Unitherm filed a joint stipulation of dismissal with prejudice. The settlement included concessions that Plaintiff claims to have secured at Defendant's behest, which benefitted Defendant and its other customers, but not Plaintiff. Assuming its expenses to be indemnified by Defendant, Plaintiff secured the concessions by foregoing its own claim for fees and expenses from Unitherm. Following the settlement, Plaintiff sought recoupment of its expenses, which Defendant refused to provide.

II. Procedural Background

On December 13, 2010, Plaintiff sued Defendant in the Stanislaus County Superior Court, alleging claims for breach of contract, breach of express warranty, breach of implied warranty, implied contractual indemnity, promissory estoppel, and unjust enrichment. On January 6, 2011, Defendant removed the action to this Court based on diversity. On February 10, 2011, Defendant moved to dismiss the case pursuant to F.R.Civ.P. 12(b)(6). Following the parties' unsuccessful attempt at early settlement, on June 21, 2011, the Court dismissed without prejudice Plaintiff's claims of breach of contract, breaches of express and implied warranty, and ...

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