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PRO-FAC COOPERATIVE, INC. v. ALPHA NURSERY

April 18, 2002

PRO-FAC COOPERATIVE, INC., ET AL., PLAINTIFFS,
V.
ALPHA NURSERY, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: David G. Larimer, Chief Judge, United States District Court.

    DECISION AND ORDER

INTRODUCTION

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.

FACTUAL BACKGROUND

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 ¶ 29.

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 that action.

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 Item 40.

DISCUSSION

I. Personal Jurisdiction-General Principles

On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears 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 ...


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