Tyson Foods Inc v. Costco Wholesale Corporation

THE HONORABLE JOHN C. COUGHENOUR UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE TYSON FOODS, INC., CASE NO. C22-0192-JCC Plaintiff, ORDER 11 v. COSTCO WHOLESALE CORPORATION, 13 Defendant.

15 This matter comes before the Court on Tyson Foods, Inc.’s (“Tyson”) (a) motion for a preliminary injunction (Dkt. Nos. 3, 5) and (b) motion to expedite a declaratory judgment hearing and to consolidate the preliminary injunction hearing with a trial on the merits (Dkt. No. 23), as well as both parties’ motions to seal (Dkt. Nos. 2, 34, 46). Having thoroughly considered the briefing and the relevant record, and finding oral argument unnecessary, the Court DENIES Tyson’s motion for a preliminary injunction (Dkt. Nos. 3, 5), GRANTS Tyson’s motion to expedite and to consolidate (Dkt. No. 23), GRANTS the parties’ motions to seal (Dkt. Nos. 2, 34, 46), and DISMISSES with prejudice Tyson’s complaint (Dkt. No. 1) for the reasons explained herein.

24 I. BACKGROUND 25 Costco has purchased poultry from Tyson for some number of years. (See generally Dkt.

26 No. 1.) More recently, Poultry consumers and the United States Government assert that Tyson and other poultry producers collude and engage in generally anticompetitive conduct, resulting in inflated poultry prices. (Id.) Various parties have since brought suit against Tyson and other poultry producers in class-based litigation. See In re Broiler Chicken Antitrust Litigation, Case No. C16-08637 (N.D. Ill. 2016) (the “Broiler suit”). Costco has elected out of this litigation, preferring to pursue direct action. (See Dkt. No. 6-8 at 22.) This is taking the form of binding arbitration for producers, like Tyson, whom Costco believes are subject to an arbitration agreement with Costco. (Id.) For the remainder, Costco is pursuing its claims in court. See Costco Wholesale Corp. v. Koch Foods, Inc., et al., Case No. C21-04611 (N.D. Ill. 2021).

9 The case before this Court involves Costco’s arbitration demand against Tyson. (See generally Dkt. No. 1.) Costco filed its arbitration demand in December 2021 with the American Arbitration Association (“AAA”). (Dkt. Nos. 6-1, 6-2.) In it, Costco seeks arbitration pursuant to its current standard terms. (See Dkt. No. 6-2 at 8.) Tyson takes issue with Costco’s demand, arguing that any arbitration proceeding between it and Costco must be governed not by Costco’s current standard terms, but Costco’s standard terms in place at the time the parties entered into their current agreement. (See generally Dkt. Nos. 1, 5.)1 Tyson seeks a declaratory judgment that any agreement between Costco and Tyson does not incorporate Costco’s current standard terms. (See Dkt. No. 1 at 12–13.) Tyson also seeks an injunction prohibiting Costco from arbitrating claims against Tyson under those same terms. (Id.) 19 Because the parties present no disputed facts to the Court and arbitration preparation is ongoing, Tyson asks for an expedited consolidated hearing on the merits pursuant to Federal Rules of Civil Procedure 57 and 65(a)(2). (See generally Dkt. No. 23.) Costco does not oppose Tyson’s request to expedite and consolidate. (See Dkt. No. 35 at 24). And given the urgency of their dispute, the parties have indicated to the Court that they will accept a ruling “on the 25 1 Tyson views Costco’s earlier standard terms as more favorable to its interests. (Id.) For example, Tyson contends that the 180-day limitation period contained in the earlier, but not the current, terms act as an “absolute bar to Costco’s [c]laim[s].” (See Dkt. No. 1 at 3.)

1 papers.” (Dkt. No. 45 at 1.)

2 II. DISCUSSION 3 A. Declaratory Judgment 4 The Declaratory Judgment Act provides that “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). “Congress created this remedy, in part, to allow [a] potential [party] to file preemptive litigation to determine whether they have any legal obligation[] to their potential adversar[y].” Shell Gulf of Mexico Inc. v. Ctr. for Biological Diversity, Inc., 771 F.3d 10 632, 635 (9th Cir. 2014) (citing Seattle Audubon Soc’y v. Moseley, 80 F.3d 1401, 1405 (9th Cir. 1996)). The Court has discretion to grant or deny declaratory relief. Countrywide Home Loans, Inc. v. Mortgage Guar. Ins. Corp., 642 F.3d 849, 852 (9th Cir. 2011).

13 Here, it is undisputed that Tyson and Costco entered into a vendor agreement in 1995.

14 (See Dkt. Nos. 3 at 6, 35 at 7.) That agreement incorporated Costco’s “XXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXX” (Dkt. No. 6-3 at 2.) Those terms (the “1994 Terms”) require that XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.”

18 (Dkt. No. 6-7 at 4.) Costco has regularly updated its standard terms since then, most recently doing so in 2019 (the “2019 Terms”). (Dkt. No. 35 at 15.) The 2019 Terms, like the 1994 Terms, require parties to arbitrate XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (Dkt. No. 6- 4 at 12.)

22 Tyson argues that the 2019 Terms cannot govern Costco’s arbitration demand because Tyson never affirmatively assented to them, and both the vendor agreement and Costco’s 1994 Terms require written consent before any changes can be made. (Dkt. No. 1 at 12–13; see Dkt.

25 Nos. 6-3 at 3, 6-7 at 2).) Tyson seeks a declaratory judgment confirming this position, along with an injunction barring an arbitration proceeding that might otherwise be held pursuant to the 2019 terms. (See generally Dkt. No. 1.)

2 Under the Federal Arbitration Act (“FAA”), the Court’s review is limited to deciding whether an arbitration clause (1) is valid and (2) covers the dispute at issue. See Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014).) If an agreement exists, the FAA “leaves no place for the exercise of discretion . . . , but instead mandates that district courts shall direct the parties to proceed to arbitration.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis original).

8 The 2019 Terms contain a delegation provision, requiring that “[a]ny issues about the arbitrability of a [c]laim or [d]ispute will be determined by the arbitrator.” (Dkt. No. 6-4 at 12.)

10 While the 1994 Terms lack this provision, this is of no import. So long as they provide that arbitration is governed by AAA rules, and the 1994 Terms clearly provide this, then the arbitrator is the one to determine his or her jurisdictional limits—not the Court. See Schmidt v. Samsung Elecs. Am., Inc., 2017 WL 2289035, slip op. at 6 (W.D. Wash. 2017). “[I]ncorporation of the AAA rules constitutes clear and unmistakable evidence that the parties intended to delegate the arbitrability question to an arbitrator.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015).

17 Tyson argues that it could not have possibly agreed to delegate this issue to the arbitrator when it entered into its 1995 agreement with Costco because the AAA did not amend its rules to consider the import of delegation provisions until 2000. (Dkt. No. 47 at 12.) But the AAA’s rules in effect at the time provided that “any amendment [of the AAA rules] shall apply in the form obtaining at the time the demand for arbitration . . . is received by the AAA.” McKellar v. Mithril Capital Mgt. LLC, 2020 WL 1233855, slip op. at 4 (N.D. Cal. Mar. 13, 2020) (citing AAA Rule 1.) Meaning, absent a clear indication otherwise,2 the AAA rules in effect at the time a party initiates arbitration apply to that proceeding, not the rules in effect at the time a party agrees to arbitrate future claims. See, e.g., Lucas v. Gund, Inc., 450 F. Supp. 2d 1125, 1132 (C.D.

26 2 And here there is no such indication. (See Dkt. No. 6-3, 6-7.) 1 Cal. 2006); Cmmw. Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 1273 (7th Cir. 1976).

2 Therefore, it would appear that the issue Tyson seeks a declaratory judgment on is reserved for the arbitrator rather than the Court.

4 B. Motions to Seal 5 “There is a strong presumption of public access to the court’s files.” W.D. Wash. Local Civ. R. 5(g). To overcome that presumption, a party must show “good cause” for sealing a document attached to a non-dispositive motion and “compelling reasons” to seal a document attached to a dispositive motion. Kamakana v. City and Cnty. of Honolulu, 447 F.3d 1172, 1178– 81 (9th Cir. 2006).

10 The parties move to maintain under seal (Dkt. Nos. 2, 34, 46) certain documents attached to declarations supporting their briefing (Dkt. Nos. 6, 6-1–6-9, 38, 38-1–38-6, 40, 40-1, 49), along with unredacted versions of their briefing containing substantive references to those documents (Dkt Nos. 5, 36, 36-1). The documents, some of which are subject to a sealing order in the Broiler suit, represent contracts and communications between the parties, arbitration- related documents, and other confidential information. (See generally Dkt. Nos. 6, 38, 40, 49.)

16 Because Tyson has asked for a consolidated hearing on the merits, and this order disposes of Tyson’s case, the Court applies the compelling reason standard. And, given the confidential nature of the documents, and the possibility that their disclosure will harm the parties’ competitive standing, the Court finds a compelling reason to seal the documents and that reason outweighs the public’s interest in disclosure.

21 III. CONCLUSION 22 For the foregoing reasons, the Court hereby DENIES Tyson’s motion for a preliminary injunction (Dkt. Nos. 3, 5), GRANTS Tyson’s motion to expedite and to consolidate (Dkt. No. 23), GRANTS the parties’ motions to seal (Dkt. Nos. 2, 34, 46), and DISMISSES with prejudice Tyson’s complaint (Dkt. No. 1). The Clerk is DIRECTED to maintain Docket Numbers 6, 6-1–6- 9, 36, 36-1 38, 38-1–38-6, 40, 40-1, and 49 under seal.

2 DATED this 16th day of March 2022.

A John C. Coughenour 6 UNITED STATES DISTRICT JUDGE