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Off Spec Solutions, LLC v. H.J. Heinz Co., L.P.

United States District Court, D. Idaho

March 29, 2017

H.J. HEINZ COMPANY, L.P., Defendant.



         Currently pending before the Court is a Motion to Dismiss (Dkt. 8) in which the Defendant, H.J. Heinz Company (“Heinz”) asks the Court to dismiss or strike various claims for relief from the Complaint filed by Plaintiff Off Spec Solutions, LLC (“Off Spec”). The parties have consented to the jurisdiction of the undersigned United States Magistrate Judge. Having reviewed the briefing related to the Motion to Dismiss, and having determined that the case is suitable for decision without argument, the Court now enters the following order.

         I. BACKGROUND

         This case is a contractual dispute arising from an agreement between the parties regarding the sale of potato by-products. Off-Spec, located in Caldwell, Idaho, is in the business of managing and distributing food waste products. (Complaint, Dkt. 1-2 at ¶ 4).The core of Off-Spec's business is to obtain food waste that is not suitable for human consumption and to market these waste products as animal feed. (Id.). Off-Spec contracted with Heinz to purchase certain potato by-products from Heinz's potato processing facility in Oregon. According to the Complaint, Heinz originally solicited a bid from Off-Spec for the purchase and hauling away of a single type of potato byproduct known as “press cake.” However, Off-Spec alleges that before the parties finalized their agreement, Heinz proposed that Off-Spec purchase all of its potato byproducts, which included press cake and things such as potato peelings and cull potatoes.

         Heinz, however, disputes that the contract was actually intended to cover all potato by-products besides just the press cake. The Agreement defines potato “product” as “all solid potato by-product such as cull potatoes, fries, etc., Press Cake, dry peel (hereinafter collectively referred to as ‘plant by-products')” (Agreement, Dkt. 1-2 p. 13.). Heinz, on the other hand, asserts that the definition of plant by-products was a typographical error and entirely inconsistent with the parties' negotiations and true agreement. (Brief in Support of Motion to Dismiss, Dkt. 8-1, p. 2). Heinz further asserts that the parties mutually understood that Off-Spec intended to purchase only the press cake, not other types of potato by-product, and that Off-Spec only attempted to assert that it was entitled to purchase all by-products when grain prices fell, thereby diminishing the value of the potato press cake as animal feed. Off-Spec, however, alleges that the contract, had it truly covered only the press cake, would not have been profitable, and entering into the contract made no sense from a business perspective unless it had the right to purchase all potato by-products. Off-Spec also alleges that Heinz withheld accurate information on other matters, namely 1) the volume of press cake it intended to produce throughout the year, and 2) the composition of the press cake, which, depending on the time of year it was produced, sometimes contained harmful amounts of iron that rendered it useless as animal feed.

         Off-Spec alleges that soon after the agreement was signed, Heinz tried to renegotiate its terms and refused to provide Off-Spec with any by-products besides just the press cake. Because hauling only press cake was not economically viable for Off-Spec, the parties agreed to modify the Agreement's terms, at least until Heinz was in a position to sell all its potato by-products to Off-Spec. According to Off-Spec, the parties mutually agreed to a contract modification that called for Off-Spec to purchase only the amount of press cake that it could resell to local feed lots and dairies, and for Heinz to pay Off-Spec to haul away and dispose of the remaining, unsaleable press cake. (Id. ¶ 13). Thereafter, Off-Spec alleges that it tried to keep Heinz accurately apprised of the credit balances between what Off-Spec owed for purchase of the saleable press cake and what Heinz owed Off-Spec for hauling and disposal fees. (Id. ¶ 15). Off-Spec claims that Heinz only disputed these obligations once Off-Spec demanded payment for its services in hauling away the press cake.

         Off-Spec now brings various claims for breach of contract, breach of the covenant of good faith and fair dealing, equitable estoppel, quasi-estoppel, unjust enrichment and fraud. Off-Spec also seeks a declaratory judgment pursuant to Idaho Code section 10- 1201 et seq. Heinz asks the Court to dismiss each of Off-Spec's various causes of action. As part of this motion, Heinz seeks a ruling that Oregon rather than Idaho law should apply to govern the substantive dispute between the parties.


         A. Standard for Rule 12(b)(6) Motion

         Though Heinz refers to its motion variously as a “Motion to Dismiss or Strike, ” in most of its arguments, it is essentially asking that the Court dismiss each individual cause of action asserted by Off-Spec. Therefore, the relief that Heinz requests is more in the nature of a motion to dismiss than a motion to strike, and the Court therefore analyzes the parties' arguments in the context of the legal standards applicable to motions to dismiss.[1]

         A motion to dismiss for failure to state a claim challenges the legal sufficiency of the claims stated in the complaint. Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir.2011). To sufficiently state a claim to relief and survive a 12(b) (6) motion, the pleading “does not need detailed factual allegations, ” however, the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To satisfy the notice pleading standards of Rule 8(a) a complaint need not contain detailed factual allegations, but at the same time, mere “labels and conclusions” or a “formulaic recitation of the elements of a cause of action will not do.” Id. Rather, there must be “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. See also, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Apart from factual insufficiency, a complaint is also subject to dismissal under Rule 12(b)(6) where it lacks a cognizable legal theory, Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1990), or where the allegations on their face “show that relief is barred for some legal reason.” Jones v. Bock, 549 U.S. 199, 215 (2007). In deciding whether to grant a motion to dismiss, the court must accept as true all well-pleaded factual allegations in the pleading under attack. Iqbal, 556 U.S. at 663.

         Finally, even if the Court concludes that any of Off-Spec's claims are subject to dismissal, it must still consider whether it is proper to grant Off-Spec leave to amend. Even after Iqbal and Twombly, “a dismissal without leave to amend is [still] improper unless it is beyond doubt that the complaint could not be saved by any amendment.” Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009).

         III. ANALYSIS

          A. Choice of Law Issue

         Because the case was filed in Idaho state court but also involves events that occurred at least partially in Oregon, the parties disagree as to whether Oregon or Idaho law should apply. Off-Spec argues that Idaho bears the most significant relationship to the transactions giving rise to the lawsuit; Heinz makes the same argument in favor of Oregon law. (The parties agree, however, that New York state bears no reasonable relationship to the case and that the choice of law clause in the written contract is unenforceable). Although Plaintiff suggests that the choice of law analysis would be better left to a later stage of the proceedings, when the Court would have the benefit of a more developed record, the Court disagrees. “[C]ourts need not wait for discovery before conducting choice of law analyses where the pleadings, construed in the plaintiff's favor, contain all necessary facts.” Hamby v. Ohio Nat. Life Ins Corp., 2012 WL 2568149 at *2 (D. Hawaii 2012).

         “[W]hen a federal court considers claims based on state law, the forum state's choice of law rules apply.” In re Sterba, 516 B.R. 579, 582 (9th Cir. 2014). Therefore, the Court turns to Idaho cases on choice of law issues in deciding whether the substantive law of Oregon or Idaho applies to this dispute. Idaho courts, as a general rule, follow the approach of Restatement (Second) of Conflict of Laws when deciding choice of law disputes. Grover v. Isom, 137 Idaho 770, 773 (Idaho 2002) (adopting the Restatement's approach in tort cases); Carrol v. MBNA America Bank, 220 P.3d 1080 (Idaho 2009) (applying the Restatement in contract cases); Seubert Excavators, Inc. v. Anderson Logging Co., 889 P.2d 82, 85 (Idaho 1995) (same). Though Idaho Courts typically first decide what type of case is at issue and apply the Restatement's guidelines applicable to such cases, section 6 of the Restatement provides overarching factors that apply to all choice of law questions. Those factors are: (a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability and uniformity of result; and (g) ease in the determination and application of the law to be applied. Restatement (second) of conflicts of laws § 6. See also, Grover v. Isom, 137 Idaho 770, 773 (Idaho 2002).

         Heinz asks the Court to adopt section 191 of the Restatement, pertaining to cases arising from contracts for the sale of goods. It reads:

The validity of a contract for the sale of an interest in chattel and the rights created thereby are determined . . . by the local law of the state where delivery of the chattel occurs, unless with respect to the particular issue, some other state has a more significant relationship under the ...

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