Choice Genetics United States, LLC v. Peetz Co-Operative Co.

CHOICE GENETICS USA, LLC, Plaintiff, v. THE PEETZ CO-OPERATIVE COMPANY, Defendant.

Civil Action No. 16-cv-0154-WJM-KLM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 28, 2017

Judge William J. Martínez

ORDER DENYING DEFENDANT'S RENEWED MOTION TO DISMISS

This action, for negligence, breach of contract, and breach of implied warranty of fitness for a particular purpose, is pending under the Court's diversity jurisdiction, 28 U.S.C. § 1332. Now before the Court is Defendant's Renewed Motion to Dismiss Pursuant to F.R.C.P. 12(b)(6). (ECF No. 38 (the "Motion").) For the reasons explained below, the Motion is denied.

I. LEGAL STANDARD

Defendant brings its Motion pursuant to Federal Rule of Civil Procedure 12(b)(6) (see ECF No. 38 at 1), under which a party may move to dismiss a cause of action for "failure to state a claim upon which relief can be granted." The Rule 12(b)(6) standard ordinarily requires the Court to "assume the truth of the plaintiff's well-pleaded factual allegations and view them in the light most favorable to the plaintiff." Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007). In ruling on such a motion, the dispositive inquiry is whether the complaint "state[s] a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

Here, Defendant does not challenge the sufficiency of Plaintiff's pleading, but instead argues that Plaintiff is estopped from bringing its claims, and argues for dismissal because Plaintiff is not the real party-in-interest. The Court has some doubts whether motions seeking dismissal on these grounds can always be resolved under Rule 12(b)(6). In many cases, analysis of judicial estoppel and/or real party-in-interest determinations might depend upon resolution of factual disputes, which is not part of a typical Rule 12(b)(6) analysis. See generally 6A Charles A. Wright, et al., Federal Practice and Procedure § 1554 (3d ed., Jan. 2017 update) (noting courts may allow discovery and take testimony to ascertain the real party in interest).

However, neither of Defendant's arguments implicates the Court's subject matter jurisdiction. See Smith v. United Parcel Serv., 578 F. App'x 755, 758, 759 (10th Cir. 2014); Esposito v. United States, 368 F.3d 1271, 1274 (10th Cir. 2004). Also, in the bankruptcy context raised here, "many courts have in fact resolved the issue of judicial estoppel upon a 12(b)(6) motion." Carr v. Beverly Health Care & Rehab. Servs., Inc., 2014 WL 31390, at *1 (N.D. Cal. Jan. 3, 2014) (collecting cases).

Here, the Court concludes it can resolve the issues raised under a Rule 12(b)(6) analysis, for which both parties also argue. The parties have docketed exhibits to their briefs—specifically, filings from Plaintiff's bankruptcy proceeding—to establish facts outside the four corners of Plaintiff's Complaint. The Court may take judicial notice of these materials and rely on them under either Rule 12(b)(1) or 12(b)(6).¹ Given thesematerials, the Court can resolve the issues raised by Defendant's motion assuming the factual contentions in Plaintiff's Complaint are true, while taking judicial notice of the materials outside the Complaint to establish additional uncontested facts.

II. BACKGROUND

The following facts are drawn from Plaintiff's Complaint and assumed to be true, and from materials of which the Court takes judicial notice.

Plaintiff is in the business of producing and marketing breeding swine for sale to pig farmers, and sells animals with desirable genetic characteristics. (ECF No. 34 ¶¶ 2-4.) Since 2009, Plaintiff has purchased feed for its swine herds in Eastern Colorado from Defendant. (Id. ¶¶ 5, 14.) Plaintiff relies on a "two-step supply chain" in which non-party Suther Feeds, Inc. ("Suther") prepares feeding mixes, also known as base mixes, which Defendant incorporates into bulk feed rations for delivery to Plaintiff. (Id. ¶¶ 15-16.) Different base mixes and rations are tailored to the needs of different categories of animals. (See id. ¶¶ 15-16.) As relevant here, Suther provides a "gestation mix" for pregnant sows, and a "grower mix," "for swine between adolescence and maturity." (Id. ¶ 15.) Defendant prepares finished feed rations by combining one of Suther's base mixes with "bulk feedstuffs and other ingredients added by [Defendant] as specified by [Plaintiff's] formula." (Id. ¶ 16.)

In December 2013, Defendant communicated to Suther that it might be unable to meet Plaintiff's needs for gestation ration due to a shortage of gestation mix. (Id. ¶ 17.)Plaintiff agreed to accept a "one-time" substitution of grower rations, in the event Defendant could not deliver gestation rations. (Id. ¶ 18.) However, Defendant never ran out of gestation mix. (Id. ¶ 19.) Nevertheless, on twelve occasions between February 11, 2014 and March 25, 2014, Defendant delivered grower rations for Plaintiff's pregnant sows, rather than gestation rations. (Id. ¶¶ 20, 21, 25.)

During this same period, on February 13, 2014, Plaintiff petitioned for Chapter 11 Bankruptcy protection in the Southern District of Iowa. (Id. ¶ 24.) Defendant was included in a class of impaired creditors in Plaintiff's bankruptcy petition, with an unsecured claim of $206,404.40. (See ECF No. 38-1 at 4.)² The bankruptcy petition did not list any claims against Defendant among Plaintiff's assets. (Id. at 10-15.)

Plaintiff first learned that Defendant had supplied grower rations in place of gestation rations on February 25, 2014. (ECF No. 34 ¶ 25.) Although nothing about the delivered grower rations looked different than the gestation rations (id. ¶ 21), Plaintiff alleges the grower rations were inappropriate for pregnant sows, and "critically deficient of several vital minerals and vitamins" (id. ¶ 22). As alleged by Plaintiff, the improper feed "devastated" Plaintiff's herd, beginning "on or after March 11, 2014":

The improper feed . . . devastated [Plaintiff's] herd and swine-breeding operations. As a result of the improper feed, and beginning on or after March 11, 201[4], sows went into 'stress shock' and suffered, among other things, critically low blood calcium levels. These conditions inhibited proper milk production, forcing [Plaintiff] to prematurely wean starving piglets * * * * more than 400 sows died, were destroyed, or were subsequently culled as a result of the improper rations. In addition, more than 1500 piglets died after birth, andhundreds of in-utero piglets were lost * * * * Entire generations of breeding sows and gilts . . . were lost, including . . . the most genetically-prized and valuable animals in [Plaintiff's] herd."

(Id. ¶¶ 26-30.)

In Plaintiff's bankruptcy case, Plaintiff proceeded as debtor-in-possession. The First Amended Joint Plan of Reorganization (the "Plan") was filed on July 14, 2014. (ECF No. 42-1.) The Plan included Defendant in a class of impaired creditors with allowed general unsecured claims. (Id. at 41.) The Plan included a provision that stated "Confirmation of the Plan . . . vests all of the property of the Debtor's Estate, including Causes of Action, in the Reorganized Debtor." (Id. at 27.) The term "Causes of Action," was defined to include "[a]ll causes of action of any kind held by the Debtor whether or not . . . the subject of presently pending lawsuits . . . including, without limitation, (a) causes of action belonging to the Debtor as of the Petition Date; (b) causes of action belonging to the Debtor that arose after the Petition Date; and (c) rights exercisable by the Debtor as Debtor-in-Possession." (Id. at 5.) As a creditor, Defendant voted to approve the Plan. (ECF No. 42-2.) The Bankruptcy Court confirmed the Plan on August 21, 2014. On Dec. 29, 2014, Plaintiff sought a final decree on the basis that the Plan had been fully administered, and the bankruptcy case was closed on January 26, 2015.

Plaintiff initiated this action on January 20, 2016 (ECF No. 1), pursuing claims for negligence, breach of contract, and breach of the implied warranty for fitness for a particular purpose, and claiming millions of dollars in damages, all arising from Defendant's delivery of grower feed instead of gestation feed. (ECF No. 34 ¶¶ 31-43.)

II. ANALYSIS

Defendant's Motion argues that Plaintiff's failure to disclose its potential lawsuit against Defendant as an asset in the bankruptcy case prevents it from pursuing suit now, on grounds of judicial estoppel and because Plaintiff may not be the real party-in-interest. To analyze these arguments, the Court must first analyze the status of Plaintiff's claims in the bankruptcy case under applicable law.

A. Status of Plaintiff's Claims in Bankruptcy Case

1. Applicable Law

Under the Bankruptcy Code, the commencement of a bankruptcy case creates an estate that includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). The property of a bankruptcy estate is broadly defined, and encompasses conditional, future, speculative, and equitable interests of the debtor." U.S. ex rel. Gebert v. Transp. Admin. Servs., 260 F.3d 909, 913 (8th Cir. 2001) (citations and internal quotation marks omitted). "A basic tenet of bankruptcy law is that all assets of the debtor, including all pre-petition causes of action belonging to the debtor, are assets of the bankruptcy estate that must be scheduled for the benefit of creditors. A debtor has an uncompromising duty to disclose whatever ownership interests are held in property." Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am. v. Energy Mfg. Co. Inc., 173 F. Supp. 3d 815, 824 (N.D. Iowa 2016) (citations and internal quotation marks omitted). Accordingly, "[u]pon filing of a bankruptcy petition, all assets of the debtor, including potential causes of action, become an asset of the bankruptcy estate." Harms v. CignaIns. Cos., 421 F. Supp. 2d 1225, 1228 (D.S.D. 2006).

The initial question here is, therefore, whether Plaintiff had a...