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Steuben Foods, Inc. v. Country Gourmet Foods

September 30, 2009

STEUBEN FOODS, INC., PLAINTIFF,
v.
COUNTRY GOURMET FOODS, LLC, CAMPBELL SOUP COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Leslie G. Foschio United States Magistrate Judge

DECISION and ORDER

JURISDICTION

This matter was referred to the undersigned by Hon. William M. Skretny on September 18, 2008 for all non-dispositive matters (Doc. No. 17). The matter is presently before the court on Defendant Campbell Soup Company's motion to stay discovery filed June 22, 2009 (Doc. No. 77).

BACKGROUND

Plaintiff commenced the instant action against Defendants Country Gourmet Foods, LLC ("County Gourmet") and Campbell Soup Company ("Campbell" or "Defendant") ("Defendants") by filing a complaint on July 31, 2008. The court's scheduling order filed November 13, 2008, directed the parties to engage in mediation pursuant to the court's Alternative Dispute Resolution Plan, with the initial mediation session to be conducted not later than January 28, 2009 (Doc. No. 25). The mediation session was not conducted until March 18, 2009. (Doc. No. 62). On March 17, 2009, Defendant Campbell filed a motion for summary judgment (Doc. No. 39) ("Defendant's summary judgment motion") along with a Memorandum of Points and Authorities in support of Defendant Campbell Soup Company's Motion for Summary Judgment (Doc. No. 40) ("Defendant's Summary Judgment Memorandum") and a Statement of Undisputed Material Facts (Doc. No. 41) ("Defendant's Statement of Facts"). Plaintiff opposed Defendant's summary judgment motion by filing Plaintiff's Statement of Undisputed Facts (Doc. No. 57) ("Plaintiff's Statement of Facts"), the Affidavit of Jeffrey Sokal in Opposition to Summary Judgment (Doc. No 57-50 ("Sokal Affidavit"), the Affidavit of Frank V. Balon, Esq. ("Balon Affidavit in Opposition to Summary Judgment") (Doc. No. 58); and a Memorandum of Law ("Plaintiff's Memorandum in Opposition to Summary Judgment") (Doc. No. 59) on April 28, 2009, along with a request for discovery pursuant to Fed.R.Civ.P. 56(f). Defendant filed a Reply Memorandum in Support of Defendant Campbell Soup Company's Motion for Summary Judgment on May 19, 2009 (Doc. No. 72 ("Defendant's Summary Judgment Reply Memorandum") and Campbell Soup Company's Objections to Inadmissible Evidence (Doc. No. 72-2) ("Defendant's Objections"). Country Gourmet has not filed for summary judgment nor has it joined in Defendant's motion. Defendant's summary judgment motion remains pending before the District Judge.

On June 22, 2009, Campbell moved to stay discovery sought by Plaintiff until the District Judge rules on Defendant's summary judgment motion (Doc. No. 77) ("Defendant's motion"). Defendant's motion is supported by a Memorandum in Support of Defendant Campbell Soup Company's Motion for Temporary Stay of Discovery (Doc. No. 78) ("Defendant's Memorandum"), and the Declaration of Jordan D. Weiss, Esq. (Doc. No. 79) ("Weiss Declaration"). In opposition to Defendant's motion, Plaintiff filed on July 10, 2009, the Declaration of Frank V. Balon, Esq. ("Balon Declaration") (Doc. No. 82). On July 17, 2009, Defendant Campbell filed a Reply Memorandum in Support of Defendant Campbell Soup Company's Motion for Temporary Stay of Discovery (Doc. No. 84) ("Defendant's Reply Memorandum").

On July 20, 2009 and July 22, 2009, Defendants also moved for a protective order against depositions noticed by Plaintiff pending a decision on Defendant's motion (Doc. Nos. 87 and 90, respectively). By order filed July 28, 2009 (Doc. No. 92), the depositions at issue were stayed pending action by the court on Defendant's motion and Defendants' motion for a protective order directed to the noticed depositions. Oral argument on Defendant's motion was deemed unnecessary. Based on the following, Defendant's motion is DENIED.*fn1

FACTS*fn2

Plaintiff alleges breach of contract against Defendant Country Gourmet and Campbell and tortious interference against Campbell. Plaintiff bases its claims on an agreement it entered into with Country Gourmet in June 2006 whereby Plaintiff, over a five-year period, was to produce packaged food products for resale by Country Gourmet using ingredients provided by Country Gourmet. Complaint Exh. A ¶ ¶ 1, 36. The agreement specified that Country Gourmet was to order Country Gourmet's requirements for the soup, stock and broth products covered by the agreement exclusively from Plaintiff including Country Gourmet's soup stock and broth products sold by Country Gourmet under the Wolfgang Puck label, Complaint ¶ 30, for distribution by Country Gourmet in Country Gourmet's North American market as permitted under a license to Country Gourmet from Wolfgang Puck ("the agreement"). Complaint Exh. 1 ¶ ¶ 1(e). The parties thereafter performed under the agreement, and the agreement's termination clause, allowing for termination for any uncured material breach by Plaintiff,*fn3 was not exercised by either party prior to the notice, received by Plaintiff from Country Gourmet in May 2008, that Country Gourmet expected to be acquired by Campbell. Sokal Affidavit ¶ 12. Plaintiff was also advised by Defendants that unless Plaintiff agreed to delete California from the North American market for Country Gourmet's broth, soup, gravy and sauce products, as defined by Plaintiff's agreement with Country Gourmet, limit the agreement to production of Country Gourmet's products sold under the Wolfgang Puck label, permit production of the products by another company located in California, and limit the amount of products produced for Country Gourmet by Plaintiff under the agreement, Campbell's expected acquisition of Country Gourmet would effectively end the business relationship between Plaintiff and Country Gourmet under the agreement. Complaint Exh. A ¶ 25; Sokal Affidavit ¶ ¶ 6, 17-19; 25-26; 27. According to Plaintiff, Plaintiff was informed by a Country Gourmet representative that Campbell solicited Country Gourmet for the proposed acquisition. Balon Affidavit in Opposition to Summary Judgment ¶ 34. At no time did Country Gourmet exercise its right to terminate the agreement pursuant to the agreement's termination clause.

Plaintiff rejected Defendants' demands, which were communicated to Plaintiff and discussed in correspondence, telephone calls and meetings between representatives of Defendants and Plaintiff, e.g., Plaintiff's Exhibit R in Opposition to Defendant's Motion for Summary Judgment (Letter from Michael McGrath to Jeffrey Sokal, dated May 30, 1998, confirming proposed elimination of the exclusivity provisions of the agreement) (Doc. No. 57-5) ("Plaintiff's Exh. R"); Sokal Affidavit ¶ ¶ 20, 30-35 (describing in detail Defendants' demands and Plaintiff's rejection), and, except for the agreement, Campbell acquired on July 1, 2008 other Country Gourmet's assets. Sokal Affidavit ¶ 37; Exh. A (Asset Purchase Agreement Between Country Gourmet and Campbell South Company) (Schedule 2.2.1) (Doc. No. 53) ("the Asset Purchase Agreement"). It is undisputed that following consummation of the asset purchase by Country Gourmet and Campbell, Country Gourmet ceased ordering products from Plaintiff. Complaint ¶ 9.

In July 2008, Campbell obtained a license from Wolfgang Puck to use the Wolfgang Puck brand on Campbell products, and Wolfgang Puck revoked the prior license it had with Country Gourmet pursuant to which Country Gourmet had engaged in wholesale distribution of Wolfgang Puck labeled food products in the North American market as defined in the agreement. Id. ¶ 38; Balon Affidavit in Opposition to Summary Judgment ¶ ¶ 65-66. The record does not state whether such revocation was solicited by Campbell or Country Gourmet, however, following the asset purchase on June 30, 2008, the Asset Purchase Agreement, Campbell obtained a "master" license from Wolfgang Puck for use on food products for the North American market (Doc. No. 57-5 ("Campbell Press Release July 1, 2008") (Plaintiff's Exh. O). According to Campbell's press release, as a result of the asset purchase, Campbell had "acquired the Wolfgang Puck soup business from Country Gourmet." Plaintiff's Exh. O at 1. Country Gourmet subsequently informed Plaintiff that, based on Campbell's purchase of Country Gourmet's assets, Country Gourmet would cease to order any products from Plaintiff pursuant to the agreement. Complaint ¶ ¶ 21-22. This suit followed.

DISCUSSION

A request for stay of discovery pursuant to Fed.R.Civ.P. 26(c) requires a showing of good cause and is within the sound discretion of the court. Davidson v. Goord, 215 F.R.D. 73, 82 (W.D.N.Y. 2003) (citing Transunion Corp. v. PepsiCo, Inc., 811 F.2d 127, 130 (2d Cir. 1987)). A finding of good cause for a stay of discovery requires the court to balance several relevant factors including the pendency of a dispositive motion, potential prejudice to the opposing party, the extensiveness of the requested discovery, and the burden of such discovery on the requested parties. Ellington Credit Fund, Ltd. v. Select Portfolio Services, Inc., 2009 WL 274483, *1 (S.D.N.Y. Feb. 3, 2009). A stay of discovery is proper where the pending dispositive motion "appears to have substantial grounds" or "does not appear to be without foundation in law." Johnson v. New York Univ. School of Educ., 205 F.R.D. 433, 434 (S.D.N.Y. 2002) (internal quotation marks omitted) (citing caselaw). Here, Plaintiff has sought discovery from Country Gourmet and Campbell, as well as non-parties Wolfgang Puck and California Natural Foods ("CNF"); according to Plaintiff, these latter non-parties have not opposed Plaintiff's non-party discovery requests.*fn4 Balon Declaration ¶ ¶ 14-15. Thus, in order to decide Defendant's motion, it is necessary for the court to evaluate the merits of Defendant's summary judgment motion, and to consider those merits, the burden to Campbell in responding to Plaintiff's discovery requests, and the extent of any potential prejudice to Plaintiff if the stay is granted. See GTE Wireless, Inc. v. Qualcomm, Inc., 192 F.R.D. 284, 286 (S.D.Cal. 2000) (court must "'take a preliminary peek at the merits of the allegedly dispositive motion'" to assess its likelihood of success (quoting Feldman v. Flood, 176 F.R.D. 651, 652 (M.D.Fla. 1997) (internal citations omitted)). Defendant's summary judgment motion is grounded on the contention that, as the agreement did not require Country Gourmet to maintain a minimum level of orders for the products covered by the agreement, or to continue its business in a manner that required, during the agreement's five-year term, Country Gourmet to order any product from Plaintiff, Country Gourmet did not breach the agreement by engaging in an asset sale to Campbell which excluded the agreement, thereby rendering any further orders by Country Gourmet from Plaintiff unnecessary. Defendant's Summary Judgment Memorandum at 4 ("nothing in the Processing Agreement obligated Country Gourmet to maintain its requirements at a specific level or to have any requirements at all . . . [or] to continue its business."); Defendant's Summary Judgment Reply at 7 (absent bad faith, a party to a requirements contract may reduce its requirements to zero) (citing caselaw). Campbell therefore contends that if Country Gourmet was not, as a matter of law, in breach of the agreement, Campbell cannot, as a matter of law, be found liable on Plaintiff's claim that Campbell is liable, as Plaintiff alleged, Complaint ¶ ¶ 95, 96, as Country Gourmet's assignee under the theory of successor liability. Defendant's Summary Judgment Reply Memorandum at 5-6. Campbell further argues that if Country Gourmet did not breach the agreement, Campbell likewise could not, as a matter of law, be guilty of tortious interference with the agreement as Plaintiff also claims. Complaint ¶ ¶ 88-93. Defendant's Summary Judgment Memorandum at 8-9. Defendant concedes the agreement constitutes a "requirements contract." Defendant's Statement of Facts ¶ 2.

Under applicable New York law,*fn5 a requirements contract is not breached where a party ceases performance based on a good faith change in its business operations for reasons other than factors related to the continued performance of the contract. Feld v. Henry S. Levy & Sons, Inc., 335 N.E.2d 320, 322-23 (N.Y. 1975). In the case of an alleged breach of a supply contract by a buyer, "the proper inquiry requires an analysis of the buyer's subjective motives to determine if it had a legitimate business reason for eliminating its requirements, as opposed to a desire to avoid its contract." NCC Sunday Inserts, Inc. v. World Color Press, Inc., 759 F.Supp. 1004, 1009 (S.D.N.Y. 1991) (citing cases). In Feld, the defendant manufacturer-supplier of bread crumbs was denied summary judgment on the plaintiff purchaser's claim for breach of an output contract defendant had entered into with plaintiff to meet the plaintiff's requirements for such bread crumbs where evidence showed the defendant's decision to terminate the contract may have been based on the defendant's determination, after a brief period of performance under the contract, that the contract was not sufficiently profitable to defendant. Feld, 335 N.E.2d at 320. Rejecting defendant's motion for summary judgment, the court in Feld specifically found that the defendant destroyed its capacity to continue manufacturing bread crumbs for the plaintiff only after the plaintiff refused to modify, at defendant's request, the requirements agreement to include a higher price for the bread crumbs produced by the defendant under the contract while remaining in the baking business, id., and that such conduct presented "intertwined questions of fact" whether the defendant acted in good faith in engaging in such conduct, calling for a "close scrutiny of its motives" at trial. Feld, 335 ...


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