Euler Hermes N. Am. Ins. Co. v. Mestizos Grp.

• Decision Date: 24 February 2023
• Docket Number: Civil Action 3:22-CV-01127-E
• Citation: Euler Hermes N. Am. Ins. Co. v. Mestizos Grp., Civil Action 3:22-CV-01127-E (N.D. Tex. Feb 24, 2023)
• Parties: EULER HERMES NORTH AMERICA INSURANCE COMPANY, Plaintiff, v. MESTIZOS GROUP LLC, GERARDO GUILLEN, MICHELL P. TORRES, and LUIS RODRIGUEZ, Defendants.
• Court: U.S. District Court — Northern District of Texas

EULER HERMES NORTH AMERICA INSURANCE COMPANY, Plaintiff, v. MESTIZOS GROUP LLC, GERARDO GUILLEN, MICHELL P. TORRES, and LUIS RODRIGUEZ, Defendants.

Civil Action No. 3:22-CV-01127-E

United States District Court, N.D. Texas, Dallas Division

February 24, 2023

MEMORANDUM OPINION AND ORDER

ADA BROWN, UNITED STATES DISTRICT JUDGE

Before the Court is Plaintiff's Motion for Default Judgment filed July 15, 2022 (“Plaintiff's Motion”) (Doc. 17), which seeks relief against Defendants Mestizos Group LLC (Mestizos); Guillen; and Torres.^[1]Having reviewed Plaintiff's Motion and the applicable law, the Court finds that Plaintiff's Motion for Default Judgment should be and is hereby GRANTED as follows.

I. Background

On May 20, 2022, Plaintiff initiated this action against Defendants by verified complaint, alleging numerous claims (i) under the Perishable Agricultural Commodities Act (PACA); (ii) for breach of contract; (iii) for breach of guaranty agreement (iv) for interference with receipt of trust assets; and (v) for breach of fiduciary duty. (Doc. 1 at 12-23). The Complaint alleges Mestizos entered into agreements with two companies-Produce Team, LLC (Produce Team) and London Fruit Inc. (London Fruit), collectively referred as Assignors-in transactions involving shipments of vegetable produce. (Doc. 1). The Complaint alleges Mestizos accepted and sold the produce but did not pay the corresponding invoices from Produce Team and London Fruit. (Doc. 1).

Plaintiff asserts both Produce Team and London Fruit-both holders of USDA-issued PACA licenses-assigned all right, title, and interest in the unpaid invoices to Plaintiff, and Plaintiff insured the Assignors. (Doc. 1 at 8). The Complaint asserts (i) Mestizos “is the holder of PACA license number 20210472, which the United States Department of Agriculture (USDA) issued to Mestizos on or about February 12, 2021 and was active throughout Mestizos' dealings with the Assignors[.]” and (ii) Guillen and Torres (collectively referred as Principals) are or were both employees, officers, directors, or members of Mestizos “in a position to exercise dominion and control over Mestizos at all times relevant to this action and otherwise participated in the tortious conduct or other wrongs set forth herein” (Doc. 1 at 2-3). Regarding Produce Team, the Complaint alleges:

22. Between August 5 and 27, 2021, Mestizos and Produce Team, LLC (“Produce Team”) entered into a series of five (5) Produce transactions involving shipments of tomatoes. At all times relevant hereto, Produce Team grew and sold Produce, specifically fresh tomatoes.

23. The USDA provides a list of perishable agricultural commodities covered under PACA, which includes tomatoes.

24. Mestizos received the Produce originating in Mexico from Produce Team at their warehouse location in McAllen, Texas. Because Produce Team delivered Produce originating in Mexico to Mestizos, through a warehouse located in McAllen, Texas in the United States, the Produce transactions at issue herein took place in interstate and foreign commerce.

25. Produce Team delivered Produce to Mestizos in shipments of Produce that totaled or exceeded 2,000 pounds in weight. Because Mestizos received individual shipments of produce weighing far in excess of 2,000 pounds, Mestizos was engaged in the purchase of Produce in wholesale or jobbing quantities.

26. At all times relevant hereto, Mestizos was engaged, directly or indirectly, in the business of purchasing and/or selling Produce in wholesale or jobbing quantities and, therefore, is a “dealer” of Produce as defined by PACA.

27. At all times relevant hereto, Mestizos was engaged in the business, directly or indirectly, of purchasing Produce from growers or others and distributing such Produce in commerce by resale or other methods, and, is therefore a “shipper” of Produce as defined by PACA.

28. Mestizos received and accepted all of the Produce from Produce Team Invoices.

29. Produce Team invoiced Mestizos for all of the Produce identified in the Produce Team Invoices and Mestizos agreed that, “[a]fter payment is due, interest will accrue on unpaid balances at a rate of 18% per annum until paid,” and that, “[i]n the event a legal or other action is commenced to collect sums due under this invoice, the prevailing party shall be entitled to reimbursement of all costs and fees including reasonable attorney's fees incurred.” The total amount of the Produce Team invoices assigned to Euler Hermes is $38,548.45.

30. Subsequent to Mestizos' receipt and acceptance of the Produce identified in the Produce Team Invoices, Produce Team assigned all right, title, and interest in and to the resulting unpaid Produce Team Invoices to Euler Hermes, including any and all PACA trust rights, and the right to receive payment under the Produce Team Invoices.

31. Further, on information and belief, Mestizos sold all of the Produce described in the Produce Team Invoices to third parties and collected the proceeds thereof.

(Doc. 1 at 6-8) (footnotes omitted). Regarding London Fruit, the Complaint alleges:

32. Between July 2 and August 24, 2021, Mestizos and London Fruit, Inc. (“London Fruit”) entered into a series of two Produce transactions involving shipments of avocados.

33. At all times relevant hereto, London Fruit grew and sold Produce, specifically fresh avocados. The USDA provides a list of perishable agricultural commodities covered under PACA, which includes avocados.

34. Mestizos received the Produce originating in Mexico from London Fruit at their warehouse location in Pharr, Texas. Because London Fruit delivered Produce originating in Mexico to the Mestizos, which is located in Garland, Texas in the United States, the Produce transactions at issue herein took place in interstate and foreign commerce.

35. London Fruit delivered Produce to Mestizos in shipments of Produce that totaled or exceeded 2,000 pounds in weight. Because Mestizos received individual shipments of produce weighing far in excess of 2,000 pounds, Mestizos was engaged in the purchase of Produce in wholesale or jobbing quantities.

36. At all times relevant hereto, Mestizos was engaged, directly or indirectly, in the business of purchasing and/or selling Produce in wholesale or jobbing quantities and, therefore, is a “dealer” of Produce as defined by PACA.

37. At all times relevant hereto, Mestizos was engaged in the business, directly or indirectly, of purchasing Produce from growers or others and distributing such Produce in commerce by resale or other methods, and, is therefore a “shipper” of Produce as defined by PACA.

38. Mestizos received and accepted all of the Produce from London Fruit identified in the London Fruit Invoices.

39. London Fruit invoiced Mestizos for all of the Produce identified in the London Fruit Invoices. London Fruit and Mestizos agreed that, “[a]ll over due accounts accrue interest at the rate of one percent (1%) per month,” and that Mestizos agreed “[t]o pay all reasonable collection costs, attorney's fees, and court costs incurred in enforcing collection on this account.” The total amount of the London Fruit invoices assigned to Euler Hermes is $21,440.00.

40. To secure credit with London Fruit, Guillen entered into and executed a personal guaranty on July 2, 2021.

41. Subsequent to Mestizos' receipt and acceptance of the Produce identified in the London Fruit Invoices, London Fruit assigned all right, title, and interest in and to the resulting unpaid London Fruit Invoices to Euler Hermes, including any and all PACA trust rights, and the right to receive payment under the London Fruit Invoices.

42. Further, on information and belief, Mestizos sold all of the Produce described in the London Fruit Invoices to third parties and collected the proceeds thereof.

(Doc. 1 at 8-10) (footnotes omitted).

The Complaint further alleges that Assignors' respective invoices for the outstanding balance(s)-(i) Produce Team's $38,548.45 balance at 18% per annum and (ii) London Fruit's $21,440 balance at 12% per annum (collectively referred as Invoices)-perfected and preserved its PACA trust rights in and to each load of Produce listed therein because each Invoice stated:

The perishable agricultural commodities listed on this invoice as sold subject to the statutory trust authorized by Section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 USC § 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of the commodities until full payment is received.

(Doc. 1 at 10-11). The Complaint alleges that (i) Plaintiff has the right to receive proceeds from the Invoices and (ii) Mestizos failed to pay the total of the Invoices, despite demands from Plaintiff's collection agent. (Doc. 1 at 11).

The Complaint alleges Mestizos-by and through its principals-engaged in bad faith dealings with Assignors because (i) “Mestizos failed to preserve sufficient funds to fully satisfy all qualified PACA claims”; (ii) “failed to ensure that its funds were freely available to satisfy its outstanding obligations to” the PACA trust rights; (iii) Mestizos lacked the liquidity or free cash flow to pay” the Invoices; and (iv) “Mestizos lacked adequate capitalization to pay its Produce suppliers and to sustain any losses resulting from its inability to collect upon its own accounts receivables.” (Doc. 1 at 11-12). The Complaint asserts “Mestizos improperly shifted the risk of Mestizos' undercapitalization or bad debt risk to Assignors” and that “Mestizos was insolvent.” (Doc. 1 at 12).

The Court issued summons on May 23, 2022. (Doc. 7). Thereafter Plaintiff filed proofs of service, which show Defendants...