Cargill Inc et al v. Degesch Americas Inc et al
Filing
37
ORDER granting in part and denying in part 20 Motion to Dismiss. Plaintiffs strict products liability, fraudulent misrepresentation, and unfair trade practices claims are hereby DISMISSED. Their negligent misrepresentation claim survives defendants motion to dismiss. Signed by Chief Judge Sarah S. Vance on 6/21/12. (jjs, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CARGILL, INC., CARGILL
INTERNATIONAL SA, AMLIN
CORPORATE INSURANCE, CHARTIS
EUROPE, HDIGERLING NV,
MINNETONKA INSURANCE, and TOKIO
MARINE & NICHIDO FIRE, for and
on behalf of all Subscribing
Cargo Insurers, and THE
STEAMSHIP MUTUAL UNDERWRITING
ASSOCIATION (BERMUDA) LIMITED
CIVIL ACTION
VERSUS
NO: 11-2036
DEGESCH AMERICA, INC., DETIA
DEGESCH GMBH, and D&D HOLDINGS,
INC.
SECTION: R
ORDER AND REASONS
Defendants Degesch America, Inc. and D&D Holdings, Inc.
(collectively, “Degesch”) move the Court to dismiss under Federal
Rule of Civil Procedure 12(b)(6) plaintiffs’ products liability,
fraudulent misrepresentation, negligent misrepresentation, and
unfair trade practices claims. For the following reasons,
defendants' motion is GRANTED with respect to plaintiffs'
products liability, fraudulent misrepresentation, and unfair
trade practices claims, and DENIED with respect to plaintiffs’
negligent misrepresentation claim.
I.
BACKGROUND
This case arises out of a fire aboard the vessel M/V MARIA
V. Plaintiffs Cargill International SA (CISA) and Cargill Inc.
(collectively, “Cargill plaintiffs”) contend that they were the
owners, buyers, sellers, consignees, successors in title, and/or
shippers of 59,691.878 metric tons of yellow corn loaded aboard
the vessel at the Westwego, Louisiana export grain elevator.1
Plaintiffs Amlin Corporate Insurance, Chartis Europe, HDI-Gerling
NV, Minnetonka Insurance Co., and Tokio Marine & Nichido Fire
insured the cargo, and plaintiff The Steamship Mutual
Underwriting Association (Bermuda) Limited insured the Cargill
plaintiffs’ legal liability.2
Plaintiffs allege that, pursuant to a grain sales contract
dated April 15, 2010, Cargill sold 60,000 metric tons of yellow
corn to CISA, which CISA then sold to a Syrian buyer.3 The
Cargill-CISA contract called for Cargill to deliver the cargo in
accordance with CISA’s final documentary instructions, which
required a fumigation certificate demonstrating that the vessel’s
holds were fumigated at 60 grams of phosphide per one thousand
cubic feet of each hold space.4 Cargill then contracted with
1
R. Doc. 15 at 2-3, 6.
2
Id. at 3.
3
Id. at 5.
4
Id.
2
defendant Degesch America for the sale of fumigant and provision
of fumigation services for Cargill’s grain shipment.5 Degesch
America agreed to fumigate the holds of the vessel using a
“Subsurface Trench-In Method” and the distribution of phosphide
called for in the Cargill-CISA contract.6
On August 19, 2010, after the grain was loaded aboard the
vessel at a berth by Cargill’s export grain elevator in Westwego,
Louisiana, Degesch fumigated the corn with the fumigant Phostoxin
in all seven of the vessel’s cargo holds.7 Degesch issued a
Fumigation Certificate and a Statement of Fumigant Application
Compliance certifying that all cargo holds were fumigated in
accordance with Federal Grain Inspection Service (FGIS) rules
using the Subsurface Trench-In Method, with 60 grams of Aluminum
Phosphide per 1000 cubic meters of hold space.8
Allegedly in reliance on these representations, the vessel’s
crew closed and secured the cargo hatch covers, and Cargill
permitted the M/V MARIA V to depart for the destination port in
Syria.9 Shortly into the journey down the Mississippi River, a
series of explosions erupted in each of the vessel’s seven cargo
5
Id.
6
Id.
7
Id. at 6.
8
Id.
9
Id.
3
holds over the course of two hours,10 requiring the crew to seek
safe harbor. The vessel’s classification society then allegedly
ordered the corn removed while the vessel underwent
investigation, during which time the Syrian purchaser renounced
its contract for the purchase of the corn.11
The investigation concluded that the fumigant was applied in
piles on the surface of the cargo rather than applied uniformly
subsurface, as required by defendants’ own Application Manual,
FGIS regulations, and the terms of the contract.12 The
investigation found that the piling method caused the fumigant to
create phosphine gas at an unsafe rate, and the gas eventually
combusted within the head space of each cargo hold.13 One of the
surveyors suggested that impurities or diphosphine in the
fumigant may have caused the explosions.14 Plaintiffs allege that
the explosions resulted in extensive monetary losses exceeding
$14 million.15
10
Id.
11
Id. at 7-8.
12
Id. at 7.
13
Id.
14
Id at 7-8.
15
Id. at 8-9.
4
In their amended complaint,16 plaintiffs presented claims
for negligence in defendants’ manufacture and/or application of
the fumigant; negligent misrepresentation in defendants’ false
certification of the fumigation method used; fraudulent
misrepresentation based on the same false certification; breach
of contract or warranty; violation of the Louisiana Unfair Trade
Practices and Consumer Protection Act (LUTPA); and strict
products liability.17 Defendants contend that plaintiffs have
failed to state a claim as to the products liability,
misrepresentation, and unfair trade practices claims, and they
moved for dismissal of those claims.18 Plaintiffs opposed the
motion.19
The Court heard oral argument on defendants’ motion to
dismiss and requested additional briefing on the choice of law
16
Plaintiffs sought and received permission to amend
their original complaint after defendants moved for dismissal and
more definite statements with respect to all claims asserted in
that original complaint. See R. Docs. 1, 4. The amended complaint
supersedes the original, and defendants have withdrawn their
request for a more definite statement and restated their request
for dismissal. See R. Doc. 20-1 at 5. At oral argument, the Court
denied as moot defendants' motion attacking the original
complaint.
17
R. Doc. 15 at 10-15.
18
R. Doc. 20.
19
R. Doc. 26.
5
analysis.20 The parties agree that general maritime law applies
to these claims.21
II.
STANDARD
To survive a Rule 12(b)(6) motion to dismiss, the plaintiffs
must plead enough facts “to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547
(2007)). A claim is facially plausible when the plaintiff pleads
facts that allow the court to “draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Iqbal, 129
S.Ct. at 1949; Hale v. King, 642 F.3d 492, 499 (5th Cir. 2011).
20
R. Doc. 29.
21
R. Docs. 33, 36. The parties agree that general
maritime law applies here based on the existence of a maritime
contract. It is equally clear that general maritime law applies
to plaintiffs’ tort claims, since both the location and the
connection-to-maritime-activity tests, described and refined in
Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513
U.S. 527 (1995), are satisfied. The explosions within the
vessel's holds occurred on navigable waters about an hour after
the vessel had begun its voyage to Syria. See 1 Schoenbaum’s
Admiralty and Maritime Law § 3-5 (5th ed.) (“[A] tort occurs
where the negligent or intentional act takes effect, not where
the act occurred.”). Likewise, the incident involved a real risk
to commercial shipping (the cargo went undelivered, after all),
and the activity at issue (preparing the vessel’s holds for the
cargo) clearly bore a substantial relationship to traditional
maritime activity. See Grubart, 513 U.S. at 538. To the extent
that the different tort claims involved different
characterizations of the same course of conduct, Grubart made
clear that “we need to look only to whether one of the arguably
proximate causes of the incident originated in the maritime
activity of a tortfeasor.” Id. at 541.
6
A court must accept all well-pleaded facts as true and must draw
all reasonable inferences in favor of the plaintiff. Lormand v.
U.S. Unwired, Inc., 565 F.3d 228, 232–33 (5th Cir. 2009); Baker
v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). But the Court is not
bound to accept as true legal conclusions couched as factual
allegations. Iqbal, 129 S.Ct. at 1949–50.
A legally sufficient complaint must establish more than a
“sheer possibility” that plaintiffs' claim is true.
Id.
It need
not contain detailed factual allegations, but it must go beyond
labels, legal conclusions, or formulaic recitations of the
elements of a cause of action. Twombly, 550 U.S. at 555. In other
words, the face of the complaint must contain enough factual
matter to raise a reasonable expectation that discovery will
reveal evidence of each element of the plaintiffs' claim.
Lormand, 565 F.3d at 255–57. If there are insufficient factual
allegations to raise a right to relief above the speculative
level, Twombly, 550 U.S. at 555, or if it is apparent from the
face of the complaint that there is an insuperable bar to relief,
Jones v. Bock, 549 U.S. 199, 215 (2007); Carbe v. Lappin, 492
F.3d 325, 328 n.9 (5th Cir. 2007), the claim must be dismissed.
7
III. DISCUSSION
A.
Products Liability Claim
Plaintiffs’ products liability claim alleges that the
fumigant used was unsafe for its intended use because of
“impurities and/or diphosphine” present within the fumigant, and
that defendants negligently failed to warn of these impurities.
Plaintiffs’ theory appears to be grounded in the suggestion of
one of the surveyors that this defect caused or contributed to
the explosions. Defendants claim that this “slim reed” is the
sort of conclusory allegation that fails to satisfy the Rule 8
“plausibility” standard explained in Bell Atlantic Corp. v.
Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct.
1937 (2009).
Courts recognize the doctrine of strict products liability
as part of the federal maritime law, see E. River S.S. Corp. v.
Transamerica Delaval, 476 U.S. 858, 865 (1986); Vickers v. Chiles
Drilling Co., 822 F.2d 535, 538 (5th Cir. 1987), and generally
embrace § 402 of the Restatement (Second) of Torts as “the best
expression of the [doctrine of strict liability] as it is
generally applied.” In re Parker Drilling, 2006 U.S. Dist. LEXIS
4332, at *12 (E.D. La. 2006) (quoting Ocean Barge Transp. v. Hess
Oil Virgin Islands, 726 F.2d 121, 123 (3rd Cir. 1984) (collecting
cases)). The Restatement provides:
8
(1) One who sells any product in a defective condition
unreasonably dangerous to the user or consumer or to his
property is subject to liability for physical harm thereby
caused to the ultimate user or consumer, or to his property,
if
(a) the seller is engaged in the business of selling such
a product, and
(b) it is expected to and does reach the user or consumer
without substantial change in the condition in which it
is sold.
Restatement (Second) of Torts § 402A.
In this case, further expression of the principles of strict
products liability is unnecessary, since plaintiffs have plainly
failed to state a claim that is plausible on its face. Plaintiffs
base their allegation solely on the opinions of a surveyor
unnamed in the complaint. There is no indication of what the
impurities might be, how they might have caused the explosions,
the basis upon which the surveyor formed his theory, or his
qualifications for so doing. There is likewise no description of
diphosphine or its properties, why its presence in the fumigant
is plausible, or how it might have caused the explosions. Absent
these allegations, there is no plausible claim that the product
was unreasonably dangerous. Cf. Henderson v. Sun Pharms. Indus.,
809 F. Supp. 2d 1373, 1379 (N.D. Ga. 2011) (finding plaintiff's
allegations that “[fosphenytoin] drug products contained
impurities in the manufacturing process” insufficient to state a
claim following Iqbal when plaintiff did not specify the
9
impurities or allege how those impurities caused Plaintiff to
develop her medical injuries).
At oral argument, the Court allowed plaintiffs to amend
their complaint to state a products liability claim that is
plausible on its face. Now four months later, plaintiffs still
have not so amended. Their strict products liability claim is
therefore dismissed. Plaintiffs’ failure-to-warn claim, sounding
in negligence, is similarly dismissed; since plaintiffs have
failed to demonstrate an unreasonable danger with the fumigant
caused by diphosphine or unnamed impurities, they likewise have
failed to demonstrate any negligence of defendants in failing to
warn of such dangers.
B.
Negligent Misrepresentation Claim
The Fifth Circuit has noted that federal maritime law
recognizes the tort of negligent misrepresentation, see Otto
Candies, LLC. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530, 534-35
(5th Cir. 2003), and has approvingly cited Section 552 of the
Restatement (Second) of Torts for the controlling standard. Thus,
to state a claim for negligent misrepresentation under general
maritime law, plaintiffs must allege that
(1) [Degesch], in the course of its profession, supplied
false information for [Cargill’s] guidance in a business
transaction;
(2) [Degesch] failed to exercise reasonable care in
gathering the information;
10
(3) [Cargill] justifiably relied on the false information in
a transaction that [Degesch] intended to influence; and
(4) [Cargill] thereby suffered pecuniary loss.
Otto Candies, 346 F.3d at 535.
Here, plaintiffs have stated a plausible negligent
misrepresentation claim. They have alleged that Degesch’s
Certified Applicator certified to plaintiffs that the fumigant
was applied subsurface, that the fumigant actually was not
applied subsurface, that plaintiffs acted in reliance on this
false information, and that they suffered damages as a result. An
inference that the Certified Applicator failed to act with
reasonable care is reasonable from the allegations in the
complaint. Defendants’ motion to dismiss plaintiffs’ negligent
misrepresentation claim is therefore denied.
C.
Fraudulent Misrepresentation Claim
It is well settled that a federal court sitting in admiralty
is to apply the common law of fraud. Elmwood Dry Dock & Repair v.
H & A Trading Co., 1997 U.S. Dist. LEXIS 20309, *67 (E.D. La.
1997) (citing Black Gold Marine, Inc. v. Jackson Marine Co.,
Inc., 759 F.2d 466 (5th Cir. 1985)). Stating a fraud claim thus
requires that plaintiffs allege:
(1) a false representation - usually of fact - made by the
defendant;
11
(2) knowledge or belief on the part of the defendant that
the representation is false, or an insufficient basis to
make the representation;
(3) an intention to induce the plaintiff to act or refrain
from acting in reliance on the information;
(4) justifiable reliance by the [plaintiff]; and
(5) damage to the plaintiff resulting from the reliance.
Id., at *67-68 (citing Prosser and Keeton on the Law of Torts §
107 (5th ed.).22
Plaintiffs’ allegations of fraud implicate the heightened
pleading requirements of Fed. R. Civ. P. 9(b). See Conerly Corp.
v. Regions Bank, 2008 U.S. Dist. LEXIS 94674, at *27-28 (E.D. La.
2008) (citing Unimobil 84, Inc. v. Spurney, 797 F.2d 214, 217
(5th Cir. 1986)). “In alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or
mistake." Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339
(5th Cir. 2008) (quoting Fed. R. Civ. P. 9(b)). The Fifth Circuit
“interprets Rule 9(b) strictly, requiring a plaintiff [who
pleads] fraud to specify the statements contended to be
fraudulent, identify the speaker, state when and where the
statements were made, and explain why the statements were
22
The elements are substantially similar under Louisiana
law. There, to prevail on a claim of intentional
misrepresentation, plaintiffs must show (i) a misrepresentation
of a material fact, (ii) made with the intent to deceive, and
(iii) causing justifiable reliance with resultant injury. Guidry
v. United States Tobacco Co., 188 F.3d 619, 627 (5th Cir. 1999)
(citing La. C.C. art. 1953; other citations omitted).
12
fraudulent.” Id. (citations omitted). “Put simply, Rule 9(b)
requires the complaint to set forth the who, what, where, and how
of the events at issue.” Id. (citations and quotation marks
omitted). The second sentence of Rule 9(b) “relaxes the
particularity requirement for conditions of the mind such as
scienter: Malice, intent, knowledge, and other conditions of the
mind may be alleged generally.” Id. (citations omitted). But
while Rule 9(b) “expressly allows scienter to be ‘averred
generally,’ simple allegations that defendants possess fraudulent
intent will not satisfy Rule 9(b).” Id. (citations omitted).
Rather, the plaintiffs “must allege specific facts supporting an
inference of fraud.” Id. (citations omitted).
Plaintiffs’ second cause of action contends that the damages
plaintiffs suffered:
were proximately caused by the negligent misrepresentation
of Degesch America and/or the fraudulently made statements
made by Degesch America, in falsely representing and/or
intentionally misleading Cargill, CISA and/or the vessel’s
officers as to the manner in which defendants performed the
fumigation aboard the M/V MARIA V, in the following
respects:
1.
Degesch America’s Certified Applicator, Sam Schoo,
certified to Cargill and the vessel’s officers that
the fumigant was applied subsurface when in fact it
was not;
2.
Degesch America’s Certified Applicator, Sam Schoo,
certified that the fumigant was applied in
accordance with rules and regulations of the
Federal Grain Inspection Service, when in fact it
was not; and/or
3.
Other misrepresentations to be shown at trial.
13
Absent from the complaint are facts that invite an inference
of fraudulent intent, as plaintiffs do not allege that Degesch’s
Certified Applicator knew or had reason to believe that the
fumigant was not applied in accordance with the contract and FGIS
regulations. Nor do plaintiffs state that (much less explain why)
defendants would intentionally misrepresent the particular
fumigation procedure used. Alleged facts are sufficient to
support an inference of fraudulent intent if they either “(1)
show a defendant's motive to commit [] fraud or (2) identify
circumstances that indicate conscious behavior on the part of the
defendant.” Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302
F.3d 552, 565 (5th Cir. 2002)). But “[p]laintiffs do not
sufficiently allege motive by making generic allegations that the
defendant had a financial interest in carrying out the alleged
fraud.” McNamara v. Bre-X Minerals, Ltd., 57 F. Supp. 2d 396, 405
(E.D. Tex. 1999); see also Flaherty & Crumrine Preferred Income
Fund Inc. v. TXU Corp., 565 F.3d 200, 213 (5th Cir. 2009)
(allegations of a motive to increase the value of personal stock
holdings by withholding information to induce investor
participation in a tender offer are insufficient to allege
fraud); Herrmann Holdings, 302 F.3d at 565-66 (allegations of
delay in order to benefit therefrom are insufficient); Tuchman v.
DSC Commc'ns Corp., 14 F.3d 1061, 1068 (5th Cir. 1994)
(allegations of a motive to inflate the stock price and value of
14
defendant’s investments are insufficient). Here, plaintiffs
indicate no motive whatsoever in their complaint for issuing a
false certification, and they urge the Court in their opposition
to defendants’ motion to infer an illicit motivation without
providing any facts that support such an inference.
Without alleging facts to invite an inference of fraudulent
intent, plaintiffs have failed to satisfy Rule 9(b)’s mandate.
This is notwithstanding plaintiffs’ citation to Diamond Servs.
Corp. v. Oceanografia, S.A. DE C.V., 2011 U.S. Dist. LEXIS 27358
(W.D. La. 2011), in which the court denied defendant’s motion to
dismiss despite the plaintiff’s failure to allege facts relating
to certain elements of his claim. The court there noted that
certain factual details could be obtained only through discovery,
and since judging the sufficiency of the complaint was a
“context-specific task” requiring the court “to draw on its
judicial experience and common sense,” denial of summary judgment
was appropriate in context. Id., at *19. Importantly, however,
that case involved the Rule 8 standard, whereas this case
involves Rule 9's heightened pleading standard. And even though
fraud may be averred generally under Rule 9(b), “simple
allegations that defendants possess fraudulent intent will not
satisfy[.]” Dorsey, 540 F.3d at 339 (citations omitted).
Plaintiffs “must allege specific facts supporting an inference of
15
fraud,” id., and they have failed to do so. Their fraudulent
misrepresentation claim is hereby dismissed.
D.
Unfair Trade Practices Claim23
LUTPA prohibits “[u]nfair methods of competition and unfair
or deceptive acts or practices in the conduct of any trade or
commerce[,]” La. R.S. § 51:1405, and confers a private right of
action on “any person who suffers any ascertainable loss of money
or movable property, corporeal or incorporeal,” from these unfair
trade practices. La. R.S. § 51:1409(A). To succeed on a LUTPA
claim, a plaintiff must show that the alleged conduct “offends
established public policy and ... is immoral, unethical,
oppressive, unscrupulous, or substantially injurious.” Cheramie
Servs. v. Shell Deepwater Prod., 35 So. 3d 1053, 1059 (La. 2010)
(quoting Moore v. Goodyear Tire & Rubber Co., 364 So.2d 630, 633
(La. App. 2nd Cir. 1978). What constitutes an unfair trade
violation is determined on a case-by-case basis. Cheramie Servs,
35 So. 3d at 1059. However, conclusory allegations of unethical
or oppressive conduct not supported by the record are
insufficient. See Lilawanti Enters. v. Walden Book Co., 670 So.
2d 558, 561 (La. App. 4th Cir. 1996).
23
The Court need not determine whether the attorneys’
fees provision of LUTPA, or any other provision for that matter,
is preempted by general maritime law, since plaintiffs plainly
fail to state a LUTPA claim that is plausible on its face.
16
Here, plaintiffs' LUTPA claims fail for much the same reason
their fraud claim fails: they have not adequately alleged
defendants’ intent to deceive. Critically, “the range of
prohibited practices under LUTPA is extremely narrow,” Cheramie
Servs, 35 So. 3d at 1060, and there is “a great deal of daylight
between a breach of contract claim and the egregious behavior the
statute proscribes.” Turner v. Purina Mills, Inc., 989 F.2d 1419,
1422 (5th Cir. 1993). Whatever the dangers in providing a
substandard fumigation and yet certifying to its conformity with
contractual and legal requirements, LUTPA is concerned with the
intentional deception undergirding defendants’ acts. Indeed,
“only egregious actions involving elements of fraud,
misrepresentation, deception, or other unethical conduct will be
sanctioned based on LUTPA,” Cheramie Servs, 35 So. 3d at 1060,
and this “egregiousness” often involves “the breach of a special
relationship of trust” not present in this case. See Shaw Indus.
v. Brett, 884 F. Supp. 1054, 1058 (M.D. La. 1994) (quoting
Turner, 989 F.2d at 1422, and finding that “the relationship
between the parties and the nature of the disagreement ... [was]
more analogous to a breach of contract dispute than one involving
unfair or deceptive acts,” despite plaintiff’s allegations of
defendant’s “deceitful, coercive, manipulative, and intentional
misrepresentations”). Plaintiffs have failed to invite any
inference of egregious wrongdoing by defendants, and
17
consequently, they have failed to state a claim under LUTPA.
Their unfair trade practices claim is hereby dismissed.
IV.
CONCLUSION
For the foregoing reasons, plaintiffs’ strict products
liability, fraudulent misrepresentation, and unfair trade
practices claims are hereby DISMISSED. Their negligent
misrepresentation claim survives defendants’ motion to dismiss.
New Orleans, Louisiana, this 21st day of June, 2012.
__
_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
18
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