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Sun Pacific Marketing Cooperative, Inc v. Dimare Fresh

August 12, 2011

SUN PACIFIC MARKETING COOPERATIVE, INC., APPELLANT,
v.
DIMARE FRESH, INC., APPELLEE.



FINDINGS OF FACT AND CONCLUSIONS OF LAW

The matter before the court is an appeal. Both Plaintiff-Appellant Sun Pacific Marketing Cooperative, Inc. ("Sun Pacific") and Defendant-Appellee DiMare Fresh, Inc. ("DiMare") filed suit in the Eastern District of California alleging breach of contract. DiMare then dropped its suit and filed a complaint with the U.S. Department of Agriculture under 7 U.S.C. §499f of the Perishable Agricultural Commodities Act ("PACA"). This present federal case was stayed pending the outcome of the U.S. Department of Agriculture proceeding ("PACA Hearing"). Administrative Law Judge William Jenson found in favor of DiMare, awarding $1,136, 599 in damages, plus $43,930.97 in attorney's fees and costs, plus interest. Sun Pacific appealed the decision, which was merged with Sun Pacific's pre-existing suit. Though the case is technically an appeal, the trial is undertaken on a de novo basis.

I. Findings of Fact

1. Sun Pacific is a produce company which grows, packs, and ships fresh tomatoes (among other agricultural products) in the San Joaquin Valley. DiMare is a repacker of tomatoes, which purchases and repacks fresh tomatoes for sale to restaurants and retailers.

2. In July 2006, Sun Pacific contracted to sell tomatoes to DiMare from July 17 through October 31, 2006 on a weekly basis, free on board from Sun Pacific's facility in Exeter, CA ("Contract"). The Contract called for the sale of six distinct categories of tomatoes at fixed prices and quantities. The specific varieties of tomato, quantities per week, and price specified in the Contract to are as follows:

Loads Boxes Price

Medium Round 6x7 #1 grade 2.5 4,000 $5.45 Medium Round 6x7 #2 grade 2.5 4,000 $4.45 Large Round 6x6 #1 grade 2.5 4,000 $6.45 Large Round 6x6 #2 grade 2.5 4,000 $5.45 Jumbo Round 5x5 (or St. Regis 5x5) 2 3,200 $7.95 Medium Roma 2 3,200 $7.35 One load is equal to 1,600 boxes (or cartons). 5x5, 6x6, and 6x7 refer to tomato sizes. Tomatoes are graded; those of a sufficient quality are termed #1. A #1 grade load contains a minimum of 85% #1 tomatoes; a #2 grade load only contains a minimum of 60% #1 tomatoes. Trial Transcript, at 22:17-19. Sun Pacific markets #1 tomatoes as Airchiefs and #2 tomatoes as Stardusts; the exhibits do not label the loads as #1 and #2. Plaintiff's Exhibit 29. The Rounds were to be tomatoes that were picked when green. St. Regis tomatoes are pink tomatoes that have begun to ripen on the vine. Trial Transcript, at 30:9-19. The terms Airchief, Stardust, and St. Regis are marketing names used by Sun Pacific; other growers use different marketing names for different grades and different color tomatoes. The listed prices include $1.45 for palletization. Trial Transcript, at 33:13-24. The Contract was not for tomatoes in general but for specific volumes at specific prices of these six categories of tomatoes. Trial Transcript, at 56:25-57:5.

3. The Contract also contained a provision which states "6. Shippers' obligation. In the event of a product shortage caused by an Act of God, Natural disaster or other incident that could not be foreseen and is beyond the control of Sun Pacific, then performance under this contract shall be excused." Joint Exhibit 1. The parties ended up in a dispute over this clause of the Contract which affected sales from the week of 9/4-9/10 through 10/30-10/31.

4. The Contract was negotiated between DiMare's sales representative, Sam Licato, and Sun Pacific's sales representative, Tom Valenzuela. It was then signed by Mr. Licato and Al Bates, general manager of Sun Pacific. Mr. Valenzuela drafted the Contract borrowing the language of a contract between Sun Pacific and DiMare in 2005. Trial Transcript, at 131:11-17. Mr. Valenzuela testified that during the course of negotiating the Contract, he and Mr. Licato did not discuss the meaning of the term "product shortage." Trial Transcript, at 127:14-18. Mr. Licato testified that during the course of negotiating the Contract, he let Mr. Valenzuela know that DiMare expected to get tomatoes if Sun Pacific had them packed from its fields. Trial Transcript, at 35:15-36:5. These testimonies appear to contradict each other. Mr. Valenzuela was not a witness at the PACA Hearing. In that proceeding, Mr. Licato was not asked about any communication between the parties concerning the term "product shortage" during the negotiation of the Contract. Cf. PACA Hearing Transcript, at 228:20-229:1 and 256:5-22 (Mr. Licato states what he believed the term meant at the time the Contract was negotiated, but was not asked if he informed Mr. Valenzuela of his interpretation). On this point, the court credits Mr. Licato's testimony.

5. On a day to day basis, Mr. Licato dealt with Mr. Valenzuela until early August, when Mr. Valenzuela left Sun Pacific's employment. Trial Transcript, at 130:13-18. After Mr. Valenzuela left, Mr. Licato dealt with Tom Gilardi, Sun Pacific's sales representative, to arrange the shipments under the Contract. PACA Hearing, at 342:17-343:3. For a week's shipments, Mr. Licato and Mr. Gilardi would discuss the matter the prior week. Mr. Licato would fill out an order sheet, specifying the category, quantity, price, and specific day he wanted the shipments to be available for pickup. Trial Transcript, at 343:6-344:6. He would normally fax that order to Mr. Gilardi on the Thursday. Trial Transcript, at 59:22-24. Mr. Gilardi would then send the form back with pick-up numbers for the requested loads to finalize the arrangement. Trial Transcript, at 50:13-24. Afterwards, Sun Pacific sent DiMare invoices for the shipments.

6. The tomato crop was affected by a heat wave during the contract period. The heat decreased the number of tomatoes harvested. Trial Transcript, at 158:13-22. Further, some of the harvested tomatoes were of a faulty quality and so were not packed for sale. Trial Transcript, at 158:23-159:10. Packed tomatoes are available for shipment to buyers. From early in the contract period, Sun Pacific was not able to pack sufficient tomatoes of certain categories to fulfill the quantities of the Contract. Mr. Licato admitted that there were weeks when Sun Pacific was not able to pack enough tomatoes of a specific size and/or grade to meet the requirements of the Contract. Trial Transcript, at 39:13-40:14.

7. Mr. Bates testified that Defendant's Exhibit B represents what was actually sold by Sun Pacific to DiMare over a number of weeks in 2006. Trial Transcript, at 175:20-176:2. A partial record of the boxes of tomatoes actually shipped shows that the parties did not follow the categories and quantities specified by the Contract:

Medium Medium Large Large Jumbo Extra Large Round 6x7 Round 6x7 Round 6x6 Round 6x6 Round 5x5 Large 5x6 Roma #1 grade #2 grade #1 grade #2 grade 7/31-8/6 6,800 1,200 7,360 640 3,200 0 1,520

8/7-8/13 4,800 1,520 2,240 2,320 1,680 1,520 3,200

8/14-8/20 6,000 960 2,880 1,840 2,227 843 1,600

8/21-8/27 5,200 1,120 3,840 960 2,400 800 3,200

8/28-9/3 5,840 560 3,920 880 1,040 2,160 3,200

Defendant's Exhibit B. It appears that the shipments for each week were separately negotiated between Mr. Licato and Mr. Gilardi (or Mr. Valenzuela).

8. The Contract specifically permitted the substitution of St. Regis tomatoes for Jumbo Round 5x5 tomatoes. Mr. Licato and Mr. Valenzuela agreed that Sun Pacific could not make any other substitutions (of variety, size, and/or quality) without DiMare's express approval. Trial Transcript, at 30:20-22 and 130:3-12. Conversely, Mr. Licato agreed that, based on his understanding of what the Contract meant, Sun Pacific did not have to offer any substitutions. Trial Transcript, at 37:14-15. When Sun Pacific did not produce enough of a category of tomato to fulfill the Contract amounts, Mr. Licato says he permitted Sun Pacific to make up the amounts at a later date, but agreed that Sun Pacific could not unilaterally be short without his permission. Trial Transcript, at 39:10-40:14. Mr. Valenzuela agreed that Sun Pacific could not substitute tomatoes or change the quantities without DiMare's permission. Trial Transcript, at 125:1-8; Trial Transcript, at 130:3-12.

9. In the course of performing the Contract, the parties made several modifications. Mr. Licato allowed Sun Pacific to substitute Extra Large Round 5x6 tomatoes for Jumbo Round 5x5 tomatoes, but agreed that Sun Pacific did not have to under the Contract. Trial Transcript, at 37:5-15. The records of tomatoes shipped shows that Sun Pacific also sold more Medium Round 6x7 #1 grade tomatoes than was required by the Contract and fewer Medium Round 6x7 #2 tomatoes. Similarly, more Large Round 6x6 #1 grade tomatoes were shipped and fewer Large Round 6x6 #2 grade tomatoes were shipped. Defendant's Exhibit B. Mr. Licato stated Sun Pacific was substituting some #1 grade tomatoes for #2 grade tomatoes early in the contract period. Trial Transcript, at 77:13-15.

10. The parties modified the Contract to reduce the number of Large Round 6x6s. Trial Transcript, at 27:10-16. From the week of 8/8-8/13 through the end of the contract period the number of Large Round 6x6 #1 grade and #2 grade tomatoes required was each decreased from 2.5 loads to 1.5 loads (4,000 boxes to 2,400 boxes). The parties also substituted Large Roma tomatoes in place of Medium Roma tomatoes. Defendant's Exhibit B. In fact, there is no evidence in the record that Sun Pacific ever sold DiMare any Medium Roma tomatoes. The weekly order sheets for 8/21-8/27 and 8/28-9/3 (the weeks before the dispute began) sent by Mr. Licato to Mr. Gilardi reflect the following categories, quantities, and prices:

Loads Boxes Price

Medium Round 6x7 #1 grade 2.5 4,000 $5.45 Medium Round 6x7 #2 grade 2.5 4,000 $4.45 Large Round 6x6 #1 grade 1.5 2,400 $6.45 Large Round 6x6 #2 grade 1.5 2,400 $5.45 Jumbo Round 5x5 (or St. Regis 5x5) 2 3,200 $7.95 Large Roma 2 3,200 $7.35 Joint Exhibit 2. The weekly order sheets for 9/4-9/10 and 9/11-9/17 also reflect these categories and quantities (but not prices). Joint Exhibit 4 and 8. The order sheets for 8/21-8/27 and 8/28-9/3 only show what Mr. Licato requested; it does not show Mr. Gilardi's response. Defendant's Exhibit B demonstrates that the categories and quantities actually shipped do not correspond to Mr. Licato's requests:

Medium Medium Large Large Jumbo Extra Large Round 6x7 Round 6x7 Round 6x6 Round 6x6 Round 5x5 Large 5x6 Roma #1 grade #2 grade #1 grade #2 grade 8/21-8/27 5,200 1,120 3,840 960 2,400 800 3,200

8/28-9/3 5,840 560 3,920 880 1,040 2,160 3,200

The specific details of how Mr. Gilardi and Mr. Licato negotiated these shipments has not been presented. The parties have not provided Mr. Gilardi's response to these weekly order sheets with pick-up numbers filled in. Overall, Mr. Licato did say that he got all of the tomatoes he requested before the dispute. Trial Transcript, at 55:11-12.

11. The parties' dispute began with the shipments for 9/4-9/10. On August 31, 2006, Mr. Gilardi forwarded an e-mail to Mr. Licato; the e-mail was between third parties and explained that a grower was canceling its tomato contracts due a 50% decrease in tomato yields in its facilities in Virginia and California. Joint Exhibit 3; Trial Transcript, at 46:7-47:9. Mr. Gilardi and Mr. Licato then talked on the phone that same day. Mr. Gilardi told Mr. Licato that Sun Pacific would be invoking a product shortage under the Contract.

PACA Hearing, at 350:4-14. On the phone, Mr. Licato requested a formal letter. Trial Transcript, at 49:23-50:5. During the August 31 conversation, Mr. Gilardi said that Mr. Licato disagreed with Sun Pacific's reasons for invoking a product shortage, but did agree to buy tomatoes at market prices. PACA Hearing, at 351:19-353:16. Mr. Licato sent Mr. Gilardi a letter dated September 1 which requested Sun Pacific give a formal rationale for invoking a product shortage: "Tom please send me a letter from Sun Pacific stating your reason for calling the 'Act of God' and your assurance once conditions are normal or close to normal, you will resume the contract signed by both yourself and DiMare Fresh, Inc. We need this letter today September 1, 2006, if you could show us some proof that supplies at Sun Pacific are in fact 50% less than ...


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