Reichel Foods, Inc. v. Proseal America, Inc.

Background

Reichel Foods alleged that it contracted with Proseal America and Proseal UK for the sale and installation of fully operable food-packaging equipment. Reichel alleged that the equipment was defective and did not work as intended, causing it to lose revenue connected to a Wal-Mart agreement. Its amended complaint asserted claims for breach of contract, negligence, breach of express warranties, and breach of implied warranties.

The order addressed only Proseal UK’s motion to dismiss. Proseal UK moved under Federal Rule of Civil Procedure 12(b)(2), which allows dismissal for lack of personal jurisdiction, and alternatively under Rule 12(b)(6), which allows dismissal for failure to state a legally sufficient claim.

Personal Jurisdiction

The court denied the motion insofar as it challenged personal jurisdiction. It held that the evidence, viewed in the light most favorable to Reichel, supported specific personal jurisdiction over Proseal UK in Minnesota. Specific personal jurisdiction applies when the claims arise from the defendant’s purposeful contacts with the forum state.

The court relied on evidence that Proseal UK designed, assembled, and tested complex and expensive equipment knowing that it would be used for an extended period at Reichel’s Minnesota facility. Proseal UK also participated in efforts to address the equipment’s problems, provided design drawings for modifications, sent replacement parts directly from the United Kingdom, and sent an engineer to Reichel’s Minnesota premises for two days. The court concluded that these were deliberate contacts with Minnesota and that Reichel’s claims arose from those activities.

The court did not rely on Reichel’s allegations that Proseal UK had controlled computerized components in Minnesota or threatened to use a “kill switch.”

Failure to State a Claim

The court granted the motion under Rule 12(b)(6). Reichel’s amended complaint generally referred to “Defendants” rather than identifying which company allegedly took particular actions. Reichel defended this group pleading by arguing that Proseal America and Proseal UK plausibly operated as a joint venture, which could make each responsible for the other’s conduct.

Applying Minnesota law, the court explained that a joint venture requires contribution by all parties, joint ownership and control, sharing of profits, and a joint-venture agreement. The court found that Reichel did not plausibly allege the profit-sharing element. Reichel relied on an allegation that the relationship between the companies was not “purely gratuitous,” but the court held that this did not plausibly suggest that the companies shared profits. The court also observed that documents Reichel identified as the contract referred only to Proseal America and did not plausibly show that Reichel had contracted with Proseal UK.

Because Reichel did not plausibly plead a joint venture, the court concluded that it had not plausibly pleaded contract, warranty, or negligence claims against Proseal UK based on that theory.

Disposition

The court rejected Proseal UK’s request to dismiss the claims with prejudice. It stated that, at this relatively early stage, Reichel would not be deprived of the possibility of seeking permission to amend its complaint within the limits of the applicable pretrial scheduling order.

Judge Eric C. Tostrud ordered that Proseal UK’s motion to dismiss was DENIED insofar as it asserts lack of personal jurisdiction and GRANTED for failure to state a claim upon which relief can be granted. The court further ordered that Reichel’s claims against Proseal UK were DISMISSED WITHOUT PREJUDICE.