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General Produce Co., Ltd. v. Alex R. Thomas & Co.

June 29, 2009

GENERAL PRODUCE CO., LTD., A CALIFORNIA LIMITED PARTNERSHIP PLAINTIFF,
v.
ALEX R. THOMAS & CO., A CALIFORNIA CORPORATION DOING BUSINESS AS GOT FRUIT AND RIPPLE RILEY THOMAS; MENDOCINO GOLD GIFTS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; RIPPLE RILEY THOMAS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; ALEX R. THOMAS, III, AN INDIVIDUAL; STEPHEN N. THOMAS, AN INDIVIDUAL; AND ANNE I. THOMAS, [AN INDIVIDUAL], DEFENDANTS.



FINDINGS AND RECOMMENDATIONS

Previously pending on this court's law and motion calendar for December 3, 2008,*fn1 was plaintiff's motion for entry of default judgment against all remaining defendants,*fn2 pursuant to Fed. R. Civ. P. 55(b)(2). Plaintiff General Produce Company, Ltd. ("General"), was represented by Daniel A. McDaniel. No defendant appeared or was represented by counsel at the hearing. Upon review of the motion, supporting documents, and plaintiff's oral argument, and good cause appearing, the court now issues the following findings and recommendations.

BACKGROUND

This action proceeds under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §§ 499a et seq., to recover money for the sale of produce, and to enforce payment from the PACA statutory trust. As enacted in 1930, subject to subsequent amendments and implementing regulations, PACA governs the sale and purchase of "perishable agricultural commodities," which are defined generally as "[f]resh fruits and vegetables of every kind and character." 7 U.S.C. § 499a(b)(4). The Act renders it unlawful for "any commission merchant, dealer or broker"*fn3 to "fail or refuse truly and correctly to account and make full payment promptly in respect of any transaction in any such commodity to the person with whom such transaction is had; or to fail, without reasonable cause, to perform any specification or duty, express or implied, arising out of any undertaking in connection with any such transaction; or to fail to maintain the trust as required under 499e(c) of this title." 7 U.S.C. § 499b(4).

Section 499e(c) imposes upon the proceeds from sales of perishable agricultural commodities a trust "for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such suppliers, sellers, or agents." 7 U.S.C. § 499e(c)(2); see also In re San Joaquin Food Service, Inc., 958 F.2d 938, 939 (9th Cir. 1992) ("PACA establishes a nonsegregated trust in which a produce dealer holds produce-related assets as a fiduciary until full payment is made to the produce seller"). An unpaid seller may preserve its trust claim by including the statutory trust notice language on the face of each invoice. 7 U.S.C. § 499e(c)(4). Thus, the PACA trust commences by operation of law upon delivery of the produce and continues until full payment for the produce has been made. 7 U.S.C. § 499e(c)(2). The district courts are vested with jurisdiction to "entertain . . . actions by trust beneficiaries to enforce payment from the trust . . ." 7 U.S.C. § 499e(b)(5)(i).

The First Amended Complaint, supported by declaration and exhibits submitted by Clifford J. Rubens, plaintiff's Credit Manager, makes the following allegations. Plaintiff opened the subject account with defendants in July 7, 2005, pursuant to defendants' application for credit. See Exh. A to Rubens Decl. [Dckt. No. 25] (the contract), and Evidence Filing [Dckt. No. 28] (a more legible copy of the contract). Defendants identified the name of their business as, "Alex R. Thomas & Co. DBA Got Fruit Ripple Riley Thomas," with the "legal name" of "Mendocino Gold Gifts LLC," which they characterized as a "spin off of operations of a company called Alex R. Thomas & Co." The owners/officers of the business were listed as R. Thomas III, Stephen N. Thomas, and Anne I. Thomas. Id.

The parties' contract explicitly provides that in the event of any default, defendants agree "to pay interest at the rate of 1.5% per month (18% APR) on the principle balance owing, from the date of such default," "to be bound by the sales terms disclosed on the sale transaction[s]," and "[i]n the event suit is filed to enforce payment of all sums due under this agreement, I/We agree to pay reasonable court costs, attorney fees an/or collections costs." Id.

As alleged in the First Amended Complaint ("FAC"), plaintiff General Produce Company, Ltd. ("General"), is a California limited partnership with its principal place of business in Sacramento, California, engaged in the interstate wholesale business of buying and selling fruits and vegetables. FAC, ¶ 3. Defendant Alex R. Thomas & Co., a California corporation doing business as Got Fruit and Ripple Riley Thomas, and defendants Mendocino Gold Gifts, LLC, and Ripple Riley Thomas, LLC, are California limited liability companies, and are dealers, commission merchants, or other traders in perishable agricultural commodities subject to PACA rules and regulations. Id. at ¶¶ 4-6. Defendants Alex R. Thomas III, Stephen N. Thomas, and Anne I. Thomas are individuals, "responsible for maintenance or reimbursement of the PACA trust, as either a responsible party controlling PACA assets, or as a recipient of PACA assets with actual or constructive notice of the PACA trust." Id. at ¶ 7.

Within the year preceding the filing of the First Amended Complaint, at defendants' request, General delivered to defendants perishable agricultural commodities valued at $81,497.81, which defendants accepted. Id. at ¶¶ 10-12; see also Rubens Decl. at ¶ 5, and Exh. B and C (unpaid-for produce was delivered from February 6 through April 3, 2008). "Defendants have failed and refused to pay for the commodities, despite repeated demands." FAC at ¶ 14; see also Rubens Decl. at ¶ 5, 8, and 9, and Exh. B (statement), C (unpaid invoices), and D (defendant's partial remittance returned for insufficient funds). "General provided timely written notice of its intent to preserve trust benefits under the PACA and the regulations promulgated thereto." FAC at ¶ 15; see also Rubens Decl. at ¶ 6, and Exh. C (unpaid invoices bearing plaintiff's notice of preservation of rights under PACA).*fn4 Accordingly, "defendants have received and hold in trust for General's benefit proceeds from the sale of said commodities, and assets acquired with such proceeds." FAC at ¶ 18.

Plaintiff alleges against all defendants causes of action for failure to maintain a PACA trust, failure to pay PACA trust funds, breach of contract, and, against the individual defendants, violation of written guaranty. The complaint seeks declaratory and injunctive relief, damages in the amount of $81,497.81, plus prejudgment and post-judgment interest, and attorney's fees and costs.

The Clerk of Court has entered the default of Mendocino Gold as to the First Amended Complaint, and, for the reasons set forth infra, this court will recommend entry of default as to the remaining defendants on the First Amended Complaint.

Plaintiff now moves for default judgment against all defendants pursuant to Fed. R. Civ. P. 55(b)(2).

DISCUSSION

A. DEFAULT

Seeking a default judgment is a two step process. The first involves obtaining the entry of default. That step is somewhat complicated here. This case proceeds on the First Amended Complaint filed September 19, 2008. The sole amendment made by that complaint was to substitute defendant Mendocino Gold Gifts, ...


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