Starbucks Corporation v. Wellshire Farms, Inc. et al
Filing
259
OPINION. Signed by Judge Noel L. Hillman on 3/4/2016. (TH, )
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
STARBUCKS CORPORATION,
Civil No. 14-0041 (NLH/AMD)
Plaintiff,
OPINION
v.
WELLSHIRE FARMS, INC., and
HAHN BROTHERS, INC.,
Defendants.
WELLSHIRE FARMS, INC. and
HAHN BROTHERS, INC.,
Third-Party Plaintiffs,
v.
SK FOOD GROUP, INC.,
Third-Party Defendant.
APPEARANCES:
JUDITH BOND JENNISON
JAMES F. WILLIAMS (pro hac vice)
J. CAMILLE FISHER (pro hac vice)
PERKINS COIE LLP
1201 THIRD AVENUE
SUITE 4900
SEATTLE, WA 98101
On behalf of Starbucks Corporation
CATHERINE JEAN BICK
JAMES MURDOCK ANDREWS
MATTHEW N. FIOROVANTI
GIORDANO HALLERAN & CIESLA, P.C.
125 HALF MILE ROAD
SUITE 300
RED BANK, NJ 07701
On behalf of Wellshire Farms, Inc.
MARGARET F. CATALANO
TIMOTHY BOYD PARLIN
CAROLL, MCNULTY & KULL, LLC
120 MOUNTAIN VIEW BOULEVARD
PO BOX 650
BASKING RIDGE, NJ 07920
HEATHER R. BEYGO (pro hac vice)
MARY MALLOY DIMAIO (pro hac vice)
CROSSWHITE, LIMBRICK & SINCLAIR, LLP
25 HOOKS LANE, SUITE 310
BALTIMORE, MD 21208
On behalf of Hahn Brothers, Inc.
GEORGE R. HIRSCH
VALERIE A. HAMILTON
SILLS CUMMIS & GROSS, P.C.
ONE RIVERFRONT PLAZA
NEWARK, NJ 07102
ROBERT J. CURRAN (pro hac vice)
JAMES M. SHAKER (pro hac vice)
TERUYUKI S. OLSEN (pro hac vice)
RYAN, SWANSON & CLEVELAND, PLLC
1201 THIRD AVENUE, SUITE 3400
SEATTLE, WA 98101-3034
On behalf of SK Food Group, Inc.
HILLMAN, District Judge
This case concerns the quality of ham in sandwiches sold at
plaintiff Starbucks Corporation (“Starbucks”) locations
throughout the United States and Canada. 1
Presently before the
Court is the motion of third-party defendant SK Food Group, Inc.
(“SK Food”) to dismiss the claims against it asserted by
1
This Court has jurisdiction over this matter pursuant to
28 U.S.C. § 1332 because there is complete diversity of
citizenship between the parties and the amount in controversy
exceeds $75,000.
2
defendants/third-party plaintiffs Wellshire Farms, Inc.
(“Wellshire”) and Hahn Brothers, Inc. (“Hahn”). 2
For the reasons
expressed below, SK Food’s motion to dismiss will be denied.
BACKGROUND
According to Starbucks’ complaint, in 2007 Starbucks
entered into a contract with SK Food, in which SK Food agreed to
2
SK Food had previously moved to dismiss the third-party
complaint of Wellshire, but the Court denied that motion without
prejudice because both the settlement agreement, the parties’
briefs, and Wellshire’s complaint were all filed under seal or
filed with significant redactions. The Court directed that the
parties were “encouraged to propose a less restrictive
alternative to the current redactions that would allow the Court
to balance the parties’ desire for confidentiality of their
private agreement with the right of the public to access
judicial proceedings and records.” (Docket No. 154 at 8.)
Since that time, the third-party complaints have been filed
unredacted. (Docket Nos. 171, 172.) In conjunction with its
motion to dismiss, SK Food has moved to unseal all documents
that have been sealed by Wellshire and Hahn. (Docket No. 204.)
Wellshire argues that only the portions of the parties’
settlement that require review by the Court in assessing SK
Food’s motion should be unsealed. Hahn argues that no documents
should be unsealed, and to the extent that the Court needs to
consider the sealed documents, the Court should review the
documents in camera. The Court agrees with Wellshire that the
publicly filed third-party complaints and the Court’s reference
to confidential items only to the extent necessary to resolve
pending motions provides the balance that the Court ordered in
the prior Opinion. (Docket No. 154 at 8. “The parties are
encouraged to propose a less restrictive alternative to the
current redactions that would allow the Court to balance the
parties’ desire for confidentiality of their private agreement
with the right of the public to access judicial proceedings and
records.”) Accordingly, SK Food’s motion to unseal will granted
in part and denied in part, with the specific contents to be
unsealed decided as the Court reviews the issues that implicate
those sealed documents.
3
assemble, package, and deliver warm breakfast ham sandwiches to
Starbucks locations in the western United States and Canada.
In
2008, Starbucks hired SK Food and other sandwich assembly
companies to use Wellshire ham in making warm and cold ham
sandwiches for distribution to Starbucks stores throughout the
United States and Canada.
In September 2010, Starbucks started to receive customer
complaints about the ham in Starbucks sandwiches.
Customers
complained that the ham was discolored, had an unusual taste,
and appeared spoiled.
Starbucks informed Wellshire of the
complaints, and in October 2010, Starbucks issued “Stop Sell and
Discard” notices for the warm breakfast sandwiches.
Starbucks
also investigated, discovered quality issues with the ham being
provided by Wellshire, and issued a “Corrective Action Plan” to
SK Food.
Soon thereafter, Starbucks learned for the first time
that Hahn, and not Wellshire, was actually producing the ham.
Starbucks claims that Wellshire had entered into an agreement
with Hahn to satisfy its obligation to provide Black Forest ham
for Starbucks sandwiches.
After tests revealed bacteria in the ham sandwiches, on
December 23, 2010 Starbucks ordered all sandwich assemblers to
stop making sandwiches using Wellshire ham. 3
3
Starbucks entered
As discussed more below, Starbucks’ amended complaint refers to
Wellshire and Hahn’s conduct as it relates to “Ham Sandwiches,”
4
into a settlement agreement with four of the ham sandwich
assemblers – but not SK Food - to compensate them for their
losses.
In return, the ham sandwich assemblers assigned their
rights to Starbucks to bring claims against Wellshire and Hahn
for their losses.
In 2011, Wellshire filed suit in the District of New Jersey
against SK Food and Hahn regarding the Starbucks ham sandwich
issues.
See Civil Action No. 11-1859 (JEI/KMW).
Wellshire
claimed that it contracted with Hahn to produce the ham that was
provided to three sandwich assembly companies, including SK
Food, which prepared the warm breakfast ham sandwiches.
Wellshire claimed that SK Food’s assembly process, where SK Food
would slice the ham, store it, and then assemble it with eggs,
cheese and rolls it supplied, caused the sandwiches to be
contaminated with listeria monocytongenes, rather than from the
ham itself.
SK Food denied Wellshire’s claims, and filed a
counterclaim against Wellshire and a third party complaint
which term Starbucks defines as “both the warm breakfast ham
sandwiches and the chilled lunch ham sandwiches.” (Amend.
Compl. ¶ 12.) Starbucks’ allegations in the complaint thereafter
refer to Wellshire and Hahn’s alleged liability for the
collective ham sandwiches. The parties’ briefing shows that
Wellshire, Hahn and SK Food’s involvement with the ham sandwich
problems depends on what type of sandwich was assembled and what
type of ham was used in that particular sandwich. Relatedly,
Starbucks has not asserted any claims against SK Food in this
case, but the briefing suggests that they have resolved the
claims between them.
5
against Hahn.
The parties settled the case in September 2012
pursuant to a confidential settlement agreement.
In this case, Starbucks has asserted claims against
Wellshire for breach of the implied warranty of merchantability
and breach of the implied warranty of fitness for particular
purpose, negligent misrepresentation, and unfair and deceptive
trade practices.
Starbucks has also asserted claims against
both Wellshire and Hahn for breach of the ham sandwich assembler
agreements and Starbucks’ third-party beneficiary rights, as
well as a claim for negligence.
Wellshire and Hahn have filed
third-party complaints against SK Food that both assert two
counts.
The first count is for defense and indemnification,
claiming that the settlement of the 2011 case contained an
indemnification provision in which SK Food agreed to assume all
liability for claims asserted against Wellshire and Hahn by
Starbucks resulting from the ham sold to SK Food by Wellshire
and Hahn. 4
The second count is a claim for SK Food’s breach of
the duty of good faith and fair dealing it owed to Wellshire and
Hahn.
SK Food has moved to dismiss the third-party complaints,
arguing that the indemnification provision is not triggered by
4
This count had been redacted from Wellshire’s and Hahn’s thirdparty complaints. Their complaints are now filed in unredacted
form. (Docket Nos. 171, 172.)
6
Starbucks’ suit against Wellshire and Hahn.
SK Food argues that
the indemnification provision only requires SK Food to indemnify
Wellshire and Hahn for SK Food’s own conduct, and it does not
require SK Food to indemnify Wellshire and Hahn for Wellshire’s
or Hahn’s conduct.
SK Food argues that because Starbucks’
claims against Wellshire and Hahn relate only to their own
independent acts, the indemnification provision is inapplicable.
In contrast, Wellshire and Hahn argue that the plain language of
the indemnification provision is broad and all-encompassing and
cannot be read as narrowly as SK Food maintains.
Moreover,
Wellshire and Hahn argue that Starbucks’ complaint asserts
claims against them that implicate SK Food’s conduct, as well as
SK Food’s obligation to indemnify them.
The law respecting contractual indemnification for an
indemnitee’s own negligence is governed by the principles set
forth in Azurak v. Corporate Prop. Investors, 814 A.2d 600 (N.J.
2003) and Mantilla v. NC Mall Assocs., 770 A.2d 1144 (N.J.
2001), reaffirming certain principles earlier set forth in Ramos
v. Browning Ferris Indus. of S. Jersey, Inc., 510 A.2d 1152
(N.J. 1986).
Englert v. The Home Depot, 911 A.2d 72, 77 (N.J.
Super. Ct. App. Div. 2006).
In Ramos, the Court stated:
Indemnity contracts are interpreted in accordance with the
rules governing the construction of contracts generally.
When the meaning of the clause is ambiguous, however, the
clause should be strictly construed against the indemnitee.
Thus, a contract will not be construed to indemnify the
7
indemnitee against losses resulting from its own negligence
unless such an intention is expressed in unequivocal terms.
Englert, 911 A.2d at 77 (quoting Ramos, 510 A.2d 1152 at 1159
(internal citations omitted).
SK Food argues that the indemnification provision in the
settlement agreement only indemnifies Wellshire and Hahn for SK
Food’s conduct as it relates to warm breakfast sandwiches, and
not for Wellshire’s and Hahn’s conduct, because the
indemnification provision does not state in “unequivocal terms”
that it would indemnify Wellshire and Hahn for their conduct in
any regard, but especially for conduct not related to warm
breakfast sandwiches.
Wellshire views the indemnification
provision to require SK Food to indemnify Wellshire if it is
found vicariously liable to Starbucks, but not if Wellshire is
found to be directly liable to Starbucks.
Hahn views the
indemnification provision to require SK Food to indemnify Hahn
for any of its vicarious or direct liability to Starbucks.
In order to determine whether the indemnification provision
bars Wellshire’s and Hahn’s third-party complaints at this
motion to dismiss stage, the Court is limited to considering the
text of the indemnification provision, 5 Wellshire’s and Hahn’s
5
The indemnification provision provides,
SK agrees and covenants to defend, indemnify
and hold harmless Wellshire and Hahn against
all loss, including attorney’s fees, arising
8
third-party complaints, and Starbucks’ amended complaint.
The
Court cannot ignore, however, representations made in the
parties’ briefs which caution against a myopic consideration of
SK Food’s motion.
First, Wellshire argues that SK Food is responsible for the
presence of listeria in the sandwiches it assembled due to SK
Food’s mishandling of the ingredients, including the ham.
Wellshire argues that this is evidenced by the fact that no
other sandwich assemblers’ sandwiches contained the so-called
“tainted” ham, and Wellshire, through Hahn, distributed the same
ham to all the assemblers. 6
Wellshire suggests in its brief that
Starbucks and SK Food have colluded in some way to place the
blame on Wellshire and Hahn for Starbucks’ losses over the
directly or indirectly from any and every
claim or demand of any kind and character,
including claims for contribution and
indemnification, that may be asserted by
Starbucks claiming that the Ham sold to SK,
and the Sandwiches thereafter purchased by
Starbucks, was off-color, off-taste or
contaminated with listeria monocytogenes. In
the event that any claims are asserted by
Starbucks as an assignee of Giorgio’s or which
arise out of ham sold to Giorgio’s, SK’s
obligations to defend, indemnify and hold
harmless set forth in this paragraph shall not apply.
6
The parties agree that two different types of ham were
manufactured for the breakfast sandwiches and the lunch sandwiches.
Hahn only produced ham for the breakfast sandwiches. Wellshire
obtained the ham for the lunch sandwiches from another meat
processor.
9
cancelled ham sandwich program, which is demonstrated by
Starbucks’ intentional decision not to file suit against SK Food
for its conduct, and Starbucks’ settlement with sandwich
assemblers whose sandwiches never had any problems.
Second, and in complete contrast to Wellshire’s position,
SK Food argues that Starbucks’ claims against Wellshire and Hahn
arise out of sandwiches that SK Food did not assemble. 7
SK Food
therefore argues that the indemnification provision cannot be
triggered under its interpretation because it cannot indemnify
Wellshire and Hahn for claims related to ham sandwiches that it
took no part in assembling.
The parties have asked the Court to interpret the scope of
an indemnification provision in the context of a motion to
dismiss third-party complaints, but they have buttressed their
arguments for and against dismissal with purported facts which,
if considered, could alter the Court’s analysis and potentially
change the result.
This is particularly illustrated by
Starbucks’ allegations in its complaint that refer collectively
to the “ham sandwiches” and the “defendants’” culpability, when
it is apparent that the specific type of sandwich, sandwich
7
Hahn apparently agrees with SK Food’s position that it did not
assemble the sandwiches that are the basis for Starbucks’ claims
against Wellshire and Hahn, but Hahn nonetheless argues that SK
Food agreed to indemnify Hahn for Hahn’s conduct related to the
ham sandwich contamination.
10
assembler, and ham producer is relevant to the interpretation
and application of the indemnification provision.
Without
considering what the facts show, and instead relying solely upon
the pleadings, if the Court were to view the indemnification
provision broadly, SK Food could be held liable for Wellshire’s
and Hahn’s conduct related to ham sandwiches that SK Food did
not assemble.
Or, SK Food could be allowed to improperly escape
any liability for its own conduct, if the indemnification
provision is read narrowly.
Related to the problems of assessing the scope of the
indemnification provision in the context of a motion to dismiss
is that the Court’s decision could result in an impermissible
advisory opinion.
Even though Wellshire contends that the Court
will be required to interpret the indemnification provision
whether or not Starbucks prevails on its claims, 8 it is not
certain at this point that the indemnification provision
ultimately will be dispositive of the parties’ obligations to
8
Wellshire contends that if Starbucks is unsuccessful in its
claims against it, Wellshire will nonetheless seek to recover
the significant amount of attorneys’ fees and expenses incurred
in successfully defending against Starbucks’ claim from SK Food
based on the indemnification provision. If Starbucks obtains a
judgment against Wellshire, Wellshire will seek to recover the
amount of such judgment as well as its fees. The Court agrees
with Wellshire that duplicitous litigation would be required
should the third-party complaints be dismissed now. The afterthe-fact approach, as discussed herein, balances all the
competing interests.
11
one another.
See, e.g., Badia v. Homedelivery Link, Inc., No.
2:12-CV-06920 WJM, 2014 WL 3619796, at *3 (D.N.J. July 22, 2014)
(reserving decision on the interpretation of an indemnification
provision so that it would not become an advisory opinion);
Fujarski v. L.F. Driscoll Co., 2011 WL 1983353, at *2 (D.N.J.
May 19, 2011) (same).
In this situation, the “after-the-fact” approach
articulated by the New Jersey courts, and cited by all parties
in their briefs, makes sense.
That approach was devised in the
context of determining whether an indemnitee could recover
counsel fees “so long as the indemnitee is free from active
wrongdoing regarding the injury to the plaintiff and has
tendered the defense to the indemnitor at the start of the
litigation.”
Cent. Motor Parts Corp. v. E.I. duPont deNemours &
Co., 596 A.2d 759, 762 (N.J. Super. Ct. App. Div. 1991)
(citations omitted).
“Allegations in the pleadings may be a
starting point to determine whether counsel fees and costs are
recoverable by [an indemnitee], but the actual facts developed
during trial should control.”
Id. (citations omitted).
It is
only after the indemnitee has defended against alleged charges
of its independent fault, that it can be determined what costs
the indemnitor is liable for.
Id. (citations omitted).
The
same approach makes sense in this case.
At a minimum, upon review of Starbucks’ complaint, the
12
third-party complaints, and the indemnification provision, the
Court finds that Wellshire’s and Hahn’s third-party complaints
regarding their demand for indemnification from SK Food meet the
Federal Civil Procedure Rule 8 and Twombly/Iqbal pleading
standards for asserting claims against SK Food.
See Phillips v.
Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating
that the “Supreme Court's Twombly formulation of the pleading
standard can be summed up thus: ‘stating . . . a claim requires
a complaint with enough factual matter (taken as true) to
suggest’ the required element.
This ‘does not impose a
probability requirement at the pleading stage,’ but instead
‘simply calls for enough facts to raise a reasonable expectation
that discovery will reveal evidence of’ the necessary element”). 9
Accordingly, the third-party complaints will not be dismissed.
CONCLUSION
Judge Learned Hand observed in Cabell v. Markham, 148 F.2d
737, 739 (2d Cir.), aff'd, 326 U.S. 404 (1945), that “a mature
and developed jurisprudence” does not “make a fortress out of
the dictionary” in engaging in the interpretation of written
9
SK Food argues that Wellshire’s and Hahn’s claims that SK Food
breached the covenant of good faith and fair dealing based on SK
Food’s alleged breach of the confidentiality provision in their
settlement agreement must be arbitrated pursuant to the
settlement agreement with SK Food. Wellshire and Hahn shall be
directed to show cause as to whether they have asserted such a
claim, and if so, whether it must be arbitrated under the
settlement agreement.
13
documents.
“In the final analysis, a court must look for the
parties’ true intent . . . .”
Sayles v. G & G Hotels, Inc., 57
A.3d 1129, 1134-35 (N.J. Super. Ct. App. Div. 2013) (adding that
“our jurisprudence [also] does not make a fortress out of The
Elements of Style”).
At this stage of the case, the Court
cannot determine the parties’ true intent with regard to the
indemnification provision.
The third-party complaints may
proceed through discovery so that the parties may demonstrate
their intent with evidence that may be properly considered by
the Court.
An appropriate Order consistent with this Opinion will be
entered.
Date:
March 4, 2016
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
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