Navitas LLC v. Health Matters Am., Inc.

Navitas LLC, Plaintiff, v. Health Matters America, Inc. et al., Defendants.

16-CV-699V

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK

March 14, 2018

Report and Recommendation

I. INTRODUCTION

In the late spring and summer of 2014, "[t]he FDA [Food and Drug Administration], Canadian health officials, the CDC [Centers for Disease Control], and state and local officials investigated an outbreak of Salmonella Newport, Salmonella Hartford and Salmonella Oranienburg illnesses linked to products containing organic sprouted chia seed powder." (Dkt. No. 50-4 at 2 (hereafter [50-4 at 2]).) The investigation led to product recalls by plaintiff Navitas LLC ("Navitas"); Health Matters America, Inc. and Advantage Health Matters, Inc. (collectively, "Health Matters"); and Bio Essential Botanicals ("Bio Essential"), among other companies. Navitas subsequently sued Health Matters and Bio Essential, its chia seed suppliers, for breach of contract and other theories of liability pertaining to the outbreak. Health Matters, in turn, filed a third-party complaint to implead other companies that allegedly were part of the chia seed supply chain that ended with Navitas: EVI Inc. and EVI International Group (collectively, "EVI"); Tradin Organics USA LLC;¹ Rowland Seeds Inc.; and Avafina Commodities Inc. The latter two third-party defendants have since been stipulated out of the case. [82, 83.] Bio Essential filed cross-claims against Health Matters. There are many more details to the parties' allegations, but this summary is a good start.

This case now comes before the Court primarily on two dispositive motions. Health Matters has filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure [42] to dismiss most of Bio Essential's cross-claims, for various reasons including failure to plead a contractual relationship and failure to plead elements of a products liability claim. EVI has filed its own motion to dismiss or to stay the case, based mostly on the abstention doctrine set forth in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). Health Matters and Bio Essential also have filed motions to amend as an alternative remedy should some or all of their respective pleadings be dismissed. [68, 71.] Additionally, Rowland Seeds Inc. and Avafina Commodities Inc. had filed their own motions to dismiss [49, 56] before they were stipulated out of the case; those motions technically remain pending.

District Judge Lawrence J. Vilardo has referred this case to this Court under 28 U.S.C. § 636(b). [25.] The Court held oral argument on February 20, 2018. [92.] For the reasons below, the Court respectfully recommends granting Health Matters's motion to dismiss, but without prejudice to amend; denying EVI's motion to dismiss; granting Bio Essential's motion to amend; and denying the remaining motions as moot.

II. BACKGROUND

A. Basic Facts Generally

This case concerns the fallout from contamination of chia seed products with salmonella bacteria. For basic background purposes only, the Court takes judicial notice that one example of a chia seed product is organic sprouted chia powder, a nutritional supplement made by sprouting chia seeds and milling them to the consistency of flour. Navitas is a retail seller of chia seed products. According to the complaint, around 2011 Navitas entered into agreements with Bio Essential and Health Matters to obtain a supply of chia seed products that would be sold under the Navitas brand name.

The first couple of years between the companies seem to have proceeded uneventfully, but then the salmonella outbreak struck. The outbreak occurred in 2014 and affected at least 31 customers in the United States and Canada. Navitas has summarized the outbreak as follows:

On or about May 28, 2014, Plaintiff Navitas recalled certain products containing chia seed that were supplied to it by Defendants because they were contaminated with Salmonella. Specifically, Plaintiff recalled specific lots of Navitas Naturals Organic Sprouted Chia Powder, Navitas Naturals Omega Blend Sprouted Smoothie Mix, and Williams-Sonoma Omega 3 Smoothie Mixer, and expanded that recall on June 6, 2014.

On or about May 28, 2014, the FDA, the CDC, and the California Department of Public Health warned people not to eat products that contained Organic Sprouted Chia Seed Powder subject to the voluntary recall by Navitas.

On or about June 4, 2014, Defendant Health Matters America conducted a recall of chia seed products because they were contaminated with Salmonella, recalling specific lots of Organic Traditions Sprouted Chia Seed Powder and Sprouted Chia/Flax Seed Powder, and expanded that recall on June 26, 2014.

The Canadian Food Inspection Agency (CFIA) announced on or about, May 30, 2014, that Defendant Advantage Health Matters was recalling products containing sprouted chia seed powder marketed under the brands OrganicTraditions and Back 2 the Garden. Subsequently, on June 3, 4, 6, 7, 11, 12, 13, and 25, the CFIA announced an expansion of the recalls.

A trace back of the products reported by ill persons identified Defendant Bio Essential Botanicals as a common supplier of organic sprouted chia powder used in the affected products.

[1 at 3-4.]

B. This Litigation Begins

Navitas began this case by filing its complaint on August 29, 2016. The complaint contains five claims and names Bio Essential and Health Matters as adverse parties. In the first claim, Navitas accuses all defendants of breach of contract. "There is no federal tolerance for Salmonella, a potentially deadly pathogen. Thus, the presence of Salmonella in the contracted for chia seed products is a breach of the sales contract." [1 at 4.] In the second claim, Navitas accuses all defendants of a breach of the implied warranty of merchantability. "Because the subject chia seed products introduced, supplied, sold and/or distributed by Defendants to Plaintiff Navitas [] were contaminated with Salmonella, the chia seed products were not reasonably fit for their ordinary purposes." [Id. at 5.] In the third claim, Navitas accuses all defendants of a breach of the implied warranty of fitness for a particular purpose. "Plaintiff Navitas relied on each Defendant's skill and judgment in selecting or furnishing suitable chia seed products for the particular purpose for which the products were to be used by Plaintiff Navitas, i.e., re-packaging and sale for human consumption." [Id. at 6.] In the fourth claim, Navitas accuses all defendants of a breach of the implied warranty for the sale of food. "Defendants materially breached the implied warranty for the sale of food by providing Plaintiff Navitas with chia seed products contaminated with Salmonella, for which there are no federal tolerances, and thus, necessitating the recall of thesubject chia seed products by Plaintiff Navitas." [Id. at 7.] In the fifth claim, Navitas accuses all defendants of negligence.

C. Third-Party Complaint and Cross-Claims

Within a few months, this case acquired another layer of pleadings that reflected the layers of suppliers, processors, and retailers in the chia products market. On April 19, 2017, Health Matters filed a third-party complaint under Rule 14,² naming EVI Inc., EVI International Group, Tradin Organics USA LLC, Rowland Seeds Inc., and Avafina Commodities Inc. as third-party defendants. [35.] According to the third-party complaint, Health Matters "purchased raw chia and flax seeds (the 'Seeds') from Third-Party Defendants EVI, Tradin, Rowland, and Avafina." [35 at 3.] Health Matters then sent the Seeds to Bio Essential to be germinated and milled. Once it received the milled seed products, Health Matters package the products under various labels and sold or resold them to various wholesale and retail customers. [35 at 3-4.] When discussing the salmonella outbreak and the resulting product recalls, Health Matters's key contention is that "[u]pon information and belief, the products recalled contained Seeds, or byproducts therefrom, which came from the Third-Party Defendant Seed Vendors." [35 at 5.]

The third-party complaint contains four claims. In the first claim, Health Matters accuses all third-party defendants of a breach of the implied warranty of merchantability. According to Health Matters, "Each of the Seed Vendors breached its implied warranty of merchantability because the Seeds would not pass without objection in the trade under the contract description, due to the Salmonella Contamination. Each of the Seed Vendors breached its implied warranty ofmerchantability because the Seeds were not of fair average quality within the description, due to the Salmonella Contamination. Each of the Seed Vendors breached its implied warranty of merchantability because the Seeds were not fit for the ordinary purposes for which they are used, due to the Salmonella Contamination." [35 at 6.] In the second claim, Health Matters accuses all third-party defendants of breach of the implied warranty of fitness for a particular purpose. "Each of the Seed Vendors breached the implied warranty of fitness for a particular purpose because the Seeds were not fit for human consumption due to Salmonella Contamination." [35 at 8.] In the third claim, Health Matters accuses all third-party defendants of negligence. In the fourth claim, Health Matters accuses all third-party defendants of strict products liability.

This case also includes cross-claims. On May 25, 2017, Bio Essential filed an answer to Navitas's complaint that included affirmative defenses along with 11 cross-claims against Health Matters. The cross-claims cover contribution; indemnity; negligence; breach of oral contract; breach of written contract; breach of warranty; product liability; strict products liability; negligence and negligence per se; unfair trade practices; and fraud. [39 at 12-22.]

In the motions that are pending, the parties have made requests for a variety of dispositive relief against each other's claims or...