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

January 14, 2013

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



ORDER

This matter comes before the court on defendant Quality Egg's motion to dismiss four of five cross claims brought by co-defendant Hillandale Farms of Iowa, Inc. ("Hillandale"). (ECF 125.) This motion was decided without a hearing. For the following reasons, Quality Egg's motion to dismiss is DENIED in part and GRANTED in part.

I. PROCEDURAL HISTORY AND ALLEGED FACTS This case arises out of a massive recall in August 2010 of shell eggs precipitated

by an outbreak of salmonella enteritidis ("SE") that sickened as many as 62,000 people. (First Am. Compl. ¶ 1) ("FAC"). Plaintiff NuCal filed its initial complaint on November 18, 2010, alleging seven causes of action against three defendants, Quality Egg LLC ("Quality Egg"), Wright County Egg, and Hillandale Farms. (ECF 1.) The court granted plaintiff's motion to amend on January 27, 2012 (ECF 60) and plaintiff filed its amended complaint on January 30, 2012 (ECF 61).

The amended complaint names eight defendants ("defendants") - Quality Egg, DeCoster Revocable Trust ("DeCoster Trust"), Austin "Jack" DeCoster, DeCoster Enterprises LLC ("DeCoster Enterprises"), Environ/Wright County Inc. ("Environ"), Hillandale Farms, Hillandale LLC, and Hillandale PA - and alleges eight causes of action: 1) breach of implied warranty of merchantability against Quality Egg, DeCoster Trust, Jack DeCoster, DeCoster Enterprises, Environ, and Hillandale PA; 2) breach of implied warranty of fitness for particular purpose against Quality Egg, DeCoster Trust, Jack DeCoster, DeCoster Enterprises, Environ, and Hillandale PA; 3) breach of express warranty against Quality Egg, DeCoster Trust, Jack DeCoster, DeCoster Enterprises, Environ, and Hillandale PA; 4) fraud against all defendants;

5) negligence against all defendants; 6) equitable indemnification against all defendants;

7) negligent interference with prospective economic advantage against all defendants; and

8) unfair competition.*fn1 On August 15, 2012, defendants Jack DeCoster, DeCoster Trust, DeCoster Enterprises, and Environ/Wright County were dismissed from this action for lack of personal jurisdiction. (ECF 156.) The remaining defendants are the three Hillandale entities and Quality Egg.

On February 29, 2012, defendant Hillandale Farms of Iowa, Inc. ("Hillandale") filed a cross-claim against co-defendant Quality Egg. (ECF 67.) Hillandale alleged five causes of action: 1) equitable indemnity; 2) breach of implied warranty of merchantability; 3) breach of implied warranty of fitness for a particular purpose; 4) contribution; and 5) apportionment. The motion addressed by this order is Quality Egg's motion to dismiss all but the merchantability claim.

At all times relevant to this action, plaintiff NuCal purchased eggs from defendants through a commercial exchange called "Egg Clearinghouse, Inc." ("ECI"). (Id. ¶79.) Plaintiff alleges that defendants became aware of a heightened risk of SE contamination at defendant's farms in early 2010. (Id. ¶ 6.) Plaintiff further alleges that defendants had actual knowledge, no later than March 2010, that many of their chicken houses were contaminated with SE, and that by June 2010, their hens also had tested positive for SE. (Id. ¶¶ 5, 7.) Plaintiff avers that despite this knowledge, defendants continued to sell plaintiff eggs from contaminated farms without warning plaintiff or regulators and without conducting tests on eggs from contaminated farms. (Id. ¶ 9.)

On July 9, 2010, new federal egg safety rules took effect. (Id. ¶ 13.) These rules require SE positive farms to divert eggs to other facilities or to keep them out of the market until tests confirm they are contamination free. (Id.) Plaintiff alleges defendants, through omissions and misrepresentations, failed to comply with these new rules; for example, defendants represented they would notify plaintiff of any SE positive environmental tests involving farms that produced eggs plaintiff purchased. (Id. ¶¶ 156-157.) Plaintiff alleges defendants acted upon defendants' knowledge of the SE positive tests only when the FDA stepped in. (Id. ¶ 15.) Defendants then tested eggs produced at their farms and discovered about 170 SE-infected eggs. (Id. ¶ 16.) Defendants finally instituted a recall in August 2010. (Id. ¶ 1.) Before, during and after the recall, defendants allegedly obfuscated and failed to cooperate fully with the FDA and with the U.S. House of Representatives' inquiry into the SE outbreak. (Id. ¶¶ 15, 17.)

In defendant Hillandale's cross-claim against Quality Egg, Hillandale alleges it procured the allegedly contaminated eggs it sold to plaintiff from Quality Egg's farms. (ECF 67 at 37.) Hillandale further alleges it learned of Quality Egg's involvement in a potential SE outbreak only in mid-August 2010. (Id.) Prior to this time, Hillandale alleges it had no knowledge of any SE-positive test results at the Quality Egg facility from which it received its eggs. (Id. at 38.) Hillandale alleges that Quality Egg owned and managed the farm and all related production articles, including the hens and pullets. (Id. at 38-39.) Any processing Hillandale may have conducted on these Quality Egg eggs related solely to the outside of the eggs, Hillandale alleges; therefore, because the SE contamination was found inside the eggs, not on the shell, any contamination was caused by Quality Egg. (Id.)

II. STANDARD

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," FED. R. CIV. P. 8(a)(2), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action . . . .'"

Id. (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the ...


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