Bear Ranch, LLC v. Heartbrand Beef, Inc. et al
Filing
36
MEMORANDUM OPINION AND ORDER denying 21 Opposed MOTION to Intervene (Signed by Judge Gregg Costa) Parties notified.(arrivera, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
VICTORIA DIVISION
BEAR RANCH, LLC,
Plaintiff,
VS.
HEARTBRAND BEEF, INC., et al,
Defendants.
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CIVIL ACTION NO. 6-12-14
MEMORANDUM OPINION AND ORDER
Akaushi cattle, a national treasure of Japan, are the subject of this antitrust
suit deep in the heart of Texas. The issue before the Court is whether to grant
Twinwood Cattle Company’s motion to intervene in the lawsuit Plaintiff Bear
Ranch, LLC filed against Defendants HeartBrand Beef, Inc., American Akaushi
Association, Inc., and Ronald Beeman, the chairman of HeartBrand Beef, Inc.
(collectively, the “HeartBrand Defendants”). After considering the facts of the
case, the arguments of counsel, and the applicable authorities, this Court is of the
opinion that Twinwood’s motion must be put out to pasture. Twinwood’s motion
to intervene is therefore DENIED.
I.
BACKGROUND
Akaushi cattle are native to Japan. According to the parties, Akaushi meat is
predisposed to developing higher marbling than does the meat of ordinary cattle, as
well as a higher proportion of monounsaturated fat. The parties allege that this
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tendency gives Akaushi meat a taste that is renowned for its flavor, tenderness, and
juiciness. Japan places severe restrictions on the export of Akaushi cattle.
HeartBrand is the self-proclaimed sole source of 100% pure Akaushi beef in
the United States. In 1994, HeartBrand’s predecessor exploited, in HeartBrand’s
own words, a “loophole” in a trade agreement between the United States and
Japan, and imported a small number of pure-bred Akaushi cattle to Texas. Our
History, HEARTBRAND BEEF, http://www.heartbrandbeef.com/?page=shop/history
(last visited Oct. 31, 2012). Since that time, HeartBrand has used those original
animals to breed a larger herd of pure-bred, or “full blood,” Akaushi cattle.
HeartBrand uses this herd to supply Akaushi beef products to restaurants, retailers,
and consumers. Additionally, it sells Akaushi cattle and semen to other beef
producers. When HeartBrand makes these sales, its contracts contain a number of
provisions that create obligations and duties for purchasers.
Notably, these
provisions include requirements that purchasers register all Akaushi offspring with
Defendant American Akaushi Association and abide by that Association’s
regulations.
The provisions also forbid purchasers from collecting or selling
Akaushi semen and restrict how purchasers may market and sell Akaushi cattle and
meat products to third parties.
In 2010 and 2011, Bear Ranch purchased a total of almost 1,200 Akaushi
cattle from HeartBrand and other producers, including the proposed intervenor
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Twinwood, who had themselves purchased cattle from HeartBrand.
Then, in
March 2012, Bear Ranch brought this suit alleging that the obligations and
restrictions contained in HeartBrand’s sales contract violate federal antitrust law
and are unenforceable under Texas law. In the alternative, if the contractual
restrictions are deemed lawful, Bear Ranch contends that the HeartBrand
Defendants breached the sales contract by not imposing the same restrictions on
other purchasers of Akaushi cattle.
The HeartBrand Defendants have
counterclaimed for breach of contract.
Twinwood now seeks to join the rodeo. It moves to intervene as a “partyplaintiff” as a matter of right under Federal Rule of Civil Procedure 24(a) and
permissively under Rule 24(b). However, unlike Bear Ranch, it does not ask this
Court to hold that the purchaser obligations and restrictions in HeartBrand’s
contracts are invalid. Twinwood requests only a declaratory judgment that the
“most favored nations” clause in its contract with HeartBrand entitles its to the
same benefits that Bear Ranch has now and will receive if that company prevails in
invalidating the obligations and restrictions in its own contract with HeartBrand.
Bear Ranch and the HeartBrand Defendants have momentarily ceased stamping
their hooves at each other to join forces in opposition to Twinwood’s motion.
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II.
INTERVENTION AS A MATTER OF RIGHT
Twinwood first argues that it is entitled to intervene as a matter of right
under Rule 24(a)(2). That rule requires the Court to allow intervention when
“(1) the motion to intervene is timely; (2) the potential intervenor asserts an
interest that is related to the property or transaction that forms the basis of the
controversy in the case into which [it] seeks to intervene; (3) the disposition of that
case may impair or impede the potential intervenor’s ability to protect [its] interest;
and (4) the existing parties do not adequately represent the potential intervenor’s
interest.”
John Doe No. 1 v. Glickman, 256 F.3d 371, 375 (5th Cir. 2001); see
also Fed. R. Civ. P. 24(a)(2). A “[f]ailure to satisfy any one requirement precludes
intervention of right.” Edwards v. City of Houston, 78 F.3d 983, 999 (5th Cir.
1996) (en banc).
For the reasons discussed below, the Court concludes that
Twinwood does not meet the second requirement because it does not have a legally
recognized interest in the property or transaction underlying this suit.
To be entitled to intervention, a party must have a “direct, substantial,
legally protectable interest in the proceedings.” New Orleans Pub. Serv., Inc. v.
United Gas Pipe Line Co. (NOPSI), 732 F.2d 452, 463 (5th Cir. 1984) (en banc)
(citations and quotation marks omitted). Under this standard, “something more
than an economic interest is necessary.” Id. at 464. The interest asserted must be
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one “that the substantive law recognizes as belonging to or . . . owned by the
applicant” for intervention. Edwards, 78 F.3d at 1004.
Decisions within the Fifth Circuit demarcate those interests that are
sufficient to warrant intervention as of right.
In In re Lease Oil Antitrust
Litigation, 570 F.3d 244 (5th Cir. 2009), the State of Texas had the right to
intervene to contest the distribution of unclaimed funds from a class action
settlement. This was because, under state law, the State had a right to unclaimed
or abandoned property, and thus had “a property right in interest from the
unclaimed funds that [was] recognized under state law.” Id. at 251. Likewise, an
interest sufficient for intervention as a matter of right was found in United Rentals,
Inc. v. Martitrend, Inc., No. 00-3600, 2002 WL 230816 (E.D. La. Feb. 13, 2002), a
case that arose out of a breached contract for the sale of damaged forklifts. Id. at
*1. The plaintiff in that case, the owner of the forklifts, brought suit against the
company that damaged the forklifts. Id. At the same time, the plaintiff agreed to
sell the damaged forklifts to the intervenor, but breached the sales contract and
sold instead to a different bidder. Id. The intervenor’s asserted interest was
sufficient because it had a contractual interest in the actual property underlying the
suit—the damaged forklifts—the value of which was at issue in the plaintiff’s
claim for damages against the defendant. Id. at *3.
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In contrast, courts have found that asserted interests are not sufficient to
justify intervention when either no legally recognized interest existed or when the
interest asserted was too contingent, speculative, or remote from the subject of the
case. In NOPSI, the plaintiff, a private utility company providing electric power
to the City of New Orleans, filed suit against the defendant, a seller of natural gas,
over a contractual dispute concerning fuel prices. NOPSI, 732 F.2d at 454–55.
The Mayor of New Orleans and a number of other citizens attempted to intervene
on the ground that the electricity rates they paid would be increased if the fuelpricing dispute was decided against the plaintiff utility company. Id. at 460–61.
The NOPSI court held this “purely economic interest” to be insufficient to justify
intervention. Id. at 466.
The district court relied on similar reasoning in Adams v. Consol. Wood
Prods. Emp. Benefit Plan, No. 2:10-cv-310-TJW, 2011 WL 665821 (E.D. Tex.
Feb. 14, 2011). In that case, two workers, a grandfather and grandson, were badly
injured while unloading wooden pallets from a tractor-trailer. Id. at *1. The
grandfather filed a claim against his employer’s ERISA plan, and the grandson,
who was not covered by the plan, attempted to intervene because the employer’s
total insurance was capped at $1 million, such that any ERISA payment to the
grandfather would limit the insurance money available to pay off the grandson’s
separate negligence suit. Id. at *1, *4. Despite the significant economic impact
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the case might have on the grandson, the court denied intervention because the
grandson had no legal interest in the ERISA plan itself. Id. at *4.
Texas v. Dep’t of Energy, 754 F.2d 550 (5th Cir. 1985), demonstrates that
speculative interests are insufficient. In that case, the State of Texas filed for
review of the U.S. Department of Energy’s designation of several west Texas sites
as nuclear waste depositories. Id. at 551. A large number of electrical utilities
operating nuclear power plants moved to intervene, arguing that any delay caused
by the review would increase their statutory obligations to pay into the
Department’s nuclear waste offset fund.
Id.
While the court noted that
intervention might be appropriate if the legality of the offset fund itself was
challenged, it stated that the asserted interest was too indirect; the intervenors’
interest in the fund would only be implicated if the State’s suit were successful,
that success caused significant delays, and those delays increased the monetary
demands on the fund. Id. at 552.
These cases demonstrate that Twinwood does not satisfy the requirement of
having a “direct, substantial, legally protectable interest in the proceedings.”
NOPSI, 732 F.3d at 463 (citations and internal quotations omitted). In contrast to
the cases allowing intervention when the intervenor asserted a statutory (In re
Lease Oil Antitrust Litigation) or contractual (Martitrend) right to the property at
issue in the lawsuit, Twinwood does not allege any ownership interest in Bear
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Ranch’s cattle. Neither does the contract between Bear Ranch and Heartbrand vest
Twinwood with any rights. Instead, the sole interest alleged by Twinwood is that
the terms of its own, separate contracts with HeartBrand will place it at a
competitive disadvantage if it does not receive whatever benefits Bear Ranch
already possesses or will receive from the disposition of this suit. This is the type
of interest that is both purely economic, like that in NOPSI, and indirect and
speculative, like that in Dep’t of Energy. It cannot justify intervention under Fifth
Circuit precedent.
Twinwood attempts to beef up its argument for intervention by citing two
cases from other jurisdictions and a 1967 Supreme Court decision in which the
courts granted intervention as a matter of right. But CRI, Inc. v. Watson, 608 F.2d
1137 (8th Cir. 1979), actually aligns neatly with the Fifth Circuit cases cited above.
In Watson, an investment firm sued an individual defendant for breaching his
contract to sell his equity stake in a limited partnership. Id. at 1139. The broker
who had negotiated the sale intervened, and the court held intervention to be
proper because the broker was entitled to a commission under the sales contract
that formed the subject matter of the suit and thus had a contractual interest that
was directly affected by the defendant’s breach. Id. at 1139–40. But the Bear
Ranch contracts at issue in this case vest no rights in Twinwood; the interest
Twinwood asserts in this case arises soley under the terms of its own contract with
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HeartBrand and is simply contingent upon Bear Ranch’s success. Cf. St. John’s
Univ. v. Bolton, 450 F. App’x 81, 83 (2d Cir. 2011) (affirming the district court’s
conclusion that the proposed intervenor did not “have a direct, legally protected
interest in the outcome of the underlying litigation sufficient to satisfy Rule 24(a),
inasmuch as his interest is contingent both on [the plaintiff’s] prevailing in the
underlying action and on his prevailing in a separate action to enforce the
agreement . . . .”). 1
Twinwood’s reply brief relies heavily on Cascade Natural Gas Corp. v. El
Paso Natural Gas Co., 386 U.S. 129 (1967), an antitrust divestiture action in
which the Supreme Court held that California and a utility met the Rule 24(a)
criteria. See id. at 135–36. But the Fifth Circuit has noted two reasons why
Cascade’s brief discussion of intervention—which does indeed take a broader
view of the “interest” element—is of limited force. See NOPSI, 732 F.2d at 466
n.28 (citing and discussing Cascade).
First, antitrust law vested the state
intervenor with “substantive rights to be free of antitrust injury to its general
economy.” Id. Second, a subsequent Supreme Court case took a narrower view of
1
The other case cited, Am. Horse Protection Ass’n v. Veneman, 200 F.R.D. 153 (D.D.C. 2001),
was decided under a different test for mandatory intervention than the one that the Fifth Circuit
follows. Veneman applied the “liberal and forgiving standard” that the court thought appropriate
in the D.C. Circuit, a standard under which the interest requirement could be dispensed with as
long as the impairment and adequate representation requirements were met. Id. at 157–58.
Moreover, that court merged the Rule 24(a) analysis with the constitutional standing analysis.
See id. at 157 (“[I]t is impossible to conjure a case in which an intervenor would have
constitutional standing to intervene but not have a sufficient ‘interest in the litigation’ to justify
intervention under Fed. R. Civ. P. 24(a)(2).”).
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the “interest” requirement—articulating the “significantly protectable” interest
standard consistent with what the Fifth Circuit follows today—than did the
Cascade Court, which was interpreting Rule 24(a)(2) in its infancy. Id. (quoting
Donaldson v. United States, 400 U.S. 517, 531 (1971)); see also 7C CHARLES
ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 1908.1 (3d ed. 2007)
(noting that “[w]ith an occasional rare exception, both the commentators and the
lower courts have refused to regard Cascade as a significant precedent,” that “it
has been argued that Cascade must be limited to its own peculiar facts,” and that
Cascade was “complicated” by the fact that Rule 24 was amended during the
pendency of the litigation (italics added)).
Twinwood’s failure to satisfy the current “direct, substantial, legally
protectable interest” requirement is further demonstrated by its argument that the
“potential stare decisis implications of an adverse decision” in Bear Ranch’s case
establish the requisite interest. Docket Entry No. 29, at 6 n.5; see Docket Entry
No. 21, at ¶ 22. The potential precedential effects of a court ruling are the type of
indirect economic interests that are insufficient to confer intervention as of right.
Business litigation often has repercussions for other participants in the industry.
More particularly, it is often the case that one party will enter into similar
contractual provisions with numerous counterparties. This commonly occurs with
intellectual property licenses, employment contracts, and consumer arbitration
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agreements, to name just a few examples. But Twinwood cites no case allowing a
party to intervene as a matter of right because a lawsuit may rule on the validity or
interpretation of a contractual provision similar, or identical, to one the intervenor
also agreed to in a separate contract with one of the litigants.
For these reasons, Twinwood’s interest is insufficient to justify intervention
as a matter of right.
III.
PERMISSIVE INTERVENTION
Twinwood also seeks this Court’s permission to intervene under Rule 24(b).
That Rule gives district courts discretion to allow intervention when “(1) timely
application is made by the intervenor, (2) the intervenor’s claim or defense and the
main action have a question of law or fact in common, and (3) intervention will not
unduly delay or prejudice the adjudication of the rights of the original parties.”
League of United Latin Am. Citizens v. Clements, 884 F.2d 185, 189 n.2 (5th Cir.
1989); see also Fed. R. Civ. P. 24(b)(1)(B). Even if these elements are present,
however, permissive intervention “is wholly discretionary with the district court
even though there is a common question of law or fact, or the requirements of Rule
24(b) are otherwise satisfied.” NOPSI, 732 F.2d at 471 (citation, brackets, and
ellipsis omitted).
Both Bear Ranch and the HeartBrand Defendants oppose permissive
intervention on the ground that Twinwood’s claim does not share a question of law
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or fact in common with the claims in the underlying litigation. In addition, the
HeartBrand Defendants argue that Twinwood lacks standing to request permissive
intervention and, furthermore, that Twinwood cannot establish an independent
basis for federal jurisdiction over its claim.
“It is well-established . . . that a party must have independent jurisdictional
grounds to intervene permissively under Rule 24(b).” Harris v. Amoco Prod. Co.,
768 F.2d 669, 675 (5th Cir. 1985) (citations and quotation marks omitted).
Generally, jurisdiction is easily found when parties to seek to permissively
intervene in a federal-question case; however, this is one of the “very few cases in
which one who has sought to intervene as a plaintiff in a federal-question case [is]
asserting a claim not raising a federal question.” 7C CHARLES A. WRIGHT ET AL.,
FEDERAL PRACTICE
AND
PROCEDURE § 1917 (3d ed. 2007). Because Twinwood
only requests a declaration regarding its state-law contract claim and because both
Twinwood and HeartBrand are citizens of Texas, neither federal-question nor
diversity jurisdiction is present. Twinwood must therefore show the presence of
supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a), which grants such
jurisdiction “over all other claims that are so related to claims in the action within
such original jurisdiction that they form part of the same case or controversy under
Article III of the United States Constitution.” For that to occur, Twinwood’s claim
and the claims at issue between Bear Ranch and the HeartBrand Defendants must
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be “derive[d] from a common nucleus of operative fact.” United Mine Workers of
Am. v. Gibbs, 383 U.S. 715, 725 (1966); see also Arena v. Graybar Elec. Co., 669
F.3d 214, 221 (5th Cir. 2012). Moreover, the claims “must be so interrelated that
plaintiffs ‘would ordinarily be expected to try them all in one judicial
proceeding.’” Espino v. Besteiro, 708 F.2d 1002, 1010 (5th Cir. 1983) (quoting
Gibbs, 383 U.S. at 725)).
Twinwood cannot show that its claim and the claims in the original action
are derived from a common nucleus of operative fact. A common nucleus can be
found where claims arise from the same incident, contract, or injury. See, e.g., City
of Chicago v. Int’l College of Surgeons, 522 U.S. 156, 160, 165 (1997) (holding
the standard satisfied when the plaintiff’s state and federal law claims, both
challenging a city’s denial of demolition permits to that plaintiff, arose from the
city’s refusal to issue the permits); State Nat’l Ins. Co. v. Yates, 391 F.3d 577, 579
(5th Cir. 2004) (holding similarly when a variety of claims between an insured, an
insurer, and the local agent that the insured purchased the policy from all arose
from the purchase and enforceability of a single insurance policy). But such is not
the case here. The nucleus of operative fact that gives rise to the claims and
counterclaims in this case consists of the formation and performance of Bear
Ranch’s contracts, as well as the allegedly illegal acts committed by the
HeartBrand Defendants. By contrast, the nucleus of operative fact that gives rise
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to Twinwood’s claim consists of the formation of the most favored nations clause
contained in the Twinwood–HeartBrand contract. These are different contracts
between different parties entered into under different circumstances. They are not
derived from a common nucleus of operative fact.
Because Twinwood has not established an independent ground for subject
matter jurisdiction over its claim, permissive intervention is inappropriate, and the
Court need not determine whether Twinwood has standing to request permissive
intervention or if Twinwood’s suit has a question of law or fact in common with
the underlying litigation. The Court notes, however, that even if Twinwood could
meet the jurisdictional and Rule 24(b) prerequisites, the Court would exercise its
discretion to deny permissive intervention. Twinwood’s intervention would not
produce the efficiency gains that justify intervention.
The gravamen of
Twinwood’s complaint—that the “most favored nations” clause entitles it to any
relief Bear Ranch obtains in this case from the HeartBrand restrictions2 —is
implicated only in the event that Bear Ranch prevails. Because that contingency
would arise only at the completion of the litigation between Bear Ranch and
HearBrand, Twinwood’s involvement would only add a new chapter to this
litigation raising distinct issues of contractual interpretation.
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And Twinwood
Twinwood claims that its “most favored nations” clause entitles it to certain more favorable
conditions that HeartBrand is currently giving Bear Ranch, though it has not alleged a single
such condition. Adding this tag-along claim would also be inefficient and potentially confuse
the main issues in this case. Once again, Twinwood will suffer no prejudice because it can file a
separate lawsuit seeking any more favorable conditions that Bear Ranch currently enjoys.
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suffers no prejudice from the denial of its intervention request as it is free to pursue
the typical course of filing a separate lawsuit to enforce a “most favored nations”
clause.
IV.
CONCLUSION
Because Twinwood does not satisfy the standard for intervention as a matter
of right and has not shown there to be an independent grounds of jurisdiction that
could allow permissive intervention, some culling of the herd is appropriate.
Twinwood Cattle Co.’s Opposed Motion for Leave to Intervene (Docket Entry No.
21) is DENIED.
IT IS SO ORDERED.
SIGNED this 1st day of November, 2012.
______________________________
Gregg Costa
United States District Judge
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