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Kingsburg Apple Packers, Inc. D/B/A v. Ballantine Produce Co.

March 25, 2011

KINGSBURG APPLE PACKERS, INC. D/B/A KINGSBURG ORCHARDS, ET. AL. PLAINTIFFS,
v.
BALLANTINE PRODUCE CO., INC., ET. AL.,
DEFENDANTS. WAGON WHEEL FARMS, INC., A CALIFORNIA CORPORATION,
INTERVENOR PLAINTIFF,
v.
BALLANTINE PRODUCE CO., INC. ET. AL.
DEFENDANTS.



ORDER DENYING IN PART AND GRANTING IN PART DEFENDANT VIRGIL RASMUSSEN'S MOTION TO DISMISS (Doc. No. 210)

This case comes before the Court on Defendant Virgil Rasmussen's ("Rasmussen") motion to dismiss plaintiff intervenor Wagon Wheel Farms, Inc.'s ("Wagon Wheel") claims brought under the Perishable Agricultural Commodities Act ("PACA") and related state claims against various defendants. For the reasons that follow, the motion to dismiss will be denied in part and granted in part.

FACTUAL HISTORY*fn1

Wagon Wheel alleges that in 2008, it entered into an oral contract ("Agreement") with Ballantine Produce Co. ("Ballantine"), whereby Ballantine was to be the "exclusive Commission Merchant and sales broker for all of Wagon Wheel's fruit produced during the 2008-2009 season harvest..." See Third-Amended Complaint ("TAC") ¶ 24. Wagon Wheel alleges that under the Agreement, it retained title to all of the tree fruit delivered to Ballantine and that Ballantine did not possess title to the fruit. Id. Throughout the 2008-2009 harvest season, Wagon Wheel performed all conditions, covenants, and promises required of it under the Agreement by delivering marketable fruit to Ballantine for packing and marketing. See TAC ¶ 26. As of April 2009, Wagon Wheel had delivered fruit to Ballantine worth $1,048,727.52, but Ballantine had only paid Wagon Wheel $30,421.30, leaving a balance owing to Wagon Wheel of $1,018,306.22. See TAC ¶ 27. Wagon Wheel alleges that Ballantine used the proceeds received from Wagon Wheel's fruits for its own uses, including paying off certain creditors, like Bank of the West ("Bank"). See TAC ¶ 29.

Wagon Wheel's Alter Ego Allegations

Wagon Wheel alleges that Rasmussen abused Ballantine's corporate form and seeks to hold him personally liable for Ballantine's torts and other liabilities under an alter ego theory of liability. Wagon Wheel alleges that Rasmussen was the alter ego of Ballantine. See TAC ¶ 24. Wagon Wheel alleges that Rasmussen was a principal investor, manager, and president of Ballantine, owned stock in Ballantine, and was a "responsible managing officer" of Ballantine and of its Commission Merchant license. See TAC ¶¶ 10, 12. Rasmussen and the other individual defendants solely ran, operated, and completely controlled Ballantine. See TAC ¶ 13.

Rasmussen knew that Ballantine was financially unable to do business as a licensed Commission Merchant. Id. Rasmussen knowingly encouraged Wagon Wheel to deliver its Summer 2008 harvested fruit to Ballantine, who was financially broke and under-capitalized. See TAC ¶ 13. When Ballantine took delivery of Wagon Wheel's fruit, sold the fruit, and then collected the sales proceeds, Ballantine was completely under-capitalized. See TAC ¶ 13. Rasmussen, as president and signor of Ballantine's checks, knew Ballantine had no capital to handle fruit as a Commission Merchant. Rasmussen knew Ballantine did not own title to Wagon Wheel's fruit or fruit's proceeds. See TAC ¶ 13. Rasmussen knew that Ballantine was not treating Wagon Wheel's sales proceeds separately as a fiduciary account. Id. Rasmussen knew that Bank was on the verge of cutting of Ballantine's line of credit to run the Ballantine Packinghouse. Id. Rasmussen knew that Ballantine's workers and janitors had not been paid for months. Id.

Rasmussen and other individual defendants directed the commingling of Wagon Wheel's $1,300,000.00 of grower/consigner funds with Ballantine's funds. See TAC ¶ 12. The commingled funds were used to pay individual defendant's expenses. See TAC ¶ 12. Rasmussen knew that Ballantine did not own title to Wagon Wheel's fruit proceeds and Rasmussen, as president, wrote checks to benefit himself and other defendants from these proceeds. See TAC ¶¶ 13, 14. The individual defendants personally guaranteed millions of dollars of equipment purchases and leases to be used by Ballantine due to Ballantine's financial problems. See TAC ¶ 12.

PROCEDURAL BACKGROUND

On October 28, 2009, Wagon Wheel filed a motion to determine the validity of its PACA claims. See Doc. No. 117. On February 9, 2010, the Court found that Wagon Wheel did not have a valid PACA claim because it had failed to preserve its trust assets. On February 5, 2010, Wagon Wheel filed a first-amended complaint in intervention ("FAC"). See Doc. No. 146. On July 6, 2010, the Court granted Bank's motion to dismiss Wagon Wheel's FAC. See Doc. No. 201.

On July 20, 2010, Wagon Wheel filed a second-amended complaint. On July 30, 2010, Wagon Wheel filed its TAC. Wagon Wheel's TAC alleges the following claims for relief: (1) Breach of Commission Merchant Contract against Defendant Ballantine, and against alter ego defendants David Albertson ("David A."), Eric Albertson ("Eric A."), Richard Graham ("Graham"), and Virgil Rasmussen ("Rasmussen");*fn2 (3) Violation of PACA, 7 U.S.C. § 499b(4) - Failure to Account and Pay Promptly against defendants Ballantine, David A., Eric A., Graham, and Rasmussen; (4) Violation of PACA, 7 U.S.C. § 499b(4) - False and Misleading Statement Relating to a PACA transaction against defendants Ballantine and David; (5) Breach of Fiduciary Duty against defendants Ballantine, David A., Eric A., Graham, and Rasmussen; (6) Conversion of Plaintiff's Sales Proceeds against defendants Ballantine, David A., Eric A., Graham, Rasmussen, and Bank; (7) Constructive Fraud against defendants Ballantine, David A., Eric A., Graham, and Rasmussen; (8) Constructive Trust and Accounting against all defendants; and (9) Quantum Meruit (i.e. Restitution of the Misappropriated Funds) against defendants Redwood Farms and Babijuice.

Rasmussen now moves to dismiss Wagon Wheel's First, Third, Fifth, Sixth, and Seventh, claims for relief for failure to state a claim. On September 3, 2010, Wagon Wheel filed an opposition. On September 13, 2010, Rasmussen filed a reply.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6),a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008); Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1999). The Court must also assume that general allegations embrace the necessary, specific facts to support the claim. Smith v. Pacific Prop. and Dev. Corp., 358 F.3d 1097, 1106 (9th Cir. 2004); Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). But, the Court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1056-57 (9th Cir. 2008); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Although they may provide the framework of a complaint, legal conclusions are not accepted as true and "[t]hreadbare recitals of elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009); see also Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003). Furthermore, Courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated . . . laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983). As the Supreme Court has explained:

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, to "avoid a Rule 12(b)(6) dismissal, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 129 S. Ct. at 1949; see Twombly, 550 U.S. at 570; see also Weber v. Department of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949.

The plausibility standard is not akin to a 'probability requirement,' but it asks more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of 'entitlement to relief.' . . .

Determining whether a complaint states a plausible claim for relief will . . . be a context specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown -- that the pleader is entitled to relief.

Iqbal, 129 S. Ct. at 1949-50. "In sum, for a complaint to survive a motion to dismiss, the nonconclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. United States Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).

DISCUSSION

I. First Claim for Relief -Breach of Commission Merchant Contract based on Alter ...


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