National Food Group, Inc. v. Great Host International, Inc. d/b/a Andalucia Nuts

Filing 21

OPINION and ORDER Granting Defendant's 16 Motion to Dismiss, Transfer, or Stay. Signed by District Judge Linda V. Parker. (RLou)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
NATIONAL FOOD GROUP, INC.,
Plaintiff,

Civil Case No. 17-cv-13686
Honorable Linda V. Parker

v.
GREAT HOST INTERNATIONAL, INC.
d/b/a ANDALUCIA NUTS,
Defendant.
___________________________________/
OPINION AND ORDER GRANTING DEFENDANT’S MOTION TO
DISMISS, TRANSFER, OR STAY (ECF NO. 16)
Plaintiff National Food Group, Inc. (“NFG”) initiated this declaratory
judgment action against Defendant Great Host International, Inc. d/b/a Andalucia
Nuts (“Andalucia”) on November 13, 2017. (ECF No. 1.) NFG requests this
Court to declare the alleged Sales Contract between it and Andalucia invalid.
Presently before the Court is Andalucia’s motion to dismiss pursuant to 28 U.S.C.
§ 2201, or to transfer pursuant to 28 U.S.C. § 1404(a), filed March 22, 2018. (ECF
No. 16.) The motion has been fully briefed. Finding the legal arguments
sufficiently presented in the parties’ brief, the Court is dispensing with oral
arguments pursuant to L.R. 7.1(f)(2). For the reasons that follow, the Court grants
Andalucia’s motion.

I.

Factual and Procedural History
NFG is a wholesale food distributor with its principal place of business in

Novi, Michigan. (ECF No. 1 at Pg ID 2.) Andalucia is a producer of nut-based
foods with its principal place of business in Houston, Texas. (Id.) While bidding
on a contract to supply peanut butter to the Texas Department of Corrections
(“TDOC”), NFG began discussions with Andalucia to supply peanut butter. (Id. at
Pg ID 2.) According to NFG, the two discussed price, quantity, delivery, and the
United States Department of Agriculture (“USDA”) stamping and grading. (Id.)
After NFG notified Andalucia that TDOC accepted NFG’s bid, Andalucia
requested NFG to complete a credit application, which a NFG officer or
representative, Scott Kamen, completed and executed on July 27, 2017. (ECF No.
16-6.) The credit application contained a forum selection clause that required all
disputes to be filed in a Texas federal or state court. (Id.) Specifically, the clause
stated: “Any suit or legal proceeding relating to this Application or the matters
contemplated by this Agreement shall be brought in the state or federal courts
sitting in Houston, Texas, and the Applicant hereby waives any claims or defense
that such forum is not convenient or proper.” (Id.)
On August 31, 2017, NFG sent Andalucia a purchase order for five orders of
1,440 cases of peanut butter (“August 31 Purchase Order”). (ECF No. 19-2.) On
September 13, 2017, NFG sent Andalucia an additional purchase order for two
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orders of peanut butter, one case of 464 and another case of 1,440 (“September 13
Purchase Order”). (ECF No. 19-5.) Each purchase order contained the following:
“All purchases of goods and services by National Food Group, Inc., are subject to
the Terms and Conditions of Purchase located at
http://www.nationalfoodgroup.com/terms-of-purchase.” (ECF Nos. 19-2 & 19-5.)
Section 7 of the Terms and Conditions of Purchase stated:
Purchaser may, at anytime, make changes to the Order,
and Seller shall accommodate such request, provided
Purchaser shall pay any additional reasonable costs of
Seller by reason of any change. Any claim by Seller for
a change pursuant to this Section as a result of the
Purchaser’s change must be asserted in writing within ten
(10) days from the date of receipt by Seller of
Purchaser’s notification of any change. Purchaser will
have the right to verify all claims hereunder by auditing
relevant records of Seller. If Purchaser does not agree to
pay such additional charges, the Purchaser may, at its
option, proceed with the Purchase Order in the form
previously provided to the Seller or cancel the Purchase
Order without further liability to the Seller, and shall
notify the Seller accordingly. If Purchaser agrees to
additional charges as provided in this Section, Seller
agrees to proceed with the Purchase Order as changed
under this Section 7.
(ECF No. 16-22 at Pg ID 229-30; ECF No. 19-3 at Pg ID 281.) Finally, the Terms
and Conditions of Purchase provided that “[t]he Agreement, these Terms and
Conditions and the relationship between the parties shall be governed by the law of
the State of Michigan, USA, without giving effect to any choice or conflict of law
provision or rule (whether of the State of Michigan or any other jurisdiction) that
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would cause the application of the law of any jurisdiction other than the State of
Michigan shall be the exclusive jurisdiction for all disputes. The Oakland County
Circuit Court or the Federal District Court for the Eastern District of Michigan is a
convenient venue for both parties.” (ECF No. 16-22 at Pg ID 235.)
On September 5, 2017, Andalucia emailed NFG a “Sales Contract” that
contained Andalucia’s terms for supplying peanut butter. (ECF No. 1 at Pg ID 3.)
The Sales Contract was dated September 5, 2017 and provided that Andalucia
would provide NFG 1,900,050 pounds of peanut butter-creamy-USDA stamped
between September 2017 and August 2018. (ECF No. 16-5.) It estimated the price
of the peanut butter to be $1,672,044.00. (Id.) The Sales Contract also contained
the following remarks: “All chargers outside (exporter’s country) on buyer’s
account”; “minimum order/pull 1440 cases”; “load pulls: 4-8 per month”; “buyer
responsible for 3 month supply of packaging material”; “USDA inspection/stamp
fee is to Buyer’s account”; “itemized receipt for the USDA inspection to be
provided with invoice”; and “delays in pick ups and pulls may result in upcharge
of 3-5 cents/lb monthly.” It also included a note that stated, “[q]uantity can be +/10%.” (Id.)
On September 11, 2017, NFG representative, Christina Morianti, executed
the Sales Contract and indicated that the quantity note needed clarification. (ECF
No. 16-11 at Pg ID 130-33.) NFG alleges that Andalucia never provided
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clarification for the intended meaning of “quantity can be +/- 10%,” and, therefore,
the parties never reached a meeting of the minds. (ECF No. 1 at Pg ID 3.)
However, in a September 11, 2017 email, Andalucia responded to NFG’s concern
and expressed that the language was standard in all contracts and not a concern for
NFG. (ECF No. 19-5.) In the same email thread, Ms. Morianti responded, “okay.”
(Id.) After the email exchange, between September 11, 2017 and September 18,
2017, Ms. Morianti emailed Andalucia to check on the status of the previous
orders. (ECF No. 16-6 at Pg ID 298.)
On September 19, 2017, TDOC canceled its contract with NFG. (ECF No. 1
at Pg ID 4.) NFG immediately notified Andalucia, and on September 29, 2017,
NFG informed Andalucia that it was canceling the August 31 and September 13
Purchase Orders. (Id.) NFG based its cancellation on the Terms and Conditions of
Purchase referenced in the purchase orders. (Id.; ECF No. 19-3 at Pg ID 281.)
From there, the parties began settlement negotiations for the peanut butter
Andalucia produced prior to the cancellation. (ECF No. 16-4.)
On October 6, 2017, NFG sent Andalucia a repudiation letter, indicating
there was never an agreement to purchase peanut butter between the parties
because Andalucia never signed the agreement. (ECF No. 16-7.) On October 20,
2017, Andalucia sent NFG a demand letter, stating that the repudiation letter
constituted grounds for insecurity under the Texas Business and Commerce Code.
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(ECF No. 16-8.) The demand letter also requested adequate assurance of
performance under the Sales Contract by October 27, 2017. (Id.) On October 30,
2017, NFG responded to Andalucia’s demand letter and reemphasized there was
no agreement between the parties, as well as informed Andalucia that it was
prepared to defend its position in the Eastern District of Michigan, pursuant to the
Terms and Conditions of Purchase. (ECF No. 16-18 at Pg ID 182-84.) From
November 1, 2017 through November 10, 2017, the parties continued to discuss
settlement. (ECF Nos. 16-15 at Pg ID 153-54; ECF No. 16-17 at Pg ID 180.)
NFG contends that despite there being no agreement between the parties,
Andalucia claims that NFG is liable under the Sales Contract. As such, on
November 13, 2017, NFG initiated this declaratory judgment action against
Andalucia in this district. (ECF No. 1.) Thereafter, on November 20, 2017,
Andalucia initiated its own lawsuit in the District Court of Harris County, Texas.
(ECF No. 16-3.) Andalucia’s four-count complaint was for (1) suit on account
under T.R.C.P. 185, (2) statutory repudiation of contract, (3) common law breach
of contract, and (4) promissory estoppel. (Id.) The allegations arise out of the
same transaction that is before this Court. On December 27, 2017, NFG removed
the Texas state case to the Southern District of Texas, based on diversity
jurisdiction. (Great Host Int’l Inc., d/b/a Andalucia Nuts v. National Food Group,
Inc., No. 18-cv-11163, ECF No. 1 at Pg ID 1-5.) In the Texas case, NFG filed a
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motion to dismiss, or to transfer venue to the Eastern District of Michigan on
January 2, 2018. (ECF No. 16-19.) NFG also sought transfer and dismissal based
on the first-to-file rule. (Id.) On April 11, 2018, the Southern District of Texas
granted NFG’s motion and, on April 12, 2018, transferred the case to this court.
(Great Host Int’l Inc., d/b/a Andalucia Nuts v. National Food Group, Inc., No. 18cv-11163, ECF Nos. 1 & 2.) However, the Texas court reserved the issue of
proper venue for this Court, stating, “[w]hether the circumstances alleged by
[Andalucia] should prevent consolidation or merit a return to this Court are proper
matters for the Michigan court to decide.” (Great Host Int’l Inc., d/b/a Andalucia
Nuts v. National Food Group, Inc., No. 18-cv-11163, ECF No. 2 at Pg ID 52.)
Based on the forum selection clause in the credit application, on March 22,
2018, Andalucia filed the instant motion to dismiss or transfer the case. (ECF No.
16.) NFG filed its response on April 9, 2018, and Andalucia filed a reply on April
17, 2018. (ECF Nos. 19 & 20.) NFG takes the position that venue is proper
pursuant to the Terms and Conditions of Purchase in the purchase orders.
II.

Applicable Law & Analysis
Andalucia advances four arguments as to why this case should be dismissed

or transferred to the Southern District of Texas. First, Andalucia contends that this
Court should decline jurisdiction pursuant to the Declaratory Judgment Act, 28
U.S.C. § 2201, because NFG filed this action in bad faith and in anticipation of
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Andalucia, the proper plaintiff, filing its own lawsuit in Texas. Second, Andalucia
seeks transfer based on the credit application’s forum selection clause.
Alternatively, Andalucia requests transfer pursuant to § 1404(a). Finally,
Andalucia requests that the Court disregard the first-to-file rule because of NFG’s
bad faith, anticipatory filing.
Contrarily, NFG contends that the Court should apply the forum selection
clause in the Terms and Conditions of Purchase because Andalucia consented to
this venue and waived any defense of forum inconvenience. Additionally, NFG
advocates for the application of the first-to-file rule because its lawsuit was not a
bad faith, anticipatory filing as the Eastern District of Michigan is the proper venue
according to the Terms and Conditions of Purchase.
A. Declaratory Judgment Act, 28 U.S.C. § 2201
Under the Declaratory Judgment Act, a federal court can “declare the rights
and other legal relations of any interested party seeking such declaration, whether
or not further relief is or could be sought.” 28 U.S.C. § 2201(a). The exercise of
jurisdiction under the Federal Declaratory Judgment Act is not mandatory. See
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 419, 494 (1942); Travelers Indem. Co.
v. Bowling Green Prof. Assoc., PLC, 495 F.3d 266, 271 (6th Cir. 2007) (finding
that the district court abused its discretion in exercising jurisdiction over

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declaratory judgment action). Several considerations are relevant to a district
court’s decision to adjudicate a declaratory judgment action:
(1) whether the declaratory action would settle the
controversy;
(2) whether the declaratory action would serve a useful
purpose in clarifying the legal relations in issue;
(3) whether the declaratory remedy is being used merely
for the purpose of “procedural fencing” or “to provide an
arena for a race for res judicata;”
(4) whether the use of a declaratory action would
increase friction between our federal and state courts and
improperly encroach on state jurisdiction; and
(5) whether there is an alternative remedy which is better
or more effective.
Bowling Green Prof’l Assocs., 495 F.3d at 271 (quoting Grand Trunk W. R.R. Co.
v. Consol. Rail Co., 746 F.2d 323, 326 (6th Cir. 1984)).
The first and second factors are “closely related” and are often considered
together. Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 557 (6th Cir. 2008).
Andalucia argues that this action would not settle the controversy because it has
extra-contractual claims against NFG for promissory estoppel, and a judgment in
favor of NFG would not resolve its claims. Further, Andalucia contends that this
litigation would not serve a useful purpose in clarifying the legal relations because
NFG is not under the threat of any future harm, including any future litigation or
damages. (ECF No. 16-1 at Pg ID 68.) Andalucia directs the Court to AmSouth
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Bank v. Dale, 386 F.3d 763 (6th Cir. 2004), which distinguishes the types of cases
where exercising jurisdiction for declaratory actions is appropriate: “situations
where some uncertainty beyond the possibility of litigation exists (i.e., trademark
infringement) and those where the injury is already complete.” Id. at 787.
In AmSouth, receivers were seeking to recover money Martin Frankel
embezzled from insurance companies, using AmSouth bank accounts. AmSouth
filed a declaratory judgment action in federal court. The receivers, then, in turn,
filed a state court action. The Sixth Circuit stated that “[t]he ‘useful purpose’
served by the declaratory judgment action is the clarification of legal duties for the
future, rather than the past harm a coercive tort action is aimed at redressing.” Id.
at 786. The Sixth Circuit noted that the receivers’ claim fell in the second category
of cases because the banks did not allege any present or continual wrongdoing that
would require immediate clarification of the parties’ legal relations. Id. at 789.
Specifically, the Court held that “[t]he historical incidents giving rise to liability
are finished,” and there was a pending coercive action capable of resolving the
dispute. Id. As such, Andalucia takes the position that NFG is not seeking
protection from a continuing violation or on-going wrongdoing that requires
immediate clarification.
NFG, however, contends that this declaratory action can settle this
controversy because Andalucia’s claims arise out the same transaction or
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occurrence; therefore, making Andalucia’s claims compulsory counterclaims. See
Fed. R. Civ. P. 13(a) (“A pleading must state as a counterclaim any claim that—at
the time of its service—the pleader has against an opposing party if the claim:
arises out of the transaction or occurrence that is the subject matter of the opposing
party’s claim. . . .”). NFG simply states that a declaratory judgment action serves a
useful purpose in clarifying whether a contract exists and relies on Innovation
Ventures, LLC v. CB Distributions, 652 F. Supp. 2d 841, 844 (E.D. Mich. 2009).
The Court agrees that it can settle the controversy because Andalucia’s
claims would be compulsory. Additionally, the second action Andalucia
references has since been transferred and is currently before this Court, Great Host
Int’l Inc., d/b/a Andalucia Nuts v. National Food Group, Inc., 18-cv-11163, and
could be consolidated into one action. As to clarifying the legal relations, NFG has
not shown that it faces a threat of future harm or damages that require immediate
clarification. NFG relies on Innovation Ventures for the proposition that a
declaratory judgment action serves a useful purpose in clarifying whether a
contract exists. However, the court recognized in that case that it was clarifying
the legal relations for the “future.” See Innovation Ventures, 652 F. Supp. 2d at
844. The Court is unaware of any future harm or damages NFG faces pertaining to
this litigation. Additionally, the Court finds it troublesome that NFG would file
this declaratory judgment action rather than waiting for Andalucia to file its own
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suit, especially given there was no indication that there was any significant delay in
Andalucia filing its own lawsuit. Although the first factor weighs in favor of
retaining jurisdiction, the second factor favors dismissal.
As to the third factor, Andalucia asserts that NFG has used this action for
procedural fencing. According to Andalucia, NFG was aware Andalucia intended
to file suit in Texas, and on November 10, 2017, NFG agreed to continue
settlement negotiations before litigation. (ECF No. 16-1 at Pg ID 71.) Further,
Andalucia contends that NFG misled it into believing they were negotiating a
settlement in good faith. Andalucia contends that NFG stated that it was “going”
to file in Michigan but, instead, already had filed the lawsuit.
However, NFG believes this matter is properly before this Court pursuant to
the Terms and Conditions of Purchase. NFG contends it did not mislead
Andalucia to gain an advantage on the venue. In fact, in a letter dated October 30,
2017, NFG informed Andalucia that if a lawsuit was filed, it would be filed in the
Eastern District of Michigan. (ECF No. 19 at Pg ID 257; ECF No. 19-9 at Pg ID
321.) Despite Andalucia’s protestations, the record does not support that NFG
engaged in bad faith settlement negotiations. However, there does appear to be
some procedural fencing. The Court finds the timing of NFG’s lawsuit
concerning. A significant amount of time had not elapsed since Andalucia

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contacted NFG regarding the alleged breach and potential resolution of the dispute
to warrant NFG’s lawsuit. This factor weighs in favor of dismissal.
The fourth and fifth factors are moot. Andalucia contends that its coercive
Texas action weighs heavily in the dismissal of this action because it is a more
effective alternate remedy. However, the state matter was removed to the Texas
federal court and has since been transferred to this Court. Although the Texas
action has been transferred to this Court, the only basis for transfer was because of
the first-to-file rule, which the Southern District of Texas reserved for this Court.
These factors are neutral.
Although the Court is well-positioned to resolve the parties’ dispute,
including Andalucia’s compulsory counterclaims, finding evidence of procedural
fencing and that this action will not clarify any future legal relations between the
parties, the Court will not exercise its discretion and retain jurisdiction pursuant to
§ 2201. See AmSouth Bank, 386 F.3d at 787 (Declaratory actions are appropriate
in “situations where some uncertainty beyond the possibility of litigation exists.”)
Therefore, this case is dismissed.
However, the Court’s analysis will not end here because the Southern
District of Texas did not resolve the first-to-file issue, and the Texas case has now
been transferred to this Court based on the first-to-file rule. Although dismissal of

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this action will render the first-to-file rule moot, nonetheless, the Court will
address it.
B. First-to-File Rule
Andalucia contends that this Court should abandon the first-to-file rule
because NFG filed this action in bad faith and in anticipation of Andalucia filing
its own clam. The first-to-file rule manages overlapping litigation and provides
that when the same parties file suits concerning the same issues in different district
courts, the court with the first action should proceed to judgment. See Baatz v.
Columbia Gas Transmission, LLC, 814 F.3d 785, 789 (6th Cir. 2016). The rule
encourages “comity among federal courts” and minimizes piecemeal litigation and
conflicting results. Id.
The Sixth Circuit has instructed courts to look at the chronology of events,
the similarity of the parties, and the similarity of the issues at stake when applying
the first-to-file rule. Id. Next, the court must consider any equitable
considerations such as “inequitable conduct, bad faith, anticipatory suits, [or]
forum shopping.” Id. The three elements are met. NFG filed its complaint on
November 13, 2017, and Andalucia filed its complaint on November 20, 2017.
The parties and the issues are identical.
Next, considering the equitable considerations, this is a classic case of an
anticipatory lawsuit. See id at 792 (“[A classic suit is] where one party has filed an
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anticipatory suit (usually a declaratory judgment action) in a preferred forum.”).
For the reasons stated in Section A, there was no reason for NFG to file this
declaratory judgment action other than to get its preferred forum and in
anticipation of Andalucia’s lawsuit. Although NFG contends venue is proper
pursuant to the Terms and Conditions of Purchase, its position on proper venue
does not warrant the filing of this action. The most appropriate course of action for
NFG would have been to file a motion to transfer, as it did. However, NFG had an
advantage because it had already filed this lawsuit. Therefore, the Southern
District of Texas transferred this action to this Court, in light of this action being
filed first. NFG’s actions prevented Andalucia from having its choice of forum1.
Accordingly, because NFG filed an anticipatory action, the Court finds that the
first-to-file rule is inapplicable. For the reasons stated in Section A, Andalucia’s
motion is granted, and this case is closed and dismissed.
III.

Conclusion
Accordingly,
IT IS ORDERED that Defendant’s Motion to Dismiss, Transfer, or Stay

(ECF No. 16) is GRANTED.

1

The Court is aware of the parties’ dispute relating to the forum selection clauses.
15

IT IS FURTHER ORDERED that this case is CLOSED and
DISMISSED.
IT IS SO ORDERED.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: July 16, 2018
I hereby certify that a copy of the foregoing document was mailed to counsel of
record and/or pro se parties on this date, July 16, 2018, by electronic and/or U.S.
First Class mail.
s/ R. Loury
Case Manager

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