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DS-Concept Trade Invest, LLC v. Morgan-Todt, Inc.

United States District Court, N.D. California

November 6, 2017

DS-Concept Trade Invest, LLC, a Delaware Limited Liability Company, Plaintiff,
Morgan-Todt, Inc., d/b/a United Cold Storage, a California corporation, Defendant.


          Yvonne Gonzalez Rogers United States District Court Judge

         Now before the Court is defendant Morgan-Todt Inc., d/b/a United Cold Storage's (“United”) motion for judgment on the pleadings pursuant to Fed. R. Civ. Pro. 12(c). United argues that third-parties Gormet Food Imports, Ltd., and related corporation Gourmet (collectively “Gourmet”), is a necessary party to this litigation pursuant to Fed.R.Civ.P. 19(a)(1)(b)(i), (ii) and thus must be joined. Further, United asserts that Gourmet cannot be joined without depriving this Court of subject-matter jurisdiction which is based on diversity of citizenship. See 28 U.S.C. §§ 1332(c)(1). Accordingly, United moves for an order dismissing this action under Fed. R. Civ. Pro. 19(b).

         Having carefully considered the pleadings and the papers submitted on this motion, and for the reasons set forth below, defendant's motion for judgment on the pleadings is Denied.[1]

I. Relevant Background

         Plaintiff DS-Concept Trade Invest, LLC (“DSC”) is a purchaser of accounts receivable (also known as “trade debt”) from third-party trade companies that exports food products, including Gourmet. (Dkt. No. 42, Third Amended Complaint (“TAC”) ¶¶ 3-6, 8, 9.) DSC purchases trade debt from Gourmet pursuant to a “Factoring Agreement.” (Id. ¶¶ 8-10.) Under the Factoring Agreement, Gourmet obtains and prepares to fill purchase orders for food products from a buyer, typically third-party Atalanta Corporation (“Atalanta”). Gourmet then designates DSC as the payee on these orders. (Id. ¶ 12.) DSC confirms the purchase orders with the buyer and advances funds to Gourmet. (Id.) Gourmet uses these funds to acquire and ship the order to the buyer. (Id. ¶ 13.) After the buyer receives the goods, DSC is paid “via direct collection of payment” from the buyer. (Id.)

         United is a cold storage facility located in San Francisco, California. (Id. ¶ 18.) Between June and August 2015, DSC advanced funds to Gourmet in connection with Gourmet's purchase of 573, 350.93 pounds of pecorino cheese (“the Cheese”). As a result, Gourmet generated $2, 063, 883.33 in invoices payable to DSC. (Id. ¶ 14, Exh. D.) DSC contends that the Cheese arrived at United's cold storage facility in San Francisco, (id. ¶ 18, Exh. E), but none of the invoices has been paid. (Id. ¶ 15.) According to DSC, United improperly stored the Cheese in the freezer, rather than the refrigerator, which diminished the value of the Cheese by rendering it unfit for human consumption. (Id. ¶¶ 36-40.) To secure repayment of the advances and other monetary damages, DSC brought three federal suits: this one, a second against (i) United and (ii) Gourmet in this Court, and the third against (iii) Gourmet and Atalanata in the U.S. District Court for the District of New Jersey. See DS-Concept Trade LLC v. Gourmet Food Imports, LLC, et al. Case No. 3:16-cv-00466 YGR; DS-Concept Trade LLC v. Atalanta Corporation, et al., Case No. 2:16-cv-00429-SRCCLW. In addition, Gourmet has filed suit against United in the Superior Court of the State of California, County of San Francisco. See Gourmet Food Imports, LLC v. Morgan-Todt, Inc., d/b/a United Cold Storage, CGC-16-552621.

         According to DSC, under the Factoring Agreement the Cheese is “property in which DSC holds a beneficial interest (or, alternatively, collateral in which DSC has a security interest).” (Id. ¶ 22, Exh. A §§ 11, 14.) DSC alleges that United owed it a duty of care to store the Cheese reasonably because of this beneficial and/or security interest in the Cheese. (Id. ¶¶ 20, 57.) Plaintiff alleges that, “based on industry customs and practices, ” United understood or should have understood that the Cheese and proceeds from any sale were subject to DSC's beneficial and/or security interest. (Id. ¶ 53.)

         On March 1, 2017, plaintiff filed a TAC alleging one cause of action against United, namely for negligence. (Id. ¶¶ 50-66.) United filed a motion to dismiss on the ground that United did not owe plaintiff a duty of care. (Dkt. No. 43.) On May 18, 2017, this Court denied United's motion to dismiss and found plaintiff's allegations sufficient to state a plausible claim for negligence under the six-factor test articulated in Biakanja v. Irving, 49 Cal.2d 647 (1958). (Dkt. No. 47.)

         II. Legal Standard

         Rule 12(c) provides that any party may move for judgment on the pleadings “after the pleadings are closed - but early enough not to delay trial.” Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings under Rule 12(c) “challenges the legal sufficiency of the opposing party's pleadings, and the allegations contained therein.” In re Dynamic Random Access Memory Antitrust Litig., 516 F.Supp.2d 1072, 1083 (N.D. Cal. 2007).

         Under Rule 19(a)(1):

         Required Party. A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in ...

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