Paramount Farms, Inc. vs. Ventilex B.V., No. 1:2008cv01027 - Document 19 (E.D. Cal. 2009)
Court Description: ORDER DENYING 12 Motion to Dismiss, F.R.Civ.P.12(b)(6) Dismissal, Submission to Arbitration or a Stay of this Action, signed by District Judge Lawrence J. O'Neill on 1/22/2009. (Sondheim, M)
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Paramount Farms, Inc. vs. Ventilex B.V. Doc. 19 1 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 PARAMOUNT FARMS, INC., 12 Plaintiff, 13 vs. 14 VENTILEX B.V., 15 CASE NO. CV F 08-1027 LJO SMS ORDER ON DEFENDANT’S F.R.Civ.P. 12(b)(6) MOTION TO DISMISS (Doc. 12.) Defendant. / 16 17 INTRODUCTION 18 Defendant Ventilex B.V. (“Ventilex BV”) seeks to dismiss plaintiff Paramount Farm, Inc.’s 19 (“Paramount Farms’”) breach of contract and warranty claims on grounds that Ventilex BV is not a party 20 Paramount Farms’ contract to purchase an almond pasteurization system. Paramount Farms responds 21 that its complaint sufficiently alleges breach of contract and warranty claims and that Ventilex BV relies 22 on, in part, an unauthenticated document which is not part of the contract at issue. This Court 23 considered Ventilex BV’s F.R.Civ.P. 12(b)(6) motion to dismiss on the record and VACATES the 24 January 28, 2009 hearing, pursuant to Local Rule 78-230(h). For the reasons discussed below, this Court 25 DENIES F.R.Civ.P. 12(b)(6) dismissal of Paramount Farms’ claims. 26 BACKGROUND 27 The Parties 28 Paramount Farms is a Delaware corporation and describes itself as “the world’s largest vertically 1 Dockets.Justia.com 1 integrated supplier of pistachios and almonds.” Paramount Farms performs in Lost Hills, California 2 almond processing and packaging for resale. Beginning in 2004, Paramount Farms initiated efforts to 3 pasteurize almonds to achieve a “5-log” reduction of Salmonella bacteria1 which was expected to be 4 imposed by federal and California almond regulators. 5 Ventilex BV is a Netherlands company and a manufacturer of nut pasteurization systems. 6 Ventilex BV is the parent company of Ventilex USA, Inc. (“Ventilex USA”), a United States-based sales 7 unit. Ventilex USA is not a defendant in this action. 8 Bid And Specifications For Almond Pasteurization System 9 Paramount Farms claims that after months of discussions and negotiations, Ventilex BV emailed 10 to Paramount Farms a November 8, 2005 Paramount Farms Bid (“Paramount Farms Bid”) which 11 comprises a one-page face letter (“face letter”) followed by four pages of specifications 12 (“specifications”).2 The face letter references “VENTILEX USA Inc.,” “VENTILEX B.V.,” and 13 “VENTILEX.” The face letter includes a signature for “Tom Schroeder President.” The face letter 14 states in pertinent part: 15 16 VENTILEX USA Inc. and VENTILEX B.V. hereby certifies [sic] that the equipment that we supply will be accepted by the FDA and USDA for the Pasteurization of Almonds. The installation will be repeatable, verifiable, and that data logging will take place, thus allowing for trace ability and long term storage of data. 17 18 In addition, VENTILEX will work hand in hand with Paramount Farms to make sure that the “system” is accepted and “validated”. VENTILEX guarantees the VENTILEX equipment will be validated and will correct any item found to deficient at our cost. 19 20 VENTILEX appreciates your confidence in our company and our equipment, and we will work hard to meet your expectations. 21 Page 4 of the specifications notes: “F.O.B.: VENTILEX B.V., Heerde, The Netherlands” and 22 “Terms and Conditions: See Attached ‘Terms and Conditions’ Exhibit A Attached and made part of this 23 proposal.” Page 4 of the specifications further notes: 24 VENTILEX appreciates your interest and will work diligently with Paramount Farms on this project. We appreciate your trust. We will not let you down. 25 26 27 1 “5-log” means to reduce the bacteria level by a factor of 100,000 or five zeros. 28 2 In their papers, the parties refer to the Paramount Farms Bid as the “Plans and Specifications.” 2 1 Page 4 of the specifications includes a signature “Tom Schroeder Ventilex USA.” The last three pages 2 of the specifications contain a footer noting “VENTILEX” and an Ohio address and telephone and fax 3 numbers. 4 Proposal Contract And Related Documents For Almond Pasteurization System 5 Paramount Farms entered into a November 9, 2005 three-page Proposal Contract (“Proposal 6 Contract”) to purchase for more than $765,000 an almond pasteurization system (“system”). The 7 Proposal Contract identifies Paramount Farms as “Owner” and Ventilex USA as “Contractor” and is 8 signed by only Paramount Farms and Ventilex USA.3 The Proposal Contract identifies no other party 9 and incorporates to “constitute the contract” between “Owner and Contractor” several documents, 10 including “This Proposal Contract,” the Paramount Farms Bid, and November 9, 2005 Standard 11 Conditions (“Standard Conditions”). The parties do not dispute that the Proposal Contract, Paramount 12 Farms Bid and Standard Conditions are subject to the contract, and in turn their agreement, at issue in 13 this action. The parties dispute whether and a January 2004 revised General Terms and Conditions of 14 Sale (“General Terms and Conditions”) are subject to the contract at issue. Paramount Farms claims that 15 it was unaware of the General Terms and Conditions until Ventilex BV filed its motion to dismiss. 16 Ventilex BV claims that the General Terms and Conditions were “expressly incorporated into the 17 Contract.” 18 The Standard Conditions provide the following “Contractor’s Guarantee”: 19 (a) In addition to warranties, representations and guarantees stated elsewhere in the contract documents, the Contractor unconditionally guarantees and warrants that all materials and workmanship furnished hereunder shall be without defect and shall conform to the Plans and Specifications, and agrees to replace at its sole cost and expense, and to the satisfaction of the Owner, any and all materials which may be defective, improperly installed, or which do not conform to the plans and specifications. ... 20 21 22 23 24 25 26 (b) The Contractor shall repair or replace to the satisfaction of the Owner any or all such work that may prove defective in workmanship or materials, which is improperly installed, or which does not conform to the plans and specifications, ordinary wear and tear expected, together with any other work which may be damaged or displaced in so doing. (c) In the event of failure to comply with the above stated conditions within a reasonable time, the Owner is authorized to have the defect repaired or replaced at the expense of 27 28 3 Ventilex BV contends that it is not a party to the Proposal Contract and did not sign it. 3 1 2 3 the Contractor who will pay the costs and charges therefore immediately upon demand, including any reasonable management and administrative costs, and engineering, legal and other consulting fees incurred to enforce with section. (d) Except as otherwise provided in this Contract, the guarantees and warranties shall remain in effect for one year after the completion of the project. 4 5 The General Terms and Conditions address “Liability For Defects” and state: “The Supplier’s 6 liability is limited to defects, which appear within a period of one year from delivery.” The Proposal 7 Contract contains a “Warranty” by which “The Contractor warrants that all the equipment covered by 8 this quotation will be free of defects to workmanship and materials for a period of 12 months from start 9 up. Which is estimated to be: (1, March, 2006).” (Underlining in original.) 10 Lastly, the General Terms and Conditions address arbitration: 11 12 All disputes arising out of or in connection with the contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules. 13 System’s Performance 14 Paramount Farms contends that after it took delivery of the system in early 2006, it has “failed 15 to perform as warranted” and has failed to “achieve a 5-log reduction in Salmonella bacteria as originally 16 warranted” to force Paramount Farms to pasteurize its almonds offsite at a cost of $68,000 per week 17 since April 14, 2008. Paramount Farms claims that it “has also been forced to purchase a replacement 18 pasteurization system” in excess of $1 million. Paramount Farms further claims that Ventilex BV has 19 failed to repair, redesign or replace the system as promised. 20 In early June 2008, Paramount Farms filed an arbitration demand with the American Arbitration 21 Association (“AAA”) against Ventilex BV and Ventilex USA. A few weeks later, Ventilex BV sought 22 to stay the arbitration in New York state court on grounds that it is not a party to the Proposal Contract 23 and incorporated documents. In late June 2008, Paramount Farms removed the state action to a New 24 York federal court but on July 18, 2008, filed this action against Ventilex BV with this Court to allege 25 what Ventilex BV characterizes as “essentially identical” claims asserted against Ventilex BV in the 26 AAA arbitration. In October 2008, Paramount Farms withdrew its claims against Ventilex BV in the 27 AAA arbitration to render this action as the apparent sole forum for Paramount Farms’ claims against 28 Ventilex BV. 4 1 Paramount Farms’ Claims Against Ventilex BV 2 Paramount Farms’ operative original complaint (“complaint”) alleges against Ventilex BV: 3 1. A (first) breach of written contract cause of action that “Ventilex breached the written 4 Contract”4 and a (second) breach of express warranty cause of action that “Ventilex has 5 breached the express warranty contained in the Contract” in that: 6 a. 7 The system “has not been validated or approved by any governmental agency for almond pasteurization”; 8 b. 9 Ventilex has failed to work with Paramount Farms to ensure that the system is approved or validated; 10 c. 11 The materials and workmanship were defective and failed to perform to plans and specifications; and 12 d. 13 Ventilex failed to repair or replace to Paramount Farms’ satisfaction the defective workmanship or materials within a reasonable time; 14 2. A (third) breach of implied covenant of good faith and fair dealing cause of action that 15 Ventilex has failed to provide contracted materials, workmanship and services and has 16 failed promptly to remedy defective and nonconforming materials, workmanship and 17 services; 18 3. A (fourth) breach of implied warrant of merchantability cause of action that the system’s 19 failure to achieve 5-log Salmonella bacteria reduction renders the system “not fit for the 20 purpose in which such goods are generally used”; and 21 4. A (fifth) breach of implied warranty of fitness for particular purpose that the “goods 22 provided to [Paramount Farms] by Ventilex were not suitable for [Paramount Farms’] 23 particular needs” in the absence of a 4-log or 5-log Salmonella bacteria reduction. 24 The complaint alleges damages in excess of $5 million. 25 /// 26 27 28 4 The complaint defines “Ventilex” as “Ventilex B.V. and each of the fictitiously named Doe defendants.” The complaint states: “Ventilex USA is not a party to this action.” The complaint appears to refer to “Contract” as the November 9, 2005 Proposal Contract and documents which it incorporates. 5 1 DISCUSSION 2 F.R.Civ.P. 12(b)(6) Motion Standards 3 The basis of Ventilex BV’s challenge is that it is not a party to the Proposal Contract or 4 incorporated documents to defeat Paramount Farms’ breach of contract and warranty claims. Ventilex 5 BV notes: “In the absence of an agreement between Paramount and Ventilex [BV], Paramount’s claims 6 simply cannot stand.” 7 A F.R.Civ.P. 12(b)(6) motion to dismiss is a challenge to the sufficiency of the pleadings set 8 forth in the complaint. “When a federal court reviews the sufficiency of a complaint, before the reception 9 of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not 10 whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to 11 support the claims.” Scheurer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683 (1974); Gilligan v. Jamco 12 Development Corp., 108 F.3d 246, 249 (9th Cir. 1997). A F.R.Civ.P. 12(b)(6) dismissal is proper where 13 there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a 14 cognizable legal theory.” Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990); Graehling 15 v. Village of Lombard, Ill., 58 F.3d 295, 297 (7th Cir. 1995). F.R.Civ.P. 12(b)(6) dismissal is proper 16 when “plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” 17 Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102 (1957). 18 In resolving a F.R.Civ.P. 12(b)(6) motion, the court must: (1) construe the complaint in the light 19 most favorable to the plaintiff; (2) accept all well-pleaded factual allegations as true; and (3) determine 20 whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty 21 Mut. Ins. Co., 80 F.3d 336, 337-338 (9th Cir. 1996). Nonetheless, a court is “free to ignore legal 22 conclusions, unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in 23 the form of factual allegations.” Farm Credit Services v. American State Bank, 339 F.3d 765, 767 (8th 24 Cir. 2003) (citation omitted). A court need not permit an attempt to amend a complaint if “it determines 25 that the pleading could not possibly be cured by allegation of other facts.” Cook, Perkiss and Liehe, Inc. 26 v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). “While a complaint attacked by a 27 Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to 28 provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a 6 1 formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 127 2 S. Ct. 1955, 1964-65 (2007) (internal citations omitted). 3 For a F.R.Civ.P. 12(b)(6) motion, a court generally cannot consider material outside the 4 complaint. Van Winkle v. Allstate Ins. Co., 290 F.Supp.2d 1158, 1162, n. 2 (C.D. Cal. 2003). 5 Nonetheless, a court may consider exhibits submitted with the complaint. Van Winkle, 290 F.Supp.2d 6 at 1162, n. 2. In addition, a “court may consider evidence on which the complaint ‘necessarily relies’ 7 if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) 8 no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Marder v. Lopez, 450 9 F.3d 445, 448 (9th Cir. 2006). A court may treat such a document as “part of the complaint, and thus 10 may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” United 11 States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). Such consideration prevents “plaintiffs from 12 surviving a Rule 12(b)(6) motion by deliberately omitting reference to documents upon which their 13 claims are based.” Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). Moreover, a “court may 14 disregard allegations in the complaint if contradicted by facts established by exhibits attached to the 15 complaint.” Sumner Peck Ranch v. Bureau of Reclamation, 823 F.Supp. 715, 720 (E.D. Cal. 1993) 16 (citing Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.1987)). As such, this Court may 17 consider the Proposal Contract, Paramount Farms Bid and Standard Conditions in that the parties do not 18 dispute that they are part of the contract at issue. 19 Breach Of Contract 20 Ventilex BV argues that it cannot be liable for breach of contract in that it was never a party to 21 a contract with Paramount Farms. “A statement of a cause of action for breach of contract requires a 22 pleading of (1) the contract, (2) plaintiff's performance or excuse for non-performance, (3) defendant's 23 breach, and (4) damage to plaintiff therefrom.” Acoustics, Inc. v. Trepte Constr. Co., 14 Cal.App.3d 24 887, 913, 92 Cal.Rptr. 723 (1971). Ventilex BV argues that the first element requires “a valid contract 25 between the parties” to avoid liability for “entities that are not parties to a contract.” Gen-Probe Inc. 26 v. Center for Neurologic Study, 853 F.Supp. 1215, 1219 (S.D. Cal. 1993) (counterclaim dismissed for 27 failure to allege “existence of a written contract” between the parties). 28 Ventilex BV contends that the Proposal Contract is between Paramount Farms as Owner and 7 1 Ventilex USA as Contractor since the Proposal Contract lists only them as parties and was signed only 2 by them. Ventilex BV claims that the contract “clearly states that the Parties are Paramount and 3 Ventilex U.S.,” not Ventilex BV. Ventilex BV notes the complaint’s failure to allege that Ventilex BV 4 was a signatory because Ventilex BV “simply was not a signatory.” 5 Paramount Farms responds that Ventilex BV is a party to the “contract” because it manufactured 6 and shipped the system pursuant to the contract, provided specific guarantees under the contract, was 7 bound to perform specific obligations under the contract, and was an agent of signatory Ventilex USA. 8 Paramount Farms argues that the face letter demonstrates that Tom Schroeder did not sign the face letter 9 for Ventilex USA only in that he signed as “President” without reference or limitation to a particular 10 entity and the face letter carefully distinguishes among Ventilex USA, Ventilex BV and VENTILEX, 11 the collective Ventilex USA and Ventilex BV. 12 Paramount Farms argues that despite the signatory issue, Ventilex BV was a party to the contract 13 in that it “specifically agreed to perform key obligations under the agreement.” A “person who holds 14 himself out as offering a service cannot complain if in reliance thereon another accepts the offer and 15 agrees to the terms. Such a person becomes a party without being a signator.” Huckell v. Matranga, 99 16 Cal.App.3d 471, 481, 160 Cal.Rptr. 177 (1979). Paramount Farms points to face letter of the Paramount 17 Farms Bid’s face letter by which “VENTILEX USA Inc. and VENTILEX B.V. hereby certifies [sic] that 18 the equipment that we supply will be accepted by the FDA and USDA for the Pasteurization of 19 Almonds.” 20 The face letter continues that “VENTILEX will work hand in hand with Paramount Farms to make sure 21 that the ‘system’ is accepted and ‘validated.’” The face letter also provides: “VENTILEX guarantees the 22 VENTILEX equipment will be validated and will correct any item found to be deficient at our cost.” 23 Page four the of the Paramount Farms Bid’s specifications reveals that the system was shipped from 24 Ventilex BV’s overseas plant (“F.O.B.: VENTILEX B.V., Heerde, The Netherlands”). 25 At the outset, this Court faces the challenge to determine, without unavailable, extrinsic 26 evidence, which documents comprise the contract or agreement at issue. The signed Proposal Contract 27 defines the “Contract Terms” to include itself, the Paramount Farms Bid and Standard Conditions. This 28 Court is not in a position to conclude that the parties’ contract includes the General Terms and 8 1 Conditions given the parties’ dispute, requiring consideration of unavailable extrinsic evidence, and the 2 absence of inclusion of the General Terms and Conditions in the defined “Contract Terms” of the 3 Proposal Contract. For purposes of Ventilex BV’s F.R.Civ.P. 12(b)(6) motion to dismiss, this Court 4 concludes that the General Terms and Conditions are extrinsic evidence beyond this Court’s reach and 5 review. 6 Turning to the documents comprising the contract at issue, the Paramount Farms Bid’s face sheet 7 puts Ventilex BV front and center to certify and validate the system. The face sheet treats Ventilex BV 8 and Ventilex USA as a combined entity to no less raise factual issues as to Ventilex BV’s status and 9 which cannot be answered on this F.R.Civ.P. 12(b)(6) motion. The Proposal Contract and Paramount 10 Farms Bid reveal that Ventilex BV, at a minimum, offered services which Paramount Farms accepted. 11 Ventilex BV does not avoid Paramount Farms’ breach of contract claim by hiding from a lack of clarity 12 in its own documents. The complaint adequately alleges that Tom Schroeder acted as Ventilex BV’s 13 agent to bind it.5 An issue as to the scope of his authority is a factual issue beyond the limits of Ventilex 14 BV’s F.R.Civ.P. 12(b)(6) motion. At this pleading stage, this Court is not in a position to conclude that 15 Ventilex BV is not a party to a contract with Paramount Farms regarding the system.6 This Court rejects 16 Ventilex BV’s claims that the Paramount Farms Bid cannot support breach of contract claims and that 17 Ventilex USA or Tom Schroeder could not act as Ventilex BV’s agent. 18 Breach Of Express Warranty 19 “[T]o plead a cause of action for breach of express warranty, one must allege the exact terms of 20 the warranty, plaintiff's reasonable reliance thereon, and a breach of that warranty which proximately 21 causes plaintiff injury.” Williams v. Beechnut Nutrition Corp., 185 Cal.App.3d 135, 142, 229 Cal.Rptr. 22 605 (1986); see Burr v. Sherwin Williams Co., 42 Cal.2d 682, 268 P.2d 1041 (1954). 23 Ventilex BV argues that in the absence of a contract between it and Paramount Farms, Ventilex 24 25 26 27 28 5 Ostensible authority stems “from conduct of the principal which leads the third party reasonably to believe that the agent is authorized to bind the principal. . . . Although it is established that ostensible authority can be created only by the acts or declarations of the principal, not by those of the agent . . ., the principal need not have been in direct contact with the third party; the manifestation of the principal may be to the community at large, and may consist of appointing the agent to a particular position.” Meyer v. Ford Motor Co., 275 Cal.App.2d 90, 101-102, 79 Cal.Rptr. 816 (1969). 6 As such, this Court need not address the parties’ arguments regarding promissory estoppel. 9 1 BV is not liable for breach of express warranty. Ventilex BV claims that Paramount Farms’ breach of 2 express warranty claim relates “solely” to the express warranty in the contract between Paramount Farms 3 and Ventilex USA. Ventilex BV further claims it made no “representation that serves as the basis for 4 the express warranty claim.” 5 Paramount Farms responds that the complaint alleges a valid breach of express warranty claim 6 in that “[p]rivity is generally not required for liability on an express warranty because it is deemed fair 7 to impose responsibility on one who makes affirmative claims as to the merits of the product, upon 8 which the remote consumer presumably relies.” Cardinal Health 301, Inc. v. Tyco Electronics Corp., 9 169 Cal.App.4th 116, __ Cal.Rptr.3d __, 2008 WL 5206399, *19 (2008). Paramount Farms notes 10 Ventilex BV’s certification in the face letter of the Paramount Farms Bid that “the equipment that we 11 supply will be accepted by the FDA and USDA for the Pasteurization of Almonds. The installation will 12 be repeatable, verifiable, and that data logging will take place, thus allowing for trace ability and long 13 term storage of data.” Paramount Farms concludes that such express warranty obviates the need for 14 privity. 15 As discussed in relation to the breach of contract claim, this Court is not prepared to conclude 16 that Ventilex BV is not a party to a contract with Paramount Farms and in turn not subject to the 17 certification in the Paramount Farms Bid’s face letter. Ventilex BV is plainly named in the paragraph 18 providing the certification that the equipment “will be accepted by the FDA and USDA.” The face letter 19 creates no less than a factual issue, which cannot be resolved here, that Ventilex provided an express 20 warranty of acceptance by FDA and USDA. Ventilex BV’s claim that it “did not cause the statement 21 to be included in the document” is unpersuasive and raises another factual issue beyond the scope of its 22 F.R.Civ.P. 12(b)(6) motion. The breach of express warranty claim survives Ventilex BV’s lack of 23 privity attack. 24 Breach Of Implied Covenant Of Good Faith And Fair Dealing 25 To challenge Paramount Farms’ breach of implied covenant of good faith and fair dealing claim, 26 Ventilex BV again points to the absence of a contract between it and Paramount Farms. Although a 27 claim for breach of the obligation to deal fairly and act in good faith “sounds both in contract and in tort, 28 the existence of the duty which is the subject of the breach depends upon a contractual relationship. The 10 1 particular relationship is that created by the contract . . . in which a covenant of good faith and fair 2 dealing is implied as a matter of law.” Iversen v. Superior Court, 57 Cal.App.3d 168, 171, 127 Cal.Rptr. 3 49 (1976). “The cause of action for breach of the implied covenant of good faith and fair dealing 4 similarly depends on the existence of an enforceable contract. In the absence of a contract, there is no 5 cause of action for breach of the implied covenant.” Ali v. L.A. Focus Publication, 112 Cal.App.4th 6 1477, 1489, 5 Cal.Rptr.3d 791 (2003); see Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 36, 44 7 Cal.Rptr.2d 370 (1995) (“there can be no action for breach of the implied covenant of good faith and 8 fair dealing because the covenant is based on the contractual relationship”). 9 As noted above, this Court will not conclude, at this pleading stage, that Ventilex BV is not a 10 party to an agreement with Paramount Farms regarding the system. Like the breach of contract and 11 express warranty claims, the breach of implied covenant of good faith and fair dealing claim survives. 12 Breach Of Implied Warranties Of Merchantability 13 And Fitness For Particular Purpose 14 Ventilex BV argues that Paramount Farms’ claims of breach of implied warranties of 15 merchantability and fitness for particular purpose fail because Ventilex BV and Paramount Farms “do 16 not stand in vertical privity.” 17 “Vertical privity is a prerequisite in California for recovery on a theory of breach of the implied 18 warranties of fitness and merchantability.” U.S. Roofing, Inc. v. Credit Alliance Corp., 228 Cal.App.3d 19 1431, 1441, 279 Cal.Rptr. 533 (1991). A California plaintiff alleging breach of warranty must stand in 20 “vertical privity” with the defendant. Anunziato v. eMachines, Inc., 402 F.Supp.2d 1133, 1141 (C.D. 21 Cal. 2005). The California Court of Appeal has explained “vertical privity”: 22 26 “The term 'vertical privity' refers to links in the chain of distribution of goods. If the buyer and seller occupy adjoining links in the chain, they are in vertical privity with each other and lack of privity would not be available as a defense to the seller in a warranty action brought by the buyer. For example, the distributor is normally in vertical privity with the manufacturer, and the ultimate retail buyer is normally in vertical privity with the dealer. But if the retail buyer seeks warranty recovery against a manufacturer with whom he has no direct contractual nexus, the manufacturer would seek insulation via the vertical privity defense.” (Clark & Smith, The Law of Product Warranties (1984) ¶ 10.01[1], p. 10-3.) 27 Osborne v. Subaru of America, Inc., 198 Cal.App.3d 646, 656, n. 6, 243 Cal.Rptr. 815 (1988). 28 “[T]here is no privity between the original seller and a subsequent purchaser who is in no way a party 23 24 25 11 1 to the original sale.” Burr, 42 Cal.2d at 695, 268 P.2d 1041. Stated another way, an “end consumer” 2 who “buys from a retailer is not in privity with a manufacturer.” Clemens v. DaimlerChrysler Corp., 3 534 F.3d 1017, 1023 (9th Cir. 2008). 4 Ventilex BV argues that Paramount Farms is unable to establish vertical privity with it because 5 the Proposal Contract establishes that Paramount Farms contracted for the system with Ventilex USA, 6 not Ventilex BV. Paramount Farms responds that it and Ventilex BV were parties to the contract “at 7 issue” to accord direct privity between them. Paramount Farms criticizes Ventilex BV’s reliance on “the 8 paper contract” given the complaint’s allegations that “Ventilex” represented positive system testing and 9 approval in “the many dealings” between Paramount Farms and Tom Schroeder. 10 Based on the complaint and the undisputed documents at issue here, this Court cannot conclude 11 that Paramount Farms lacks a direct contractual nexus with Ventilex BV given its certification in the 12 Paramount Farms Bid’s face letter that “the equipment we supply will be accepted by the FDA and 13 USDA for the Pasteurization of Almonds.” The complaint and undisputed documents point to links in 14 a chain in the distribution of the system to Paramount Farms. Ventilex BV has not established 15 conclusively an absence of vertical privity to avoid Paramount Farms’ breach of implied warranty 16 claims. 17 Limitations Period 18 Ventilex BV contends that a one-year limitations period established by the Proposal Contract and 19 General Terms and Conditions bar Paramount Farms’ claims. California Commercial Code section 2725 20 permits parties to reduce the four-year limitations period for breach of a sale contract: “An action for 21 breach of any contract for sale must be commenced within four years after the cause of action has 22 accrued. By the original agreement the parties may reduce the period of limitation to not less than one 23 year but may not extend it.” See Therma-Coustics Manufacturing, Inc. v. Borden, Inc., 167 Cal.App.3d 24 282, 297, 213 Cal.Rptr. 611 (1985) (“The one-year limitation provisions here do not limit plaintiff's 25 remedy, but limit the time within which it may pursue that remedy, and, moreover, do so in a way which 26 is statutorily and judicially acceptable”). 27 Ventilex BV points out that the Proposal Contract contains a “Warranty” by which “The 28 Contractor warrants that all the equipment covered by this quotation will be free of defects to 12 1 workmanship and materials for a period of 12 months from start up. Which is estimated to be: (1, 2 March, 2006).” (Underlining in original.) Ventilex BV further notes that the General Terms and 3 Conditions address “Liability For Defects” and state: “The Supplier’s liability is limited to defects, 4 which appear within a period of one year from delivery.” Ventilex BV argues that the complaint does 5 not allege a defect arising within a year of the acknowledged early 2006 delivery of the system in that 6 the complaint references testing “[s]ince August 15, 2007” revealed that the system “has failed to 7 perform as warranted.” 8 Paramount Farms characterizes the General Terms and Conditions as unauthenticated, extrinsic 9 evidence unrelated to its complaint’s allegations and the Proposal Contract and which it had not seen 10 prior to Ventilex BV’s motion to dismiss. To address the timeliness of its claims, Paramount Farms 11 points to the complaint’s allegations that: 12 1. From the early 2006 delivery of the system and continuing forward, Paramount Farms 13 tested the system to obtain regulatory validation and approval “in advance of the 14 applicable compliance and enforcement deadlines”; 15 2. 16 17 After Paramount Farms requested assistance in these efforts, Ventilex BV “did not or could not address the fundamental design flaws of the System”; and 3. “Since delivery in early 2006 and to date, Ventilex continued to assure [Paramount 18 Farms] that they System would eventually perform as warranted and would be validated 19 and approved in advance of the USDA Mandatory Pasteurization Rule deadline, but it 20 has not.” 21 Paramount Farms argues that its claims survive a one-year limitations period in that the 22 complaint demonstrates that Paramount Farms immediately requested Ventilex BV’s assistance with the 23 inoperable system and that Ventilex BV repeatedly assured that problems would be solved. Paramount 24 Farms further notes that the system never started up to initiate the limitations period in that the system 25 was neither fully operational, approved nor validated to perform even as warranted. Paramount Farms 26 points out that the Proposal Contract’s warranty does not set a deadline to commence legal action within 27 one year of accrual of claims because it merely warrants the equipment “will be free of defects due to 28 workmanship and materials for a period of 12 months from start up.” Lastly, Paramount Farms contends 13 1 that the complaint alleges Ventilex BV’s repeated assurances of necessary repairs to estop Ventilex BV 2 to assert a limitations defense. 3 Paramount Farms’ points are well taken. Ventilex BV relies on a liability limitation in the 4 General Terms and Conditions which has not been conclusively shown to be incorporated in the parties’ 5 agreement. The Proposal Contract’s warranty does not designate a one-year limitations period to pursue 6 legal action. The limitations defense raises factual issues as to when Paramount Farms’ claims accrued 7 given undetermined precise delivery date of a fully operational system and Ventilex BV’s alleged 8 assurances that the system would perform as warranted. The complaint’s allegations and limited record 9 available to this Court prevent barring Paramount Farms’ claims based on a limitations defense. 10 Arbitration And Stay 11 Ventilex BV argues that if Paramount Farms’ claims are not dismissed, they should be arbitrated 12 pursuant to an arbitration provision in the General Terms and Conditions: “All disputes arising out of 13 or in connection with the contract shall be finally settled under the Rules of Arbitration of the 14 International Chamber of Commerce by one or more arbitrators appointed in accordance with the said 15 rules.” Ventilex BV contends that the arbitration provision applies in that the Paramount Farms Bid, 16 the “sole” document to mention Ventilex BV, incorporates by reference the arbitration provision. 17 Again, Paramount Farms responds that its is not bound by the General Terms and Conditions’ 18 arbitration provision in that the Proposal Contract did not incorporate the General Terms and Conditions, 19 which are unauthenticated and were not provided to Paramount Farms until Ventilex BV filed its motion 20 to dismiss. 21 Arbitration is a way to resolve disputes “that the parties have agreed to submit to arbitration.” 22 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920 (1995). Arbitration clauses 23 limit a court’s power: “Our role is strictly limited to determining arbitrability and enforcing agreements 24 to arbitrate, leaving the merits of the claim and any defenses to the arbitrator.” Republic of Nicaragua 25 v. Standard Fruit Co., 937 F.2d 469, 479 (9th Cir. 1991), cert. denied, 503 U.S. 919, 112 S.Ct. 1294 26 (1992); see Muh v. Newberger, Loeb & Co., Inc., 540 F.2d 970, 972 (9th Cir. 1976) (If the parties have 27 agreed to arbitrate, “the entire controversy must be referred to the arbitrator, including the validity of the 28 contract.”) A contractually based arbitration “can be brought to conclusion entirely extrajudicially, and 14 1 . . . the judiciary’s supervision is limited to confirming, vacating, or correcting any resultant award.” 2 Jordan-Lyon Productions, Ltd. v. Cineplex Odeon Corp., 29 Cal.App.4th 1459, 1468, 35 Cal.Rptr.2d 3 200, 205 (1994); Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790, 1806, 13 Cal.Rptr.2d 678 4 (1992). 5 As explained above, this Court is not in a position to conclude that the General Terms and 6 Conditions apply given their uncertain status and apparent factual issues as to their application. There 7 is nothing conclusive that Ventilex BV and Paramount Farms agreed to arbitrate their disputes given the 8 factual issues surrounding an agreement between them. Based on the complaint and available extrinsic 9 evidence, this Court is not prepared to direct the parties to arbitrate under the Rules of Arbitration of the 10 International Chamber of Commerce. 11 Ventilex BV further argues that a stay of this action is appropriate given the pending arbitration 12 between Ventilex USA and Paramount Farms. Ventilex BV contends that a stay promotes judicial 13 economy and efficient use of resources of the Court, parties and counsel in that the pending arbitration 14 may dispose of issues and claims and clarify issues raised in this action. Ventilex BV notes an absence 15 of hardship to Paramount Farms who will be present its case “against the actual contractually bound 16 party in arbitration.” Ventilex BV pledges not to hinder the pending arbitration. 17 Paramount Farms characterizes Ventilex BV’s stay suggestion as a “ploy” to avoid its 18 obligations” to Paramount Farms. Paramount Farms discounts judicial economy and efficient use of 19 resources in that the doctrine of issue preclusion does not apply given Ventilex BV’s denial of 20 involvement in the transaction subject to the arbitration between Paramount Farms and Ventilex USA. 21 See Vandenberg v. Superior Court, 21 Cal.4th 815, 834, 88 Cal.Rptr.2d 366 (1999) (“a private 22 arbitration award, even if judicially confirmed, can have no collateral estoppel effect in favor of third 23 persons unless the arbitral parties agreed, in the particular case, that such a consequence should apply.”) 24 Paramount Farms contends there will be no disposition of issues between it and Ventilex BV to produce 25 judicial economy from the Paramount Farms-Ventilex USA arbitration. Paramount Farms further argues 26 that it will suffer prejudice from a stay given Ventilex BV’s anticipated failure to cooperate to provide 27 evidence and witnesses germane to the issues in the Paramount Farms-Ventilex USA arbitration. 28 “[A] court can properly stay a suit before it if any issue in the suit is arbitrable, even if some 15 1 issues are not.” Pryner v. Tractor Supply Co., 109 F.3d 354, 361 (7th Cir.) (italics in original), cert. 2 denied, 522 U.S. 912, 118 S.Ct. 294 (1997). A district court shall stay further proceedings and order 3 arbitration if it determines that: (1) a valid agreement to arbitrate exists; and (2) the agreement 4 encompasses the dispute at issue. Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th 5 Cir.2000); Lucas v. Gund, Inc., 450 F.Supp.2d 1125, 1130 (C.D. Cal. 2006). The “power to stay 6 proceedings is incidental to the power inherent in every court to control the disposition of the causes on 7 its docket with economy of time and effort for itself, for counsel, and for litigants.” Landis v. North 8 American Co., 299 U.S. 248, 254-255, 57 S.Ct. 163 (1936). As “a matter of its discretion to control its 9 docket,” a district court may stay litigation among non-arbitrating parties pending the outcome of 10 arbitration. Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 20, n. 23, 103 S.Ct. 11 927 (1983). “Hence, federal courts have not hesitated to stay the litigation of nonarbitrable claims until 12 the conclusion of arbitration, provided that economies of time and effort for court and parties can thereby 13 be achieved and that ‘the party seeking the stay can demonstrate that he will not hinder the arbitration, 14 that the arbitration will be concluded within a reasonable time; and that the delay will not work an undue 15 hardship on the party opposing the stay.’” Janmort Leasing, Inc. v. Econo-Car Intern., Inc., 475 F.Supp. 16 1282, 1293 (quoting Societe Nationale v. General Tire & Rubber Co., 430 F.Supp. 1332, 1334 17 (S.D.N.Y.1977)). 18 As explained above, this Court is unable to conclude that Paramount Farms and Ventilex BV 19 entered into a “valid agreement” to arbitrate to address the issues between them. Ventilex BV identifies 20 no concrete or discernable benefits to warrant a stay of this action, especially considering its prior 21 rejection of arbitration and Paramount Farms’ expectations of its lack of cooperation. Ventilex BV’s 22 points regarding a non-arbitrating party’s derivative liability are inconsistent with its arguments that it 23 is removed from the transaction at issue. 24 Moreover, “‘if there is even a fair possibility that the stay . . . will work damage to some one 25 else,’ the stay may be inappropriate absent a showing by the moving party of ‘hardship or inequity.’” 26 Dependable Highway Express, Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir. 2007) (quoting 27 Landis v. North American Co., 299 U.S. 248, 255, 57 S.Ct. 163 (1936)). A possibility exists that a stay 28 will damage Paramount Farms given delay to resolve its claims and the absence of an active forum to 16 1 determine its dispute with Ventilex BV. Ventilex BV demonstrates no hardship or inequity to continue 2 with this action. As such, a stay is not in order. 3 4 CONCLUSION AND ORDER For the reasons discussed above, this Court DENIES F.R.Civ.P. 12(b)(6) dismissal, submission 5 to arbitration or a stay of this action. 6 IT IS SO ORDERED. 7 66h44dDated: January 22, 2009 /s/ Lawrence J. O'Neill UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17
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