Navitas LLC v. Health Matters America, Inc. et al
Filing
93
REPORT AND RECOMMENDATIONS RE: 42 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Deft. Bio Essential's Cross-Claims filed by Advantage Health Matters, Inc., Health Matters America, Inc.; 49 MOTION to Dismiss the Thi rd-Party Complaint filed by Rowland Seeds Inc.; 56 MOTION to Dismiss Third-Party Complaint filed by Avafina Commodities Inc.; 64 MOTION to Dismiss filed by EVI Inc., EVI International Group; 68 First MOTION to Amend/Correct Notice of Cross Motion For Allowance of Time to Amend Pleading filed by Bio Essential Botanicals; and 71 MOTION to Amend/Correct 35 Third Party Complaint, filed by Advantage Health Matters, Inc., Health Matters America, Inc..Objections due per 28 U.S.C. § 636(b) and Fed. R. Civ. P. 72.Signed by Hon. Hugh B. Scott on 3/14/2018. (GAI)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
Navitas LLC,
Plaintiff,
Report and Recommendation
16-CV-699V
v.
Health Matters America, Inc. et al.,
Defendants.
I.
INTRODUCTION
In the late spring and summer of 2014, “[t]he FDA [Food and Drug Administration],
Canadian health officials, the CDC [Centers for Disease Control], and state and local officials
investigated an outbreak of Salmonella Newport, Salmonella Hartford and Salmonella Oranienburg
illnesses linked to products containing organic sprouted chia seed powder.” (Dkt. No. 50-4 at 2
(hereafter [50-4 at 2]).) The investigation led to product recalls by plaintiff Navitas LLC
(“Navitas”); Health Matters America, Inc. and Advantage Health Matters, Inc. (collectively,
“Health Matters”); and Bio Essential Botanicals (“Bio Essential”), among other companies.
Navitas subsequently sued Health Matters and Bio Essential, its chia seed suppliers, for breach of
contract and other theories of liability pertaining to the outbreak. Health Matters, in turn, filed a
third-party complaint to implead other companies that allegedly were part of the chia seed supply
chain that ended with Navitas: EVI Inc. and EVI International Group (collectively, “EVI”); Tradin
Organics USA LLC;1 Rowland Seeds Inc.; and Avafina Commodities Inc. The latter two third1
As of this writing, this defendant has not answered or otherwise appeared.
party defendants have since been stipulated out of the case. [82, 83.] Bio Essential filed crossclaims against Health Matters. There are many more details to the parties’ allegations, but this
summary is a good start.
This case now comes before the Court primarily on two dispositive motions. Health
Matters has filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure [42] to
dismiss most of Bio Essential’s cross-claims, for various reasons including failure to plead a
contractual relationship and failure to plead elements of a products liability claim. EVI has filed
its own motion to dismiss or to stay the case, based mostly on the abstention doctrine set forth in
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). Health Matters and
Bio Essential also have filed motions to amend as an alternative remedy should some or all of their
respective pleadings be dismissed. [68, 71.] Additionally, Rowland Seeds Inc. and Avafina
Commodities Inc. had filed their own motions to dismiss [49, 56] before they were stipulated out
of the case; those motions technically remain pending.
District Judge Lawrence J. Vilardo has referred this case to this Court under 28 U.S.C.
§ 636(b). [25.] The Court held oral argument on February 20, 2018. [92.] For the reasons below,
the Court respectfully recommends granting Health Matters’s motion to dismiss, but without
prejudice to amend; denying EVI’s motion to dismiss; granting Bio Essential’s motion to amend;
and denying the remaining motions as moot.
2
II.
BACKGROUND
A. Basic Facts Generally
This case concerns the fallout from contamination of chia seed products with salmonella
bacteria. For basic background purposes only, the Court takes judicial notice that one example of
a chia seed product is organic sprouted chia powder, a nutritional supplement made by sprouting
chia seeds and milling them to the consistency of flour. Navitas is a retail seller of chia seed
products. According to the complaint, around 2011 Navitas entered into agreements with Bio
Essential and Health Matters to obtain a supply of chia seed products that would be sold under the
Navitas brand name.
The first couple of years between the companies seem to have proceeded uneventfully, but
then the salmonella outbreak struck. The outbreak occurred in 2014 and affected at least 31
customers in the United States and Canada. Navitas has summarized the outbreak as follows:
On or about May 28, 2014, Plaintiff Navitas recalled certain products
containing chia seed that were supplied to it by Defendants because they were
contaminated with Salmonella. Specifically, Plaintiff recalled specific lots of
Navitas Naturals Organic Sprouted Chia Powder, Navitas Naturals Omega Blend
Sprouted Smoothie Mix, and Williams-Sonoma Omega 3 Smoothie Mixer, and
expanded that recall on June 6, 2014.
On or about May 28, 2014, the FDA, the CDC, and the California
Department of Public Health warned people not to eat products that contained
Organic Sprouted Chia Seed Powder subject to the voluntary recall by Navitas.
On or about June 4, 2014, Defendant Health Matters America conducted a
recall of chia seed products because they were contaminated with Salmonella,
recalling specific lots of Organic Traditions Sprouted Chia Seed Powder and
Sprouted Chia/Flax Seed Powder, and expanded that recall on June 26, 2014.
The Canadian Food Inspection Agency (CFIA) announced on or about,
May 30, 2014, that Defendant Advantage Health Matters was recalling products
containing sprouted chia seed powder marketed under the brands Organic
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Traditions and Back 2 the Garden. Subsequently, on June 3, 4, 6, 7, 11, 12, 13,
and 25, the CFIA announced an expansion of the recalls.
A trace back of the products reported by ill persons identified Defendant
Bio Essential Botanicals as a common supplier of organic sprouted chia powder
used in the affected products.
[1 at 3–4.]
B. This Litigation Begins
Navitas began this case by filing its complaint on August 29, 2016. The complaint
contains five claims and names Bio Essential and Health Matters as adverse parties. In the first
claim, Navitas accuses all defendants of breach of contract. “There is no federal tolerance for
Salmonella, a potentially deadly pathogen. Thus, the presence of Salmonella in the contracted for
chia seed products is a breach of the sales contract.” [1 at 4.] In the second claim, Navitas accuses
all defendants of a breach of the implied warranty of merchantability. “Because the subject chia
seed products introduced, supplied, sold and/or distributed by Defendants to Plaintiff Navitas []
were contaminated with Salmonella, the chia seed products were not reasonably fit for their
ordinary purposes.” [Id. at 5.] In the third claim, Navitas accuses all defendants of a breach of the
implied warranty of fitness for a particular purpose. “Plaintiff Navitas relied on each Defendant’s
skill and judgment in selecting or furnishing suitable chia seed products for the particular purpose
for which the products were to be used by Plaintiff Navitas, i.e., re-packaging and sale for human
consumption.” [Id. at 6.] In the fourth claim, Navitas accuses all defendants of a breach of the
implied warranty for the sale of food. “Defendants materially breached the implied warranty for
the sale of food by providing Plaintiff Navitas with chia seed products contaminated with
Salmonella, for which there are no federal tolerances, and thus, necessitating the recall of the
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subject chia seed products by Plaintiff Navitas.” [Id. at 7.] In the fifth claim, Navitas accuses all
defendants of negligence.
C. Third-Party Complaint and Cross-Claims
Within a few months, this case acquired another layer of pleadings that reflected the layers
of suppliers, processors, and retailers in the chia products market. On April 19, 2017, Health
Matters filed a third-party complaint under Rule 14,2 naming EVI Inc., EVI International Group,
Tradin Organics USA LLC, Rowland Seeds Inc., and Avafina Commodities Inc. as third-party
defendants. [35.] According to the third-party complaint, Health Matters “purchased raw chia
and flax seeds (the ‘Seeds’) from Third-Party Defendants EVI, Tradin, Rowland, and Avafina.” [35
at 3.] Health Matters then sent the Seeds to Bio Essential to be germinated and milled. Once it
received the milled seed products, Health Matters package the products under various labels and
sold or resold them to various wholesale and retail customers. [35 at 3–4.] When discussing the
salmonella outbreak and the resulting product recalls, Health Matters’s key contention is that
“[u]pon information and belief, the products recalled contained Seeds, or byproducts therefrom,
which came from the Third-Party Defendant Seed Vendors.” [35 at 5.]
The third-party complaint contains four claims. In the first claim, Health Matters accuses
all third-party defendants of a breach of the implied warranty of merchantability. According to
Health Matters, “Each of the Seed Vendors breached its implied warranty of merchantability
because the Seeds would not pass without objection in the trade under the contract description,
due to the Salmonella Contamination. Each of the Seed Vendors breached its implied warranty of
2
Health Matters properly obtained leave from the Court for a delayed filing, under Rule 14(a)(1). [34.]
5
merchantability because the Seeds were not of fair average quality within the description, due to
the Salmonella Contamination. Each of the Seed Vendors breached its implied warranty of
merchantability because the Seeds were not fit for the ordinary purposes for which they are used,
due to the Salmonella Contamination.” [35 at 6.] In the second claim, Health Matters accuses all
third-party defendants of breach of the implied warranty of fitness for a particular purpose. “Each
of the Seed Vendors breached the implied warranty of fitness for a particular purpose because the
Seeds were not fit for human consumption due to Salmonella Contamination.” [35 at 8.] In the
third claim, Health Matters accuses all third-party defendants of negligence. In the fourth claim,
Health Matters accuses all third-party defendants of strict products liability.
This case also includes cross-claims. On May 25, 2017, Bio Essential filed an answer to
Navitas’s complaint that included affirmative defenses along with 11 cross-claims against Health
Matters. The cross-claims cover contribution; indemnity; negligence; breach of oral contract;
breach of written contract; breach of warranty; product liability; strict products liability; negligence
and negligence per se; unfair trade practices; and fraud. [39 at 12–22.]
In the motions that are pending, the parties have made requests for a variety of dispositive
relief against each other’s claims or cross-claims. Rather than attempt to summarize them here, the
Court will address each request individually below.
III.
DISCUSSION
A. Motions to Dismiss Generally
Most of the relief sought in the pending motions would consist of dismissals under Rule
12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
6
accepted as true, to state a claim to relief that is plausible on its face. 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. The plausibility standard is not akin to a
probability requirement, but it asks for more than a sheer possibility that a defendant has acted
unlawfully. Where a complaint pleads facts that are merely consistent with a defendant’s liability,
it stops short of the line between possibility and plausibility of entitlement to relief.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citations omitted). Courts assess
Rule 12(b)(6) motions “accepting all factual allegations in the complaint as true, and drawing all
reasonable inferences in the plaintiff’s favor.” Peter F. Gaito Architecture, LLC v. Simone Dev. Corp.,
602 F.3d 57, 61 (2d Cir. 2010) (internal quotation marks and citation omitted). “On a motion to
dismiss, the court may consider any written instrument attached to the complaint as an exhibit or
any statements or documents incorporated in it by reference.” Yak v. Bank Brussels Lambert, 252
F.3d 127, 130 (2d Cir. 2001) (editorial and internal quotation marks and citation omitted).
“Simply stated, the question under Rule 12(b)(6) is whether the facts supporting the claims, if
established, create legally cognizable theories of recovery.” Cole-Hoover v. Shinseki, No. 10-CV-669,
2011 WL 1793256, at *3 (W.D.N.Y. May 9, 2011) (internal quotation marks and citation
omitted).
As a preliminary matter, the Court must decide whether to consider a number of
documents that have become part of the record but lie outside of the original and third-party
complaints. “Because a Rule 12(b)(6) motion challenges the complaint as presented by the
plaintiff, taking no account of its basis in evidence, a court adjudicating such a motion may review
7
only a narrow universe of materials. Generally, we do not look beyond facts stated on the face of
the complaint, documents appended to the complaint or incorporated in the complaint by
reference, and matters of which judicial notice may be taken.” Goel v. Bunge, Ltd., 820 F.3d 554,
559 (2d Cir. 2016) (internal quotation and editorial marks and citation omitted). “Where a
document is not incorporated by reference, the court may neverless consider it where the
complaint relies heavily upon its terms and effect, thereby rendering the document integral to the
complaint. However, even if a document is integral to the complaint, it must be clear on the
record that no dispute exists regarding the authenticity or accuracy of the document. It must also
be clear that there exist no material disputed issues of fact regarding the relevance of the
document.” DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (internal quotation
marks and citations omitted). “A document is integral to the complaint where the complaint relies
heavily upon its terms and effect. Merely mentioning a document in the complaint will not satisfy
this standard; indeed, even offering limited quotations from the document is not enough. In most
instances where this exception is recognized, the incorporated material is a contract or other legal
document containing obligations upon which the plaintiff’s complaint stands or falls, but which
for some reason—usually because the document, read in its entirety, would undermine the
legitimacy of the plaintiff’s claim—was not attached to the complaint.” Goel, 820 F.3d at 559
(internal quotation and editorial marks and citations omitted).
Applying this standard, the Court can consider a few of the documents in the record. The
record contains a copy of a complaint that Health Matters filed in the Ontario Superior Court of
Justice on May 24, 2016. [50-3.] No one has disputed the accuracy or authenticity of this
8
document. Any litigation that might be occurring in Canada is not referenced in either the
original or the third-party complaint but directly affects the Court’s subject-matter jurisdiction—
specifically, whether the Court should abstain from hearing this case. The Court has more to say
about the Canadian litigation below; for now, the Court acknowledges that it has considered the
copy of the Ontario complaint for the limited purpose of comparing allegations in that case to
allegations in this case. The record also contains copies of various press releases that provide some
details about the salmonella outbreak and the ensuing product recalls. [50-4 to 50-12.] The Court
has not relied on these press releases for any legal analysis, but since the parties have not disputed
any of the details in them, the Court has considered them briefly for background purposes only.
Finally, the record contains copies of what appear to be purchase orders between Health Matters
and Bio Essential. [70-1.] The parties do not dispute the authenticity or accuracy of these copies;
in fact, Health Matters believes [81 at 3] that the purchase orders support its arguments even
though Bio Essential submitted them. In the absence of any dispute about authenticity or
accuracy, the Court has considered the purchase orders as central to understanding various
arguments from the parties about the existence or absence of contractual obligations.
The Court has not considered any other documentary evidence in the record. For
example, Bio Essential included in its papers copies of what appear to be various email messages
along with photographs of product samples. [70-2 at 70-8.] At most, these documents are
evidence, and “[t]he court’s function on a Rule 12(b)(6) motion is not to weigh the evidence that
might be presented at a trial but merely to determine whether the complaint itself is legally
sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985) (citation omitted).
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B. Health Matters Motion (Dkt. No. 42)
Through its motion, Health Matters seeks dismissal of the fourth through eleventh crossclaims that Bio Essential has asserted against it.
i.
Fourth and Fifth Cross-Claims
Health Matters seeks dismissal of Bio Essential’s fourth and fifth cross-claims, for breach of
oral contract and breach of written contract, respectively. The fourth cross-claim reads in its
entirety as follows:
Defendant BEB [Bio Essential] and defendants, HMA and/or AHM
[Health Matters], had orally agreed to contract as follows, defendants, HMA and/or
AHM would deliver certain seeds it purchased from a farm or distributor to be toll
processed by BEB and then picked up by HMA, and/or AHM, or delivered directly
to their customers when completed.
That defendant BEB did toll process the seeds delivered by HMA and/or
AHM and otherwise fully performed in accordance with the oral contract and also
in full compliance with the Canadian Food Inspection Agency
guidelines/standards, and at the specific instance and request of defendants HMA
and/or AHM.
That prior to May 28, 2014 defendants, HMA and/or AHM, breached the
oral contract by delivering seeds of inferior quality, or which had been improperly
handled, stored or shipped or were otherwise contaminated by salmonella and
other contaminants and debris.
That due to HMA and/or AHM’s breach of the oral agreement, BEB had
to participate in a recall, on or about May 28, 2014 or June 4, 2014, of products
that it had toll processed, and as a result, defendant, BEB has sustained injuries
and damages in an amount to be determined at trial.
[39 at 13–14.] The fifth cross-claim reads in its entirety as follows:
Defendant BEB and defendants, HMA and/or AHM, through their course
of conduct, contracted in such a manner that HMA and/or AHM would issue
purchase orders for the delivery of chia seeds to be toll processed by BEB at agreed
upon rates.
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That for each purchase order received, from HMA and/or AHM, defendant
BEB would arrange for the toll processing of the chia seeds delivered and sourced
by HMA and/or AHM and would toll process the same for pickup by HMA,
and/or AHM, or delivered directly to their customers when completed.
That defendant BEB did timely toll process the chia seeds delivered by
HMA and/or AHM and otherwise fully performed in accordance with the oral
contract and also in full compliance with the Canadian Food Inspection Agency
guidelines/standards, and at the specific instance and request of defendants HMA
and/or AHM.
That defendants, HMA and/or AHM, breached the terms of the purchase
order by delivering chia seeds of inferior quality, or which had been improperly
handled, stored or shipped or were otherwise contaminated by salmonella and
other contaminants and debris.
That due to HMA and/or AHM’s breach of the purchase order, BEB had
to participate in a recall, on or about May 28, 2014 or June 4, 2014, of products
that it had toll processed, and as a result, defendant, BEB has sustained injuries
and damages in an amount to be determined at trial.
[39 at 14–15.]
According to Health Matters, Bio Essential has not pled the terms of any oral or written
contract that existed. With respect to any purported oral contract,
Here, BEB alleges that Health Matters “breached the oral contract by
delivering seeds of inferior quality, or which had been improperly handled, stored
or shipped or were otherwise contaminated by salmonella and other contaminants
and debris.” Cross-Claims ¶ 98. The only contract terms alleged are that “[Health
Matters] would deliver certain seeds it purchased from a farm or distributor to be
toll processed by BEB and then picked up by [Health Matters], or delivered directly
to their customers when completed. Cross-Claims ¶ 96. Nowhere does BEB allege
that seed quality, handling, storage, shipment, or absence of contaminants or debris
were terms set forth in the contract, much less what those terms called for.
[42-1 at 3–4.] Health Matters makes a similar argument against any allegations about a written
contract:
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BEB alleges that it contracted with Health Matters such that: (1) “[Health
Matters] would issue purchase orders for the delivery of chia seeds to be toll
processed by BEB at agreed upon rates;” (2) for each purchase order, BEB “would
arrange for the toll processing of the chia seeds delivered and sourced by [Health
Matters] and would toll process the same for pickup by [Health Matters], or
delivered directly to their customers when completed;” and that (3) [Health
Matters] “breached the terms of the purchase order by delivering chia seeds of
inferior quality, or which had been improperly handled, stored or shipped or were
otherwise contaminated by salmonella and other contaminants and debris.” CrossClaims ¶¶ 100–01, 103. BEB does not specify which precise terms of the purchase
orders were allegedly breached by Health Matters; thus BEB’s Fifth cross-claim fails
to assert facts sufficient to state a legally sufficient claim for recovery.
[42-1 at 4.] Bio Essential defends its pleading of a breach of oral contract as follows:
In paragraph 96 of the Answer (Doc # 39 at page 13) Bio Essential alleges it
and Health Matters contracted orally for Health Matters to deliver to Bio Essential
seeds to be toll processed and then returned to Health Matters or forwarded on to
Health Matters’ customers when completed. These are the primary terms of the
oral contract between the parties which was fluid, as the type of seeds, volume of
seeds and milling rates varied from order to order. For the Court’s edification, toll
processing seeds, includes the sprouting or germinating of seeds (whether grains,
nuts, or beans) and then kiln drying the seeds and finally, depending on the
specifications of the purchase order from Health Matters, either re-packing or
milling and re-packing to be picked up by Health Matters or in some cases shipped
direct to Health Matters’ customers like Plaintiff, Navitas, LLC. Much of the
process and specifics as to how long seeds are soaked, allowed to germinate, testing,
and dry time and temperature are all proprietary to Bio Essential’s processes and
the contract between the parties does not govern those specifics, only the input and
desired output are detailed in the contract. Bio Essential at times had to reject
seeds delivered by Health Matters because it was dirty, contaminated, or of a quality
such that it could not be germinated. Clearly the essential terms of the contract
were laid bare before the court in Bio Essential’s Answer. See Sirohi v. Trustees of
Columbia Univ., 1998 U.S. App. LEXIS 22519, 5 (2d Cir. 1998) (citing Chrysler
Capital Corp. v. Hilltop Egg Farms, 514 N.Y.S.2d 1002, 1003 (3d Dep’t 1987)
(complaint must, inter alia, set forth the terms of the agreement upon which
liability is predicated)). Paragraph 97 in the Answer (Doc # 39 at page 14) alleges
that Bio Essential performed in accordance with the oral contract. Paragraph 98 of
the Answer (Doc # 39 at page 14) alleges the breach of the contract by Health
Matters by, “delivering seeds of inferior quality, or which had been improperly
handled, stored or shipped or were otherwise contaminated by salmonella and
other contaminants and debris.” In particular, there is evidence that Health
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Matters had sent poor or low-quality seeds to Bio Essential for testing, which when
tested produced a very low yield of sprouted seeds. Of that seed lot most were
immature seeds which couldn’t be sprouted and therefore couldn’t be processed
and milled in accordance with the specifications that Health Matters had required
for that lot. Upon information and belief, poor-quality seeds were mixed in with
the better-quality seeds which may have resulted in the contamination or
alternatively, the contamination existed before toll processing and was carried
through toll processing as all the equipment utilized was routinely sanitized and
therefore would not have contributed to the contamination. The failure to provide
food grade quality seeds constituted a breach of the oral contract which lead to the
recalls of chia seeds and later flax seeds which were traced back to Health Matters
and ultimately to Bio Essential.
[69 at 3–4.] Bio Essential has a similar argument about how it pled the breach of a written
contract:
Moreover, there are purchase orders issued by Health Matters to Bio
Essential for the sale of the toll processed seeds, those purchase orders, copies of
which were annexed to the Affirmation of Gail Barker, constitute contracts
between the parties. As described above, “In a contract for a sale of goods, the
essential terms are quantity, price, and time and manner of delivery.” Dell’s
Maraschino Cherries Co v. Shoreline Fruit Growers Inc., 887 F. Supp. 2d 459, 471
(E.D,N.Y. 2012) (quoting DiMare Homestead, Inc. v. Alphas Co. of N.Y., Inc., 2012
U.S. Dist. LEXIS 48546 at *67–68 (S.D.N.Y. 2012) (citation and internal quotation
marks omitted)). As a result, there clearly were contracts between the parties and as
alleged in the Fourth and Fifth Cross-Claims, those contracts were breached by
Health Matters when they failed to provide seeds of sufficient quality to allow Bio
Essential to deliver the product specified which was adequately processed and free
from contaminants.
[69 at 4–5.]
“Under New York law, an action for breach of contract requires proof of (1) a contract; (2)
performance of the contract by one party; (3) breach by the other party; and (4) damages.” First
Inv’rs Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998) (internal quotation marks and
citation omitted). Contracts can be created orally and can be implied from the conduct of the
parties. See, e.g., Baltimore & O.R. Co. v. United States, 261 U.S. 592, 598 (1923) (“Such an
13
agreement will not be implied unless the meeting of minds was indicated by some intelligible
conduct, act or sign.”) (citation omitted); R.G. Grp., Inc. v. Horn & Hardart Co., 751 F.2d 69, 74 (2d
Cir. 1984) (“The point of these rules is to give parties the power to contract as they please, so that
they may, if they like, bind themselves orally or by informal letters, or that they may maintain
‘complete immunity from all obligation’ until a written agreement is executed. What matters are
the parties’ expressed intentions, the words and deeds which constitute objective signs in a given
set of circumstances.”) (citations omitted); see also Consarc Corp. v. Marine Midland Bank, N.A., 996
F.2d 568, 575–76 (2d Cir. 1993) (citing factors frequently used to determine when parties intend
to be bound absent a writing). Depending on the circumstances, written purchase orders can
either create contracts on their own or can confirm existing oral or written contracts. See, e.g.,
Gambino v. Payne, No. 12-CV-824-LJV-MJR, 2017 WL 1046733, at *2 (W.D.N.Y. Mar. 20, 2017)
(purchase order stated on its face that it was the contract); Daisey Indus., Inc. v. K-Mart Corp., No. 96
CIV. 4211 AGS RLE, 1997 WL 642553, at *3 (S.D.N.Y. Oct. 17, 1997) (“In their telephone
agreement, Daisy and Kmart had met the requirements for a contract. Indeed, they had reached a
greater level of specificity, agreeing on colors, sizes and desired style. The purchase orders were
merely written confirmations of the contract already agreed to by the parties.”) (citation omitted).
Here, Health Matters has the better position about the cross-claims in their current form,
but the defects are not fatal. The Court agrees with Health Matters that Bio Essential’s crossclaims currently do not plead details such as who all the parties to the contracts were; how long the
contracts were supposed to last; what the delivery terms were and for what price; and, in the case
of the purchase orders, whether each purchase order constituted an independent contract or a
14
course of conduct under some broader contract. Cf. Valley Lane Indus. Co. v. Victoria’s Secret Direct
Brand Mgmt., L.L.C., 455 F. App’x 102, 104 (2d Cir. 2012) (summary order) (“Without providing
additional factual allegations regarding, inter alia, the formation of the contract, the date it took
place, and the contract’s major terms, the proposed amended complaint similarly fails to
sufficiently plead the existence of a contract.”); Commercial Lubricants, LLC v. Safety-Kleen Sys., Inc.,
No. 14-CV-7483 (MKB), 2017 WL 3432073, at *16 (E.D.N.Y. Aug. 8, 2017) (failure to plead
sufficient contractual details fatal to a tortious-interference claim); Emerald Town Car of Pearl River,
LLC v. Philadelphia Indem. Ins. Co., No. 16 CIV. 1099 (NSR), 2017 WL 1383773, at *7 (S.D.N.Y.
Apr. 12, 2017) (same); see also, e.g., Rochester-Genesee Reg’l Trans. Auth. v. Cummins Inc., No. 09-CV6370-MAT, 2010 WL 2998768, at *4 (W.D.N.Y. July 28, 2010). Nonetheless, the parties agree
implicitly that they had some kind of relationship, and that Health Matters delivered some
quantity of chia seeds to Bio Essential, at some point in time, under some circumstances.
Amending the cross-claims thus would not be futile; this early in the litigation, with no scheduling
order in place and no significant amount of discovery having occurred yet, Bio Essential should
have a chance to do so. Cf., e.g., Hillair Capital Invs., L.P. v. Integrated Freight Corp., 963 F. Supp. 2d
336, 339 (S.D.N.Y. 2013) (“Here, at this early stage of the case, there is no concern about delay,
bad faith, or prejudice. The critical issue is whether the [amendment] would be futile.”); Peters v.
City of Buffalo, 848 F. Supp. 2d 378, 382 (W.D.N.Y. 2012) (“Defendants have provided no
grounds on which they would be prejudiced. Further, this Court finds that at this early stage of
the litigation there is no undue prejudice to defendants that would preclude amendment of the
complaint.”).
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The Court thus recommends granting Health Matters’s motion with respect to the fourth
and fifth cross-claims, but without prejudice to amend.
ii.
Sixth Cross-Claim
Health Matters seeks dismissal of Bio Essential’s sixth cross-claim, for breach of warranty.
The sixth cross-claim reads in its entirety as follows:
Defendants, HMA and/or AHM breached the express and implied
warrantees [sic] that it made regarding the adulterated, contaminated, and/or
debris laden chia seeds or otherwise not fit for human consumption despite HMA
and/or AHM knew [sic] the product was intended for use and/or would be used
for human consumption, that it delivered to BEB for toll processing, including but
not limited to the implied warrantees of merchantability and/or fitness for a
particular use.
Defendant BEB alleges that the Salmonella-contaminated chia seeds that
the defendants, HMA and/or AHM, purchased, sourced or otherwise provided to
BEB would not pass without exception in trade and was therefore in breach of the
implied warranty of merchantability and was defective.
In January of 2014, HMA and/or AHM sent chia seed samples to BEB for
testing, which BEB advised were poor quality seeds and as a result, should not have
been used in food grade products.
Upon information and belief, HMA and/or AHM blended this low quality
seed with higher quality seed in an effort to disguise the low quality seed and sold it
as food grade product to its customers like Plaintiff, Navitas.
Defendant BEB alleges that the salmonella-contaminated food that the
defendants, HMA and/or AHM, provided was not fit for the use and purposes
intended, including tolling and human consumption and that this product was
therefore in breach of the implied warranty of fitness for its intended use.
As a direct and proximate cause of the defendants, HMA and/or AHM,
breach of warranties, as set forth above, the defendant, BEB, sustained injuries and
damages in an amount to be determined at trial.
[39 at 15–16.] Health Matters argues simply that Bio Essential has not pled the terms of any
express warranty and has not pled the occurrence of any sale that would implicate any warranties:
16
BEB’s Sixth Cross Claim fails as a matter of law; nowhere does BEB allege
that Health Matters sold anything to BEB. Under New York’s Uniform
Commercial Code, only “sellers” may be held liable for a breach of warranty, and a
plaintiff must therefore—at the very least—allege that it bought something from a
defendant in order to be able to recover for breach of warranty. See Rosen v.
Hyundai Grp. (Korea), 829 F. Supp. 41, 50 (E.D.N.Y. 1993) (dismissing a wholesale
distributor’s warranty claim against a manufacturer where the distributor had
purchased allegedly defective goods from a middleman); NY UCC § 2-314
(imposing an implied warranty of merchantability in contracts of sale); NY UCC
§ 2-315 (imposing an implied warranty of fitness for a particular purpose on
sellers). The alleged relationship between BEB and Health Matters was as a
provider of services to Health Matters, see Cross-Claims ¶¶ 105–07, 113, and New
York law does not recognize a cause of action for breach of warranty arising out of
the performance of services. Champion Home Builders Co. v. ADT Sec. Servs., Inc.,
179 F. Supp. 2d 16, 27 (N.D.N.Y. 2001), as amended (Jan. 25, 2002) (citing Verra v.
Koluksuz, 74 A.D.2d 932, 932–33 (3d Dep’t 1980)). Further, as alleged, BEB was
the party performing services for Health Matters—warranties protect consumers, not
upstream contractors that provided services in the manufacture of an allegedly
defective product.
As to the allegation that Health Matters breached express warranties, CrossClaims ¶ 105, BEB’s breach of warranty cross-claim fails for the same reason as
does its breach of contract claims: nowhere does allege the terms of the express
warranty allegedly owed to BEB. See Intercept Pharm., Inc., 615 F. App’x at 43.
Thus, BEB’s Sixth cross-claim fails as a matter of law and must be dismissed.
[42-1 at 5.] Bio Essential responds that it “relied upon the oral and express representations by
Health Matters that they would provide seeds which were capable of being tolled, and leading up
to the recall, delivered seeds of inferior quality and which may have been contaminated with
salmonella.” [69 at 6.] As for the argument about not selling anything or providing only services,
Bio Essential notes that
there is privity of contract between Health Matters and Bio Essential because of the
existence of purchase orders issued by Health Matters to Bio Essential for the
sprouted and milled seeds. As a result any deficiency as to an allegation of a
purchase by Bio Essential in its Sixth Cross-claim is unavailing. In addition, the
claim by Health Matters that all that Bio Essential was providing was a service is a
red herring. As described hereinabove, the toll processing and milling of the seeds
17
produces a completely different product which is being sold to Health Matters in
accordance with the terms of the purchase orders. The processing of the seeds is a
kin to Health Matters supplying raw materials and Bio Essential producing a
product with those materials and selling it back to Health Matters. That sale is a
sale of goods under the UCC and therefore entitles Bio Essential to make a claim
for breach of warranty as against Health Matters as they are in fact in privity of
contract.
[69 at 6.] Finally, Bio Essential defends its belief that an implied warranty of fitness accompanied
every delivery of chia seeds from Health Matters:
Bio Essential believes that documentation and evidence available to it at this time
supports a strong claim that the seeds were contaminated upon arrival at Bio
Essential facility and by virtue of its sanitary environment and processes, was
carried through toll processing, as at the time of the recalls there was no process by
which contaminants like salmonella could be eliminated in processing the seeds.
As a result the delivery/sale of the raw seeds by Health Matters was with the
implied warranty that the seeds delivered were of a food grade quality, were of a
sufficient quality to be sprouted, and further were fit for human consumption. As
a result, the terms of the warranties alleged to have been breached were clearly
stated in the Sixth Cross-Claim.
[69 at 8.]
For the same reasons noted above regarding the fourth and fifth cross-claims, the
arguments about express warranties are easy to address. The purchase orders that Bio Essential has
included in its motion papers [70-1] say nothing about warranties. Any oral contracts, as Bio
Essential has pled them so far, also say nothing. Nonetheless, at this very early stage of the
litigation and given that products deliveries did occur, Bio Essential should have one chance to
plead what express warranties it believes exist and how they came into existence. The assertion of
an implied warranty requires re-pleading for a different reason. “Unless excluded or modified
(Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their
sale if the seller is a merchant with respect to goods of that kind.” N.Y. U.C.C. (“UCC”) § 2-314
18
(McKinney 2018). Even if just a technicality based on other facts pled, Bio Essential should plead
that Health Matters qualifies as a merchant under the UCC and should explain why. Once Bio
Essential properly invokes the UCC, its claim about implied warranties will be adequate for Rule
12 purposes. See Silva v. Smucker Nat. Foods, Inc., No. 14-CV-6154 JG RML, 2015 WL 5360022, at
*11 (E.D.N.Y. Sept. 14, 2015) (“Where the sale of a food or beverage is concerned, courts have
ruled that the product need only be fit for human consumption to be of merchantable quality.”)
(citations omitted); Hohn v. S. Shore Serv., Inc., 529 N.Y.S.2d 129, 130 (App. Div. 1988) (“A
distributor impliedly warrants that foods sold by description are fit for human consumption and
merchantable.”) (citation omitted).
Accordingly, the Court recommends granting Health Matters’s motion with respect to the
sixth cross-claim, but without prejudice to amend.
iii.
Seventh and Eighth Cross-Claims
Health Matters seeks dismissal of Bio Essential’s seventh and eighth cross-claims, for
product liability and strict products liability, respectively. The seventh cross-claim reads in its
entirety as follows:
Defendants, HMA and/or AHM breached the express and implied
warrantees [sic] that it made regarding the adulterated, contaminated, and/or
debris laden chia seeds or otherwise not fit for human consumption despite HMA
and/or AHM knew the product [sic] was intended for use and/or would be used
for human consumption, that it delivered to BEB for toll processing, including but
not limited to the implied warrantees of merchantability and/or fitness for a
particular use.
Defendant BEB alleges that the Salmonella-contaminated chia seeds that
the defendants, HMA and/or AHM, purchased, sourced or otherwise provided to
BEB would not pass without exception in trade and was therefore in breach of the
implied warranty of merchantability and was defective.
19
In January of 2014, HMA and/or AHM sent chia seed samples to BEB for
testing, which BEB advised were poor quality seeds and as a result, should not have
been used in food grade products.
Upon information and belief, HMA and/or AHM blended this low quality
seed with higher quality seed in an effort to disguise the low quality seed and sold it
as food grade product to its customers like Plaintiff, Navitas.
Defendant BEB alleges that the salmonella-contaminated food that the
defendants, HMA and/or AHM, provided was not fit for the use and purposes
intended, including tolling and human consumption and that this product was
therefore in breach of the implied warranty of fitness for its intended use.
As a direct and proximate cause of the defendants, HMA and/or AHM,
providing a defective and faulty product, as set forth above, the defendant, BEB,
sustained injuries and damages in an amount to be determined at trial.
[39 at 16–17.] The eighth cross-claim reads in its entirety as follows:
Defendants, HMA and/or AHM breached the express and implied
warrantees [sic] that it made regarding the adulterated, contaminated, and/or
debris laden chia seeds or otherwise not fit for human consumption despite HMA
and/or AHM knew the product [sic] was intended for use and/or would be used
for human consumption, that it delivered to BEB for toll processing, including but
not limited to the implied warrantees of merchantability and/or fitness for a
particular use.
Defendant BEB alleges that the Salmonella-contaminated chia seeds that
the defendants, HMA and/or AHM, purchased, sourced or otherwise provided to
BEB would not pass without exception in trade and was therefore in breach of the
implied warranty of merchantability and was defective.
In January of 2014, HMA and/or AHM sent chia seed samples to BEB for
testing, which BEB advised were poor quality seeds and as a result, should not have
been used in food grade products.
Upon information and belief, HMA and/or AHM blended this low quality
seed with higher quality seed in an effort to disguise the low quality seed and sold it
as food grade product to its customers like Plaintiff, Navitas.
Defendant BEB alleges that the salmonella-contaminated food that the
defendants, HMA and/or AHM, provided was not fit for the use and purposes
intended, including tolling and human consumption and that this product was
20
therefore in breach of the implied warranty of fitness for its intended use and
defendants, HMA and/or AHM are strictly liable therefore.
As a direct and proximate cause of the defendants, HMA’s and/or AHM’s,
strict liability, as set forth above, the defendant, BEB, sustained injuries and
damages in an amount to be determined at trial.
[39 at 17–18.] In seeking dismissal, Health Matters has highlighted how the seventh and eighth
cross-claims refer to warranties as other cross-claims did. “BEB’s Seventh and Eighth cross-claims,
‘products liability’ and ‘strict liability,’ repeat the allegations of the Sixth cross-claim nearly
verbatim, creating confusion as to what exact theory of liability BEB intends to assert.” [42-1 at 6.]
Health Matters then proceeds to argue that “the cross-claims fail as a matter of law because they fail
to set out facts necessary to support two essential elements of both theories: damages and
causation.” [39 at 6.] Health Matters explains the alleged absence of necessary elements as follows:
On their face, the Seventh and Eighth cross-claims offer only conclusory
allegations that BEB “sustained injuries and damages,” but do not allege any facts
indicating actual injury or damage, or connecting the alleged injuries and damages
with Health Matters’ alleged conduct. The cross-claims do not incorporate
preceding allegations, but “perusal” of the entire document reveals that the only
injury or damage BEB alleges it suffered, if any, constitutes unrecoverable economic
loss. See Hole v. Gen. Motors Corp., 83 A.D.2d 715, 716–17 (3d Dep’t 1981). The
closest BEB comes to alleging facts that show damages related to the Seventh and
Eighth cross-claims is an assertion that BEB had to participate in a recall, asserted
as part of BEB’s breach of contract cross claims. See Cross Claims ¶¶ 99, 104.
When a party alleges only economic loss, rather than personal injury or property
damage, it has no cause of action in strict products liability or negligence. See Hole,
83 A.D.2d at 717. The economic loss doctrine prohibits a negligence or strict
products liability recovery here, because commercial parties that fail to preserve
their remedies in contract cannot fall back on tort remedies without a personal
injury or property damage. See Bocre Leasing Corp. v. Gen. Motors Corp. (Allison Gas
Turbine Div.), 84 N.Y.2d 685, 689, 692 (1995). BEB’s cross-claims utterly fail to
allege any facts showing it has sustained damages that are recoverable in negligence
or strict products liability, and the Seventh and Eighth cross-claims must therefore
be dismissed for failure to state a legally-cognizable claim.
21
[39 at 7.] Bio Essential defends its cross-claims with arguments including the argument that “[t]he
warranties were relative to the intended use, more specifically, Health Matters was to supply seeds
of sufficient quality to be tolled (i.e. sprouted, dried and milled). In particular, the Plaintiff’s suit
claims that the products delivered by Health Matters contained salmonella contaminated chia
seeds. Bio Essential has reason to believe that the contamination occurred either prior to the
supply of seeds by Health Matters to Bio Essential or following the return of the tolled seeds to
Health Matters.” [69 at 10.] Bio Essential argues further that “the strict product liability claim
arises for the same reason that the breach of warranty claims arise, namely due to the fact that the
bailment arrangement between Health Matters (as bailor) and Bio Essential (as bailee) is akin to a
sale and Health Matters knows that it is sourcing the raw materials for Bio Essential to
manufacture into the final product which are the sprouted and milled Chia seeds for human
consumption which Health Matters sells to other retailers like the Plaintiff, Navitas, LLC.” [69 at
12.]
A review of the elements of product and strict product claims is warranted. “To state a
cause of action for negligence, [] plaintiffs must show: (1) that [defendants] owed them a duty, or
obligation, recognized by law, (2) a breach of the duty, (3) a reasonably close causal connection
between [defendant’s] conduct and the resulting injury and (4) loss or damage resulting from the
breach. In the absence of a duty, as a matter of law, no liability can ensue. Thus it may be said
that the defendant was negligent, but is not liable because he was under no duty to the plaintiff
not to be.” McCarthy v. Olin Corp., 119 F.3d 148, 156 (2d Cir. 1997) (internal quotation marks
and citations omitted). The duty in question has to arise independent of contractual obligations;
22
among other sources, statutes and regulations can give rise to a duty of care. Cf., e.g., Great Lakes
Cheese of New York, Inc. v. Agri-Mark, Inc., No. 714CV0232GTSATB, 2016 WL 5717337, at *12
(N.D.N.Y. Sept. 30, 2016) (handling of raw milk). With respect to strict liability, “[a]
manufacturer who places into the stream of commerce a defective product which causes injury may
be held strictly liable. In New York, there are three distinct claims for strict products liability: (1) a
manufacturing defect, which results when a mistake in manufacturing renders a product that is
ordinarily safe dangerous so that it causes harm; (2) a warning defect, which occurs when the
inadequacy or failure to warn of a reasonably foreseeable risk accompanying a product causes
harm; and (3) a design defect, which results when the product as designed is unreasonably
dangerous for its intended use.” McCarthy, 119 F.3d at 154–55 (citations omitted).
Here, the seventh and eighth cross-claims need clarification that might come in an
amended pleading. The seventh cross-claim, in its current form, does not do enough to set forth a
duty, and a breach of that duty, apart from contractual obligations covered by other cross-claims.
The eighth cross-claim does not make clear which type of strict-liability theory Bio Essential wishes
to advance. The references to warranties in both cross-claims repeat theories in other cross-claims
and are a needless distraction. Since Bio Essential should have a chance to amend other parts of
its pleading, it should have a chance to amend these cross-claims as well. The Court thus
recommends granting Health Matters’s motion with respect to Bio Essential’s seventh and eighth
cross-claims, but without prejudice to amend.
23
iv.
Ninth Cross-Claim
Health Matters seeks dismissal of Bio Essential’s ninth cross-claims, for negligence and
negligence per se. The ninth cross-claim reads in its entirety as follows:
Defendants, HMA and/or AHM, owed a duty to defendant, BEB, to use
reasonable care in the production, manufacture, and sale of its food products to
ensure that the chia seeds delivered to BEB did not become contaminated with
Salmonella or any other dangerous pathogen. Defendants, HMA and/or AHM,
breached this duty.
Defendants, HMA and/or AHM, had a duty to comply with all statutes,
laws, regulations or safety codes pe1iaining to the distribution and storage of its
food product, but failed to do so, and was therefore negligent.
The defendants HMA and/or AHM, had a duty to comply with all
applicable federal state or provincial regulations intended to ensure the purity and
safety of its food product, including the requirements of the Canadian Food
Inspection Agency guidelines/standards and/or the U.S. Food and Drug
Administration guidelines/standards.
The defendants HMA and/or AHM, failed to comply with the provisions of
the health and safety acts and regulatory agency guidelines identified above and as a
result was negligent per se in its sourcing, distribution and sale of food adulterated
with Salmonella, a deadly pathogen.
As a direct and proximate cause of the defendants, HMA’s and/or AHM’s
negligence, as set forth above, the defendant, BEB, sustained injuries and damages
in an amount to be determined at trial.
[39 at 18–19.] Health Matters argues that “[a]s in the Seventh and Eighth cross-claims, the Ninth
cross-claim sets out no facts showing ‘injuries and damages’ suffered, or how they were proximately
caused by Health Matters’ negligence.” [42-1 at 7.] With respect to the claim for negligence per se,
BEB’s negligence per se cross-claim also fails to state a claim in similar
fashion to its failure to plausibly allege contract cross-claims. To invoke the
negligence per se doctrine, a particular statute alleged to have been violated must be
set out in detail. In re Sept. 11 Prop. Damage & Bus. Loss Litig., 468 F. Supp. 2d 508,
522 (S.D.N.Y. 2006), aff’d sub nom. Aegis Ins. Servs., Inc. v. 7 World Trade Co., L.P.,
737 F.3d 166 (2d Cir. 2013) (dismissing negligence per se claims where plaintiffs
24
offered only the conclusory allegation that a defendant failed to follow fire and
safety codes). As with its failure to identify specifically breached contract terms,
BEB has not identified any specific law establishing a standard of care that Health
Matters violated, whether state, federal, or foreign, and the Ninth cross-claim thus
fails to state a claim. See id.
Moreover, without having asserted a specific provision of law alleged to
have been violated, it is also impossible to determine whether BEB is among the
class of people the (unstated) law was intended to protect. See Prohaska v. Sofamor,
S.N.C., 138 F. Supp. 2d 422, 448 (W.D.N.Y. 2001); German by German v. Fed. Home
Loan Mortg. Corp., 896 F. Supp. 1385, 1396 (S.D.N.Y. 1995) (“Only statutes
designed to protect a definite class of persons from a particular hazard, which
persons within the class are incapable of avoiding, can give rise to negligence per se
for violation of the statute.”). More likely, however, is that any laws Health
Matters’ alleged conduct breached were intended to protect consumers from health
risks, rather than upstream providers of manufacturing services that only claim to
have suffered economically from participation in a voluntary recall. See Cross
Claims ¶¶ 99, 104.
[42-1 at 8–9.] Bio Essential responds as follows:
Simon v. Smith & Nephew, Inc., 990 F. Supp. 2d 395, 406 (S.D,N.Y. 2013),
which lays out a prima facia case for negligence, as follows: “... a plaintiff must show
(1) that the manufacturer owed plaintiff a duty to exercise reasonable care; (2) a
breach of that duty by failure to use reasonable care so that a product is rendered
defective, i.e, reasonably certain to be dangerous; (3) that the defect was the
proximate cause of the plaintiff s injury; and (4) loss or damage.” In the Ninth
Cross-claim (Doc # 39, paragraphs 123 to 127), Bio Essential alleges that Health
Matters owed a duty to Bio Essential to use reasonable care in the sale of its food
products to ensure that the seeds did not become contaminated, specifically that
they had a duty to comply with laws regarding food products for human
consumption, that they breached that duty and that their failure to comply with the
laws and regulations governing food caused the injuries and that Bio Essential was
damaged. The damages were discussed hereinabove, but generally consist of
business losses and litigation expenses incurred due to the recall by Health Matters
and Navitas, LLC. Health Matters again cites the Bocre v. GMC case for the fact
that there would be contractual remedies between the parties, however in this case
the only contracts between the parties were for bailment and for the sale of goods.
No contract containing any specific warranty disclaimer or contemplating damages
from a recall or breach of the sales arrangement was contemplated by either party,
and therefore any reliance upon such “contract claims” in the context of the
negligence allegations herein is wholly misplaced. Moreover, “Under New Yorlc
25
law, ‘violation of a State statute that imposes a specific duty constitutes negligence
per se, or may even create absolute liability.’” In re September 11 Prop. Damage &
Bus. Loss Litig., Inc. v. Pont Auth., 468 F. Supp. 2d 508, 522, (S.D.N.Y. 2006). In
particular, while no specific laws were referenced in the Cross-claim, reference to
numerous laws and regulations were invoked by reference to U.S. F.D.A, guidelines
and standards and the CFIA guidelines and standards. The specific laws or
regulations violated are likely numerous and the negligence alleged in the claim is
enough to give rise to liability on the part of Health Matters alone, without
invoking specific statutory or regulatory provisions at this early stage in the
litigation. The purpose of the pleading is to put the parties on notice of the claims
against the party from which relief is being sought. Therefore, clearly the basis of a
negligence claim has been plead [sic] and the incorporation of federal laws and
guidelines by reference make this Ninth Cross-claim sufficiently plead [sic].
[69 at 14–16.]
“Negligent performance of a contract may give rise to a claim sounding in tort as well as
one for breach of contract. The two claims may be submitted as alternatives to the jury, as a
matter of both New York substantive law and federal procedural law. A negligence claim may be
brought provided that the plaintiff alleges that a legal duty independent of the contract itself has
been violated.” Dorking Genetics v. United States, 76 F.3d 1261, 1269 (2d Cir. 1996) (internal
quotation marks and citations omitted). “Under the rule of negligence per se, if (1) a statute is
designed to protect a class of persons, (2) in which the plaintiff is included, (3) from the type of
harm which in fact occurred as a result of its violation, the issues of the defendant’s duty of care to
the plaintiff and the defendant’s breach of that duty are conclusively established upon proof that
the statute was violated.” Sackin v. TransPerfect Glob., Inc., 278 F. Supp. 3d 739, 748 (S.D.N.Y.
2017) (internal quotation marks and citations omitted). Like the seventh cross-claim, the ninth
cross-claim does not do enough to set forth a legal duty independent of any contractual
relationship between Bio Essential and Health Matters. The ninth cross-claim also does not do
26
enough to set forth the elements necessary for a claim of negligence per se. Neither membership in
a protected class nor any specific statute or regulation appears in the ninth cross-claim. Cf. Bishop
v. Best Buy, Co. Inc., No. 08 CIV. 8427 LBS, 2011 WL 4011449, at *9 (S.D.N.Y. Sept. 8, 2011)
(dismissal of a claim that “fails to cite any statute imposing a specific duty to protect Plaintiff that
Defendants breached”); Anchundia v. Ne. Utilities Serv. Co., No. CV 07-4446 (AKT), 2010 WL
2400154, at *5 (E.D.N.Y. June 11, 2010) (“Where plaintiff fails to identify the statute upon which
the claim is based, it is impossible to determine if the plaintiff was in a class sought to be protected
by the statute or whether the injury suffered by the plaintiff was the type of injury the statute was
designed to prevent. It is also impossible to assess whether the defendant breached a duty imposed
by statute.”). Nonetheless, as with the plaintiff in Anchundia, one opportunity to amend is
appropriate under the circumstances. The Court thus recommends granting Health Matters’s
motion with respect to Bio Essential’s ninth cross-claim, but without prejudice to amend.
v.
Tenth and Eleventh Cross-Claims
Health Matters seeks dismissal of Bio Essential’s tenth and eleventh cross-claims, for unfair
trade practices and fraud. The tenth cross-claim reads in its entirety as follows:
Defendants, HMA and/or AHM, made certain false statements, and
continues to disseminate and/or disseminated and/or fails to correct its false
statements in trade journals, their promotional materials, and at trade shows
among other methods citing Defendant BEB as the cause of the salmonella
contamination of the chia seeds which are the subject of this action.
That said false statements were placed in trade journals, their promotional
materials, and at trade shows among other methods had not been proven to be true
and are in fact patently false.
That the trade journals and/or HMA and/or AHM’s promotional materials
had been distributed around the U.S., Canada and globally helped to spread false
27
claims and caused harm to Defendant BEB’s reputation and business.
That said acts of spreading misinformation or false claims to consumers and
others in the industry was part of a pattern directed by defendants, HMA and/or
AHM against BEB attempting to shift the cause of the Recall and underlying facts
and issues onto BEB, with the intention of discouraging others from purchasing
products tolled by BEB or from sending seeds, grains and beans to BEB for tolling.
By reason of the foregoing, the Defendants, HMA and/or AHM, engaged
in the intentional acts or practices which were materially false and deceptive.
In particular, trade journals, their promotional materials, and at trade
shows among other methods were oriented to inform consumers and other
businesses in the trade of organic foods, superfoods, and sprouted foods, in an
effort to direct business to HMA and/or AHM and away from BEB.
That as a result of the deceptive and unfair trade practices of Defendants,
HMA and/or AHM, defendant, BEB, sustained injuries and damages in an
amount to be determined at trial.
[39 at 19–20.] The eleventh cross-claim reads in its entirety as follows:
Defendants, HMA and/or AHM, made certain false statements, and
continues to disseminate and/or disseminated and/or fails to correct its false
statements in trade journals, their promotional materials, and at trade shows
among other methods citing Defendant BEB as the cause of the salmonella
contamination of the chia seeds which are the subject of this action.
That said false statements were placed in trade journals, their promotional
materials, and at trade shows among other methods had not been proven to be true
and are in fact patently false.
That the trade journals and/or HMA and/or AHM’s promotional materials
had been distributed around the U.S., Canada and globally, helped to spread false
claims and have caused harm to Defendant BEB’s reputation and business.
That said acts of spreading misinformation or false claims to consumers and
others in the industry was part of a pattern directed by defendants, HMA and/or
AHM against BEB attempting to shift the cause of the Recall and underlying facts
and issues onto BEB, with the intention of discouraging others from purchasing
products tolled by BEB or from sending seeds, grains and beans to BEB for tolling.
28
By reason of the foregoing, the Defendants, HMA and/or AHM, engaged
in the intentional acts or practices which were materially false, deceptive and
fraudulent.
In particular, trade journals, their promotional materials, and at trade
shows among other methods were oriented to inform consumers and other
businesses in the trade of organic foods, superfoods, and sprouted foods, in an
effort to direct business to HMA and/or AHM and away from BEB.
As a result of the deceptive, negligent and fraudulent acts of defendants,
HMA and/or AHM, BEB has sustained injuries and damages in an amount to be
determined at trial.
[39 at 21.] To the extent that both cross-claims mention the phrase “unfair trade practices,”
Health Matters has guessed that Bio Essential had certain statutes in mind and argues as follows:
BEB’s “Unfair Trade Practices” cross-claims do not identify a specific
statute, but rather appear to resemble a claim under Section 349 of New York’s
General Business Law, which protects consumers from deceptive acts and practices.
There is no private right of action to enforce provisions of the Federal Trade
Commission Act that prohibit unfair or deceptive acts or practices in commerce, 15
U.S.C. § 45(a). Li Xi v. Apple Inc., 603 F. Supp. 2d 464, 470 (E.D.N.Y. 2009).
The elements of a § 349 claim are that “(1) the defendant's deceptive acts
were directed at consumers, (2) the acts are misleading in a material way, and (3)
the plaintiff has been injured as a result.” City of N.Y. v. Smokes-Spirits.com, Inc., 541
F.3d 425, 455 (2d Cir. 2008). The deceptive acts must be harmful to the public at
large, Holmes Prot. of N.Y., Inc. v. Provident Loan Soc. of N.Y., 179 A.D.2d 400 (1st
Dep’t 1992), and oriented to consumers, not businesses. United Teamster Fund v.
MagnaCare Admin. Servs., LLC, 39 F. Supp. 3d 461, 475 (S.D.N.Y. 2014). While
BEB mentions consumers, Health Matters’ alleged conduct was clearly business
oriented, not consumer oriented. BEB alleges Health Matters: (1) made these
misrepresentations in trade journals, promotional materials, and at trade shows; (2)
intended to “discourage others from purchasing products tolled by BEB or from
sending seeds, grains and beans to BEB for tolling;” and (3) oriented its
misrepresentations towards “consumers and other businesses in the trade of
organic foods, superfoods, and sprouted foods.” Cross-Claims ¶¶ 131–33. The
allegations are of deception directed not at the public at large, see Holmes Prot. of
N.Y., Inc., 179 A.D.2d at 400, but at “the industry.” See Cross-Claims ¶ 131. The
only reasonable conclusion to be drawn from the cross-claims is that the only
29
“consumers” of BEB’s products and services are businesses like Health Matters and
Plaintiff, Navitas.
Further, the Tenth and Eleventh cross-claims do not allege deception of
consumers in New York. GBL § 349(a) requires that the transaction in which the
consumer is deceived must occur in New York; it is not enough that the defendant
is a New York business or “hatched a scheme” in New York. Goshen v. Mut. Life Ins.
Co. of N.Y., 98 N.Y.2d 314, 324 (2002). BEB’s cross-claims make no showing [that]
any deception actually took place, offering only the general allegation that Health
Matters’ trade journals and promotional materials were “distributed around the
U.S., Canada and globally.” Those assertions alone do not state a claim under
GBL § 349. Since BEB has not alleged any consumer-oriented deception, or
deception in New York, its cross-claims 1apparently under GBL § 349 cannot
stand.
[42-1 at 9–10.] Health Matters argues the following in response to any suggestions of fraud:
Finally, BEB’s Eleventh cross-claim purports to assert a fraud claim in
addition to “unfair trade practices,” but fails to plead fraud with any particularity as
required by Rule 9(b). To plead fraud in compliance with Rule 9(b), a cross-claim
must “(1) specify the statements that the plaintiff contends were fraudulent, (2)
identify the speaker, (3) state where and when the statements were made, and (4)
explain why the statements were fraudulent.” Lerner v. Fleet Bank, N.A., 459 F.3d
273, 290 (2d Cir. 2006). Nowhere does BEB specify the fraudulent statements it
contends Health Matters made, nor does it state when and where those statements
were made beyond a minimal description of the types of forum where Health
Matters offered general misrepresentations. Accordingly, the Eleventh cross-claim
allegations fail to plead fraud with particularity, and must be dismissed under Rule
12(b)(6).
[42-1 at 10.] In response, Bio Essential more or less confirmed Health Matters’s guesses about
possible statutes in play. Bio Essential then proceeds to defend its allegations of unfair trade
practices and fraud:
The unfair trade practice and fraud which Health Matters perpetrated
consisted of the intentional dissemination of misrepresentations to the industry
and to the public in general claiming that the recalls which Health Matters had to
participate in were traced back to Bio Essential. This has little if any basis in fact as
the Canadian Food Inspection Agency’s testing, inspections and reports all indicate
that there was no signs of contamination from Bio Essential’s facility. (See
30
Affirmation of Gail Barker.) This can only mean that either the contamination
occurred before the seeds were delivered to Bio Essential and was carried through
the processing of those lots of seeds which contained contaminated seeds and was
not spread to any other lots or seeds processed by Bio Essential, or after the
manufactured products left Bio Essential’s facility. None of that is contemplated in
Health Matters’ press releases (see Affirmation of Gail Barker, Exhibit G). This
information was disseminated specifically to shift blame from Health Matters for
their negligent acts in sourcing lower quality seeds and possibly in the manner in
which they stored and handled the seeds when they received them. This
dissemination of false information to shift the blame to others for their part in the
contamination of their products caused harm to Bio Essential, but it also misleads
consumers who purchase Health Matters products. Those consumers have been
lead into a false sense of security assuming that Health Matters has their interests at
heart when it is clear that many consumers suffered as a result of Health Matter’s
[sic] loose and poor business practices aimed to test exactly how a drop [in] the
quality of their raw materials might impact their bottom line.
Under NY General Business Law §349(h), the elements of a claim are (1)
that the defendant’s deceptive acts are directed at consumers, (2) that the acts are
misleading in a material way, and (3) that the plaintiff has been injured as a result.
See City of N.Y. v. Smokes-Spirits.com, Inc., 541 F3d 425, 455 (2d Cir. 2008). As
described above, the acts were directed at consumers as they were issued wholly for
the purpose of letting customers and consumers who purchase Health Matters
products know that their products are safe and that they didn’t do anything wrong,
and that it was Bio Essential who was the source of the contamination. This was
communicated to industry publications and to the public at large. As discussed
above, the purpose of which was to inform the public that Health Matters was not
at fault, so that they would continue to purchase the Health Matters products. The
result of these acts means little interruption in purchasing from consumers of
Health Matters products and that trade customers of Bio Essential would be
dissuaded from making purchases from Bio Essential because of the stigma placed
upon it by Health Matters’ president, Jerry Ziefinan in blaming Bio Essential for
the contamination and recalls. Health Matters, has practically come away from the
recalls unscathed and has expanded its business in Europe and Asia since the
recalls. Moreover the misinformation supplied by Health Matters was spread from
both their Ontario, Canada office and their Buffalo, New York office. Health
Matters sells its products all across New York State and all across the U.S., Canada
and internationally under the brand name, “Organic Traditions” in grocery stores,
health food stores and big box retailers like Walmart. For Health Matters to argue
that their actions in spreading false and misleading information had no harm to
consumers in New York is to ignore how wide spread their distribution has become
and to ignore the fact that the U.S. entity for Health Matters is located in Buffalo,
31
New York, which was why the action was filed in New York in the first place.
Finally, the harm caused by Health Matters actions has been lost business
opportunities and litigation expenses which are continuing to accrue both in this
lawsuit and in the two Canadian lawsuits which are ongoing.
As to the Eleventh Cross-claim regarding fraud (Doc # 39), the allegations
in the crossclaim are required to comply with Rule 9(b) of the Federal Rules of
Civil Procedure. Rule 9 requires that the claims must specify the statements that
were fraudulent; identify the speaker, and where and when the statements were
made and why they were fraudulent. See Lerner v. Fleet Bank, N.A., 459 F.3d 273,
290 (2d Cir. 2006). Particular to the claims, Bio Essential in paragraph 135
identifies who has disseminated the false information, namely Health Matters, and
as has been described herein and in the Affirmation of Gail Barker, that those
statements were made by Health Matters’ President Jerry Ziefman. (Doc # 39,
¶ 135.) The content of the statements is described in paragraph 138, “attempting
to shift the cause of the recall and underlying facts and issue onto BEB,” in other
words blaming Bio Essential for the contamination and recalls. These statements
were publicly made and printed and were fraudulent as the Affirmation of Gail
Barker points out because they are simply false, as there is no way that Bio Essential
could have caused the contamination. (See Affidavit of Gail Barker.) The evidence
from the tested samples and from the CFIA inspections and testing confirm that
no contaminants were found at Bio Essential’s facility. Moreover, the process and
procedures in cleaning and sanitizing all equipment, materials, and the rooms in
which the raw seeds are processed, eliminates the possibility of contamination at
Bio Essential’s facility. At this early stage of the litigation, Bio Essential does not
have all of the specific statements made, but clearly the article attached as Exhibit G
to the Affirmation of Gail Barker shows that Health Matters through its President
was specifically blaming Bio Essential and defaming it without any evidence to
support his claims that Bio Essential was at fault for the recalls.
[69 at 16–18.]
Bio Essential’s allegations warrant a closer look at the purpose and operation of New
York’s General Business Law (“GBL”) § 349. “Deceptive acts or practices in the conduct of any
business, trade or commerce or in the furnishing of any service in this state are hereby declared
unlawful.” GBL § 349(a). This principle operating subsection of the statute is very broad, and
32
individuals may enforce it through the private right of action at Section 349(h). The New York
Court of Appeals has elaborated on the type of conduct that the statute aims to prohibit:
[A]s a threshold matter, plaintiffs claiming the benefit of section 349—whether
individuals or entities such as the plaintiffs now before us—must charge conduct of
the defendant that is consumer-oriented.
Consumer-oriented conduct does not require a repetition or pattern of
deceptive behavior. The statute itself does not require recurring conduct.
Moreover, the legislative history makes plain that this law was intended to “afford a
practical means of halting consumer frauds at their incipiency without the necessity
to wait for the development of persistent frauds.” Plaintiff, thus, need not show
that the defendant committed the complained-of acts repeatedly—either to the same
plaintiff or to other consumers—but instead must demonstrate that the acts or
practices have a broader impact on consumers at large. Private contract disputes,
unique to the parties, for example, would not fall within the ambit of the statute.
Proof that defendant’s acts are directed to consumers, however, does not
end the inquiry. A prima facie case requires as well a showing that defendant is
engaging in an act or practice that is deceptive or misleading in a material way and
that plaintiff has been injured by reason thereof.
Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 647 N.E.2d 741, 744 (N.Y.
1995) (citations omitted). Implicit in Oswego and in the statute itself is the goal of leveling the
proverbial playing field that consumers and businesses use to transact. The typical consumer—and
the statute carries the connotation that “consumer” means an individual person—has neither the
time nor the means to investigate all internal information that businesses have about their
products and practices. Modern commerce would collapse if consumers could not trust
information in the marketplace as complete and accurate in all material respects. See Watts v.
Jackson Hewitt Tax Serv. Inc., 579 F. Supp. 2d 334, 346 (E.D.N.Y. 2008) (“Section 349 is meant to
empower consumers, especially the disadvantaged and to even the playing field of their disputes
with better funded and superiorly situated fraudulent businesses.”) (internal quotation marks and
33
citations omitted); N. State Autobahn, Inc. v. Progressive Ins. Grp. Co., 953 N.Y.S.2d 96, 102 (App.
Div. 2012) (“The requirement that the consumer-oriented conduct be materially misleading limits
the availability of section 349(a) to cases where the deception pertains to an issue that may bear on
a consumer’s decision to participate in a particular transaction. As such, the statute is limited in
its application to those acts or practices which undermine a consumer’s ability to evaluate his or
her market options and to make a free and intelligent choice.”). A representative but nonexhaustive list of activities that do or do not fall under GBL § 349 looks like this:
Activities which have been held violative of the statute include—
— the selling of street drug alternatives to circumvent drug laws, marketed as health
products with “medical benefits” such as treating anxiety and depression.
— the solicitation of charitable funds, by a professional fundraiser with material
asserting early detection, education, and research, where the organization
was not directly involved in any education or research, and was so
minimally involved in early detection efforts.
— fraudulent misrepresentations by a dentist to parents and custodians to induce
consent for dental procedures, resulting in harm to subject children.
— small typeface and hidden location of fee disclosures in a credit card agreement,
combined with high-pressure advertising.
— the failure to disclose that a seller was acting as a broker of a motor vehicle it
sold, and failure to disclose that the seller was not the owner of the vehicle.
— a lender’s direct mail solicitations, informing consumers that they had been
preapproved for credit limit up to $1,000 or $2,500, where the offers did
not state that most consumers did not receive even half of amount listed or
reveal how likely consumer was to receive amounts above minimum.
— engaging in purposeful, deceptive monopolistic business practices, including
entering into secret agreements with computer manufacturers and
distributors to inhibit competition and technological development, and
creating an applications barrier in software that, unbeknownst to
consumers, rejected competitors’ operating systems.
34
— a heating oil supplier’s acts of signing customers to fixed price contracts and then
charging higher prices.
— the imposition of quarterly charges on certain accounts by a bank, without notice
or proper authorization.
— delivery of an automobile by an automobile dealer without notifying the
purchaser that the automobile was subject to a recall notice prior to the sale
and delivery.
On the other hand, the statute is not violated where—
— bank deposit tickets, indicated sufficient funds were available to cover particular
debts, and holder received a brochure disclosing the bank’s fundsavailability policy, which advised customers of delays in availability of
deposited funds and that withdrawals could not be made during the delay.
— the seller of a preowned vehicle under-reported a vehicle’s purchase price.
— a law school published reports of statistics regarding postgraduate employment
and salary data, since reasonable consumers seriously considering law
schools are a sophisticated subset of education consumers capable of sifting
through numerous sources of information and weighing alternatives before
deciding which law school to attend, and the school disclosed that salary
data was based on a relatively small percentage of responding students.
— a car rental company imposed additional charges for certain options, as well as an
hourly late return charge, where such charges were fully disclosed prior to
acceptance of the vehicle by the customer.
— a car rental company failed to inform its customers that they might, when renting
a vehicle, already have insurance duplicative of collision damage waiver
coverage, thus making unnecessary such coverage provided by the company,
since the company could not be charged with knowledge superior to that of
its customers regarding terms of their own contractual arrangements.
— a corporation’s fully disclosed shipping and handling charges exceeded its actual
costs.
21 N.Y. Jur. 2d Consumer and Borrower Protection § 8 (citations omitted). Three concepts can be
inferred from the above list: 1) “consumers” again are generally understood to be individual
35
people; 2) businesses risk liability when they engage in deceptive acts about their own products or
services and how they might be hiding information when pushing those products or services into
the marketplace; and 3) the deceptive acts have to affect a potential consumer decision to acquire
the products or services in question.
Understanding the principles from Oswego and the three concepts described above reveal
how Bio Essential’s tenth and eleventh cross-claims fall short of advancing a cognizable claim
under GBL § 349. Under the most generous possible reading of the tenth and eleventh crossclaims, Bio Essential is accusing Health Matters of blaming it falsely for the salmonella outbreak.
Health Matters is not being accused of lying about its own product at the time of sale, to induce
Bio Essential to buy. The cross-claims do not clarify whether any alleged conduct by Health
Matters occurred in New York. Bio Essential has not established that it qualifies as the type of
consumer contemplated under GBL § 349. See, e.g., Exxonmobil Inter-Am., Inc. v. Advanced Info.
Eng’g Servs., Inc., 328 F. Supp. 2d 443, 448 (S.D.N.Y. 2004) (“The New York courts have also
suggested that a consumer, for § 349 purposes, is one who purchases goods and services for
personal, family or household use.”) (internal quotation and editorial marks and citations
omitted); Small v. Lorillard Tobacco Co., 720 N.E.2d 892, 897 (N.Y. 1999) (“Generally, claims under
the statute are available to an individual consumer who falls victim to misrepresentations made by
a seller of consumer goods through false or misleading advertising.”) (citation omitted). Finally,
the entire allegation of unfair trade practice appears to fall within the context of a contractual
relationship between Bio Essential and Health Matters. See Wilson v. Nw. Mut. Ins. Co., 625 F.3d
54, 65 (2d Cir. 2010) (conduct “unique to the parties” does not fall under GBL § 349).
36
Since the same purported conduct forms the basis of Bio Essential’s fraud allegations, the
fraud allegations do not fare any better. “To state a claim for fraudulent inducement under New
York law, Plaintiffs must allege the following elements: (1) that the defendant made a
representation, (2) as to a material fact, (3) which was false, (4) and known to be false by the
defendant, (5) that the representation was made for the purpose of inducing the other party to rely
upon it, (6) that the other party rightfully did so rely, (7) in ignorance of its falsity (8) to his injury.”
Eaves v. Designs for Fin., Inc., 785 F. Supp. 2d 229, 246 (S.D.N.Y. 2011) (internal quotation marks
and citations omitted). “A practice may carry the capacity to mislead or deceive a reasonable
person but not be fraudulent. That distinction separates plaintiffs’ fraud claims from their section
349 claims. Fraud is wrongful enough to occupy a civil classification just short of criminal
conduct. Over the years fraud has generally been defined by behavior involving intentional, false
representations and other connotations of scienter such as willfulness, knowledge, design and bad
faith.” Gaidon v. Guardian Life Ins. Co. of Am., 725 N.E.2d 598, 606 (N.Y. 1999) (citations
omitted). “In alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Here, to the extent that Bio Essential is
suggesting fraudulent inducement, it has not pled that anyone actually was fraudulently induced to
change course in business transactions. Bio Essential has not pled that it was defrauded or
fraudulently induced in any way; the eleventh cross-claim reads as if other entities should be
making the claim that they did or did not make business decisions based on Health Matters’s
alleged lies. The eleventh cross-claim also lacks details about where the fraud occurred, who was
37
involved, and what precise harm resulted beyond damage to reputation, which perhaps would fall
under some other claim like libel or slander.
For the above reasons, the tenth and eleventh cross-claims do not set forth cognizable
claims in their current form. Since, however, the Court is recommending an opportunity to
amend other cross-claims, there is no harm in giving Bio Essential a chance to amend these to
cross-claims as well. The Court thus recommends granting Health Matters’s motion with respect
to Bio Essential’s tenth and eleventh cross-claims, but without prejudice to amend.
C. Rowland Seeds Motion (Dkt. No. 49)
Third-party defendant Rowland Seeds Inc. had filed this motion seeking dismissal of the
third-party complaint as against itself, for several reasons. The motion technically remains
pending, but Rowland Seeds Inc. was released from this case by stipulation on January 18, 2018.
[82.] The Court accordingly recommends denying this motion as moot.
D. Avafina Motion (Dkt. No. 56)
As with the motion by Rowland Seeds Inc., third-party defendant Avafina Commodities
Inc. had filed this motion seeking dismissal of the third-party complaint as against itself, for
various reasons. The motion technically remains pending, but Avafina Commodities Inc. was
released from this case by stipulation on January 18, 2018. [83.] The Court accordingly
recommends denying this motion as moot.
38
E. EVI Motion (Dkt. No. 64)
EVI has filed a motion that primarily3 seeks dismissal of the third-party complaint under
the abstention doctrine set forth in Colorado River Water Conservation Dist. v. United States, 424 U.S.
800 (1976). The key fact supporting EVI’s request is the existence of a Canadian case related to
this one: Advantage Health Matters Inc. and Health Matters America Inc. v. EVI International Group
LLC et al., No. CV-16-553341 (Can. Ont. Sup. Ct. J.) (the “Canadian Case”). [50-3.] In the
Canadian Case, filed on May 24, 2016, Health Matters is suing EVI International Group LLC,
EVI Inc., Tradin Organics USA LLC, Rowland Seeds Inc., Avafina Commodities Inc., Bio
Essential Botanicals, Inc., Live Better Brands LLC, and Everspring Farms. The factual allegations
of the Canadian Case are summarized in these paragraphs from the complaint:
Between May 30, 2014 and February 17, 2016, certain lots of branded
products, including Organic Traditions Sprouted Chia Seed Powder, Organic
Traditions Sprouted Chia and Flax Seed Powder, Organic Traditions Sprouted Flax
Seed Powder, Organic Traditions Ultimate Superfood Trail Mix, and Organic
Traditions Dark Chia Seeds (collectively, the “Products”), sold by the Plaintiffs to
various wholesale and retail customers, were recalled by the Canadian Food
Inspection Agency and the U.S. Food and Drug Administration for suspected
Salmonella contamination (the “Salmonella Contamination”). The recalls have
and will result in losses and damages being sustained by the Plaintiffs.
The raw chia and raw flax seeds used in the Products (collectively, the
“Seeds”) were purchased by Advantage Health from EVI, Tradin, Rowland,
Avafina, John Doe, and Jane Doe (collectively, the “Vendors”), pursuant to
contracts of sale (the “Seed Contracts”).
3
EVI has asked for permission to incorporate by reference certain arguments that Rowland Seeds Inc. and
Avafina Commodities Inc. had made against the third-party complaint, under Rule 12(b)(6), before they
were stipulated out of the case. The Court will not permit the incorporation. The arguments by the nowdismissed defendants that EVI wants to incorporate were intertwined with factual circumstances and other
arguments peculiar to those defendants. That said, Health Matters is on notice that a more definite
statement under Rule 12(e), or some other amplification of its pleading, might be prudent as a way to avoid
additional motion practice.
39
Advantage Health packaged some of the Seeds and sold them as Organic
Traditions Ultimate Superfood Trail Mix and Organic Traditions Dark Chia Seeds
to various wholesale and retail customers, including Health Matters. Health
Matters resold the Organic Traditions Ultimate Superfood Trail Mix and Organic
Traditions Dark Chia Seeds to other wholesale and retail customers.
Advantage Health sent some of the Seeds to BioEssential and Everspring
(collectively, the “Processors”) to be germinated and milled pursuant to processing
contracts (the “Processing Contracts”). Advantage Health packaged some of the
germinated and milled Seeds received from the Processors and sold them as
Organic Traditions Sprouted Chia Seed Powder, Organic Traditions Sprouted
Chia and Flax Seed Powder, and Organic Traditions Sprouted Flax Seed Powder to
various wholesale and retail customers, including Health Matters. Health Matters
resold the Organic Traditions Sprouted Chia Seed Powder, Organic Traditions
Sprouted Chia and Flax Seed Powder, and Organic Traditions Sprouted Flax Seed
Powder that it purchased from Advantage Health to other wholesale and retail
customers.
The Defendants knew and were aware that the Seeds were to be repackaged,
processed, distributed, and sold as health food products for human consumption.
[50-3 at 6–7.]
EVI reads the factual allegations from the Canadian Case to be identical to the allegations
from Health Matters’s third-party complaint here. On that basis, EVI considers the Canadian Case
to be a parallel proceeding and believes that the factors outlined in Colorado River warrant abstention:
The Third-Party Complaint is completely duplicative of the Canadian
equivalent of the complaint in the Ontario Action. Compare Wilson Ex. A to
Wilson Ex. C. The plaintiffs in the Ontario Action are the same as the Third-Party
Plaintiffs in the instant action. All five of the Third-Party Defendants in this action
are also parties defendant in the Ontario Action. The sole factual issue, namely,
whether the Third-Party Defendants sold contaminated chia seeds to the ThirdParty Plaintiffs in Canada, is identical in both actions. Even the legal theories in
each case are nearly identical, despite the fact that the cases are pending in different
countries: In both cases, HMA and AHM allege that the defendants were negligent,
breached implied and express warranties, and are subject to strict liability.
[64-1 at 3.]
40
Health Matters opposes abstention and addresses each of the Colorado River factors. Health
Matters’s arguments include the following:
Similarity of the parties. There is a very important difference in the parties
in that Navitas is the Plaintiff in this action but is not involved in the Ontario
action. The similarity of parties will be further diminished following this motion
sequence, as Avafina and Rowland will no longer be parties in the this action, but
will remain defendants in the Ontario action.
Similarity of the issues. While many issues are admittedly similar between
the two actions, the key difference here is that this action involves (and is limited
to) damages allegedly suffered by Navitas in recalls of its products, and the ThirdParty Complaint is limited to contribution and indemnification for any expenses
awarded for those claims; the Ontario Action on the other hand relates to HMA
and AHM’s [Health Matters’s] recalls and is specific to damages directly suffered by
HMA or AHM. When issues in concurrent actions overlap, it can be sufficient to
trigger Colorado River analysis, but if they contain additional and different issues,
it is unlikely sufficient “to justify a surrender of a federal court’s virtually unflagging
obligation to exercise jurisdiction.” Carter v. 36 Hudson Assocs, LLC, No. 09
CIV.4328DLC, 2010 WL 2473834, at *4 (S.D.N.Y. June 17, 2010).
Order in which the actions were filed. The Third-Party Complaint in this
action was necessarily filed after the Ontario Action, as HMA and AHM had no
expectation that—or control over when—Navitas would sue them; thus their claims
for contribution and indemnification against EVI technically do not ripen until
Navitas has obtained a judgment against HMA and AHM, and that judgment has
been satisfied. Moreover, little progress has been made in the Ontario Action,
which is still in the initial stages, see Brock Decl. ¶ 5, even if EVI’s Memorandum of
Law asserts the Ontario Action is “well into discovery” (Dkt. 64-1 at 7). In Carter,
where discovery was far from complete in parallel state and federal actions, the
Southern District of New York held that this factor weighed against abstention as
the actions were equally far from resolution. Carter, 2010 WL 2473834, at *5. As
discovery is incomplete and not progressing in the Ontario Action, these matters
are equally far from resolution.
[72 at 10–11.]
The Court begins with a review of the principles governing abstention for reasons related
to parallel proceedings. “Abstention from the exercise of federal jurisdiction is the exception, not
41
the rule. The doctrine of abstention, under which a District Court may decline to exercise or
postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to the duty of a
District Court to adjudicate a controversy properly before it. Abdication of the obligation to
decide cases can be justified under this doctrine only in the exceptional circumstances where the
order to the parties to repair to the state court would clearly serve an important countervailing
interest.” Colorado River, 424 U.S. at 813 (internal quotation marks and citation omitted). “[T]he
decision whether to dismiss a federal action because of parallel state-court litigation does not rest
on a mechanical checklist, but on a careful balancing of the important factors as they apply in a
given case, with the balance heavily weighted in favor of the exercise of jurisdiction. The weight to
be given to any one factor may vary greatly from case to case, depending on the particular setting of
the case.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983), superseded in
part on other grounds as stated in, e.g., Finnie v. H & R Block Fin. Advisors, Inc., 307 F. App’x 19, 21
(8th Cir. 2009) (unpublished decision). Though no mechanical checklist applies, courts
contemplating abstention under Colorado River should consider, among other factors, “(1) whether
the controversy involves a res over which one of the courts has assumed jurisdiction; (2) whether
the federal forum is less inconvenient than the other for the parties; (3) whether staying or
dismissing the federal action will avoid piecemeal litigation; (4) the order in which the actions were
filed, and whether proceedings have advanced more in one forum than in the other; (5) whether
federal law provides the rule of decision; and (6) whether the state procedures are adequate to
protect the plaintiff’s federal rights.” Woodford v. Cmty. Action Agency of Greene Cty., Inc., 239 F.3d
517, 522 (2d Cir. 2001) (citations omitted).
42
The above factors evolved in the context of domestic litigation, when the potential parallel
proceedings came from federal and state court. When the proceeding that is potentially parallel to
federal litigation comes from an international tribunal, the emphasis changes a little. “[T]he
starting point for the inquiry remains unchanged: a district court’s virtually unflagging obligation
to exercise its jurisdiction. In weighing the considerations for and against abstention, a court’s
heavy obligation to exercise jurisdiction exists regardless of what factors are present on the other
side of the balance.” Royal & Sun All. Ins. Co. of Canada v. Century Int’l Arms, Inc., 466 F.3d 88, 93
(2d Cir. 2006) (internal quotation marks and citations omitted). That said, “[i]n the context of
parallel proceedings in a foreign court, a district court should be guided by the principles upon
which international comity is based: the proper respect for litigation in and the courts of a
sovereign nation, fairness to litigants, and judicial efficiency. Proper consideration of these
principles will no doubt require an evaluation of various factors, such as the similarity of the
parties, the similarity of the issues, the order in which the actions were filed, the adequacy of the
alternate forum, the potential prejudice to either party, the convenience of the parties, the
connection between the litigation and the United States, and the connection between the
litigation and the foreign jurisdiction. This list is not exhaustive, and a district court should
examine the totality of the circumstances to determine whether the specific facts before it are
sufficiently exceptional to justify abstention.” Id. at 94 (internal quotation marks and citations
omitted); see also AAR Int’l, Inc. v. Nimelias Enterprises S.A., 250 F.3d 510, 518 (7th Cir. 2001)
(“[W]e apply the same general principles with respect to parallel proceedings in a foreign court in
the interests of international comity.”) (citations omitted).
43
Here, the totality of the circumstances weighs against abstention. The one issue that draws
the Court’s attention the most, and that has received the most consideration from the Court, is an
issue that stretches across most if not all of the Colorado River factors: the absence of Navitas from
the Canadian Case. In the Canadian Case, Health Matters is suing a number of other
companies—including companies no longer present in this case—for contractual and other damages
that it allegedly suffered when it bought contaminated seeds. As the plaintiff in the Canadian
Case, Health Matters seeks full recovery of its claimed damages regardless of what happens with
indemnity or contribution among the defendants that it named. In contrast, Health Matters filed
the third-party complaint here not to seek any recovery for itself, but rather to soften any blow,
through contribution, that a jury might deliver should Navitas ultimately win at trial. (See [35 at 6]
“If Plaintiff Navitas sustained damages as alleged in the Complaint through any culpable conduct
other than its own, said damages were proximately and substantially caused by each of the ThirdParty Defendant Seed Vendor’s breach of its implied warranty of merchantability, without any
culpable conduct on the part of Defendants/Third-Party Plaintiffs contributing thereto.”).4
Navitas is not a party at all in the Canadian Case, but it is the only plaintiff here; its presence here
adds a layer of events and a layer of complexity that will never be litigated in the Canadian Case.5
Cf. Lexington Ins. Co. v. Integrity Land Title Co., 721 F.3d 958, 970 (8th Cir. 2013) (affirming a
finding of no parallel proceedings; “Resolution of Fidelity’s tort and contract claims against
4
Incidentally, the difference in the relief that Health Matters seeks here and in the Canadian Case is why
the Court also recommends rejection of EVI’s argument about election of remedies.
5
Navitas’s presence also distinguishes one of the cases that EVI has cited; there can be no “same core
allegations” in the Canadian Case and this case unless Navitas is ignored completely. See Ferolito v. Menashi,
918 F. Supp. 2d 136, 142 (E.D.N.Y. 2013).
44
Integrity would demand no interpretation of the E & O policy nor clarify for Lexington whether it
owed a defense to Integrity in Fidelity’s two lawsuits (or if it owed Integrity reimbursement of any
defense costs associated with the other state-court actions).”); Kirby McInerney LLP v. Lee Med., Inc.,
No. 17-CV-4760 (KBF), 2017 WL 4685101, at *3 (S.D.N.Y. Oct. 16, 2017) (finding no parallel
proceedings where certain substantive issues appeared as principal claims in one smaller case and
cross-claims in a larger case with a different plaintiff). In a sense, then, the Canadian Case could
be viewed as a subset of this case: An ultimate resolution of all issues in this case could have a res
judicata effect on the entire Canadian Case, while an ultimate resolution of the entire Canadian
Case could be limited to a collateral estoppel effect on contribution without affecting Navitas at
all. Compare Coakley Landfill Grp. v. IT Corp., 116 F. Supp. 2d 244, 246 (D.N.H. 2000)
(“Jurisdiction in this suit is based upon diversity of citizenship and none of the claims involve
federal law. However, this is the only forum with jurisdiction over all of the parties and, although
the state forum may adequately protect the interests of the parties, the state has already stayed its
proceedings to avoid piecemeal litigation and in the recognition that the federal forum is more
convenient.”) with Commercial Cas. Ins. Co. v. Swarts, Manning & Assocs., Inc., 616 F. Supp. 2d 1027,
1033–34 (D. Nev. 2007) (finding parallel proceedings where the combination of claims, crossclaims, and counterclaims created the same claims against the same parties in state and federal
court); see also Carter v. 36 Hudson Assocs., LLC, No. 09 CIV.4328DLC, 2010 WL 2473834, at *4
(S.D.N.Y. June 17, 2010) (denying abstention “since the disputes in the two lawsuits are
sufficiently distinct”). The court in the Canadian Case appears to have recognized that the
Canadian Case would be the smaller circle within the larger circle here, if the two cases were
45
represented in a Venn diagram. At oral argument, the parties represented to the Court that the
court in the Canadian Case has either formally or informally stayed proceedings, waiting to see
what happens here. That delay offsets the technical fact that the Canadian Case was filed first.
A lesser factor that the Court has considered is the possibility of a peripheral federal
question entering the case. As explained above, the Court is recommending dismissal of some of
Bio Essential’s cross-claims but without prejudice to amend. One of the cross-claims subject to
amendment concerns negligence per se. Upon amendment, if Bio Essential identifies specific
federal statutes or regulations whose violation could be addressed only here then litigating a
potential federal violation in federal court would add some weight to the argument against
abstention. Cf. Andrea Theatres, Inc. v. Theatre Confections, Inc., 787 F.2d 59, 63 (2d Cir. 1986)
(“Although state courts may properly consider federal claims raised as defenses in a state court
action, including claims over which federal courts have exclusive jurisdiction, they may not grant
affirmative relief based on claims for which federal jurisdiction is exclusive.”).
Under these circumstances, the Court does not consider this case and the Canadian Case
to be parallel proceedings. Even if the two cases were parallel, abstention would lead only to
scenarios that prejudiced Navitas for no good reason. If the Court abstained from addressing the
third-party complaint only then piecemeal litigation would result. Navitas would be prevented
here from receiving a full and proper apportionment of any damages that it suffered; at the same
time, Navitas would be left looking on helplessly as part of that full and proper apportionment ran
its course in a foreign country without its involvement at all. Though in a different procedural
posture, an analogous logic appeared in Glenclova Inv. Co. v. Trans-Res., Inc., 874 F. Supp. 2d 292,
46
313 (S.D.N.Y. 2012); the court there stayed a federal case that was missing certain parties, while
those missing parties litigated an important issue in state court. The analogy to this case comes
through the principle that courts, when possible, should avoid imposing outcomes on parties who
are not even present to challenge those outcomes. Alternatively, the only way in which the Court
could grant abstention while avoiding piecemeal litigation would be to stay the entirety of this
case, which would leave Navitas waiting months or years to pursue its own relief for reasons
completely out of its control. Given again that the court in the Canadian Case already has
decided to wait and to see what happens here, letting this case move forward in full and in the
ordinary course is the better approach. The Court thus recommends denying EVI’s motion.
F. Bio Essential Motion to Amend [68]
As an alternative to denial of Health Matters’s motion to dismiss its cross-claims, Bio
Essential cross-moved under Rule 15(a)(2) for leave to amend its own cross-claims. Rather than
address the motion to amend separately, the Court chose to address the propriety of amending the
cross-claims as it reviewed each part of Health Matters’s motion. In short, the Court believes that
allowing Bio Essential one opportunity to amend its cross-claims will cause no prejudice this early
in the case and will satisfy the mandate that “[t]he court should freely give leave when justice so
requires.” Fed. R. Civ. P. 15(a)(2). The Court thus recommends granting Bio Essential’s motion;
the Court suggests that any amended cross-claims be filed within 20 days of the adoption of this
Report and Recommendation by Judge Vilardo.
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G. Advantage Health Matters and Health Matters Motion [71]
Health Matters had filed a motion for an order “(1) denying Third-Party Defendants EVI
Inc. and EVI International Group’s motion to dismiss; (2) in the alternative, granting
Defendants/Third-Party Plaintiffs’ motion to amend the Third-Party Complaint.” [71 at 2.] Since
the Court is recommending denial of EVI’s motion to dismiss on its own substance, a separate
order to Health Matters to the same effect would be redundant. With denial, amendment would
not be necessary. The Court thus recommends denying this motion as moot.
IV.
CONCLUSION
For all of the foregoing reasons, the Court respectfully recommends adjudicating the
motions currently pending as follows:
1)
Granting Health Matters’s motion [42] to dismiss certain cross-claims in its
entirety, but without prejudice to allowing Bio Essential one opportunity to
file amended cross-claims;
2)
Denying the motion to dismiss by Rowland Seeds Inc. [49] as moot;
3)
Denying the motion to dismiss by Avafina Commodities Inc. [56] as moot;
4)
Denying the motion to dismiss by EVI Inc. and EVI International Group,
LLC [64];
5)
Granting the motion by Bio Essential to amend its cross-claims [68] and
directing Bio Essential to do so within 20 days of adoption of this Report
and Recommendation; and
6)
Denying the motion to amend by Health Matters [71] as moot.
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V.
OBJECTIONS
A copy of this Report and Recommendation will be sent to counsel for the parties by
electronic filing on the date below. “Within 14 days after being served with a copy of the
recommended disposition, a party may serve and file specific written objections to the proposed
findings and recommendations.” Fed. R. Civ. P. 72(b)(2); see also 28 U.S.C. § 636(b)(1). Any
objections must be filed electronically with the Clerk of the Court through the CM/ECF system.
“As a rule, a party’s failure to object to any purported error or omission in a magistrate
judge’s report waives further judicial review of the point.” Cephas v. Nash, 328 F.3d 98, 107 (2d
Cir. 2003) (citations omitted); see also Mario v. P & C Food Markets, Inc., 313 F.3d 758, 766 (2d Cir.
2002) (“Where parties receive clear notice of the consequences, failure timely to object to a
magistrate’s report and recommendation operates as a waiver of further judicial review of the
magistrate’s decision.”) (citation omitted). “We have adopted the rule that failure to object timely
to a magistrate judge’s report may operate as a waiver of any further judicial review of the decision,
as long as the parties receive clear notice of the consequences of their failure to object. The rule is
enforced under our supervisory powers and is a nonjurisdictional waiver provision whose violation
we may excuse in the interest of justice.” United States v. Male Juvenile (95-CR-1074), 121 F.3d 34,
38–39 (2d Cir. 1997) (internal quotation marks and citations omitted).
“Where a party only raises general objections, a district court need only satisfy itself there
is no clear error on the face of the record. Indeed, objections that are merely perfunctory
responses argued in an attempt to engage the district court in a rehashing of the same arguments
set forth in the original papers will not suffice to invoke de novo review. Such objections would
49
reduce the magistrate’s work to something akin to a meaningless dress rehearsal.” Owusu v. N.Y.
State Ins., 655 F. Supp. 2d 308, 312–13 (S.D.N.Y. 2009) (internal quotation and editorial marks
and citations omitted).
SO ORDERED.
__/s Hugh B. Scott________
Hon. Hugh B. Scott
United States Magistrate Judge
DATED: March 14, 2018
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