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Arizona Grain Inc. v. Barkley Ag Enterprises LLC

United States District Court, D. Arizona

November 7, 2019

Arizona Grain Incorporated, et al., Plaintiffs,
v.
Barkley Ag Enterprises LLC, et al., Defendants. Northern Agri Brands, LLC, Counterclaim Plaintiff,
v.
Arizona Plant Breeders, Inc., et al., Counterclaim Defendants. Northern Agri Brands, LLC, Third-Party Plaintiff,
v.
Eric Wilkey, et al., Third-Party Defendants.

          ORDER

          G. Murray Snow Chief United States District Judge

         Pending before the Court is a motion by Counterclaim Defendants Arizona Plant Breeders, Inc. and Arizona Grain, Inc. (jointly “APB”) to dismiss Counts One, Three, Four, Five, Six, and Seven of the Counterclaims filed by Northern Agri Brands, LLC (“NAB”) against APB for failure to state claims upon which relief may be granted. (Doc. 33.) APB's officers and directors, Eric Wilkey, K. Andrew Kroese, William Ken Dickey, Russell S. Dickey, and Tod V. Dickey (collectively “APB officers”), have, on behalf of themselves and their unnamed wives (“Jane Doe Defendants”), moved to dismiss all Counterclaims for failure to state claims upon which relief may be granted and insufficient process. Lockwood Seed and Grain (“Lockwood”), a distributor for APB, has moved to dismiss all Counterclaims for improper venue and lack of personal jurisdiction, and has also joined in APB's motion to dismiss for failure to state claims. (Doc. 50.)[1] For the following reasons, the motions are granted in part and denied in part.[2]

         BACKGROUND

         The facts as alleged in NAB's Counterclaims (Doc. 25) are as follows. NAB is a seed company with an internal research and development division that sells seed products to farms. Several of NAB's seed products are varieties of triticale, a hybrid of wheat and rye. NAB's predecessor-in-interest Resource Seeds, Inc. owned an extensive triticale library of breeding materials from which to select to cross lines to achieve preferred genetic traits. Resource Seeds plant breeder Dr. Bob Matchett and field technician Oly Cantu developed many triticale varieties, including the one at issue in this case, SY 158T. SY 158T is an “awned” triticale variety, meaning it has bristle-like appendages.

         In 2014, Plant Variety Protection (PVP) Certificate No. 201200083 was issued to Syngenta (NAB's predecessor-in-interest and Resource Seeds' successor-in-interest) pursuant to 28 U.S.C. § 2482 for SY 158T. The PVP Certificate was subsequently assigned to NAB. At all times relevant herein, the PVP Certificate for SY 158T was and remains in full force and effect. NAB and its predecessors only authorized sales of PVP protected triticale seed varieties with written notice containing statutorily designated language signifying that: (1) the seed was protected under the Plant Variety Protection Act (PVPA); (2) unauthorized propagation or multiplication of the seed was prohibited; and (3) use of the seed by the purchaser was authorized only for purposes of growing a commercial crop of grain. NAB required such notice on all bags of triticale seed sold and on notices accompanying all bulk sales of such triticale seed. In addition, NAB consistently and prominently marked the varieties with statutory PVPA notices on its marketing and promotional materials for such varieties.

         Resource Seeds also developed awnless triticale varieties, which do not have the bristle-like appendages of SY 158T. On October 19, 1999, the United States Patent and Trademark Office issued United States Patent No. 5, 969, 219 (the “219 Patent” or the “Patent”), entitled “Awn-inhibitor genes for triticale and their use.” The 219 Patent is directed towards awn-inhibitor triticale genes. The Patent includes 36 claims, including independent claims 1, 18, and 36 at issue in this case. Resource Seeds assigned the Patent to Syngenta, and thereafter, Syngenta assigned the Patent to NAB. NAB and its predecessors sold its seed in bags together with a limited label license prohibiting use of the seed for any commercial purposes, including breeding or multiplication.

         During his employment with Resource Seeds and Syngenta, technician Cantu had access to all breeding materials and germplasm, including direct access to both awnless and awned breeding materials of triticale and the crossing and progeny of triticale undergoing various stages of generational breeding and selection. In 2010, Cantu announced he was leaving Syngenta. Prior to leaving Syngenta, Cantu communicated with Albert Carleton, the former owner and president of APB, to arrange a replacement job. Cantu then secretly and without authority accessed, secured, and removed a portion of triticale breeding materials and related information contained within confidential breeding records, including records covering SY 158T, and took these materials to APB. At APB, Cantu and Carleton used the materials to establish a directly competitive triticale breeding program founded upon Syngenta's triticale breeding materials.

         In 2015, NAB observed awnless triticale varieties in various stages of growth and development in APB test plots. NAB became concerned that the awnless triticale varieties observed in APB plots were either (1) the product of unauthorized use of NAB's breeding materials and other patented awnless triticale varieties that were misappropriated by Cantu prior to his departure from Syngenta, or (2) the product of APB's unauthorized and illegal efforts to breed against NAB's patented awnless triticale varieties, or (3) both.

         During the summer of 2017, APB president Eric Wilkey proposed a license for awnless triticale payable to NAB for the use of awnless varieties APB claimed to possess. Wilkey confirmed APB was actively licensing a triticale variety to Lockwood for distribution to the public. Wilkey further acknowledged that SY 158T, NAB's awned triticale, was “one of the parents” of APB's “RAPTOR” triticale.

         In September 2017, NAB obtained samples of APB's RAPTOR triticale from Lockwood. According to the seed bag label, the seed had been tested in September 2017 for germination and purity and claimed a lot number of “RAPTOR 17-1.” NAB planted the RAPTOR triticale in areas immediately adjacent to SY 158T to perform agronomic study. NAB then observed the growth of the two triticale varieties and compared the information, concluding that RAPTOR was the same variety as SY 158T. According to NAB, the plants in each test plot had identical characteristics. NAB then submitted samples for scientific testing and obtained test results concluding RAPTOR branded triticale genetically matched SY 158T triticale.

         On October 19, 2018, APB filed suit against NAB. (Doc. 1.) The amended complaint, filed March 14, 2019, requested declaratory judgments that APB had not infringed the PVPA or misappropriated trade secrets and alleged tortious interference with prospective business relations, unfair competition, aiding and abetting tortious conduct, and civil conspiracy. (Doc. 16.) On April 16, 2019, NAB filed its answer and affirmative defenses and alleged seven counterclaims against Defendants: (1) infringement under the PVPA; (2) infringement of the 219 patent; (3) trade secret misappropriation pursuant to Arizona law, (4) California law, and (5) federal law; (6) conversion; and (7) unjust enrichment. (Doc. 25.) On May 31, 2019, APB filed this motion to dismiss Counts One and Three through Seven on behalf of APB and all Counts on behalf of Third-party Defendants. (Doc. 33.)

         DISCUSSION

         I. Legal Standard

         To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must contain more than a “formulaic recitation of the elements of a cause of action”; it must contain factual allegations sufficient to “raise the right of relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While “a complaint need not contain detailed factual allegations . . . it must plead ‘enough facts to state a claim to relief that is plausible on its face.'” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008) (quoting Twombly, 550 U.S. at 570). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). The plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 555) (internal citations omitted).

         When analyzing a complaint for failure to state a claim, “allegations of material fact are taken as true and construed in the light most favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). In addition, the Court must assume that all general allegations “embrace whatever specific facts might be necessary to support them.” Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). However, legal conclusions couched as factual allegations are not given a presumption of truthfulness, and “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).

         II. Analysis

         A. Lockwood's Motion to Dismiss for Lack of Jurisdiction and Improper Venue

         As an initial matter, in its Opposition to Lockwood's motion to dismiss, NAB states that “it is not asserting patent infringement, trade secret misappropriation, or conversion claims against Lockwood.” (Doc. 53 at 2 n.2.) Accordingly, these claims are dismissed as to Lockwood.

         As to the remaining claims for infringement under the PVPA and unjust enrichment, NAB must demonstrate that personal jurisdiction exists over Lockwood. “Where, as here, there is no applicable federal statute governing personal jurisdiction, the law of the state in which the district court sits applies.” Harris Rutsky & Co. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003). Arizona Rule of Civil Procedure 4.2(a) allows state courts to exercise personal jurisdiction to the extent permitted by the state and federal constitutions. The Court must therefore examine whether exercising jurisdiction over Lockwood comports with due process. Cybersell v. Cybersell, 130 F.3d 414, 416 (9th Cir. 1997).

         Specific personal jurisdiction[3] is appropriate when: (1) the defendant purposefully directed its activities or consummated some transaction with the forum or a resident of the forum, or performed some act by which it purposefully availed itself of the privileges of conducting activities in the forum; (2) the claim arises out of or relates to the defendant's forum-related activities; and (3) the exercise of jurisdiction is reasonable. Harris, 328 F.3d at 1129. NAB argues that exercise of specific personal jurisdiction over Lockwood is appropriate because the unsigned licensing agreement between Lockwood and APB provided by Lockwood in discovery, (Doc. 55-1), includes an Arizona choice of law/jurisdiction clause and “raises the reasonable inference . . . that the agreement was negotiated in Arizona, that royalties were paid to APB . . . and that Lockwood employees . . . travelled to Arizona in connection with this Agreement, ” (Doc. 53 at 6). Moreover, NAB asserts that Lockwood “sold seed protected by NAB's PVPA certificate to an Arizona entity.”[4] Id.

         Lockwood cites Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County, 137 S.Ct. 1773 (2017), for the proposition that a “defendant's negotiation and entry into a contract with a forum resident, standing alone, is not enough to confer personal jurisdiction over the defendant in that forum for torts allegedly committed outside the forum.” (Doc. 59 at 5.) Unlike NAB, however, the plaintiffs in Bristol-Myers were not domiciled in the state where the action was brought-the court even distinguished its case from a case where specific personal jurisdiction existed by stating, in part, “here the nonresidents' claims involve . . . no harm to California residents.” Id. at 1782. And unlike Lockwood, the Bristol-Myers defendant was not alleged to have engaged in “relevant acts” with its contract partner in the forum; nor was it alleged that that the harm caused by the Bristol-Myers defendant originated with its contract partner, as NAB alleges here. Id. at 1783. Finally, Bristol-Myers is particularly inapposite here, where NAB has brought suit in its home state, because the court concluded in dicta that the nonresident plaintiffs “could probably sue together in their home States” (though it did not explain whether that was because the plaintiffs' home states were the location of their harm or the location of their residence (or both)). Id.

         Although a “contract with an out-of-state party alone can[not] . . . establish sufficient minimum contacts in the other party's home forum, ” if the contract demonstrates that the defendant contemplated a long-term interdependent relationship in the forum state, the defendant cannot argue that its relationship to that state is “random, ” “fortuitous, ” or “attenuated.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 482 (1985). In Burger King, Burger King, a Florida corporation, brought an action in Florida federal district court when Rudzewicz, a Burger King franchise owner, refused a termination order and continued to operate a Burger King restaurant in Michigan. Id. The court found that although Rudzewicz did not maintain offices in or ever visit Florida, the franchise dispute grew directly out of “a contract which had a substantial connection with [Florida]” because Rudzewicz deliberately “reach[ed] out beyond” Michigan and “entered into a ...


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