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

Background

Reichel Foods alleged that it purchased food-packaging equipment from Proseal America, Inc., but that the equipment could not produce small food trays at the speeds required by the parties’ agreement. Before the agreement, Proseal America had said that it would turn to Proseal UK, Ltd. for equipment designs and a quote. Proseal UK employees designed parts of the equipment, and Proseal UK and Proseal America later worked with Reichel to calibrate, modify, and repair it. Those efforts did not produce the required productivity, and Reichel alleged that it lost revenue connected to its arrangement with Wal-Mart.

Proseal UK had been named in Reichel’s original complaint, but the court previously dismissed the claims against it after finding that Reichel had not stated a claim under its earlier theory. Reichel then moved under Federal Rule of Civil Procedure 15(a)(2) for permission to file a second amended complaint adding Proseal UK and asserting claims for negligence in designing and manufacturing the equipment, breach of express warranty, and breach of implied warranty.

Analysis

The court first rejected Proseal America’s argument that delay and prejudice justified denying amendment. Reichel filed its motion by the scheduling-order deadline. Although Reichel had not adequately explained why it waited to pursue these claims, delay alone was insufficient. The court found no improper motive and concluded that the possible need for additional discovery or scheduling changes did not establish sufficient prejudice to Proseal America.

The court then considered whether the proposed claims were futile. Futility means that the proposed amended complaint could not survive a motion to dismiss for failure to state a claim.

For negligence, the court held that Reichel had plausibly alleged an independent professional duty. Minnesota common law requires professionals such as engineers to perform their services with reasonable care and competence. Reichel alleged that Proseal UK undertook responsibility for designing and building the equipment, changed the orientation of the small trays contrary to Reichel’s requirements, and caused damages including product and tray losses, increased labor costs, and lost revenue. The court acknowledged that the negligence claim might later prove indistinguishable from a contract claim, but concluded that it was not futile at the amendment stage.

The court reached the opposite conclusion regarding express warranty. Reichel did not allege that it had a contract with Proseal UK or identify an affirmation, promise, or express warranty that Proseal UK made before Reichel ordered the equipment. The court also rejected Reichel’s suggestion that it could be treated as a third-party beneficiary of a warranty from Proseal UK to Proseal America because Reichel had not identified such a warranty.

Proseal America did not argue that the proposed implied-warranty claim was futile. The court therefore permitted Reichel to add that claim.

Disposition

Judge Katherine Menendez granted in part and denied in part Reichel’s motion to amend. The motion was denied based on futility to the extent Reichel sought to add a breach-of-express-warranty claim against Proseal UK. The motion was granted in all other respects, including permission to add the negligence and implied-warranty claims. Reichel was ordered to file the proposed amended complaint within seven days of the order.