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PRO-FAC COOPERATIVE, INC. v. ALPHA NURSERY
April 18, 2002
PRO-FAC COOPERATIVE, INC., ET AL., PLAINTIFFS,
ALPHA NURSERY, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: David G. Larimer, Chief Judge, United States District Court.
Plaintiffs, Pro-Fac Cooperative, Inc. ("Pro-Fac"), Agrilink Foods,
Inc. ("Agrilink") (a wholly-owned subsidiary of Pro-Fac), and nineteen
individual officers and directors of Pro-Fac and Agrilink, commenced this
declaratory judgment action on May 25, 2001, against roughly 150 Oregon
farm operations. This action arises out of certain contractual
relationships between plaintiffs and defendants, relating to another
onetime subsidiary of Pro-Fac, PF Acquisition II, Inc., d/b/a AgriFrozen
Foods. Jurisdiction is premised on both the existence of a federal
question, 28 U.S.C. § 1331, and diversity of citizenship,
28 U.S.C. § 1332. Defendants have moved to dismiss the complaint for
lack of personal jurisdiction and improper venue under Fed.R.Civ.P.
12(b)(2) and 12(b)(3), or in the alternative for discretionary dismissal
under the Declaratory Judgment Act, 28 U.S.C. § 2201.
Pro-Fac is a New York agricultural cooperative corporation with its
principal place of business in Rochester, New York. Pro-Fac was formed in
1960 to process and market crops grown by its members, all of whom are
persons or entities engaged in the growing of agricultural products.
Growers who wish to become members of Pro-Fac are required to purchase
shares of its common stock. Complaint Ex. B, at 1.
Pro-Fac is also the parent company of Agrilink, which is a producer and
marketer of processed food products. Agrilink operates around
twenty-eight processing facilities throughout the United States.
Complaint Ex. B, at 6.
In early 1999, Pro-Fac created another subsidiary, PF Acquisition II,
Inc., d/b/a AgriFrozen Foods ("PFA"), which was incorporated under New
York law in January 1999 and commenced operations in February. PFA was
formed to acquire substantially all the assets of AgriPac, Inc., an
Oregon cooperative that had filed for bankruptcy protection on January
4, 1999. Complaint ¶ 25; Ex. B, at 5. PFA did subsequently purchase those
assets, including a processing plant in Woodburn, Oregon ("the Woodburn
plant"), in a sale approved by the bankruptcy court. Complaint ¶ 26; Ex.
B, at 22. Pursuant to a service agreement between Agrilink and
PFA, Agrilink has provided management services to PFA since February 22,
1999. Complaint ¶ 27.
All of the defendants in this action had been member-growers of AgriPac
before it entered bankruptcy. In early 1999, PFA began soliciting
AgriPac's former growers to enter into a general marketing agreement
calling for the supply of raw product to PFA for a three-year term
beginning in 1999. Complaint ¶ 28; Ex. A. About 190 of the former AgriPac
growers entered into the general marketing agreement with PFA. Complaint
In December 1999, Pro-Fac solicited PFA's growers to purchase Pro-Fac
securities, which Pro-Fac had registered with the Securities Exchange
Commission earlier that year. The prospectus offered the growers the
opportunity to receive stated amounts of the securities in exchange for
termination of the growers' rights to cancel their crop deliveries under
the general marketing agreement, and substitution of Pro-Fac for PFA
under the general marketing agreement and the growers' crop delivery
agreements. About 150 growers, including all of the defendants in this
action, entered into subscription agreements with Pro-Fac for Class B
shares. Complaint ¶¶ 31, 32.
In January 2001, PFA informed its growers that PFA would not pay any
remaining payments on their 2000 crop contracts, and that it would not
process a crop in 2001. Complaint ¶ 34. PFA also informed the growers that
it was closing the Woodburn plant. Affidavit of Paul R.J. Connolly, Ex.
B, ¶ 5.*fn1 Subsequent to this announcement, Pro-Fac abandoned its
ownership interest in PFA. Complaint ¶ 35.
Shortly after PFA's announcement, many of its growers accelerated the
remaining payments due for crops they had delivered to the Woodburn
plant, and filed agricultural produce liens on PFA's inventory to secure
payments of all amounts due. Connolly Aff. ¶ 4. On January 25, 2001, those
growers commenced an action in Oregon state court ("the lien foreclosure
action") against Pro-Fac, Agrilink, and PFA, among others, for
foreclosure of their agricultural liens. Connolly Aff., Ex. B. The
plaintiffs in that action have alleged that PFA owes each of them money
under the terms of the general marketing agreements.
During the course of the lien foreclosure action, Paul R.J. Connolly,
Esq. (who represents both the plaintiffs in the lien foreclosure action
and most of the defendants in the instant action), by letter dated April
27, 2001, made a demand on Pro-Fac, Agrilink and PFA under Or. Rev.
Stat. § 62.440, for various documents. Complaint, Ex. C. In
addition, by letter dated May 11, 2001, Connolly, acting on behalf of one
of PFA's growers, Stan Seifer (who is also the lead plaintiff in the lien
foreclosure action), notified Pro-Fac and Agrilink of Seifer's intent to
file a class action lawsuit against them on behalf of all Pro-Fac Class B
shareholders.*fn2 Complaint, Ex. D.
The notice alleged that Pro-Fac and
Agrilink had misrepresented certain facts in its dealings with Seifer,
and that they owed him money for his crops.
Plaintiffs commenced this action on May 25, 2001. Plaintiffs allege
that a dispute has arisen between plaintiffs and defendants concerning
their respective rights, obligations and liabilities, such that this
action presents an actual controversy warranting the issuance of a
declaratory judgment. Specifically, plaintiffs ask the court to declare
that: defendants' rights are limited to the terms of their general
marketing agreements; plaintiffs have not mismanaged or converted PFA's
assets; defendants have not been deprived of their equity interests in
Pro-Fac; Pro-Fac is entitled to redeem defendants' securities for a
contractually designated amount; defendants are not entitled to examine
the majority of the documents they requested in the April 27, 2001
document demand; and defendants are not entitled to any monetary or
equitable relief based upon threatened claims against plaintiffs based
upon alleged securities laws violations or any other theory of liability.
Several significant events have occurred since the commencement of this
action. On June 28, 2001, PFA filed a petition in the United States
Bankruptcy Court for the Western District of New York under Chapter 7 of
the Bankruptcy Code. In addition, on July 10, 2001, Pro-Fac and Agrilink
filed a notice of removal with the Clerk of the United States Bankruptcy
Court for the District of Oregon to remove the lien foreclosure action to
that court. On February 27, 2002, Bankruptcy Judge Frank R. Alley, III of
the District of Oregon denied a motion to remand by the plaintiffs in
On August 2, 2001, Blue Line Farms, Inc. (one of the plaintiffs in the
lien foreclosure action and a defendant in this action) filed a
class-action complaint in Oregon state court ("the Blue Line Farms
action"), against Pro-Fac, Agrilink, and individual defendants, alleging
claims for common law fraud and Oregon securities law violations, and
requesting an accounting and injunctive relief. Connolly Aff. ¶ 15.
Defendants also removed that action to the Oregon bankruptcy court,
asserting that the action would be a core proceeding in PFA's bankruptcy
case in the Western District of New York. Defendants then moved in the
Oregon bankruptcy court for a stay, or alternatively, for a change of
venue to this district, and plaintiffs moved to remand the case to state
court. On December 3, 2001, Bankruptcy Judge Elizabeth L. Perris granted
the plaintiffs' motion, denied the defendants' motion, and directed that
the case be remanded to Oregon state court.*fn3 See Attachment to Docket
I. Personal Jurisdiction-General Principles
On a motion to dismiss for lack of personal jurisdiction, the plaintiff
the burden of proving jurisdiction over defendants by a
preponderance of the evidence. See Marine Midland Bank, N.A. v. Miller,
664 F.2d 899, 904 (2d Cir. 1981). Where, as here, jurisdiction is
challenged prior to discovery, plaintiffs may defeat a motion to dismiss
by "pleading in good faith . . . legally sufficient allegations of
jurisdiction." Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d
Cir. 1998). Plaintiffs, therefore, need only make a prima facie showing
of jurisdiction to survive a motion to dismiss. Id.; Ball v. Metallurgie
Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied,
498 U.S. 854 (1990); Reynolds Corp. v. National Operator Services, Inc.,
73 F. Supp.2d 299, 302 (W.D.N.Y. 1999).
In a diversity action, jurisdiction is determined according to the law
of the state in which the district court sits. See Jazini, 148 F.3d at
183-84. In a federal question case where a defendant resides outside the
forum state, the federal court also applies the forum state's personal
jurisdiction rules, unless a federal statute specifically provides for
national service of process. Omni Capital Int'l v. Rudolf Wolff & Co.,
484 U.S. 97, 104-05 (1987); PDK Labs, Inc. v. Friedlander, 103 ...