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Diehl v. Starbucks Corporation

United States District Court, Ninth Circuit

January 27, 2014

DONALD DIEHL; DEANNE CONSOLE; KENNETH P. DUBS, SR.; DAN FENN; KAREN McELLIOTT; MARK E. ROEHR; JACK ROWE; LONNIE C. TALBERT; FRANK VIRGADAMO; LARRY L. WESTFALL; and EILEEN WESTFALL, Plaintiffs,
v.
STARBUCKS CORPORATION d/b/a STARBUCKS COFFEE COMPANY, and d/b/a STARBUCKS MANUFACTURING COMPANY, a Washington corporation; and DOES 1-50, inclusive, Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS THE FAC

ANTHONY J. BATTAGLIA, District Judge.

Before the Court is Defendant Starbucks Corporation's ( hereinafter Defendant or "Starbucks") motion to dismiss Plaintiffs's First Amended Complaint ("FAC"). (Doc. No. 14.) Plaintiffs filed an opposition on December 16, 2013. (Doc. No. 16.) Defendant replied on December 23, 2013. The Court entertained oral arguments on January 23, 2014 and took the matter under submission. Upon consideration of the motion and the parties' arguments in support and opposition, the Court GRANTS in part and DENIES in part the motion to dismiss.

I. BACKGROUND[1]

Plaintiffs are former shareholders of Mellace Family Brands, Inc. ("MFB") (Doc. No. 13 at 2.) Incorporated in 2001, MFB mainly produced oil roasted almonds, cashews, and fruit and nut combinations that were then sold in local shopping centers. ( Id. at 4.) In 2007, Starbucks approached MFB for a potential deal to begin selling MFB products in Starbucks' stores. ( Id. ) Before entering into a business relationship with MFB, Starbucks performed due diligence and reviewed all of MFB's contracts and obligations with other retailers. Starbucks was also permitted to review MFB's books and records at all times. ( Id. at 5.) The parties began their business relationship in late 2007 and early 2008. ( Id. )

The general course of the parties' conduct is as follows: (1) Starbucks would provide MFB with volume projections so that MFB could determine the quantity of raw product and packaging materials needed for production of specific products; (2) Starbuc-ks would then send MFB Blanket Purchase Agreements (BPA's) formalizing the scope of orders based upon annual projections provided; (3) MFB would begin purchasing raw materials and packaging materials; (4) MFB would confirm to Starbucks the availability of product to satisfy the BPA; (5) Starbucks then confirms the amount/size of the order and shipment of products to Starbucks' facilities through a BPA Release; (6) after the issuance of the BPA Release, MFB would ship the specified amount of product reflected on the BPA Release; and (7) Starbucks would pay MFB the amount(s) reflected on the BPA Release. ( Id. at 5-6.)

Plaintiffs allege that although each BPA contained language that disclaims a legal obligation arising from a contract and does not authorize the purchase of inventory, MFB acted in reliance on the amount of products sought by Starbucks in volume projections and the amount of prepared products requested through verbal agreements, "usually confirmed by the BPAs." ( Id. at 6.) Plaintiffs allege that in reliance on the relationship with Starbucks, MFB had to upgrade machinery, hire new staff, and increase orders for raw products and packaging, all of which Starbucks had intimate knowledge of. ( Id. at 7.) MFB received its first BPA from Starbucks on or about December 5, 2007 and delivered its first shipment to Starbucks in March 2008 "pursuant to the terms outlined in Starbucks volume projections, BPAs, and BPA Releases." ( Id. )

In March 2008, Starbucks provided volume projections to MFB forecasting sales for product orders through September 2008. In September 2008, Starbucks provided additional volume projection for the months of January through March 2009. ( Id. at 8). In September of 2008, Starbucks informed MFB that it had received complaints about the quality of MFBs products. ( Id. ) Upon investigation, MFB discovered the reason for the defect and reimbursed Starbucks for the costs related to the product's withdrawal. ( Id. ) In June of 2009, Starbucks received further complaints regarding some MFB products and initiated a product withdrawal. In August 2009, Starbucks representatives toured MFB facilities and discussions led to an agreement to work with Starbucks representatives to ensure product quality. In September 2009, Starbucks Product Manager Lori Harris informed MFB that the business was being put out to bid. ( Id. at 9) MFB reprocessed the bid forms and was awarded business in November 2009. In awarding MFB the business, Starbucks and Ms. Harris imposed certain other conditions upon MFB through an "Action Plan" dated December 9, 2009, including further product specifications, increased quality reporting to Starbucks, additional investment in equipment for internal testing, and upgrading machinery used for product packaging. ( Id. at 9-10.) Plaintiffs allege that MFB complied with conditions imposed at significant costs. ( Id. at 10.)

In January 2010, MFB informed Starbucks Retail Lobby Jane Wong and representative Destiny Linayao that it was having difficulty maintaining current price levels due to a rise in commodity prices. ( Id. ) They instructed MFB to forward an updated pricing analysis. Plaintiffs allege that Starbucks then began a business relationship with Sahale Snacks and provided Sahale Snacks MFB's confidential pricing information in an effort to surreptitiously remove MFB from future business with Starbucks. ( Id. )

On March 30, 2010, Ms. Wong provided MFB with a volume estimate and "made MFB an offer: that Starbucks would provide purchase orders through October 2010 exceeding $3.1 million in product if MFB would provide a price decrease for product order." ( Id. at 10-11.) Plaintiffs alleged that MFB accepted and decreased the unit price. Plaintiffs refer to this as the "3.1 Million Dollar Contract." ( Id. at 11.) Starbucks then issued a BPA for $1, 839, 656.46, on April 2, 2010, for the months of June through August of 2010. ( Id. ) On April 6, 2010, Ms. Wong notified MFB that Starbucks released the April 2, 2010 BPA, which Plaintiffs allege constitutes partial performance on the $3.1 Million Contract. ( Id. ) Plaintiffs allege that in reliance on this Release and oral representations made by Ms. Wong, MFB entered into a contract to purchase approximately $1, 000, 000 in cashews to fulfill those orders and that Starbucks knew MFB would do so to fulfill Starbucks' order. ( Id. at 11-12.)

In March and April of 2010, Starbucks informed MFB that it had received complaints regarding MFB's cashew products. ( Id. at 8.) Plaintiffs allege that Starbucks conducted a conference call with the Food and Drug Administration ("FDA") which MFB was denied participation in and denied any information afterwards. ( Id. at 12.) Later in April 2010, Ms. Wong informed MFB that MFB products were "consistently rising and doing well, " and that there were no further customer complaints. ( Id. ) However, on April 23, 2010, MFB was notified of a second complaint. ( Id. ) Starbucks did not provide details to MFB, but retained samples of the product were tested with no defects found by MFB. ( Id. ) MFB forwarded the results of its internal testing to Starbucks to demonstrate that all retained products met the requirements of the Action Plan instituted by Starbucks in 2009. ( Id. at 13.)

On May 14, 2010 MFB received a termination letter from Starbucks indicating that no new orders would be issued due to product quality concerns. ( Id. ) On May 17, 2010 Starbucks informed MFB that neither current BPA Releases nor past BPA Releases would be honored. ( Id. ) Plaintiffs allege Starbucks representative Destiny Linayao informed MFB that the cost of film and packaging would be reimbursed to MFB, however Starbucks never did so and MFB was left with over $37, 000 of unusable Starbucks film and packaging materials. ( Id. ) On May 24, 2010, MFB received an investment and merger proposal from R.C. Frontis Partners, which was soon withdrawn after the firm learned of MFB's financial hardship that allegedly resulted from Starbucks' conduct. ( Id. at 14.)

On May 25, 2010 an independent laboratory testing of retained samples found all samples to be within the acceptable range of quality specification as provided by the Action Plan. On May 28, 2010, despite having just terminated the business relationship, Starbucks informed MFB that it would still accept all almond orders for the open purchase orders. ( Id. ) Plaintiffs allege that MFB shipped the almonds at Starbucks' request as partial performance of the $3.1 Million Dollar Contract. ( Id. ) Plaintiffs allege that on June 1, 2010, Starbucks informed MFB that all outstanding payments to MFB were on hold from Starbucks' legal department, which included payment for the open purchase orders of almonds Starbucks had just requested. ( Id. )

On June 4, 2010, Starbucks informed MFB that its products were being withdrawn due to FDA concerns. ( Id. at 9.) MFB requested return of their product to mitigate damages, but under condition that it was not admitting to liability. ( Id. ) On June 11, 2010, Starbucks and MFB executed an agreement to return products. The return was completed on or about June 19, 2010. ( Id. at 15.) Plaintiffs allege that the FDA investigation revealed that certain MFB products had been tainted by a gas leak at a Starbucks facility, through no fault of MFB. ( Id. )

Plaintiffs allege that because of the Defendant's actions, MFB suffered extreme financial difficulty and was forced into insolvency. ( Id. ) MFB was unable to fulfill contractual obligations with other wholesalers and lost its venture capital commitments. ( Id. ) After MFB's insolvency, their rights and assets were assigned to Insolvency Services Group ("ISG") for the benefit of their creditors. ( Id. at 2.) Plaintiffs, the former shareholders, then purchased "certain assets" from ISG. ( Id. at 15.) Plaintiffs allege that each of them lost the entire value of their respective investments in MFB. ( Id. )

Plaintiffs initiated this action in San Diego County Superior Court of California on September 6, 2012. On October 9, 2012, Defendant filed a notice of removal pursuant to 28 U.S.C. § 1441(B), asserting diversity jurisdiction under 28 U.S.C. § 1332. (Doc. No. 1.) On October 16, 2012, the Defendant filed a Motion to Dismiss (Doc. No. 4), arguing that Plaintiffs have failed to state a claim upon which relief may be granted. That motion was granted by this Court after finding that, though Plaintiffs had standing to bring the action, they could not state a claim for breach of contract based on the BPA which expressly disclaimed any intent to be bound. (Doc. No. 12 at 7-9.) The Court granted Plaintiffs leave to amend and they did so, filing a timely FAC on November 15, 2013. (Doc. No. 13.) Plaintiffs' FAC brings five causes of action: (1) breach of contract; (2) negligent misrepresentation; (3) intentional misrepresentation; (4) intentional interfer-ence with prospective economic advantage; and (5) unfair business practice under Business and Professions Code § 17200. ( Id. ) Defendant again seeks to dismiss the complaint, arguing Plaintiffs have failed to cure the deficiencies noted within the Court's previous dismissal order and have not alleged a valid contract existed. (Doc. No. 14)

II. LEGAL STANDARDS

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pled in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it 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 has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (citing Twombly, 550 U.S. at 556).

Under Federal Rule of Civil Procedure 9(b), allegations of fraud must be pled with particularity. See Fed.R.Civ.P. 9(b). Rule 9(b) requires that, when fraud is alleged, "a party must state with particularity the circumstances constituting fraud..." Id. Any averments which do not meet that standard should be "disregarded, " or "stripped" from the claim for failure to satisfy Rule 9(b). Id. "Averments of fraud must be accompanied by the who, what, when, where, and how' of the misconduct charged." Vess v. CibaGeigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997)).

Dismissal under Rule 12(b)(6) is proper only when a complaint exhibits either a "lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). "A complaint should not be dismissed 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.'" Gilligan v. Jamco ...


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