Pitman Farms v. Kuehl Poultry LLC

676 F.Supp.3d 741

PITMAN FARMS, Plaintiff and Counter-Defendant, v. KUEHL POULTRY LLC, Rodney Boser, Dan Schlichting, John Tschida,Chris Uhlenkamp, and David Welle, Defendants and Counter-Claimants.

File No. 19-cv-3040 (ECT/LIB)

United States District Court, D. Minnesota

Signed June 6, 2023

Archana Nath, Natalie I. Uhlemann, and Paul William Fling, Fox Rothschild LLP, Minneapolis, MN, and Asher Shepley Anderson, Anderson Yazdi Hwang Minton & Horn, Burlingame, CA, for Plaintiff and Counter-Defendant Pitman Farms.

Jack Y. Perry, Maren M. Forde, and Andrew Stephen Dosdall, Taft Stettinius & Hollister LLP, Minneapolis, MN, for Defendants and Counter-Claimants Kuehl Poultry LLC, Rodney Boser, Dan Schlichting, John Tschida, Chris Uhlenkamp, and David Welle.

OPINION AND ORDER

Eric C. Tostrud, United States District Judge

Minnesota statutes and a rule promulgated by the Minnesota Department of Agriculture establish parent-organization liability for a subsidiary's unmet obligations under specific kinds of agricultural contracts. Minn. Stat. § 17.93, subdiv. 2; Minn. Stat. § 27.133; Minn. R. 1572.0040. In other words, when they apply, these authorities override the general rule that a parent business organization is not liable merely by its status as a parent for the debts of its subsidiary.

The primary issue in this case is whether these authorities apply to chicken-production contracts between Defendants, who are Minnesota chicken growers (and who will be referred to collectively as "the Growers"), and Simply Essentials, LLC, a chicken processor. If these authorities govern the Growers' contracts with Simply Essentials, then Plaintiff Pitman Farms, a California corporation that is Simply Essentials' sole member, is liable to the Growers for Simply Essentials' breaches of the contracts.

Pitman Farms brought this case under the federal Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that the Minnesota agricultural parent-liability authorities do not govern the Growers' contracts with Simply Essentials. Pitman Farms argues that the parent-liability authorities do not apply by their own terms, that Delaware law applies regardless, and that applying the Minnesota parent-liability authorities to trigger its liability to the Growers would violate the federal dormant Commerce Clause doctrine. In a counterclaim also brought under the Declaratory Judgment Act, the Growers seek essentially contrary declarations and damages.

This is the case's second trip through this Court. Three orders were issued during the case's first trip: (1) an order denying the Growers' motion to dismiss for lack of subject-matter jurisdiction or, alternatively, to abstain from adjudicating the case, Pitman Farms v. Kuehl Poultry LLC, No. 19-cv-3040, 2020 WL 2490048 (D. Minn. May 14, 2020); (2) an order granting Pitman Farms' motion to exclude an expert-witness declaration filed by the Growers, Pitman Farms v. Kuehl Poultry LLC, 508 F. Supp. 3d 465, 470-473, 486 (D. Minn. 2020); and (3) an order entering summary judgment for Pitman Farms on the sole ground that Minnesota's parent-liability authorities do not apply to the Growers' contracts with Simply Essentials because these authorities by their own terms do not apply to the parent organization of a limited-liability company (or "LLC"), id., 508 F. Supp. 3d at 473-486. The Growers appealed only the third order, and the Eighth Circuit reversed. Pitman Farms v. Kuehl Poultry LLC, 48 F.4th 866 (8th Cir. 2022). It determined "that the use of the phrase 'corporation, partnership, or association' in the relevant statutes and rule is intended to include LLCs for the purpose of parent-company liability," and remanded the case for further proceedings, including adjudication of the issues that were not decided when the case was here the first time. Id. at 884. This order presumes familiarity with these prior decisions.

The Eighth Circuit's reversal and remand leaves essentially five issues to be decided before the case goes any further: (1) whether a Minnesota choice-of-law clause in the Growers' contracts with Simply Essentials binds Pitman Farms; (2) if the Minnesota choice-of-law clause in those contracts binds Pitman Farms, then whether the clause by its own terms applies to this case; (3) whether Minnesota's parent-liability authorities apply to parents of foreign LLCs, like Simply Essentials; (4) if Minnesota's parent-liability authorities apply to Pitman Farms, then whether a conflict between Minnesota and Delaware law exists that should be resolved in favor of applying Minnesota or Delaware law; and (5) if a conflicts-of-laws analysis leads to the application of Minnesota's parent-liability authorities, then whether those authorities violate the dormant Commerce Clause doctrine. Pitman Farms and the Growers agree that each of these issues appropriately may be decided via summary judgment, and the record gives no reason to doubt the Parties' agreement in this regard.

The resolution of these issues is not one-sided but ultimately favors the Growers. Minnesota's parent-liability authorities do not apply in this case by virtue of the Minnesota choice-of-law clause in the Growers' contracts with Simply Essentials. Regardless, under Minnesota law, these authorities apply even to foreign LLCs, and Minnesota's choice-influencing factors favor applying these authorities here. Minnesota's parent-liability authorities do not violate the dormant Commerce Clause doctrine.

I¹

The record facts relevant to the first question—whether a Minnesota choice-of-law clause in the Growers' contracts with Simply Essentials binds Pitman Farms—are few and undisputed. The Growers each entered into a contract labeled a "Broiler Production Agreement" with Prairie's Best Farms, Inc. in 2017. ECF No. 60-1 (Exs. A1-A7). Each of these contracts includes a clause reading as follows:

14. GOVERNING LAW.

The parties agree that this Agreement is made in the State of and shall be governed by and construed in accordance with the laws of the State of the location of the Property. Any dispute arising here from shall be subject to the jurisdiction of and be venued in the County in which the Property is located. To the extent required by law, Grower has the right to request mediation of any dispute arising from this Agreement provided that such mediation shall not delay or limit the right of any party to seek injunctive or other equitable relief for breaches of this Agreement.

ECF No. 60-1 Ex. A1 at 10,² Ex. A2 at 23, Ex. A3 at 35, Ex. A4 at 48, Ex. A5 at 60, Ex. A6 at 72, Ex. A7 at 84 (emphasis added in each).³ Though none of the contracts explicitly defines the capitalized term "Property," Pitman Farms and the Growers seem to agree that the term refers to the broiler chickens Prairie's Best supplied to the Growers and that the "State of the location of the" broiler chickens was Minnesota. See ECF No. 58 at 19; ECF No. 51 at 10. Simply Essentials assumed these contracts when it purchased the assets of Prairie's Best on November 10, 2017. See ECF No. 60-2 at 6-7 (defining "Assets" to include "Existing Grower Contracts"); id. at 8 (defining "Existing Grower Contracts" as those contracts "set forth on Schedule 3.7"); id. at 39 (listing growers and referencing all Defendants/Growers).⁴ Pitman was not a party to the contracts between the Growers and Prairie's Best or to the asset purchase agreement between Prairie's Best and Simply Essentials. See ECF Nos. 60-1 and 60-2. Pitman Farms became Simply Essentials' sole member "on or around November 13, 2017." ECF No. 59 ¶ 2.

The Growers acknowledge that Pitman Farms was not a party to their contracts with Prairie's Best/Simply Essentials but argue that Pitman Farms is nonetheless bound by the choice-of-law clause in those contracts because it is closely related to the disputes arising out of the contracts (i.e., Simply Essentials' non-payment). To support this argument, the Growers rely on federal and Minnesota cases applying the so-called "closely related" doctrine. Pitman Farms argues that, for several legal and factual reasons, the closely related doctrine recognized in federal and Minnesota cases does not apply to bind it to the contracts' choice-of-law clause. Pitman Farms does not argue that the law of a state other than Minnesota's should be applied to answer this question.

The general rule is that "the rights of a third party cannot ordinarily be 'adversely varied by an agreement to which he is not a party or by which he is not otherwise bound.' " United Prairie Bank v. Galva Holstein Ag, L.L.C., No. A13-0009, 2013 WL 6223416, at *5 (Minn. Ct. App. Dec. 2, 2013) (quoting Herington Livestock Auction Co. v. Verschoor, 179 N.W.2d 491, 494 (Iowa 1970)). And generally, "[a] corporate parent is a separate legal entity from any subsidiaries, even if they are wholly-owned by the parent." Minn. Supply Co. v. Mitsubishi Caterpillar Forklift Am. Inc., 822 F. Supp. 2d 896, 904 (D. Minn. 2011) (citing United States v. Bestfoods, 524 U.S. 51, 61, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998)).

The closely related doctrine is an exception to these general rules. Under the doctrine as applied by federal courts and Minnesota courts, a non-party to a contract may be bound by the contract's forum-selection clause when the non-party is " 'closely related' to the dispute such that it becomes 'foreseeable' that it will be bound." Marano Enters. of Kan. v. Z-Teca Rests., L.P., 254 F.3d 753, 757 (8th Cir. 2001) (quoting Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993)); see also C.H. Robinson Worldwide, Inc. v. FLS Transp., Inc., 772 N.W.2d 528, 535 (Minn. Ct. App. 2009).

"Foreseeability" can be a fuzzy concept, but cases applying the closely related doctrine show that federal and Minnesota courts evaluate several factual, often context-specific considerations to determine whether a non-party should have foreseen that it would be bound. These include, for example: (1) Whether the contract was signed by an...