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Mastaba, Inc. v. Lamb Weston Sales, Inc.

United States District Court, E.D. Washington

May 27, 2014

MASTABA, INC, a Philippine corporation, Plaintiff,
LAMB WESTON SALES, INC., a Delaware corporation; LAMB-WESTON, INC., a Delaware corporation; CONAGRA FOODS, INC., a Delaware corporation; CONAGRA FOODS LAMB WESTON, INC., a Delaware corporation; MICHAEL L. NEAL, individually and as to his marital community, and KENNETH SOH, individually and as to his marital community, Defendants

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For Mastaba Inc, a Philippine corporation, Plaintiff: Kyle Silk-Eglit, LEAD ATTORNEY, Montgomery Purdue Blankinship & Austin, PLLC, Seattle, WA.

For Lamb Weston Sales Inc, a Delaware corporation, Lamb-Weston Inc, a Delaware corporation, ConAgra Foods Lamb Weston Inc, a Delaware corporation, Michael L Neal, individually and as to his marital community, Kenneth Soh, individually and as to his marital community, ConAgra Foods Inc, Defendants: Gregory J Arpin, LEAD ATTORNEY, Paine Hamblen LLP, Spokane, WA; Christopher S Crago, Gerald Kobluk, Paine Hamblen Coffin Brooke & Miller - SPO, Spokane, WA.

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EDWARD F. SHEA, Senior United States District Judge.

A hearing occurred in the above-captioned matter on May 13, 2014. Plaintiff Mastaba, Inc. was represented by Kyle Silk-Eglit. Gerald Kobluk appeared on behalf of Defendants Lamb West Sales, Inc., Lamb-West, Inc., ConAgra Foods Lamb Weston, Inc., Michael Neal, and Kennth Soh (collectively, " Lamb Weston" ). Before the Court was Lamb Weston's Motion for Partial Summary Judgment, ECF No. 32. Also before the Court without oral argument was Mastaba's Motion for Partial Summary Judgment, ECF No. 39, and Mastaba's Motion from Limitation on Requests for Production, ECF No. 37. After reviewing the record and relevant authority and listening to the arguments of counsel, the Court was fully informed. For reasons set forth below, the Court denies in part and grants in part Lamb Weston's motion, grants Mastaba's motion for summary judgment, and grants Mastaba's Motion from Limitation on Requests for Production.

I. Factual Background[1]

Mastaba handles the sale of frozen potato products in the Philippines. Lamb Weston produces potato products for sale worldwide. Between 1998 and 2012, Mastaba and Lamb Weston entered into letter agreements, each with a one-year term, from January 1 to December 31 of each year.[2] Under the one-year service agreements, Lamb Weston was Mastaba's sole supplier of potato products and paid Mastaba a fee per net pound of French fry sales.

Beginning in 2011, Mastaba and Lamb Weston entered into discussions regarding their business relationship. On February 18, 2011, Lamb Weston sent two employees to the Philippines, new Director of Sales and Businesses Development Michael Neal and Sales Agent Kenneth Soh to meet with Mastaba. Mastaba alleges

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that at this meeting Lamb Weston encouraged Mastaba to commence capital investments, including a " test kitchen," hiring of additional sales staff, and creating a succession plan. ECF No. 49 ¶ 10. Mastaba contends that Patrick Johnson, Mastaba's General Manager, expressed concern over the price of the test kitchen, and informed Lamb Weston that in order to make such an investment, it would need a long-term contract. Id. ¶ 17. According to Mr. Johnson's declaration, Mr. Neal responded that Mastaba's " long term position as Lamb Weston's broker is secure" and if Mastaba made the investments, he " would get Mastaba a long term contract." Id. ¶ 19.

Mastaba proceeded to undertake the capital investments, building a test kitchen over the course of 2011. ECF No. 33 ¶ 8; ECF No. 42. Lamb Weston oversaw much of the test kitchen's planning and construction. ECF No. 49 ¶ ¶ 22-30. On February 28, 2011, Mr. Neal, in an e-mail to Mr. Johnson, instructed Mastaba to " build a professional looking kitchen." ECF No. 49, Ex. A. Mr. Neal then directed Mastaba to buy a commercial 50lb fryer and daylight florescent lights. Id. In response, Mr. Johnson inquired from Mr. Soh the reason for the purchase of such an expensive model for a fryer, and Mr. Soh replied because " it is a long term investment." ECF No. 49 ¶ 8. In addition to other specific requests, Lamb Weston requested Mastaba send weekly reports informing Lamb Weston of details on the test kitchen's progress. Id., Ex. F. Mr. Soh also forwarded an e-mail exchange relating to the test kitchen between Mr. Johnson and he to Mr. Neal and Mr. Howe writing, " not bad, he is working fast now..." Id.

In an e-mail written on June 5, 2011, Mr. Neal congratulated Mastaba on its good work, ending with " we look forward to your continued support for the year of 2011/2012 & many more years..." ECF No. 49, Ex. P.

On September 7, 2011, as a result of the completion of the test kitchen, Mr. Johnson sent Mr. Neal a letter regarding the long-term contract as one for a term of five years. ECF No. 51 ¶ 17; ECF No. 49, Ex. R. Mr. Neal responded in agreement, saying the letter " accurately states the current state of affairs." ECF No. 49, Ex. S. However, Mr. Neal indicated to Mr. Johnson that he may not possess the authority to enter into a 5-year agreement, stating " I do not know if we can do a 5-year agreement? Don't think ConAgra allows such with its brokers/agents?" ECF No. 49, Ex. S. Mastaba contends this was the first time it had heard Mr. Neal lacked such authority. ECF No. 49 ¶ 71.

In November 2011, Lamb Weston offered three iterations of a limited term service agreement. Mastaba contends these new agreements had less favorable terms for Mastaba than the previous service agreements. Id. ¶ 56. The proposed agreements reduced commission from 2.1% to 1% and deprived Mastaba of commission on post termination sales. Id. One agreement would also have allowed termination without cause after sixty days. ECF No. 49, Ex. T. Mastaba contends these agreements would have made its business unprofitable. ECF No. 51 ¶ 9.

On April 25, 2013, Mastaba filed this lawsuit. It asserts claims of breach of contract, promissory estoppel, quantum meruit, unjust enrichment, negligent misrepresentation, and fraud. ECF No. 1.

Lamb Weston filed a motion for partial summary judgment, ECF No. 32, on March 10, 2014. Mastaba filed a motion for partial summary judgment, ECF No. 49, on March 17, 2014, and a Motion from Limitation on Requests for Production on March 12, 2014.

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II. Summary Judgment Standard

Summary judgment is appropriate if the record establishes " no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The party opposing summary judgment must point to specific facts establishing a genuine dispute of material fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). If the non-moving party fails to make such a showing for any of the elements essential to its claim for which it bears the burden of proof, the trial court should grant the summary judgment motion. Celotex Corp., 477 U.S. at 322.

III. Lamb Weston's Motion for Summary Judgment

Lamb Weston requests partial summary judgment for dismissal of Mastaba's claims for damages related to a) an unwritten long-term contract, b) future sales or services beyond 2011 service agreement, and c) Mastaba's 2011 operating expenses and capital investments. ECF No. 32.

A. Damages Relating to Unwritten Long-Term Contract

At the heart of Lamb Weston's motion for partial summary judgment is whether there is sufficient evidence that Lamb Weston informed Mastaba it would enter into a long-term contract in exchange for Mastaba building a test kitchen and making other capital investments. Mastaba's claims rely on occurrence of this commitment during this discussion. ECF No. 1. Lamb Weston requests summary judgment on any damages relating to this discussion, asserting there is no evidence of any such promise or agreement being made and that any discussions were merely mutual expressions of an expectation of a long-term business relationship.

In addition to Mr. Johnson's declaration detailing multiple oral conversations of a promise,[3] the existence of such a promise or agreement is supported by e-mails between Mastaba and Lamb Weston. For example, e-mails from Mr. Soh and Mr. Neal indicate that Lamb Weston took a hands-on approach to the test kitchen's development, directing Mastaba to take specific actions for its construction and providing consistent input over meticulous details. ECF No. 49, Ex. A-F. Further, Mastaba spent a year's worth of gross revenue to construct the test kitchen. ECF No. 48 ¶ 9. Mastaba's performance based on the alleged discussions is evidence of such an agreement, as is Lamb Weston's awareness and approval that such a significant investment was being made.

The Court now turns to Lamb Weston's affirmative defenses and Mastaba's claims relating to the promise or agreement for a long-term contract which will be analyzed separately.

1. Statute of Frauds

Lamb Weston contends that enforcement of the promise for a long-term contract would violate the statute of frauds. The statute of frauds is governed by RCW 19.36.010:

In the following cases, specified in this section, any agreement, contract, and promise shall be void, unless such agreement, contract, or promise, or some note or memorandum thereof, be in writing, and signed by the party to be charged

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therewith, or by some person thereunto by him or her lawfully authorized, that is to say: (1) Every agreement that by its terms is not to be performed in one year from the making thereof.

RCW 19.36.010

The Washington Supreme Court addressed similar facts in Klinke v. Famous Recipe Fried Chicken, Inc., 94 Wn.2d 255, 616 P.2d 644 (1980). Klinke brought action against Famous for breach of an oral contract that Famous would register and issue a franchise agreement to Klinke. Id. at 257. Famous raised the statute of frauds as a defense. Id. at 258. Klinke countered by pleading promissory estoppel. Id. The Washington Supreme Court ruled, " a party who promises, implicitly or explicitly, to make a memorandum of a contract in order to satisfy the statute of frauds, and then breaks that promise, is estopped to interpose the statute as a defense to the enforcement of the contract by another who relied on it to his detriment." Id. ( citing In re Estate of Nelson, 85 Wn.2d 602, 537 P.2d 765 (1975)). See also BKWSpokane v. FDIC, 12-CV--521-TOR, (E.D. Wash. 2013).

As discussed, there is a genuine issue of material fact as to whether Lamb Weston broke an oral contract or promise to enter into a five-year written contract. If that question is resolved in favor of Mastaba, Lamb Weston would be estopped from asserting the statute of frauds as a defense to the oral contract under Klinke. Further, as indicated by the parties' prior dealings, such a contract would have been entered into within the year, which would have fulfilled performance of the parties' alleged agreement within the year. ECF No. 40, Exs. F-I. Lamb Weston's motion for summary judgment is denied in this regard.

2. Promissory Estoppel

Mastaba asserts a claim for promissory estoppel on the basis of the alleged promise for a long-term contract. Lamb Weston seeks summary judgment in its favor on this claim.

To obtain recovery in promissory estoppel, Mastaba must establish " (1) a promise which (2) the promisor should reasonably expect to cause the promisee to change his position and (3) which does cause the promisee to change his position (4) justifiably relying upon the promise, in such a manner that (5) injustice can be avoided only by enforcement of the promise." Corbit v. J. I. Case Co., 70 Wn.2d 522, 538, 424 P.2d 290 (1967) (citation omitted). A promise is " a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made." Havens v. C & D Plastics, 124 Wn.2d 158, 172, 876 P.2d 435 (1994).

Lamb Weston argues that its alleged statements do not constitute a clear and defined promise sufficient for a promissory estoppel claim, but were merely confirming the expectation of a long-term, mutually satisfactory relationship. In support, Lamb Weston cites to Havens v. C & D Plastics, 124 Wn.2d 158, 876 P.2d 435 (1994). In Havens, a fired employee brought suit on a claim of promissory estoppel, alleging that the employer made a number of statements that amounted to a promise that the plaintiff could only be fired for just cause. Id. The Washington Supreme Court found no promise on the basis that the statements were typical of those made in the job application and hiring process. Id. at 174. The court reasoned that parties in such situations naturally want a " long term relationship" of employment. Id.

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Lamb Weston's reliance on Havens is misplaced. The Washington Supreme Court specifically qualified, " where the terminable at will doctrine is concerned, the promise for promissory estoppel must be a 'clear and definite promise.'" Id. (emphasis added). This matter does not involve an employment relationship. Further, the interaction relating to construction of a test kitchen is not a " typical" exchange between business associates; rather, it was specific to each party's unique circumstances and required significant detriment on behalf of Mastaba equaling a year's worth of Mastaba's revenue. ECF No. 48 ¶ 9.

Mastaba in turn cites to Hellbaum v. Burwell & Morford, 1 Wn.App. 694, 463 P.2d 225 (1969). In Hellbaum, the Washington appeals court held " the doctrine of promissory estoppel has been applied to render enforceable a gratuitous or somewhat indefinite promise to obtain insurance." Id.

This Court accepts that, if proven, a promise for a long-term contract in exchange for specific capital investments is definitive enough to support a promissory estoppel claim. Further, if as Mastaba contends that but for this promise, the capital investments would not have been undertaken, ECF No. 49 ¶ ¶ 8-20, then this reliance could be justifiable on account of the respective parties' long-term business relationship and Lamb Weston's oversight of the construction and planning of the test kitchen. ECF No. 49 Exs. A-F. The Court finds there is a factual dispute as to each of the first four elements of a promissory estoppel claim as ...

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