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La Tortilleria, Inc. v. Nuestro Queso, LLC

United States District Court, M.D. North Carolina

March 31, 2014

LA TORTILLERIA, INC., Plaintiff,
v.
NUESTRO QUESO, LLC, Defendant.

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

JOE L. WEBSTER, Magistrate Judge.

This matter is before the Court on Defendant Nuestro Queso's motion to dismiss the amended complaint for failure to state a claim. (Docket Entry 19.) All matters are ripe for disposition. For the reasons that follow, the Court recommends that Defendant's motion to dismiss be denied.

I. BACKGROUND

Plaintiff La Tortilleria, Inc. is a North Carolina corporation that distributes Mexican food products. (Am. Compl. ¶ 1, Docket Entry 14.)[1] Defendant Nuestro Queso, LLC, a Delaware corporation with its principal place of business in Illinois, manufactures cheese and other dairy products. ( Id. ¶ 2.) Plaintiff claims that in December 2010 it agreed to an oral contract with Defendant in reliance on Defendant's commitments, which were defined over months of negotiation conducted by Defendant's co-founder and then-president Guy Paproski, and investor and manager Mark Braun and originally outlined in a March 2009 letter of intent. ( Id. ¶ 27.) Plaintiff alleges it accepted Defendant's offer to co-package Plaintiff's Cuervito Morado brand cheese at a "comparable quality and equivalent pricing" to what Plaintiff was receiving from its current co-packer Mexican Cheese Producers, a subsidiary of Sigma Alimentos (hereinafter "Sigma"). ( Id. ) The parties allegedly also agreed to cooperate in the "long-term development" of Plaintiff's products alongside Defendant's brand cheeses. ( Id. ) Though both parties were aware the agreement involved the risk that Nuestro Queso would lose money from co-packing the cheese during periods where the cost of milk was high, Plaintiff alleges Paproski represented that Defendant was "willing to risk losing money... in order for Nuestro Queso to gain income from co-packing... to help stabilize Nuestro Queso's cash flow and to benefit from a broad, mutually beneficial longterm relationship" between the companies. ( Id. ¶ 22.) Plaintiff alleges that in March 2011 Plaintiff notified Sigma of its intent to move the co-packing business to Defendant, which began production of the Cuervito Morado cheeses in February 2011. ( Id. ¶ 29.)

Plaintiff claims that the early stages of Defendant's production of the cheeses involved "problems" with both the "quality and prices" Defendant was providing. ( Id. ¶ 36.) Defendant told Plaintiff these problems were "administrative" issues that would be resolved quickly and, during a March 11 visit to North Carolina, Paproski assured Plaintiff it would be credited for the excess cheese labels purchased from Sigma, the cheeses that failed to meet the quality standard, and the overcharges and freight costs invoiced to Plaintiff "above the parties' agreed upon prices." ( Id. ¶¶ 32, 36.) Paproski repeated these assurances in an email to Plaintiff on or about March 18, 2011. ( Id. ¶ 33).

In July or August of 2011, Plaintiff claims, after several months of unsuccessful attempts to contact Paproski regarding the outstanding credits and "unacceptable ongoing deficiencies in quality and freight costs, " (Am. Compl. ¶ 37), Defendant "unilaterally initiat[ed] a substantial increase" in its prices for the Cuervito Morado cheeses. ( Id. ¶ 39). Though Plaintiff explained to Braun that the new prices were "unacceptable, " Defendant allegedly refused to relent on the increases, claiming, for the first time, that Nuestro Queso was not willing to lose money co-packing the cheeses based on fluctuations in the cost of milk. ( Id. ¶¶ 40-42.)

Plaintiff claims that throughout the summer and early fall of 2011, it repeatedly notified Defendant that these changes were unacceptable into the fall of 2011. ( Id. ¶ 43). Braun made a trip to North Carolina to resolve Plaintiff's concerns, during which he informed Plaintiff that Paproski, who was no longer serving as President, had been removed because he "misled people, " including Defendant's board of directors. ( Id. ¶¶ 46, 50.) Additionally, Paproski had "never informed Nuestro Queso about his representations about developing a broader long-term relationship" between the parties and Braun stated he "would not be surprised if Mr. Paproski representations ( sic) had misled La Tortilleria as well." ( Id. ¶ 50.) Despite the meeting, Plaintiff's concerns were not resolved. ( Id. ¶ 51.)

In December 2011, Defendant issued a recall of various cheeses, including the Cuervito Morado brand. ( Id. ¶ 52.) Plaintiff was forced to inform its customers of the recall; one large customer, Wal-Mart, "immediately stopped selling" all Cuervito Morado brand cheeses. ( Id. ¶¶ 53-54.) Plaintiff claims that through the recall, Wal-Mart learned that Defendant's facility was "not properly certified" and stated it would only begin re-selling Cuervito Morado cheeses if Plaintiff could prove they were being produced by a properly certified manufacturing plant. ( Id. ¶ 54.)

In January 2012, Plaintiff informed Defendant that it was transferring co-packing back to Sigma due to Defendant's failure to honor its representations and the agreement the parties had reached. ( Id. ¶ 55.) Plaintiff now sues for compensatory and, in the alternative, punitive damages, alleging breach of contract, negligent misrepresentation, fraud in the inducement, and unfair and deceptive trade practices.

II. STANDARD OF REVIEW

A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the complaint. Edwards v. City of Goldsboro, 178 F.3d 231, 243 (1999). A complaint that does not "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, '" must be dismissed. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic 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." Id. The test does not require the complaint to have detailed factual allegations, '... [but rather] plead sufficient facts to allow a court, drawing on judicial experience and common sense, ' to infer more than the mere possibility of misconduct.'" Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 256 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678-79).

In considering the motion to dismiss, the Court must view the complaint in the light most favorable to Plaintiff and resolve every doubt in Plaintiff's favor. See Doe v. Virginia Dept. of State Police, 713 F.3d 745, 752 (4th Cir. 2013) (citing Mylan Labs, Inc. v. Matkari, 7 F.3d 1130, 11134 (4th Cir. 1993)). Plaintiffs allegations are to be taken as true for the purpose of ruling upon the motion. Id. In addition, any inference reasonably drawn from the complaint must be considered together with Plaintiffs allegations of facts. See Murray v. City of Milford, Conn., 380 F.2d 468, 470 (2d Cir. 1967); Neuman v. Levan, No. 8:08-03418-HFF, 2009 WL 1856569, at *1 (D.S.C. June 26, 2009).

Breach of Contract (First Cause of Action)

In a breach of contract action, a complainant must show that there is "(1) existence of a valid contract, and (2) breach of the terms of that contract." Sanders v. State Personnel Comm'n, 197 N.C.App. 314, 320, 677 S.E.2d 182, 187 (2009) (internal citations omitted). In North Carolina, a complaint for breach of contract is sufficient when it "gives notice of the events and transactions and allows the adverse party to understand the nature of the claim and to prepare for trial." Smith ...


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