Great Lakes Consortium v. Michigan

Page 977

480 F.Supp.2d 977

GREAT LAKES CONSORTIUM, a consortium of Michigan public school districts, Plaintiff, v. State of MICHIGAN, et al., Defendants.

No. 5:06-CV-187.

United States District Court, W.D. Michigan, Southern Division.

March 27, 2007.

Kirk C. Herald, Roy H. Henley, Thrun Law Firm, PC, East Lansing, MI, for Plaintiff.

John Fitzgerald Szczubelek, MI Dept Attorney General (State Operations), State Operations Division Lansing, MI, for Defendants.

OPINION

ROBERT HOLMES BELL, Chief Judge.

This is an action filed by Great Lakes Consortium against the State of Michigan, its Department of Education ("MDE") and Department of Management and Budget ("DMB"), collectively, the "State of Michigan Defendants" or "State Defendants." The action originally was filed in the Traverse County Circuit Court and was removed to this Court on November 16, 2006 by the State Defendants. Contemporaneously with the filing of the complaint, Plaintiff filed a motion for temporary restraining order and preliminary injunction. The action was removed before the state court acted on the motion. Following removal, on November 21, 2006, the Court granted the temporary restraining order and issued an order to show cause why a preliminary injunction should not issue, setting a hearing on November 30, 2006. On November 27, 2006, Northern Warehousing, Inc. sought stipulated leave to intervene as a Defendant, which was granted on November 28, 2006. Also on November 28, 2006, Plaintiff and the State Defendants filed a proposed stipulated order, to which Northern had consented, to adjourn the show cause hearing, to modify certain provisions of the temporary restraining order, and to continue the temporary restraining order until an adjourned date to be determined by the Court. The Court signed the order granting the stipulation and adjourning the show cause hearing until February 1, 2007. On December 5, 2006, Northern filed an answer to the complaint. On December 19, 2006, Northern filed an emergency motion for hearing and to expedite the show cause hearing.

The Court granted the motion for expedited hearing and, on December 29, 2006, upon consideration of the briefing and arguments raised at the hearing, continued the TRO as a preliminary injunction, pending a full evidentiary hearing. That hearing was held on February 16, 2007 and continued on March 16, 2007. Intervenor Defendant's request to terminate the, preliminary injunction is now before the Court.

Meanwhile, after the first day of evidentiary hearing, Intervenor Defendant Northern Warehousing filed a motion to dismiss the federal claim for failure to state a claim, for the first time arguing that no private right of action exists under the National School Lunch Act (NSLA).¹ Also during that period, Plaintiff filed a first motion to amend the complaint to add a reformation-of-contract claim, which was denied by the Magistrate Judge because he believed the federal ground was likely to be dismissed for failing to state a private right of action. The Magistrate Judge declined to consider amendment to add another state-law claim. The Magistrate Judge expressed surprise that the largely state-law action was before the federal court due to the State's Eleventh Amendment immunity, though he acknowledged removal by the State had probably effected a waiver. However, he expressed substantial concern that the state-law claims for injunctive relief were beyond the scope of this Court's jurisdiction, citing Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984). The Magistrate Judge therefore ordered briefing on the propriety of this Court retaining jurisdiction over the state-law claims, regardless of whether a private right of action exists under the NSLA. The Magistrate Judge denied without prejudice the first motion to amend the complaint.

This Court subsequently ordered expedited briefing on the motion to dismiss and the Halderman issue and directed the parties to be prepared to argue those issues at the time set for evidentiary hearing. Two days before the hearing, Plaintiff filed a second motion to amend the complaint, seeking to add a federal due process claim as well as the state contract reformation claim previously proposed. The State stipulated to the amendment, though Northern Warehousing opposed the motion. All three parties have filed briefs relating to the issues, though Northern had not yet had an opportunity to file a brief in opposition to the motion to amend.

At the time set for the second portion of the evidentiary hearing, the Court heard oral argument on the motion to dismiss the NSLA claim and the jurisdiction of this Court over the state-law claims under Halderman, 465 U.S. 89, 104 S.Ct. 900, 79 L.Ed.2d 67. Intervenor Defendant also specifically waived its right to file a brief in response to Plaintiffs motion to amend the complaint and requested the right to argue that motion at the evidentiary hearing. The Court therefore also heard argument on Plaintiff's second motion to amend the complaint. All three matters are now before the Court. For the reasons that follow, the Court will dissolve the preliminary injunction, grant the motion to dismiss the NSLA claim, and deny Plaintiffs motion to amend as futile. The remaining state-law claims will be remanded to the Traverse County, Michigan, Circuit Court.

I.

Plaintiff Great Lakes Consortium is a cooperative consortium administered by the Traverse City Area Public Schools and includes 260 public school districts, jointly performing school district food service functions under Section 11a(4) of the Michigan Revised School Code, MICH. COMP LAWS § 380.11a(4). Great Lakes engages in the processing, warehousing, and delivery of federal surplus food commodities for student meals under the NSLA. For the 2006-07 school year, Great Lakes would be responsible for $12,362,616.80 of commodity entitlements.

The MDE's Office of School Support Services oversees and administers various food distribution programs, including the distribution of federal surplus commodity foods under the NSLA and its implementing regulations. Each year the USDA delivers to each state an amount calculated by statutory formula. 42 U.S.C. § 1755(b), (c). The State is a "distributing agency" under the NSLA. See 7 C.F.R. § 250.3. Great Lakes is a "school food authority," "recipient agency," "distributing agency," and "contracting agency" under the NSLA. Id. Because of its size, Great Lakes is able to receive direct shipments from the USDA, rather than have those shipments come through the State first.

Northern and the State entered into a requirements contract, under which Northern was retained by MDE as the primary, distributor of commodities in Regions 1 and 3 in the State. The contract (Comp. Ex.A-3) provided, however, that "some recipients may have sufficient volume as to allow direct shipment from USDA. Direct shipment to recipients shall be at the discretion of MDE." (Id., Sec. II-A.)

On December 23, 2004, Northern sued the State Defendants, Great Lakes, and SPARC (another public school cooperative) in the Michigan Court of Claims, asserting promissory estoppel and various tort claims against the MDE and State and further asserting that Great Lakes was an illegal entity. On January 14, 2005, Great Lakes and SPARC were dismissed from the litigation by stipulation. The litigation continued, and the Court of Claims issued a preliminary injunction requiring the State to cease and desist administering Great Lakes and other public school food cooperatives, except for the 15 original pilot program members previously existing. (Compl.Ex.A-7.) The Court of Appeals affirmed. (Compl.Ex.A-8.) However, on May 24, 2006, the Michigan Supreme Court summarily reversed, holding that a claim of promissory estoppal was not cognizable on a contract with an integration clause. (Compl.Ex.A-9.) The Supreme Court stayed the injunction and remanded. On remand, the Court of Appeals, after considering the remaining claims, denied the injunction. (Compl.Ex.A-10.) Thereafter, on October 30, 2006, the Court of Claims granted Defendants' motion for summary judgment. (Compl.Ex.A-11.)

After winning in the Court of Claims, the State entered into a Resolution Agreement with Northern, under which Northern waived its rights to appeal. The State granted Northern a 54% increase in its contract price for delivery during the remaining period of the contract. Paragraph 5 of the Resolution Agreement provided as follows:

5. School Districts Subject to Price Increase

Attachment A identifies the school districts that will be serviced by Northern Warehousing, Inc. for the remaining duration of Contract No. 071B2001531. The identified districts are subject to the price increase.

(Compl.A-13.) Attachment A to the Resolution Agreement, however, mistakenly identified all school districts in Regions 1 and 3, including the school districts that were part of a cooperative, the very issue the State had just litigated and won. Although it does not affirmatively dispute that the attachment was a mutual mistake, Northern has taken the position that it is entitled to make all deliveries in the regions and that the State cannot authorize direct shipments to Great Lakes and other cooperatives.

After Northern advised the State Defendants of its position, on October 23, 2006, the MDE issued a memorandum to all school districts in Regions 1 and 3, stating that it had made an "inadvertent error" and that, in light of Northern's argument, all districts in Regions 1 and 3 were required to obtain commodities from Northern. (Compl.Ex.A-14.) The MDE then ceased authorizing the direct shipments to Great Lakes.

On November 10, 2006, Great Lakes filed the instant action in the Traverse; County Circuit Court.

II.

Intervenor Defendant has moved to dismiss the federal cause of action under the NSLA for failure to state a claim upon which relief can be granted, pursuant...