Lopes v. Vieira
| Decision Date | 30 May 2007 |
| Docket Number | No. CV-F-06-1243 OWW/SMS.,CV-F-06-1243 OWW/SMS. |
| Citation | 488 F.Supp.2d 1000 |
| Parties | Manual LOPES, et al., Plaintiff, v. George VIEIRA, et al., Defendant. |
| Court | U.S. District Court — Eastern District of California |
George M. Lee, Seiler Epstein Ziegler & Applegate LLP, San Francisco, CA, for Plaintiff.
Vincent O'Gara, Murphy Pearson Bradley and Feeney, San Francisco, CA, James R. Kirby, Segal & Kirby, Sacramento, CA, for Defendant.
ORDER GRANTING IN PART WITH LEAVE TO AMEND AND DENYING IN PART DEFENDANT GENSKE, MULDER & COMPANY'S MOTION TO DISMISS (Doc. 9) AND DEFENDANT DOWNEY BRAND LLP'S MOTION TO DISMISS (Doc. 11)
Plaintiffs Manual and Mariana Lopes dba Lopes Dairy; Raymond. Lopes, Joseph Lopes and Michael Lopes, individually and dba Westside Holstein; Alvarado Machado and Tony Estevan filed a Complaint on September 11, 2006. Defendants are George and Mary Vieira; California Milk Market, a California Corporation; Valley Gold, LLC, a California limited liability company; Genske, Mulder LLP, a California limited liability partnership; Anthony Cary; Downey Brand LLP, a California limited liability partnership; Central Valley Dairymen, Inc., a California Food and Agriculture Nonprofit Cooperative Association (CVD); and Does 1-100.1
Defendants Genske, Mulder & Company (hereinafter referred to as Genske) and Downey Brand LLP (hereinafter referred to as Downey) have each filed motions to dismiss the Second Cause of Action (securities fraud), the Third Cause of. Action (violation of California securities law), the Fifth Cause of Action(negligence) and the Sixth Cause of Action (misrepresentation) for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure.2
The Complaint alleges the following summary as an introduction to more specific allegations:
1. Plaintiffs are all owners and operators of dairy farms located in Merced County, California. Through the machinations of George Vieira and his wife, Mary Vieira, facilitated by the gross negligence and/or participation of accounting, managerial and legal professionals, more than $20 million worth of milk produced by Plaintiffs' farms was diverted from the proper supply channels into a criminal enterprise headquartered in New Jersey. As a result, Plaintiffs have unnecessarily incurred expenses and other damages, and Plaintiffs not been paid for the milk that they supplied; rather, the proceeds from the sale of their milk has been diverted to the criminal enterprise and to George Vieira and his wife, Mary Vieira, and their company California Milk Market, a California Corporation. George Vieira, Mary Vieira and California Milk Market, in turn, used the diverted proceeds to purchase real estate in at least Stanislaus County, San Joaquin County and Tuolumne County. They have more recently attempted to shelter and hide their ill-gotten proceeds by transferring parcels of real estate to third parties, either acting as nominees or without payment of fair value.
2. The criminal enterprise that George Vieira, Mary Vieira and California Milk Market conspired with and used to divert milk payments from plaintiffs to themselves consisted of an affiliation of cheese manufacturers, bulk buyers of cheese products, and milk product brokers, together with the officers and owners who ran these businesses.
3. The criminal enterprise centered upon a publicly traded company called Suprema Specialties, Inc., and a concerted scheme to inflate the size, profitability, growth and inventory value of Suprema Specialties, Inc. Indeed, from 1996 to 2002, Suprema Specialties, Inc. reported annual double-digit growth in sales and revenues, and it used that reported growth to raise more than $150 million from two public stock offerings and from bank loans. These funds were then largely diverted to individual members of the criminal enterprise.
4. Suprema Specialties, Inc. created the appearance of rapid and steady growth by using fictitious invoices and fictitious purchase orders, in a scheme that the Securities and Exchange Commission dubbed "Round-Tripping." Under the Round-Tripping arrangements, Suprema Specialties, Inc. would pretend to purchase milk and milk products from milk product brokers; ostensibly to manufacture into cheese. Suprema Specialties, Inc. would then issue checks to pay for these orders, but no product was physically shipped. Instead, the milk product brokers and bulk cheese buyers who participated in the criminal enterprise would turn around and pretend to order manufactured cheese products from Suprema Specialties, Inc., which Suprema Specialties, Inc. would report on its books to inflate its sales and accounts receivable. The milk product brokers and bulk cheese consumers would then use the payments that were sent to them from Suprema Specialties, Inc., after deducting commission payments for themselves, to make payments on the fictitious orders, so that Suprema Specialties, Inc. could show regular payments on its fictitious accounts receivable and keep the receivables current — a condition required for Suprema Specialties, Inc.'s large bank loans.
5. In 2001, Suprema Specialties, Inc. reported $420 million in revenues; a substantial portion of those revenues was fictitious. The Securities and Exchange Commission's investigation found that from 1998 to February of 2002, at least $135 million of Suprema Specialties, Inc.'s reported revenue was fictitious.
6. In order to maintain the pretense of growth and profitability, Suprema Specialties, Inc. manufactured cheese and cheese products and it maintained warehouses of inventory. But the actual inventory based upon the actual volume of cheese that Suprema Specialties, Inc. manufactured was too small in relation to its reported volume of sales, and Suprema Specialties, Inc. accordingly cut the cheese with starch fillers and affixed false labels to the inventory, thus fraudulently inflating both the size and the value of the inventory.
7. Additionally, to mask its fraudulent activities, Suprema Specialties, Inc. used the same milk product brokers for its legitimate purchases of milk as it used for its fictitious purchases. This practice, and other steps taken by the criminal enterprise, directly led to plaintiffs' catastrophic loss. The loss primarily falls into four categories.
8. Defendant George Vieira was retained by and controlled the day-to-day operations of and business planning for Central Valley Dairymen, an agricultural cooperative through which plaintiffs sold the milk produced by their dairy farms. From November 2001 through March 2002, Mr. Vieira was also the Chief Operating Officer of Suprema Specialties West, Inc., a wholly owned subsidiary of Suprema Specialties, Inc. In addition, Mr. Vieira and his wife Mary Vieira owned and controlled defendant California Milk Market, LLC, one of the milk product brokers that was a member of the criminal enterprise centered around Suprema Specialties, Inc.
9. As part of the criminal enterprise, Mr. Vieira regularly caused Central Valley Dairymen to sell its inventory of milk to Suprema Specialties, Inc., as well as to the related subsidiaries of Suprema Specialties, Inc., all routed through California Milk Market, LLC. Indeed, even when Suprema Specialties, Inc.'s stock was delisted, and after Suprema Specialties, Inc. filed for bankruptcy, Mr. Vieira still caused Central Valley Dairymen to sell its inventory of milk to Suprema Specialties West, Inc.
10. For several years, Mr. Vieira actively concealed the implosion of Suprema Specialties, Inc. from plaintiffs, hid from plaintiffs his involvement in the criminal enterprise, and concocted false excuses to explain why plaintiffs had not received payment for the milk that they supplied to Central Valley Dairymen. Within the last year, plaintiffs have discovered the truth — that the milk was diverted without payment to a criminal enterprise, and that on January 7 of 2004, Mr. Vieira and other leaders of the criminal enterprise pled guilty to securities fraud and conspiracy to engage in mail fraud and bank fraud.
11. Because of the bankruptcy of Suprema Specialties, Inc. and Suprema Specialties West, Inc., caused by the criminal enterprise guided by Mr. Vieira, Plaintiffs have been denied payment for millions of dollars in milk supplied through Central Valley Dairymen to California Milk Market, Suprema Specialties, Inc. and Suprema Specialties West, Inc.
12. In 1987, the State of California established the Milk Producers Trust Fund to provide protection to dairy farmers like Plaintiffs. The fund guarantees that California milk producers will be paid for their milk as long as the milk is sold to a bonded California processor. However, the Fund does not cover milk sales that are handled by a broker; and the Fund does not cover milk that is sold to a processor in which the producer holds a beneficial interest.
13. Mr. Vieira, while purporting to act as a fiduciary agent for Central Valley Dairymen and its dairy farm members (including Plaintiffs), routed a substantial portion of the agricultural cooperative's supply of milk through California Milk Market, a milk brokerage owned and controlled by Mr. Vieira and his wife. By routing milk through California Milk Market, these defendants caused Plaintiffs to lose the protection of the Milk Producers Trust Fund. This loss of Trust Fund protection only added to Plaintiffs' staggering losses.
14. Additionally, as part of the Round-Tripping scheme centered around Suprema Specialties, Inc., California Milk Market engaged in the fictitious sale of milk on behalf of Central Valley Dairymen to Suprema Specialties, Inc. or its subsidiary, Suprema Specialties West, Inc. Because these fictitious sales did not actually occur, California Milk Market and Central Valley Dairymen maintained excess milk...
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