Radish Seed Growers' Association et al v. Northwest Bank

Filing 57

OPINION AND ORDER: Upon review, I agree with Judge Kasubhai's recommendation and I ADOPT the F&R 49 . Defendant's Motion to Dismiss 6 is DENIED. Signed on 2/7/2019 by Judge Ann L. Aiken. (ck)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
EUGENE DIVISION

RADISH SEED GROWERS' ASSOCIATION,
an Oregon cooperative; MID VALLEY
FARMS, INC., and Oregon corporation; and
KCK FARMS LLC, an Oregon limited liability
Company,

Case No. 6:17-cv-00716-MK
OPINION AND ORDER

Plaintiffs,
vs.
NORTHWEST BANK, a Pem1sylvania statechmiered savings association formerly known
as Northwest Savings Bank,
Defendant.

AIKEN, District Judge:
On October 20, 2018, Magistrate Judge Mustafa T. Kasubhai issued his Findings and
Recommendation (F&R) (doc. 49), recommending that defendant Nmihwest Bank's Motion to
Dismiss (doc. 6) be DENIED. Defendant filed Objections to the F&R (doc. 52) and plaintiffs
Radish Seed Growers' Association, Mid Valley Farms, Inc., and KCK Farms LLC filed a
Response to the Objections (doc. 54).

The matter is now before the Couti pursuant to

28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b).

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STANDARDS
Under the Federal Magistrates Act ("Act"), the Couti may "accept, reject, or modify, in
whole or in part, the findings or recommendations made by the magistrate." 28 U.S.C. § 636(b)(1 ).
If a party files objections to a magistrate judge's F&R, "the court shall make a de novo
dete1mination of those p01iions of the rep01i or specified proposed findings or recommendations
to which objection is made." Id.; Fed. R. Civ. P. 72(b)(3).
For those portions of a magistrate judge's F&R to which neither party has objected, the
Act does not prescribe any standard of review. See Thomas v. Arn, 474 U.S. 140, 152 (1985)
("There is no indication that Congress, in enacting [the Act], intended to require a district judge to
review a magistrate's report to which no objections are filed."); United States v. Reyna-Tapia, 328
F.3d 1114, 1121 (9th Cir. 2003) (en bane) (holding that the Comi must review a magistrate judge's
findings and recommendations de nova if objection is made, "but not otherwise"). Although in
the absence of objection no review is required, the Act "does not preclude further review by the
district judge[] sua sponte .. . under a de novo or any other standard." Thomas, 474 U.S. at 154.
Indeed, the Advisory Committee Notes to Rule 72(b) recommend that "[w]hen no timely objection
is filed," the Court review the magistrate judge's recommendations for "clear en-or on the face of
the record."

BACKGROUND
The parties are familiar with the facts underlying this case, and I will not retread them here,
except those relevant to the following procedural history.
In Northwest Bank v. McKee Family Farms et al., Civ. No. 3: 15-cv-O 1576-MO, defendant
filed a declaratory action in this Couti seeking a declaration that it had a superior security interest

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in radish seed grown by plaintiffs. Plaintiffs prevailed at trial before Judge Mosman, and defendant
appealed to the Ninth Circuit.
While the appeal was pending, plaintiffs filed this suit against defendant, asserting claims
for intentional interference with economic relations, conversion, and trespass to chattels under
Oregon law. Defendant moved to dismiss the claims for failure to state a claim and because they
were barred by the absolute litigation privilege. (doc. 6) Defendant also moved to strike the
complaint pursuant to ORS 31.150, Oregon's bar to strategic lawsuits against public participation
(Anti-SLAPP). (doc. 18)
On October 3, 2017, Judge Russo issued her F &R (doc. 30) recommending that defendant's
motion to dismiss be denied without prejudice, that the case be stayed pending the resolution of
the Ninth Circuit appeal, and that the motion to strike be denied. In her F&R, Judge Russo found
that the Complaint alleged facts sufficient to state two of the elements of the exception to the
absolute litigation privilege, but that the pendency of the appeal from Judge Mosman's decision
precluded plaintiffs from asse1ting the third element - that the antecedent proceedings were
terminated in their favor. F&R (doc. 30) at 10-11. Judge Russo found that staying the proceedings
in this case would better serve justice than dismissing the claims. Id. at 11. Judge Russo also
concluded that the allegations in the Complaint stated a claim for intentional interference with
economic relations. Id. at 12-13. Finally, Judge Russo concluded that Oregon's Anti-SLAPP
statnte did not bar plaintiffs' claims at that point in the litigation. Id. at 13. Judge Russo did not
address the merits of the conversion and trespass to chattels claims. Id. at 12.
On December 5, 2017, I issued an Opinion and Order (doc. 41) that adopted Judge Russo's
reasoning, stayed all proceedings in the case, "including consideration of defendant's motion to
dismiss (doc. 6), pending the resolution of the Ninth Circuit's decision in Northwest Bank v.

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ivfcKee Family Farms," and denied defendant's motion to strike, "without prejudice to its renewal
should defendant prevail on appeal." Opinion & Order at 2-3.
On July 27, 2018, the Ninth Circuit affitmed Judge Mosman's judgment in favor of
plaintiffs and against defendant, and on August 31, 2018, the Comi lifted the stay. (doc. 42). The
Court ordered the pmiies to file simultaneous briefs addressing the effect of the Ninth Circuit's
ruling on the matters pending before the Court. (doc. 46).
On October 30, 2018, Judge Kasubhai issued his F&R (doc. 49) recommending that the
motion to dismiss (doc. 6) be denied. Judge Kasubhai incorporated by reference the prior F&R
(doc. 30) and Opinion and Order (doc. 41) and specifically found that plaintiffs' allegations
supported a prima facie case for intentional interference with economic relations and that neither
the absolute litigation privilege nor the Anti-SLAPP statute bar plaintiffs' claims at this stage in
the litigation. F&R (doc. 49) at 2.
DISCUSSION

Defendant objects to the F&R's (1) conclusion that plaintiffs' allegations were sufficient
to overcome the absolute litigation privilege, (2) failure "to recognize that Oregon's anti-SLAPP
statute, ORS 31.150, applies to plaintiffs' claims and requires their dismissal of plaintiffs'
claims[,]" 1 and (3) failure to address the defendant's argument that plaintiffs failed to state claims
for conversion and trespass to chattels. Objections (doc. 52) at 2.

1

As part of this objection, defendant asserts that Judge Kasubhai failed to address
defendant's renewal of its motion to strike and defendant urges the Court to enter an order on the
motion. Although defendant presented arguments regarding Oregon's anti-SLAPP statute in its
supplemental briefing and in its objections, there is no renewed motion to strike before the Court.
See LR 7-l(b) (motions must be separately stated and "may not be combined with any response,
reply, or other pleading"). Accordingly, I will not discuss defendant's arguments fmiher.

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I have reviewed de nova those pmiions of Judge Kasubhai's F&R to which defendant has
objected, as well as plaintiffs' response. I agree with and adopt the reasoning in the F&R.
Although the F&R does not directly address plaintiffs' conversion and trespass to chattels
claims, defendant's motion to dismiss asse1ied that the complaint failed to allege facts necessary
to establish the elements of the torts. Judge Russo declined to reach those arguments in her earlier
F&R, so they are still pending before the Comi. Accordingly, I will dispose of them here.
Oregon has adopted the elements of conversion set fmih in the Restatement (Second) of
Torts § 222A (1965). Mustola v. Toddy, 253 Or. 658, 664 (1969). Thus, to state a claim for

conversion, a plaintiff must allege facts establishing "the intentional exercise of dominion or
control over a chattel that so seriously interferes with the right of another to control it that the actor
may justly be required to pay the full value of the chattel." Emmert v. No Problem Harry, Inc.,
222 Or. App. 151, 159-60 (2008). The elements of trespass to chattels are similar, "the only
arguable differences are the extent of the interference and remedy." Scott v. Jackson Cty., 244 Or.
App. 484, 499 (2011). Trespass to chattels, "which was been described as the 'little brother of
conversion[,]' ... allows recovery 'for interferences with the possession of chattels which are not
sufficiently impmiant to be classified as conversion."' A1orrow v. First Interstate Bank ofOregon,
NA., 118 Or. App. 164, 168 (1993) (quoting Prosser and Keeton on Torts 85-86 (5th ed. 1984)).
Defendant asserts that plaintiffs cannot allege that it exercised "dominion or control" over
the seed because "the mere asse1iion of a security interest cannot constitute the exercise of
'dominion or control."' Def.'s Mem. in Supp. of Mot. to Dismiss (doc. 6) at 17; Objections (doc.
52) at 12-13. Defendant relies on Dietzman v. Ralston Purina Co., 246 Or. 367 (1967). In
Dietzman, plaintiffs appealed from a judgment of voluntary nonsuit, arguing that defendant

converted plaintiffs' flock of chickens by executing a chattel mortgage covering the chickens,

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which prevented plaintiffs from obtaining feed on credit and "forced [plaintiffsJ to sell their
chickens." Id. at 368. The Oregon Supreme Comt disagreed, stating "[t]he mere asse1tion of an
unfounded lien does not constitute conversion." Id.
Here, plaintiffs rely on more than just an allegation that defendant recorded meritless liens
on the seeds; they also allege that defendant interfered with plaintiffs' right to control the seed by
sending threatening letters to potential buyers and by filing and maintaining a lawsuit against
plaintiffs. Comp!. at ~~ 41, 43.
Defendant also asse1ts that plaintiffs' claims should fail because plaintiffs had no right to
control the seed. Defendant relies on the argument that it made in suppo11 of dismissing plaintiffs'
claim for intentional interference with economic relations. See Def.'s Mem. in Supp. of Mot. to
Dismiss (doc. 6) at 17 (referring to pages 14-15). Specifically, defendant argues that, under the
terms of plaintiffs' production contracts, plaintiffs did not own the seed and they had no right to
sell it, even if Crop Cover Solutions, LLC ("CCS"), failed to pay them for growing it. Id. at 1415. Judge Russo rejected this argument in her earlier F&R. She reasoned:

[T]he complaint alleges sufficient plausible facts to demonstrate that CCS's breach
of the production contracts entitled them to sell the seed subject to payment of
royalties to Blue Moon. Indeed, the complaint alleges the growers did in fact sell
the seed after prevailing in the trial court on the declaratory judgment action.
F&R (doc. 30) at 13. I agree with Judge Russo's findings and reasoning and find that they provide
grounds to reject defendant's argument in this context as well.
Finally, defendant asse1ts that its conduct was privileged because it had a reasonable, good
faith basis to believe that it had a first-priority security interest in the seed. Oregon has adopted
the Restatement view that
'[O]ne in possession of a chattel who is in reasonable doubt as to the right of a
claimant to its immediate possession does not become a converter by making a

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qualified refusal to surrender the chattel for the purpose of affording a reasonable
oppmiunity to inquire into such right.'

Becker v. Pacific Forest Industries, Inc., 229 Or. App. 112, 117 (2009) (quoting and adopting
Restatement § 240). Defendant argues that, by filing and maintaining the declaratory judgment
action against plaintiffs, it was exercising its privilege "to inquire into" its interest in the seed. As
Judge Russo found in her earlier F&R, "plaintiffs have pleaded, ... , that had defendant undergone
necessary diligence, [l it would have known (or did know) that it could not have obtained a priority
security interest in any seed crops arising from the Blue Moon Licensing Agreement." F&R (doc.
30) at 10. Those allegations are sufficient to demonstrate that, even if defendant's conduct was
motivated by its doubt as to the parties' respective rights to the seed, that doubt was not
"reasonable."

Accordingly, based on the facts alleged in the complaint, the privilege in

Restatement§ 240 does not bar plaintiffs' conversion and trespass to chattels claims at this time.
CONCLUSION

Upon review, I agree with Judge Kasubhai's recommendation and I ADOPT the F&R (doc.
49). Defendant's Motion to Dismiss (doc. 6) is DENIED.
IT IS SO ORDRED.
Dated this

f};;;y

of February 2019.

at,lA.

Ot11:ru

Ann Aiken
United States District Judge

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