Dakota Style Foods, Inc. v. Sunopta Grains And Foods, Inc.

          OPINION AND ORDER

          CHARLES B. KORNMANN United States District Judge.

         Dakota Style Foods, Inc. ("Dakota Style") initially filed a complaint against SunOpta Grains and Foods, Inc. ("SunOpta") with the Third Judicial Circuit, County of Clark, South Dakota, alleging strict products liability, negligence, breach of the implied warranty of merchantability, breach of the implied warranty of fitness for a particular purpose, breach of express warranties, and breach of contract. For relief, Dakota Style is requesting a declaratory judgment, permanent injunction, and monetary damages. On August 12, 2016, SunOpta removed the case to the federal district court under 28 U.S.C. §§ 1332(a)(1) and 1441(a). SunOpta has filed a motion (Doc. 11) for an order dismissing, with prejudice, Dakota Style's strict products liability, negligence, breach of the implied warranty for a particular purpose, breach of express warranty, and breach of contract claims. Furthermore, SunOpta moves the Court to deny Dakota Style's request for declaratory judgment and permanent injunction.

         FACTS

         This case arises from a recall of sunflower products that were allegedly exposed to Listeria monocytogenes ("Listeria"). Listeria is an organism that can cause serious and sometimes fatal infections in young children, elderly adults, and individuals with weakened immune systems. Pregnant women exposed to Listeria also have an increased risk of having a miscarriage or stillbirth. Healthy individuals may suffer short-term symptoms such as high fever, severe headache, stiffness, nausea, diarrhea, and abdominal pain.

         The plaintiff, Dakota Style, is a South Dakota corporation in the business of packaging and distributing snack foods. The defendant, SunOpta, is a Minnesota corporation in the business of processing and supplying organic and non-GMO food products.

         On March 26, 2014, Dakota Style entered into a contract with SunOpta for the purchase of Dakota Style's sunflower kernel requirements, up to 2, 500, 000 pounds, for delivery by SunOpta to Dakota Style between November 1, 2014, and October 31, 2015. On April 23, 2015, Dakota Style and SunOpta agreed to a second "requirements contract" for up to 2, 500, 000 pounds of sunflower kernels to be delivered by SunOpta to Dakota Style between November 1, 2015, and October 31, 2016. That same day, Dakota Style and SunOpta entered into a separate contract for the purchase of Dakota Style's sunflower in-shell requirements for up to 2, 000, 000 pounds to be delivered by SunOpta to Dakota Style between November 1, 2015, and October 31, 2016.

         On May 2, 2016, SunOpta notified Dakota Style that it was voluntarily recalling some of its sunflower products due to the potential presence of Listeria. SunOpta advised that the affected products were processed at its facility between February 1, 2016, and February 19, 2016. SunOpta informed Dakota Style that it delivered approximately 88, 000 pounds of sunflower kernels that were subject to the recall between February 8, 2016, and March 14, 2016. On May 18, 2016, SunOpta reported to Dakota Style that it was expanding its recall of roasted sunflower kernels that were processed between February 20, 2016, and April 20, 2016. Finally, on May 31, 2016, SunOpta notified Dakota Style that it would be further expanding its recall to all sunflower products that were processed between May 31, 2015, and January 31, 2016, at SunOpta's facility in Crookston, Minnesota. For each recall, SunOpta instructed Dakota Style to "immediately examine your inventory and quarantine any product subject to this recall." Compl. ¶ 14. SunOpta further advised that Dakota Style could "either destroy the affected product or return the recalled product." Id.

         ANALYSIS

         1. Standard of Review

         "In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in the complaint to be true and construes all reasonable inferences most favorably to the complainant." U.S. ex rel. Ravnor v. Nat'l Rural Utilities Co-op. Fin., Corp., 690 F.3d 951, 955 (8th Cir. 2012). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Mountain Home Flight Serv., Inc. v. Baxter Cty., Ark., 758 F.3d 1038, 1042 (8th Cir. 2014) (quotins Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." U.S. ex rel. Ravnor v. Nat'l Rural Utilities Co-op. Fin., Corp., 690 F.3d 951, 955 (8th Cir. 2012). "[A]lthough a complaint need not contain 'detailed factual allegations, ' it must contain facts with enough specificity 'to raise a right to relief above the speculative level.' " Id.

         2. South Dakota Law Governs Substantive Issues

         Subject matter jurisdiction is established by diversity of citizenship in this case. "It is, of course, well-settled that in a suit based on diversity of citizenship jurisdiction the federal courts apply federal law as to matters of procedure but the substantive law of the relevant state." Jacobs ex rel. Estate of Jacobs v. Evangelical Lutheran Good Samaritan Soc, 849 F.Supp.2d 893, 896-97 (D.S.D. 2012) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). "In a choice-of-law analysis for a diversity action brought in federal district court, the choice-of-law rules are substantive for Erie purposes, and the choice-of-law rules of the forum state are applied to determine the litigating parties' rights." Id. The forum state is "the state in which a lawsuit is filed." FORUM STATE, Black's Law Dictionary (10th ed. 2014). Dakota Style initially filed its claim with the Third Judicial Circuit of South Dakota. SDCL § 53-1-4 states: "A contract is to be interpreted according to the law and usage of the place where it is to be performed, or, if it does not indicate a place of performance, according to the law and usage of the place where it is made." The complaint asserts "SunOpta contracted with Dakota Style for the sale of in-shell sunflower seeds and sunflower kernels, and prepared said products for delivery to Dakota Style's packaging facility in Clark County, South Dakota." Compl. ¶ 4. The place of performance for each sales contract was at Dakota Style's packaging facility in South Dakota. Therefore, South Dakota law governs the substantive issues in this case.

         3. UCC Governs the Sales Contracts between Dakota Style and SunOpta

         The first question before the Court is whether the transactions between Dakota Style and SunOpta fall within the scope of the Uniform Commercial Code ("UCC"). "In order for the UCC to govern the transaction, the sale must be for the sale of goods." City of Lennox v. Mitek Indus., Inc., 519 N.W.2d 330, 332 (S.D. 1994). SDCL § 57A-2-106(1) states:

In this chapter unless the context otherwise requires "contract" and "agreement" are limited to those relating to the present or future sale of goods. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A "sale" consists in the passing of title from the seller to the buyer for a price (§ 57A-2-401). A "present sale" means a sale which is accomplished by the making of the contract.

         The definition of "goods" includes "growing crops." SDCL § 57A-2-105. Dakota Style and SunOpta entered into several "contracts for sale" for the purpose of selling a bulk amount of sunflower products at a future date. Therefore, the ...