Agrolipetsk, LLC v. Seeds, 1:16-cv-03414-SEB-MPB

AGROLIPETSK, LLC, Plaintiff, v. MYCOGEN SEEDS, et al. Defendants.

No. 1:16-cv-03414-SEB-MPB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

September 25, 2018

ORDER ON PLAINTIFF'S OBJECTION TO MAGISTRATE JUDGE'S DENIAL OF PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT (DKT. 47)

Plaintiff Agrolipetsk ("Agrolipetsk"), a Russian limited liability company, sued Defendants Dow AgroSciences ("Dow"), a Delaware limited liability company, and Agrigenetics (doing business as "Mycogen Seeds"), a Delaware corporation, both having their principal places of business in Indiana, in connection with the sale by Defendants to Agrolipetsk of an allegedly defective variety of hybrid sunflower seed, "Variety 341." Dkt. 12. Following dismissal without prejudice of its first amended complaint on Defendants' motion for judgment on the pleadings, see Fed. R. Civ. P. 12(c), Agrolipetsk moved for leave to file a second amended complaint. Dkt. 36. See Fed. R. Civ. P. 15(a)(2).

We referred the motion to Magistrate Judge Matthew P. Brookman, who found that Agrolipetsk's proposed complaint ("Proposed Complaint" or "PC") would not survive a motion to dismiss for failure to state a claim on which relief could be granted, see Fed. R. Civ. P. 12(b)(6). He therefore denied the motion as futile. Dkt. 46 ("Entry"). Agrolipetsk has now appealed from that ruling by timely objection. Dkt. 47. See Fed. R. Civ. P. 72.

For the reasons explained below, Agrolipetsk's objections are sustained in part and overruled in part.

Background

The factual background of this case is fully set out in our order on Defendants' motion for judgment on the pleadings, Dkt. 35, and in Judge Brookman's ruling. We will address particulars as necessary below.

Standard of Review

A magistrate judge's ruling on nondispositive matters will not be set aside by the district judge unless clearly erroneous or contrary to law. Fed. R. Civ. P. 72(a). A magistrate judge's report and recommendation on a dispositive motion is reviewed by the district judge de novo. Fed. R. Civ. P. 72(b)(3).

Dow contends that the Seventh Circuit has held that a motion for leave to file an amended complaint is a nondispositive matter for these purposes, and the magistrate judge's ruling on such motion is therefore entitled to deferential review under Rule 72(a), even if denial will end the case as a practical matter for want of live claims to prosecute. Br. Opp. 6-7 (citing Hall v. Norfolk S. Ry. Co., 469 F.3d 590, 596 (7th Cir. 2006); Elder Care Providers of Ind., Inc. v. Home Instead, Inc., No. 1:14-cv-01894-SEB-MJD, 2017 WL 4250107, at *1 (S.D. Ind. Sept. 26, 2017) (Barker, J)).

We are unaware of such a holding. Hall affirmed a magistrate judge's denial of a motion for leave to file an amended complaint which had been reviewed by the districtjudge under Rule 72(a). The court of appeals pointed out that denial "did not terminate [plaintiff's] existing lawsuit against [defendant], it merely prevented him from adding [a second defendant]." 469 F.3d at 595. Similarly, in Elder Care, we applied Hall to a case where denial did not end the lawsuit; it merely prevented plaintiff from adding a new claim. 2017 WL 4250107, at *1. In Schur v. L.A. Weight Loss Centers, Inc., the Seventh Circuit left open "whether a motion to join a nondiverse defendant whose joinder would destroy the court's diversity jurisdiction is 'dispositive[.]'" 577 F.3d 752, 760 n.6 (7th Cir. 2009). The question appears to be open still. See Clymer v. Wal-Mart Stores, Inc., No. 1:15-cv-00300-JTM-SLC, 2016 WL 3580487, at *1 n.1 (N.D. Ind. May 20, 2016). In other words, it is far from settled that a formal, rather than a functional, approach governs the choice between Rule 72(a) and Rule 72(b).

That choice will not make a difference in this case, though, and so we need not pursue it to conclusion. Assuming Rule 72(a) supplies the correct standard, "[r]egarding legal issues, the language 'contrary to law' appears to invite plenary review." 12 Charles Alan Wright & Arthur R. Miller et al., Federal Practice and Procedure § 3069 (3d ed. 2014). "'[F]or questions of law there is no practical difference between review under Rule 72(a)'s contrary to law standard and a de novo standard.'" CertusView Techs., LLC v. S & N Locating Servs., LLC, 107 F. Supp. 3d 500, 504 (E.D. Va. 2015) (quoting Bruce v. Hartford, 21 F. Supp. 3d 590, 594 (E.D. Va. 2014)). See also Elder Care, 2017 WL 4250107, at *2 (quoting Pain Ctr. of SE Ind., LLC v. Origin Healthcare Sols. LLC, No. 1:13-CV-00133-RLY-DKL, 2014 WL 958464, at *3 (S.D. Ind. Mar. 12, 2014)) ("An order is contrary to law when it 'fails to apply or misapplies relevant statutes, case law, orrules of procedure.'" (emphasis added)). And Judge Brookman's ruling that the Proposed Complaint would not survive a Rule 12(b)(6) motion clearly presents a question of law. E.g., Agnew v. Nat'l Collegiate Athletic Ass'n, 683 F.3d 328, 334 (7th Cir. 2012). We will therefore review it as such.

Analysis

The Proposed Complaint contains two counts for breach of warranty under the Uniform Commercial Code as adopted by Indiana ("UCC"), one each against Dow and Mycogen Seeds (Counts I, II), and two counts for incurable deceptive acts under Indiana's Deceptive Consumer Sales Act ("Deceptive Sales Act"), similarly allocated (Counts III, IV). There is also one count for uncured deceptive acts under the Deceptive Sales Act against Dow only (Count V).

Judge Brookman ruled that Counts III and IV as pleaded would not meet the applicable pleading standards, see Fed. R. Civ. P. 8(a), 9(b), except for one specific theory of liability, the "quiet recall" theory, which Defendants had not challenged and therefore survived the Rule 8 and Rule 9 analyses by default. See Entry 14. Judge Brookman ruled further that Count V would necessarily fail for lack of statutorily required notice. Finally, as to Counts I, II and the "quiet recall" theory of Counts III and IV, Judge Brookman ruled that "this case's nexus with Indiana is too thin to overcome the presumption against extraterritoriality and to satisfy the requirements of due process[,]" barring the application of Indiana law to the conduct complained of. Entry 17.

Agrolipetsk objects to Judge Brookman's Rule 8 and Rule 9 analyses in several particulars, and to the entirety of Judge Brookman's extraterritoriality analysis.

I. Agrolipetsk's Objections Are Overruled As to Its Noncompliance with Applicable Pleading Standards

First, Judge Brookman correctly ruled that an allegation of knowledge prior to August 15, 2015, is not a plausible or particularized allegation of knowledge prior to early March 2015. For incurable deceptive acts, the Deceptive Sales Act requires "intent to defraud or mislead." Ind. Code § 24-5-0.5-2(8); McKinney v. Indiana, 693 N.E.2d 65, 68 (Ind. 1998). The Proposed Complaint alleges that Agrolipetsk purchased the Variety 341 seeds complained of in early March 2015, and that, "on or about August 15, 2015," a Dow sales representative admitted to an Agrolipetsk employee that Dow "had already encountered defective sunflower plant issues with Variety 341 on other farms." PC ¶ 49. This allegation, either by itself or in conjunction with others in the Proposed Complaint, does not raise a nonspeculative inference that Dow had been informed of problems with Variety 341 before Agrolipetsk purchased its seeds in early March 2015, but failed to disclose those problems to Agrolipetsk, in turn giving rise to an inference of intent to defraud or mislead it.

We agree with Agrolipetsk that neither Rule 8(a) or Rule 9(b) impose a probability requirement, see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and that references to "equal plausibility" do not state the correct standard. Compare, e.g., Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 705 (7th Cir. 2008) (complaint for securities fraud subject to Private Securities Litigation Reform Act must raise inference of corporate scienter "as cogent as the opposing inference"). But an ultimately correct conclusion is not defeated by the use of one infelicitous expression in reaching it.

Second and third (because this covers Agrolipetsk's second and third objections), Judge Brookman correctly ruled that Agrolipetsk cannot plead "information asymmetry" in justification of its bootstrapping argument that, because something went wrong with Agrolipetsk's batch of Variety 341 seeds, therefore what went wrong was the result of Defendants' failure to adequate develop and test Variety 341. Br. Supp. 6. The problems Agrolipetsk experienced with its batch of Variety 341 seeds are of course "'consistent with'" Defendants' Deceptive Sales Act liability, but that "'stops short of the line between possibility and plausibility of "entitlement to relief."'" Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). And even if this were enough to satisfy Rule 8(a), it would fall far short of satisfying Rule 9(b)'s particularity requirement.

Fourth, Judge Brookman correctly ruled that a communication from a Dow employee in response to Agrolipetsk's complaints stating that Dow would "offer . . . Free of Charge products for multiple reasons internal and external and . . . [would] not be in a position to offer any financial compensation[,]" PC ¶ 87, is not a plausible or particularized allegation of a "corporate policy to violate Indiana statutes by refusing to pay financial compensation." Id. at 20 (initial capitals omitted). Again, the quoted communication is consistent with the existence of such a policy. But neither the quoted communication nor other factual allegations in the Proposed Complaint raise its existence "beyond the speculative level[.]" Twombly, 550 U.S. at 555.

Fifth, Judge Brookman correctly ruled that the communication of an Agrolipetsk employee to a Dow employee stating that "[s]ome sunflower heads [of sunflowers grownfrom Variety 341 seeds] [were] almost empty, some [...