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Meduri Farms, Inc. v. Dutchtecsource B.V.

United States District Court, D. Oregon

December 5, 2017

MEDURI FARMS, INC., an Oregon corporation, Plaintiff,
v.
DUTCHTECSOURCE B.V., a corporation of the Netherlands, Defendant.

          Jeffrey M. Edelson and Dallas S. DeLuca, Markowitz Herbold PC, Of Attorneys for Plaintiff.

          M. Christie Helmer, John F. Neupert, and Sanja Muranovic, Miller Nash Graham & Dunn LLP, Of Attorneys for Defendant.

          OPINION AND ORDER

          Michael H. Simon, United States District Judge

         On April 14, 2017, Plaintiff Meduri Farms, Inc. (“Meduri”) filed a lawsuit in the Circuit Court of the State of Oregon for Polk County against Defendant DutchTecSource B.V. (“DTS”). On May 17, 2017, Meduri filed its First Amended Complaint (“FAC”). Meduri alleges two claims: breach of the implied warranty of fitness for a particular purpose and breach of contract. DTS timely removed the case to federal court. On July 10, 2017, DTS filed a request for arbitration with the International Court of Arbitration at the International Chamber of Commerce (“ICC”), seeking arbitration in Amsterdam. The arbitration has since been set in Vienna.

         Before the Court are several motions. DTS moves to refer the parties to the arbitration before the ICC and stay these proceedings. DTS argues that the operative contract between DTS and Meduri contains a mandatory arbitration clause, under which the parties agreed to arbitrate any dispute pursuant to ICC rules. Also before the Court is Meduri's motion for preliminary injunction, seeking to enjoin DTS from continuing to pursue arbitration against Meduri at the ICC. Meduri argues that the purported contract alleged by DTS in its motion was not the actual contract entered into between Meduri and DTS and that the operative and enforceable contract between the parties does not contain an arbitration clause.

         The parties' procedural disagreement over the proper forum in which to resolve their substantive dispute raises a question about what constitutes their actual contract. The parties agree that they are both merchants and their contract involved the sale of goods. Although the parties disagree over which law governs the resolution of their procedural dispute, that disagreement ultimately does not matter. Under both the law urged by DTS, the law of the state of Oregon, which has codified the Uniform Commercial Code (“UCC”), and the law urged by Meduri, the United Nations Convention on the International Sale of Goods (“CISG”), the result is the same. Under both of these sets of law, a contract between merchants for the sale of goods need not contain all of the material terms and need only contain a few essential terms. Indeed, merchants, assumed to be sophisticated business parties, do not need to memorialize in their contracts all of the details of their transaction, such as technical specifications, delivery dates, warranties, and other terms. In this case, the Court concludes that the operative agreement among the parties does not contain a mandatory arbitration clause; nor does it clearly and unmistakably delegate the question of arbitrability to the ICC. Accordingly, as more fully discussed below, the Court grants Meduri's motion for preliminary injunction, enjoins DTS from continuing to pursue arbitration against Meduri at the ICC, and denies DTS's motion to refer this case to the ICC and stay further proceedings in this Court.

         STANDARDS

         A preliminary injunction is an “extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Defense Council, Inc., 555 U.S. 7, 22 (2008). A plaintiff seeking a preliminary injunction generally must show that: (1) he or she is likely to succeed on the merits; (2) he or she is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in his or her favor; and (4) that an injunction is in the public interest. Id. at 20 (rejecting the Ninth Circuit's earlier rule that the mere “possibility” of irreparable harm, as opposed to its likelihood, was sufficient to justify a preliminary injunction).

         “A district court may enjoin [a party from pursuing] arbitration proceedings that are not governed by a valid and binding arbitration agreement.” Ingram Micro Inc. v. Signeo Int'l, Ltd., 2014 WL 3721197, at *2 (C.D. Cal. July 22, 2014). An injunction to enjoin a party from pursuing arbitration proceedings may be granted if the moving party meets the requirements for a preliminary injunction. See Textile Unlimited, Inc. v. ABMH & Co., 240 F.3d 781, 786 (9th Cir. 2001) (applying the then-existing preliminary injunction requirements in affirming the district court's injunction enjoining the defendant from continuing to pursue arbitration).

         BACKGROUND

         A. The Parties

         Meduri is an Oregon company that produces dried fruit products, including dried blueberries. Meduri historically processed blueberries, primarily by drying and infusing, using Meduri's proprietary equipment. In 2015, Meduri considered purchasing a new processing system that would improve efficiency and capacity. Meduri approached DTS, among others. DTS is a Dutch company that designs, engineers, manufactures, and sells food processing equipment used in various food industries.

         B. Processing System Purchase

         In the summer of 2015, DTS and Meduri first discussed the possibility of DTS selling to Meduri a customized food processing system. On July 15, 2015, DTS sent Meduri a document, identified as VF150293 (“293”), offering such a system. ECF 21-1. This document included technical information, explaining that the system would process 10, 000 pounds of blueberries per hour and other technical details, a diagram, an estimated price, a list of items for which Meduri would be responsible, and a comment that specific drawings would be forthcoming. There was no mention of arbitration or even that the “Orgalime Conditions” would apply.[1]

         On July 24, 2015, Meduri responded with a “Letter of Intent.” ECF 21-2. This letter expressed Meduri's intent to purchase a system from DTS, but noted that the parties are “still in the early stages of this process and there is a lot to do.” Meduri requested from DTS a new design that would include two units that could each process 5, 000 pounds of blueberries per hour and would each have a defroster, three augers, and bypass flumes for the first and second augers; a new auger to feed the defrosters; a chiller system on the back end; a new price quotation; a video, and a new orientation. Meduri also invited a representative from DTS to come to Oregon in September “to celebrate the signing of the contract for this project!” Id.

         On August 24, 2015, DTS sent a detailed cover letter and another document, identified as VF150332 (“332”). ECF 11-1. The cover letter explained many aspects of the new proposed processing system, including describing: that two units would each process 5, 000 pounds per hour; the tank, pump, and defrosting system; the auger and infusion system; the bypass flume and dewatering system; and the sugar mixing system. Id. at 1-4. The cover letter also described the goals of the system, including details regarding electrical power consumption, required manpower, lack of sugar water waste, and why the end product would be “high quality.” Id. at 4-5.

         The 332 document described two units, each with the capacity to process 5, 000 pounds of fruit per hour. The 332 document was more detailed than the 293 document. The 332 document included details for each element of the quotation. For example, in the 332 document, Section A, Project Engineering, lists five sub-items describing what constitutes “project engineering.” Id. at 7. Also in the 332 document, Section B, Collecting Auger 0500 x 6000 with CIP System, provides specifications for diameter, length, section sizes, pitch, and the like. Each of the sections has individual section prices. Id. at 7-8. The detailed sections in the 332 document (Sections A through N), with specifications and descriptions, comprise 23 pages. Id. at 7-30. After these pages is a sheet that lists three items that Meduri will provide and six items that will not be within the scope of what DTS will provide. Id. at 31. The next page is a “Price Overview” that lists the items from Sections A through N with a short description, unit price, total line item price, and grand total. Id. at 32. The last page of the 332 document states: (1) a delivery in April 2016; (2) payment terms of 10 percent upon order, 40 percent after approval of layout, 40 percent prior to shipment, and 10 percent within 60 days of delivery; and (3) “Orgalime Conditions are applicable. At request we will send you a copy.” Id. at 33 (emphasis in original). According to DTS, the “Orgalime Conditions” includes a provision requiring arbitration of all disputes through the ICC and a delegation to the ICC to resolve gateway disputes of arbitrability.

         On August 28, 2015, DTS sent an email to Meduri attaching a new letter. ECF 21-5. This letter confirms several changes that were discussed among the parties during an August 27, 2015 telephone call. The August 28th letter also changes some of the terms that were previously stated in the 332 document sent on August 24, 2015. For example, the August 28th letter discusses modifying the “infeed” section with an extra feeding line. Id. at 2. The letter also includes a more extensive list of items that are not within the scope of DTS's responsibility than was listed in the 332 document. Id. at 3. The August 28th letter also includes a warranty provision, which was not included in the 332 document. Id. at 4. Finally, the letter changes the delivery month to June 2016. Id. In the August 28th letter, DTS also states: “If we come to an agreement our engineer will visit you somewhere around the 23rd of September.” Id. at 2 (emphasis added).

         Shortly thereafter, Meduri decided to purchase only one processing unit, rather than two, and Meduri asked DTS for a new price quote. On September 16, 2015, DTS sent Meduri a document identified as VF150355 (“355”). ECF 11-3. The 355 document consists of a single page “Price Overview, ” similar to the price overview contained in the 332 document. The 355 document lists only the item description, unit price, line item price, and grand total. It does not contain any technical specifications, delivery date, payment terms, warranty information, or statement that the Orgalime Conditions apply. It also makes no reference to incorporating any previously-provided terms, conditions, or descriptions.

         On September 19, 2015, Mr. Dominic Meduri sent an email to DTS with the subject line “VF150355 - Meduri Farms.” ECF 11-4. In this email Mr. Meduri expresses his excitement about the project and getting DTS's infusion system in place. Mr. Meduri notes that he will “get the 10% deposit upon order to you early next week.” Id.

         On November 12, 2015, Mr. Justin Wakker of DTS sent an email to Mr. Meduri noting that DTS was “way over” the 10 percent deposit previously paid by Meduri and that Mr. Wakker would like to “talk about the way we will setup [sic] a payment schedule.” ECF 21-7. Mr. Meduri responded that he “was going over the quote and the next round of payments would be coming your way after approval of layout. It would help us if we didn't have to pay the 40% all at once, so we can do another 10% payment after our meeting. How would you like to [sic] the payment schedule to look?” DTS then sent invoices to Meduri for the processing system, none of which referenced the Orgalime Conditions. See ECF 11-5; 35-1 at 75-80, 82-83, 85-86.[2]

         Ultimately, Meduri paid DTS 90 percent of the purchase price for a single processing machine. Meduri alleges in its lawsuit that the system purchased from DTS never worked properly and that Meduri requested DTS to remove the system and pay Meduri what it has already paid plus additional damages. DTS requests that Meduri pay the remaining 10 percent owed on the purchase, which is 296, 400 euros.

         C. Auxiliary Pa`rts Purchases

         1. Test Flume

         On November 17, 2015, DTS sent Order Confirmation VK152666 to Meduri, confirming the order of a test flume. ECF 11-6 at 54. This Order Confirmation states that the Orgalime Conditions are applicable. On November 18, 2015, DTS sent an invoice to Meduri for 50 percent of the test flume. ECF 11-6 at 60. The invoice does not reference the Orgalime Conditions. This invoice was paid. ECF 11-6 at 61.

         On November 24, 2015, Meduri sent DTS Meduri's Purchase Order No. CP1152702, confirming the purchase of the test flume. ECF 35-1 at 89. This Purchase Order does not mention the Orgalime Conditions. On March 23, 2016, DTS sent an invoice for the remaining 50 percent owed for the test flume, 30, 900 euros. ECF 11-6 at 62. This invoice does not reference the Orgalime Conditions and remains outstanding.

         2. ...


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