Starr Surplus Lines Ins. Co. v. Mountaire Farms Inc.

United States Court of Appeals
For the First Circuit
No. 18-1818
STARR SURPLUS LINES INSURANCE COMPANY, as Subrogee to
ADVANCEPIERRE FOODS, INC.,
Plaintiff, Appellant,
v.
MOUNTAIRE FARMS INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Jon D. Levy, Chief U.S. District Judge]
Before
Lynch, Stahl, and Barron,
Circuit Judges.
Eileen K. Bower, with whom James J. Sanders, Emily A. Golding,
Clyde & Co US LLP, Paul C. Catsos, Elizabeth K. Peck, and Thompson
Bowie & Hatch LLC were on brief, for plaintiff-appellant.
Kevin King, with whom John J. Deboy, Neil K. Roman, Covington
& Burling LLP, David B. McConnell, Joseph G. Talbot, and Perkins
Thompson PA were on brief, for defendant-appellee.
April 3, 2019
BARRON, Circuit Judge. This appeal concerns a suit in
the District of Maine by the insurer of a chicken products
manufacturer to recoup the losses that it paid to the manufacturer
for the losses that the manufacturer incurred when its products
were recalled following a salmonella outbreak. Subrogated to the
rights of the manufacturer, the insurer sought damages from the
manufacturer's chicken supplier for claims under Maine law for
breach of warranty and strict product liability. In support of
those claims, the insurer's complaint alleged that the
manufacturer received two truckloads of raw chicken from the
supplier that was contaminated with Salmonella Enteriditis and was
therefore "defective" under Maine law. The supplier filed a motion
to dismiss, which the District Court granted as to all claims.
The District Court did so after ruling that the complaint's
allegations did not suffice to plausibly allege that the raw
chicken that the supplier sent to the manufacturer was "defective."
The District Court also concluded that the insurer's strict
liability claim was independently barred by the economic loss
doctrine. We affirm.
I.
The insurer is Starr Surplus Lines ("Starr"). Starr is
subrogated to the rights that its insured, AdvancePierre, had under
a contract with Mountaire Farms ("Mountaire"). Starr's complaint
alleges the following facts, which we accept as true in reviewing
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the grant of a motion to dismiss. See Fantini v. Salem State
Coll., 557 F.3d 22, 26 (1st Cir. 2009).
Mountaire is a regional fresh chicken producer located
in North Carolina. In December 2014, Mountaire entered into a
contract (the "Contract") with AdvancePierre, which is a national
manufacturer of "value-added proteins and sandwich products to
foodservice, retail, schools, and convenience channels."
AdvancePierre's products are sold under various brand names,
including Barber Foods.
Mountaire agreed under the Contract to deliver raw
chicken parts to AdvancePierre's Barber Foods facility in
Portland, Maine (the "Portland Facility"). In February 2015,
Mountaire shipped 120,000 pounds of fresh boneless chicken breasts
to the Portland Facility in connection with three separate purchase
orders that AdvancePierre made under the Contract. AdvancePierre
logged each purchase order, which was assigned a unique lot number,
into its computer system, along with the supplier information and
the time and date that the products that had been ordered were
received.
The fresh chicken that AdvancePierre purchased from
Mountaire was "contaminated with Salmonella Enteritidis at the
time of delivery to AdvancePierre." AdvancePierre used this
chicken from Mountaire to produce value-added raw chicken
products, such as frozen raw stuffed chicken breasts (e.g.,
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"Chicken Kiev, Chicken Cordon Bleu, [Chicken Stuffed with]
Broccoli Cheese"), at the Portland Facility.
Between February and June of 2015, clusters of
individuals (initially a total of six) in Minnesota and Wisconsin
became infected with Salmonella Enteritidis. These cases were
reported to the federal Food Safety Inspection Service ("FSIS") on
June 24, 2015.
Through genetic testing, the FSIS identified "PFG
pattern combinations" of the salmonella pathogen in all six of
these patients that were "unique and new to the [Center for Disease
Control ("CDC")] Pulse Net Database." The FSIS then linked the
unique PFG pattern combinations to chicken products made by
AdvancePierre at the Portland Facility. Later, the FSIS learned
of two additional individuals who had contracted a Salmonella
Enteritidis infection after being exposed to AdvancePierre
products produced at the Portland Facility on the same production
dates as the products linked to the other infected individuals.
Based on this testing, the FSIS issued a public health
alert on July 1, 2015. On July 2, 2015, AdvancePierre initiated
a recall with respect to 58,320 pounds of chicken products made on
specific dates in 2015 at the Portland Facility. "[A]t the
insistence of [the] FSIS," AdvancePierre soon thereafter expanded
the recall to encompass a total of 1,707,494 pounds of raw chicken
products produced by AdvancePierre at the Portland Facility on
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specific production dates between February 2015 and May 2015.
Using its computer system, AdvancePierre determined that the
chicken products associated with the Salmonella Enteritidis
outbreak and the subsequent recall were made with chicken from the
two truckloads of raw chicken parts that Mountaire had supplied in
February 2015.
As a result of the recall, AdvancePierre incurred losses
in excess of $10 million, "including but not limited to return and
destruction of the recalled chicken products, lost sales
opportunities, loss of business, and loss of customers." Starr
paid AdvancePierre $10 million for the losses that it had sustained
in connection with the recall. Starr subrogated to the rights of
AdvancePierre under the Contract with Mountaire.
Starr then filed suit against Mountaire in Cumberland
County Superior Court in Maine. Starr brought claims under Maine
law for breach of the implied warranty of merchantability, see Me.
Rev. Stat. tit. 11, § 2-314, breach of the implied warranty of
fitness for a particular purpose, see id. § 2-315, and strict
product liability, see Me. Rev. Stat. tit. 14, § 221, based on the
allegation that the chicken that Mountaire had supplied to
AdvancePierre was contaminated with Salmonella Enteritidis.
Mountaire removed the action to the United States District Court
for the District of Maine on the basis of diversity jurisdiction.
See 28 U.S.C. § 1332(a).
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Mountaire filed a motion to dismiss for failure to state
a claim under Federal Rule of Civil Procedure 12(b)(6), which the
District Court granted as to all claims. See Starr Surplus Lines
Ins. Co. v. Mountaire Farms Inc., No. 2:18-CV-00067-JDL, 2018 WL
3676839, at *3 (D. Me. Aug. 2, 2018). The District Court concluded
that, under Maine law, salmonella is an inherent, unavoidable, and
recognized component of raw chicken that is eliminated by proper
cooking methods and that the complaint failed plausibly to allege
that the chicken from Mountaire was contaminated with any pathogen
other than such salmonella. See id. The District Court thus
concluded that Starr's complaint did not sufficiently allege a
"defect" in the chicken from Mountaire, as it was required to do
in order to state a claim for breach of warranty and strict product
liability. See id. The District Court also determined that
Starr's strict liability claim was independently barred by the
economic loss doctrine, which precludes recovery in tort for
economic loss unaccompanied by personal injury or property damage.
See id. at *3-4. Starr then filed this timely appeal.
II.
We review the grant of a motion to dismiss de novo. See
Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st
Cir. 2012). We "accept[] all well-pleaded facts as . . . true and
draw[] all reasonable inferences in favor of [the non-moving
party]." Fantini, 557 F.3d at 26. "We may augment these facts
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and inferences with data points gleaned from documents
incorporated by reference into the complaint, matters of public
record, and facts susceptible to judicial notice." Haley v. City
of Boston, 657 F.3d 39, 46 (1st Cir. 2011).
In undertaking our review, we first set aside legal
conclusions and those factual allegations "too meager, vague, or
conclusory to remove the possibility of relief from the realm of
mere conjecture." In re Curran, 855 F.3d 19, 25 (1st Cir. 2017)
(internal quotation marks omitted). We then consider whether the
remaining well-pleaded allegations are "sufficient to support the
reasonable inference that the defendant is liable for the
misconduct alleged." García-Catalán v. United States, 734 F.3d
100, 103 (1st Cir. 2013) (citations and internal quotation marks
omitted).
III.
We begin with Starr's breach of warranty claims. Under
Maine law, "in order to maintain a claim for breach of the implied
warranties of merchantability and fitness for particular purpose,"
the "plaintiff must show some defect in the product at the time it
was sold." Walker v. Gen. Elec. Co., 968 F.2d 116, 119 (1st Cir.
1992) (citing Lorfano v. Dura Stone Steps, Inc., 569 A.2d 195, 197
(Me. 1990); Faulkingham v. Seacoast Subaru, Inc., 577 A.2d 772,
774 (Me. 1990); Sylvain v. Masonite Corp., 471 A.2d 1039, 1040–41
(Me. 1984)) (footnotes omitted). Starr's challenge to the
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dismissal of its breach of warranty claims turns in part on whether
the complaint plausibly alleges that the raw chicken that Mountaire
supplied to AdvancePierre -- as opposed to the chicken products
that AdvancePierre made using that raw chicken -- contained
Salmonella Enteritidis. But, the success of Starr's challenge
does not turn only on the plausibility of that allegation.
Starr accepts that, under Maine law, raw chicken that
contains salmonella that can be eliminated by proper cooking cannot
be considered "defective." See, e.g., Kobeckis v. Budzko, 225
A.2d 418, 423-24 (Me. 1967) (holding that raw pork containing
trichinar was not defective because "[t]he usual use of meat as a
food is when cooked, not when raw" and the "warranty
implied . . . on the sale of uncooked pork . . . is that the
pork . . . is reasonably fit for human consumption only when
properly cooked"); see also Craten v. Foster Poultry Farms Inc.,
305 F. Supp. 3d 1051, 1064 (D. Ariz. 2018) ("It is undisputed that
Salmonella occurs naturally in chicken and that the bacteria are
killed through proper cooking[,] . . . which is how raw chicken
products are intended to be used."); Leno v. Ehli, 339 N.W.2d 92,
99 (N.D. 1983) (noting that "it is common knowledge that there is
a danger of illness from eating poultry which has not been properly
prepared"); González Cabán v. JR Seafood, 132 F. Supp. 3d 274, 287
(D.P.R. 2015) (noting that Salmonella is a "natural" material in
chicken). Thus, Starr's challenge to the dismissal of its claims
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may succeed only if the complaint plausibly alleges that the raw
chicken that Mountaire sold to AdvancePierre was contaminated with
a type of salmonella that would persist despite proper cooking.
And there, as we will explain, the complaint comes up short.1
In attempting to make the contrary case, Starr does not
dispute that "[t]he allegations in the . . . complaint do not"
once mention cooking, let alone "include a direct allegation that"
the chicken from Mountaire was contaminated with a type -- insofar
as there is such a type -- of salmonella resistant to proper
cooking. Cardigan Mountain Sch. v. New Hampshire Ins. Co., 787
F.3d 82, 85 (1st Cir. 2015). Instead, Starr argues that the
complaint lays out a plausible circumstantial case for so
concluding. But, while "'circumstantial evidence often suffices'
to render an asserted claim plausible in the pleading context,"
id. at 87 (quoting García-Catalán, 734 F.3d at 103), that is not
the case here.
In arguing otherwise, Starr first points to the
complaint's allegation that, "[t]hrough genetic testing, the FSIS
identified PFG pattern combinations . . . in all of six of the
1 The parties do dispute whether Maine law applies the
"foreign-natural" test, see Kobeckis, 225 A.2d at 423, or the
"reasonable expectation" test, see Estate of Pinkham v. Cargill,
Inc., 55 A.3d 1, 5 (Me. 2012), to defective food product claims.
We need not decide which test applies here, because we conclude
that chicken containing salmonella that can be killed by proper
cooking is not "defective" under either test. Nor does the
plaintiff contend otherwise.
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patients initially infected with Salmonella Enteritidis in
Wisconsin and Minnesota." In that same vein, Starr also notes,
the complaint alleges that "[t]hese genetic pattern combinations
were unique and new to the [Center for Disease Control ("CDC")]
Pulse Net Database, and enabled the FSIS to link the illnesses
directly to products produced at AdvancePierre."
But, "documents incorporated by reference into the
complaint, matters of public record, and facts susceptible to
judicial notice," Haley, 657 F.3d at 46, confirm that Salmonella
Enteritidis is a common form of the salmonella pathogen that can
be eliminated by proper cooking. See, e.g., Salmonella Enteritidis
Infection, CDC Prevention Guidelines (March 1, 1992),
https://wonder.cdc.gov/wonder/prevguid/p0000003/p0000003.asp
(explaining that "if [the product] is thoroughly cooked, the
Salmonella [Enteritidis] organisms will be destroyed and will not
make the person sick"). Nor does the complaint at any point
directly allege otherwise.
Starr places great emphasis on the fact that the
complaint alleges that the "genetic pattern combinations" of the
salmonella pathogen found in the patients linked to the outbreak
"were unique and new to the CDC Pulse Net Database." The complaint
further alleges that these "unique and new" "genetic pattern
combinations" "enabled the FSIS to link the illnesses directly to
products produced at AdvancePierre." But, the key question with
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respect to the viability of Starr's breach of warranty claims is
not whether the type of salmonella alleged to have contaminated
the chicken supplied by Mountaire was found in the persons who
suffered the illnesses that led to the recall. The key question
is whether that type of salmonella is resistant to proper cooking.
The complaint's allegations concerning the "unique" genetic
pattern combinations simply do not bear on that question.
Starr next points to the complaint's allegation that a
total of eight individuals in Minnesota and Wisconsin became
infected with Salmonella Enteritidis after being exposed to
products produced by AdvancePierre at the Portland Facility that
contained the chicken from Mountaire. The complaint does not
allege, however, that any of the eight patients contracted the
Salmonella Enteritidis infection after eating properly cooked
AdvancePierre chicken products or even after eating the products
at all. In fact, Starr's counsel represented at oral argument
only that the infected patients were "exposed" to AdvancePierre
products containing the chicken at issue and conceded that the
patients could have contracted the infections from merely touching
the raw AdvancePierre chicken products. Nor does the complaint
"refer[] to individuals with relevant knowledge who are recalling
facts plausibly known to them" to help tip the allegations past
the point of plausibility. Cardigan Mountain, 787 F.3d at 87.
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These deficiencies are significant because, as we have
already explained, the complaint makes no
allegation -- directly -- that the type of salmonella found in the
chicken linked to the infected persons could not have been
eliminated by proper cooking. In the absence of any allegation of
that sort, we do not see how the mere fact that those persons
became ill from that type of salmonella after being "exposed" to
the AdvancePierre chicken products provides a plausible basis for
inferring that the type of salmonella that those products were
contaminated with was of such a kind.
Finally, Starr points to the complaint's allegations
that the FSIS determined that the outbreak was severe enough to
warrant a recall of the AdvancePierre products containing the
chicken from Mountaire and "therefore [that] these products [from
Mountaire] were adulterated within the meaning of 9 C.F.R.
§ 381.1(b)(iii)." Starr then proceeds to argue that "if the
recalled chicken products simply contained [the type of]
Salmonella that one expects to find in any chicken product, there
would be no basis for the FSIS to find that the products were
'adulterated' and should be recalled because they were unfit for
human consumption." In this way, Starr relies upon the allegations
concerning the recall to make the case that the complaint states
a valid claim, even if it is otherwise deficient in alleging that
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the chicken was contaminated with a form of salmonella that could
not be eliminated by proper cooking.
Mountaire counters that we should set aside the
complaint's allegation that the chicken from Mountaire "w[as]
adulterated within the meaning of 9 C.F.R. § 381.1(b)(iii)" as
conclusory. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
("[T]he tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal
conclusions."). But, even if we were to disagree with Mountaire
on that point, it would not save Starr's case.
Federal law governing recalls provides no basis for
concluding that, if chicken is "adulterated within the meaning of
9 C.F.R. § 381.1(b)(iii)," then the chicken is contaminated with
a type of salmonella that would persist despite proper cooking.
The Poultry Products Inspection Act ("PPIA") prohibits the sale of
poultry that is "adulterated," see 21 U.S.C. § 458(a)(2), and
poultry is deemed "adulterated" under that statute "if it
consists . . . of any filthy, putrid, or decomposed substance or
is for any other reason unsound, unhealthful, unwholesome, or
otherwise unfit for human food," id. § 453(g)(3); see also id.
§ 601(m)(3); 9 C.F.R. § 381.1(b)(iii). The only respect in which
the complaint alleges that the chicken at issue was "adulterated"
under the PPIA is that it "contained pathogens including Salmonella
Enteritidis, which caused human illness. . . ." But, as we have
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explained, neither the fact that the chicken from Mountaire was
contaminated with Salmonella Enteritidis nor the fact that the
products into which it was incorporated were linked to an illness
outbreak permits the inference that the chicken from Mountaire was
"defective" under Maine law.
Nor does the complaint allege that the FSIS was required
under the relevant federal laws to make -- or that the FSIS in
this instance made -- any other determinations about the chicken
products at issue. In fact, the published FSIS guidance materials
cited by Mountaire confirm that the FSIS may in some instances
deem poultry products to be "adulterated" under the PPIA merely
because the "products are associated with an illness outbreak."
HAACP Plan Reassessment for Not–Ready–To–Eat Comminuted Poultry
Products and Related Agency Verification Procedures Notice, 77
Fed. Reg. 72,686, 72,689 (Dec. 6, 2012); see also Craten, 305 F.
Supp. 3d at 1059-60. Thus, the mere fact of the FSIS-orchestrated
recall does not give rise to the plausible inference that the type
of salmonella found in the AdvancePierre chicken products could
not be eliminated by proper cooking. The fact of the recall might
simply reflect that the FSIS linked particular chicken products to
an outbreak of salmonella.
We recognize that "this is a commercial case between two
businesses," and we do not mean to suggest that, as a categorical
matter, "a seller of raw chicken products has no recourse against
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a raw chicken supplier when the federal government determines that
the supplied chicken is adulterated and warrants a massive Recall."
But, after considering "the cumulative effect of the factual
allegations contained in the complaint," A.G. ex rel. Maddox v.
Elsevier, Inc., 732 F.3d 77, 82 (1st Cir. 2013) (citation and
internal quotation marks omitted), we conclude that Starr failed
to allege "something more than facts showing that a claim is
conceivable," In re Curran, 855 F.3d at 27. We therefore affirm
the District Court's dismissal of Starr's breach of warranty
claims.
IV.
Starr's complaint also alleges, separate from its breach
of warranty claims, that Mountaire is strictly liable for selling
"raw chicken products to AdvancePierre in a defective condition
that was unreasonably dangerous in a way not contemplated or
expected by users and consumers" in violation of Me. Rev. Stat.
tit. 14, § 221. Section 221 allows a plaintiff to recover in tort
from a seller "for physical harm" to the plaintiff "or to his
property" resulting from "goods or products [sold] in a defective
condition unreasonably dangerous to the user or consumer or to his
property." Id.
A plaintiff "alleging damage or injury from a faulty or
defective product" may, as Starr did here, bring "[a]
lawsuit [under Maine law] . . . based on a number of theories,
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including . . . strict liability . . . and breach of warranty."
Oceanside at Pine Point Condo. Owners Ass'n v. Peachtree Doors,
Inc., 659 A.2d 267, 269–70 (Me. 1995) (citation and footnote
omitted). Under either theory, though, the plaintiff still must
show that the product at issue was "defective" under Maine law.
Here, as we have explained, the complaint does not
sufficiently plead facts permitting us to plausibly infer that the
raw chicken that Mountaire sold to AdvancePierre was contaminated
with a type of salmonella that could not be eliminated by proper
cooking and thus was defective under Maine law.2 Nor does Starr
contend that its strict liability claim may survive if we conclude
that the complaint fails to allege facts that could suffice to
show that the chicken supplied by Mountaire to AdvancePierre was
defective.
We thus affirm the District Court's dismissal of Starr's
strict liability claim on this basis alone. See MacDonald v. Town
of Eastham, 745 F.3d 8, 11 (1st Cir. 2014) ("We are not bound by
the district court's reasoning but, rather, may affirm an order of
dismissal on any ground evident from the record."). We therefore
do not reach the question whether the District Court correctly
2 As we noted earlier, the parties do dispute whether the
"foreign-natural" test, see Kobeckis, 225 A.2d at 423, or the
"reasonable expectation" test, see Estate of Pinkham, 55 A.3d at
5, applies under Maine law. But, neither party suggests that
chicken that contains salmonella that can be killed by proper
cooking methods is "defective" under either test.
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determined that "[e]ven if . . . Starr's strict liability claim
could survive these [defective product] tests, it is further barred
by the economic loss doctrine." Starr Surplus Lines, 2018 WL
3676839, at *3-4.
V.
For the foregoing reasons, we affirm the District
Court's dismissal of Starr's breach of warranty and strict
liability claims. Each party shall bear its own costs.
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