Diehl et al v Starbucks Corp, et al, No. 3:2012cv02432 - Document 33 (S.D. Cal. 2014)
Court Description: ORDER granting Defendant's 28 Motion to Dismiss Plaintiff's Third Amended Complaint as to Punitive Damages without Leave to Amend. Signed by Judge Anthony J. Battaglia on 10/10/14. (cge)
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Diehl et al v Starbucks Corp, et al Doc. 33 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 Case No. 12CV2432 AJB (BGS) DONALD DIEHL; DEANNA 10 CONSOLE; KENNETH P. DUBS, SR.; DAN FENN; KAREN 11 McELLIOTT; MARK E. ROEHR; JACK ROWE; LONNIE C. 12 TALBERT; FRANK VIRGADAMO; LARRY L. WESTFALL; and EILEEN 13 WESTFALL, ORDER GRANTING DEFENDANT’S MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED COMPLAINT AS TO PUNITIVE DAMAGES WITHOUT LEAVE TO AMEND 14 [Doc. No. 28] 15 16 17 18 19 20 ) ) ) ) ) ) ) ) ) ) Plaintiffs, ) v. ) STARBUCKS CORPORATION d/b/a ) STARBUCKS COFFEE COMPANY, ) ) and d/b/a STARBUCKS ) MANUFACTURING COMPANY, a ) Washington corporation; and DOES ) 1-50, inclusive, ) ) Defendants. ) 21 22 Before the Court is the motion to dismiss Plaintiffs’ Third Amended Complaint 23 (“TAC”), filed by Defendant Starbucks Corporation (“Defendant” or “Starbucks”). 24 (Doc. No. 28.) Having found the matter appropriately addressed on the papers pursuant to 25 Civil Local Rule 7.1.d.1, the Court did not require appearances and instead deemed the 26 matter submitted. (Doc. No. 32.) Upon consideration of the motion and the parties’ 27 arguments in support and opposition, the Court GRANTS the motion to dismiss the request 28 for punitive damages. 1 12cv2432 Dockets.Justia.com 1 I. BACKGROUND1 2 Plaintiffs are former shareholders of Mellace Family Brands, Inc. (“MFB”). (TAC 2, 3 Doc. No. 27.) Incorporated in 2001, MFB produced oil roasted almonds, cashews, and fruit 4 and nut mixed combinations that were then sold in local shopping centers. (Id. at 4.) In 2007, 5 Starbucks approached MFB for a potential deal to begin selling MFB products at Starbucks 6 stores. (Id.) Before entering into a business relationship with MFB, Starbucks performed due 7 diligence and reviewed all of MFB’s contracts and obligations with other retailers. (Id. at 5.) 8 Starbucks was also permitted to review MFB’s books and records at all times. (Id.) 9 The general course of the parties’ conduct and the Blanket Purchase Agreement 10 (“BPA”) process has been detailed in past orders. Plaintiffs allege that although each BPA 11 contained language disclaiming a legal obligation arising from a contract, MFB acted in 12 reliance on the amount of products sought by Starbucks in volume projections and the 13 amount of prepared products requested through verbal agreements, “usually confirmed by 14 the BPA[]s.” (Id. at 6.) Plaintiffs allege that in reliance on the relationship with Starbucks, 15 MFB upgraded its machinery, hired new staff, and increased orders for raw products and 16 packaging. (Id. at 7.) MFB received its first BPA from Starbucks on or about December 5, 17 2007, and delivered its first shipment to Starbucks in March 2008 “pursuant to the terms 18 outlined in Starbucks[’] volume projections, BPAs, and BPA Releases.” (Id. at 8.) 19 In March 2008, Starbucks provided volume projections to MFB forecasting sales for 20 product orders through September 2008. (Id.) In September 2008, Starbucks provided 21 additional volume projection for the months of January through March 2009. (Id.) Also that 22 month, Starbucks informed MFB that it had received complaints about the quality of MFB’s 23 products. (Id. at 9.) Upon investigation, MFB discovered the reason for the defect and 24 Starbucks was reimbursed for the costs related to the product withdrawal. (Id.) In June 2009, 25 Starbucks received further complaints regarding some MFB products and initiated a product 26 withdrawal. (Id.) Starbucks representatives then toured MFB facilities and discussions led 27 to an agreement to work with Starbucks representatives to ensure product quality. (Id.) In 28 1 The facts herein are derived from the Third Amended Complaint (“TAC”). 2 12cv2432 1 September 2009, Starbucks Product Manager Lori Harris informed MFB that the business 2 was being put out to bid. (Id. at 10.) MFB reprocessed the bid forms and was awarded 3 business in November 2009. (Id.) In awarding MFB the business, Starbucks and Harris 4 imposed certain conditions through an “Action Plan” which included further product 5 specifications, increased quality reporting, additional investment in equipment for internal 6 testing, and upgraded machinery for product packaging. (Id.) Plaintiffs allege that MFB 7 complied with the conditions imposed at significant costs. (Id.) 8 In January 2010, MFB informed Starbucks representatives Jane Wong (“Wong”) and 9 Destiny Linayao (“Linayao”) that it was having difficulty maintaining current price levels 10 due to a rise in commodity prices. (Id.) Wong and Linayao instructed MFB to forward an 11 updated pricing analysis. (Id.) Plaintiffs allege that Starbucks then began a business 12 relationship with Sahale Snacks and disclosed MFB’s confidential pricing information in an 13 effort to surreptitiously remove MFB from future business with Starbucks. (Id.) 14 In early March 2010, Wong informed MFB that the BPAs were pending, but would 15 not be released until MFB agreed to a price decrease. (Id. at 11.) Later that month, Wong 16 provided MFB with a volume estimate and “made MFB an offer: that Starbucks would 17 provide purchase orders through October of 2010 exceeding $3.1 million in product if MFB 18 would provide a price decrease for product orders.” (Id.) Plaintiffs allege that MFB accepted 19 and decreased the unit price, and that this offer (identified by Plaintiffs as the “$3.1 Million 20 Contract”) was approved and ratified by Julie Felss Masino (“Felss Masino”) and her 21 superiors with authority to bind Starbucks. (Id.) On April 2, 2010, after entering into the 22 verbal $3.1 Million Contract, Starbucks issued a BPA for $1,839,656.46 for the months of 23 June through August 2010. (Id.) Days later, Wong notified MFB that Starbucks had 24 “released” the April 2, 2010, BPA, which Plaintiffs allege constitutes partial performance 25 on the $3.1 Million Contract. (Id. at 12.) Plaintiffs allege that in reliance on this release, 26 MFB entered into a contract to purchase approximately $1,000,000 in cashews to fulfill the 27 orders and that Starbucks, including Wong and Felss Masino, knew MFB would do so. (Id.) 28 3 12cv2432 1 In March 2010, Starbucks informed MFB that it had received complaints regarding 2 MFB’s cashew products and later conducted a conference call with the Food and Drug 3 Administration (“FDA”). (Id.) MFB was denied participation in the call and did not receive 4 information regarding what occurred. (Id. at 12-13.) Later in April 2010, Wong informed 5 MFB that MFB products were “consistently rising and doing well,” but soon thereafter 6 notified MFB of a second complaint. (Id. at 13.) Starbucks did not provide details to MFB. 7 (Id.) MFB forwarded the results of its internal testing to Starbucks to demonstrate that all 8 retained products met the requirements of the Action Plan. (Id.) 9 On May 14, 2010, MFB received a termination letter from Starbucks indicating that 10 no new orders would be issued due to product quality concerns, but soon thereafter 11 Starbucks informed MFB that it refused to honor both past and current BPA Releases. (Id. 12 at 14.) Plaintiffs allege representative Linayao informed MFB that Starbucks would 13 reimburse the cost of film and packaging, but that Starbucks never did so, leaving MFB with 14 more than $37,000 of unusable Starbucks materials. (Id.) Later in May 2010, MFB received 15 an investment and merger proposal from R.C. Frontis Partners, which was withdrawn after 16 the firm learned of MFB’s financial hardship allegedly resulting from Starbucks’ conduct. 17 (Id.) 18 On May 25, 2010, an independent laboratory testing of retained samples found all 19 samples to be within the acceptable range of quality specification as provided by the Action 20 Plan. (Id.) Despite having just terminated the business relationship, Starbucks informed MFB 21 that it would still accept all almonds for open purchase orders. (Id.) Plaintiffs allege that 22 MFB shipped the almonds at Starbucks’ request. (Id.) Plaintiffs further allege that on June 23 1, 2010, Starbucks informed MFB that all outstanding payments to MFB were on hold, 24 including that for the open almond orders that Starbucks had just requested. (Id. at 15.) 25 On June 4, 2010, Starbucks informed MFB that it intended to withdraw MFB products 26 due to FDA concerns. (Id. at 16.) MFB sought a return of their products to mitigate damages, 27 but only under the condition that such return was not considered an admission of liability. 28 (Id.) Starbucks returned the products. (Id.) Plaintiffs allege that the FDA investigation 4 12cv2432 1 revealed that a gas leak at a Starbucks facility had tainted certain MFB products, through no 2 fault of MFB. (Id.) 3 Plaintiffs claim that Starbucks’ product withdrawal and alleged failure to fulfil the 4 outstanding product orders and $3.1 Million Contract caused MFB extreme financial 5 difficulty and forced it into insolvency. (Id.) 6 Since the filing of this action, the Court has issued orders addressing motions to 7 dismiss the initial complaint (Doc. No. 12), the First Amended Complaint (Doc. No. 19), and 8 the Second Amended Complaint (Doc. No. 26). Three claims remain: (1) breach of contract; 9 (2) negligent misrepresentation; and (3) intentional misrepresentation. (See Order 12-13, 10 Doc. No. 19.) Plaintiffs also previously included a claim to punitive damages. The Court 11 determined that Plaintiffs failed to adequately plead such damages, noting that the Second 12 Amended Complaint “fail[ed] to allege sufficient facts to establish corporate liability for 13 punitive damages resulting from its employees’ acts.” (Order 11, Doc. No. 26.) 14 II. MOTION TO DISMISS UNDER RULE 12(b)(6) 15 The Court is now faced with Defendant’s motion to dismiss the Third Amended 16 Complaint. In moving to dismiss, Defendant focuses on Plaintiffs’ request for punitive 17 damages. See Whittlestone, Inc. v. Handicraft Co., 618 F.3d 970, 974-75 (9th Cir. 2010) 18 (discussing Rule 12(b)(6) motions to dismiss damages). 19 A. 20 A complaint must contain “a short and plain statement of the claim showing that the Legal Standards 21 pleader is entitled to relief.” Fed. R. Civ. P. 8(a). A motion to dismiss pursuant to Rule 22 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims 23 asserted in the complaint. Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th 24 Cir. 2001). In ruling on a motion to dismiss, the court must “accept all material allegations 25 of fact as true and construe the complaint in a light most favorable to the non-moving party.” 26 Vasquez v. L.A. Cnty., 487 F.3d 1246, 1249 (9th Cir. 2007). However, courts are not “bound 27 to accept as true a legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal, 556 28 U.S. 662, 664 (2009). 5 12cv2432 1 To survive a motion to dismiss, a plaintiff must plead “enough facts to state a claim 2 to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 3 Plausibility does not equate to probability, but it requires “more than a sheer possibility that 4 a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. “A claim has facial plausibility 5 when the plaintiff pleads factual content that allows the court to draw the reasonable 6 inference that the defendant is liable for the misconduct alleged.” Id. Dismissal of claims that 7 fail to meet this standard should be with leave to amend unless it is clear that amendment 8 could not possibly cure the complaint’s deficiencies. See Steckman v. Hart Brewing, Inc., 9 143 F.3d 1293, 1296 (9th Cir. 1998). In determining whether to permit the opportunity to 10 amend a complaint, the Court considers the delay caused by repeated amended complaints, 11 prejudice to defendants, futility, and bad faith. See Kaplan v. Rose, 49 F.3d 1363, 1370 (9th 12 Cir. 1994); DCD Programs v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). 13 In addition to actual damages, California law authorizes exemplary damages “in an 14 action for the breach of an obligation not arising from contract, where it is proven by clear 15 and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” 16 Cal. Civ. Code § 3294. A corporate entity, however, cannot be liable for punitive damages 17 resulting from its employees’ acts unless an officer, director, or managing agent of the 18 corporation: (i) had advance knowledge of the unfitness of the employee and nevertheless 19 employed him with a conscious disregard of the rights or safety of others; (ii) authorized or 20 ratified the conduct giving rise to punitive damages; or (iii) was personally guilty of such 21 conduct. Cal Civ. Code § 3294(b). With respect to ratification, to justify punitive damages 22 against a corporation, a plaintiff must show that an officer, director, or managing agent had 23 actual knowledge of the alleged malicious conduct. College Hosp., Inc. v. Sup. Ct., 8 Cal. 4th 24 704, 726 (1994) (“Corporate ratification in the punitive damages context requires actual 25 knowledge of the conduct and its outrageous nature.”). 26 Officers, directors, and managing agents are the group within a corporation “whose 27 intentions guide corporate conduct.” Cruz v. HomeBase, 83 Cal. App. 4th 160, 167 (2000). 28 Officers—presidents, vice presidents, treasurers, and corporate secretaries—and members 6 12cv2432 1 of a board of directors are readily identifiable. Managing agents are employees who enjoy 2 “substantial discretionary authority over decisions that ultimately determine corporate 3 policy.” Id. at 167 (quoting White v. Ultramar, 21 Cal. 4th 563, 573 (1999) (internal 4 quotation marks omitted)). That an employee ranks high in the corporate hierarchy, however, 5 does not itself establish the employee as a managing agent. Kelly-Zurian v. Wohl Shoe Co., 6 22 Cal. App. 4th 397, 421-22 (1994). 7 B. 8 To evaluate the present motion, the Court has painstakingly compared the Second Discussion 9 Amended Complaint with the TAC. The Court acknowledges that Plaintiffs included 10 numerous sentences in which they allege that certain actions were carried out or ratified by 11 managers, directors, or managing agents, or others with corporate authority to bind 12 Defendant, and appear to focus throughout on Felss Masino. Even so, Defendant asserts that 13 the additions are legal conclusions and without factual support. The Court agrees. 14 Although the names and titles of certain personnel are sprinkled throughout the TAC, 15 the TAC is still wanting in regard to factual allegations supporting a punitive damages 16 prayer. The federal pleading standard is not onerous, and the Rule 12(b)(6) context is 17 generous to the non-movant. See Vasquez, 487 F.3d at 1249. Even with this, Plaintiffs have 18 been unable to present the Court with pleadings sufficient to support such a damages request. 19 The Court reminds Plaintiffs that punitive damages are not warranted in every case and are 20 not awarded as a matter of course whenever a party’s conduct is deemed unlawful. 21 Moreover, as the Court has noted previously, legal conclusions and employing the “magic 22 words” will not save an otherwise faulty pleading. (See Order 22, Doc. No. 22); see also 23 Perkins v. Superior Court, 117 Cal. App.3d 1, 6-7 (1981) (noting that pleading the language 24 of section 3294 “is not objectionable when sufficient facts are alleged to support the 25 allegation”); Cyrus v. Haveson, 65 Cal. App. 3d 306, 316-17 (1976) (“To support punitive 26 damages, the complaint . . . must allege ultimate facts of the defendant’s oppression, fraud, 27 or malice.”). 28 7 12cv2432 1 Because it is apparent to the Court that Plaintiffs do not have the factual support to 2 support a claim to punitive damages at this point, the present motion is denied without leave 3 to amend. The Court, however, is mindful that facts arise during the course of discovery. 4 Should facts develop that would provide Plaintiffs with the ability to plead a factual basis 5 for punitive damages, Plaintiffs may move to add a request for punitive damages at the 6 appropriate time, and no later than thirty days (30) after the discovery cutoff deadline. Until 7 then, this case has already undergone several motions to dismiss and it is time for the 8 litigation to progress. 9 III. 10 CONCLUSION For the reasons stated above, the Court GRANTS Defendant’s motion to dismiss as 11 to punitive damages without leave to amend at this point in the litigation. Plaintiffs may 12 move for punitive damages should facts develop over the course of discovery that would 13 allow them to plead to the extent required by relevant law. 14 15 IT IS SO ORDERED. 16 17 DATED: October 10, 2014 18 19 Hon. Anthony J. Battaglia U.S. District Judge 20 21 22 23 24 25 26 27 28 8 12cv2432
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