Mendoza v. Rast Produce Co., Inc.

• Decision Date: 29 June 2006
• Docket Number: No. F047649.,F047649.
• Citation: 140 Cal.App.4th 1395,45 Cal.Rptr.3d 525
• Court: California Court of Appeals Court of Appeals
• Parties: Jose MENDOZA, Plaintiff and Appellant, v. RAST PRODUCE CO., INC., et al., Defendants; Continental Sales Company et al., Defendants and Respondents.

45 Cal.Rptr.3d 525

140 Cal.App.4th 1395

Jose MENDOZA, Plaintiff and Appellant, v. RAST PRODUCE CO., INC., et al., Defendants;

Continental Sales Company et al., Defendants and Respondents.

No. F047649.

Court of Appeal, Fifth District.

June 29, 2006.

Certified for Partial Publication.^*

Law Offices of M. Irene Daniel and M. Irene Daniel, South Pasadena, for Plaintiff and Appellant.

Rynn & Janowsky and Lewis P. Janowsky, Newport Beach, for Defendants and Respondents.

OPINION

DAWSON, J.

Appellant is a grower who used a commission merchant to market his pomegranate crop. The respondents are various businesses that obtained the pomegranate crop in transactions with the commission merchant. Appellant sued respondents alleging that they obtained the crop on a reconsignment basis, sold it, provided false or misleading documents about those sales, and kept money that should have been remitted to appellant. Respondents moved for judgment on the pleadings on the ground that they had no privity of contract with appellant and therefore his claims must fail. The superior court agreed and granted respondents' motion without leave to amend.

Appellant argues that the common law and statutory duties imposed on commission merchants apply to respondents based on their status as reconsignees. Respondents contend there were no reconsignments and that all of their transactions with the commission merchant were sales.

We conclude that the complaint, although ambiguous, does sufficiently allege that respondents were reconsignees and that the commission merchant was authorized by appellant to enter into reconsignment relationships. We further conclude that the complaint presents the legal theory that the commission merchant was appellant's agent and respondents were subagents engaged by the commission merchant. California law recognizes that (1) commission merchants are agents, (2) an agent owes fiduciary duties to his or her principal, and (3) a subagent owes the principal the same duties as the agent where the agent was authorized by the principal to retain subagents. Applying these rules of law to the facts alleged in the complaint, appellant has presented the legal theory that respondents were appellant's subagents and, as such, owed him a fiduciary duty. The appellant's other allegations, when considered with this fiduciary duty, are sufficient to state claims for conversion, breach of fiduciary duty, accounting, and negligence.

As to appellant's claims for breach of contract, breach of the covenant of good faith and fair dealing, and fraud, we conclude the allegations are insufficient to state those claims, but direct that the trial court grant leave to amend.

Accordingly, we reverse the judgment and remand for further proceedings. We publish this opinion because, based on the rules of law applicable to subagents, it extends the ruling in Fischer v. Machado (1996) 50 Cal.App.4th 1069, 58 Cal.Rptr.2d 213 (Fischer). In Fischer, the court held that a commission merchant can be liable for the conversion of proceeds from the sale of farm products that he sells as an agent for the farmer. Here, we hold that a subagent, like an agent, may be liable for converting sale proceeds.

FACTS AND PROCEEDINGS¹

Appellant Jose Mendoza is engaged in the business of growing farm products, does business under the fictitious name of San Joaquin Labor Service, and has his principal place of business in Lindsay, California.

Sometime in 2001, appellant entered an oral agreement with Ken Britten, who does business as Alta Peak Packing Company (Britten),² to market appellant's pomegranates through normal channels at the highest cash price and best terms available in exchange for payment of 8.5 percent of the gross sales price plus reimbursement for actual packing and cooling charges.

Appellant did not know that Britten was not licensed as a commission merchant or that he hired John Rast, doing business as Rast Produce Company,³ to assume primary responsibility for selling the 2001 pomegranate crop and agreed to pay Rast 8.5 percent of the sales price and any costs and expenses actually incurred.

Appellant learned of Rast's involvement when he received reports of what purported to be a summary of the sales, receipts, and disposition of all of appellant's produce and the money received. Appellant alleges that Rast, among other things, sold his 2001 pomegranate crop on unauthorized terms, made secret profits, failed to fully account for the proceeds, and made materially false statements to appellant about the sale and disposition of the crop.

Unaware of Rast's conduct regarding the 2001 crop, appellant entered a written contract with Rast under which Rast agreed to function as a commission merchant and market appellant's 2002 pomegranate harvest (Marketing Agreement). A copy of the 10-page Marketing Agreement was attached as an exhibit to the complaint.

Appellant completed the cultivation and harvest of the 2002 pomegranate crop and delivered it to Rast. Subsequently, appellant received information and documents from Rast that reported the packout, grades, quality, weights, sales, proceeds, and expenses of sale. In reviewing this information and comparing it with similar reports for the 2001 crop, appellant noted some sales appeared irregular and others suggested a pattern of below-market pricing. In some instances, appellant suffered a loss on the sales and was billed $1.33 per case by Rast when the current market price was approximately $10 to $15 per case.

Appellant alleges that Rast "habitually shipped [appellant]'s product on an `open price' basis to `buyers' in various markets. Under the guise of a `sale,' [Rast] re-consigned the product to purported `buyers' who would resell the product at a [sic] much higher profits before a final price for [appellant]'s product was negotiated with R[ast]."

Appellant alleges that the "re-consignees and purported `buyers' included" (1) Continental Sales Company, (2) CDS Distributing, Inc., (3) Custom Produce Sales, (4) Four Seasons Produce, Inc., (5) Jacobs, Malcolm & Burtt Inc., (6) JMB International, Inc., (7) M. Levin & Company, Inc., (8) Morita Produce Co. & Nuthouse, (9) River City Produce Co., Inc., (10) Andrighetto Produce, Inc., doing business as Shasta Produce, (11) Shapiro-Gilman-Shandler Co., (12) Val-Pro, Inc., doing business as Valley Fruit & Vegetable Co., and (13) Royal Banana Company, Inc. (respondents).

Appellant alleges that respondents, "by accepting [his] fruit for sale without first contracting for its purchase at a designated price, became commission merchants with the attendant common law and statutory duties." Appellant alleges that Rast and respondents (1) used false and misleading invoices, reports, and other documentation to reduce and conceal the sums owing to him, (2) fraudulently sold his crop for less than prevailing market price in self-dealing or transactions with affiliates, (3) refused to provide documentation regarding sales of his crop as required by statute, and (4) made unauthorized charges against his account without providing him notice or obtaining his consent. Appellant alleges these acts breach contractual, common law, and statutory duties. The statutory provisions referenced are contained in chapter 7 (titled Produce Dealers) of division 20 of the California Food and Agricultural Code.

Appellant alleges that, although the documentation is incomplete, he believes that he was damaged by the acts and omissions of Rast and respondents in an amount in excess of $50,000.

Based on information and belief, appellant also alleges that Rast and respondents were engaged in a common scheme to steal his property, convert it to their own use, or to sell it at less than fair market value in order to advance their economic interests at his expense, and to conceal their thefts and lack of diligence by a pattern of false, fraudulent, and misleading documents.

Appellant filed his complaint on October 30, 2003, and set forth claims for (1) breach of contract, (2) breach of covenant of good faith and fair dealing, (3) negligence, (4) fraud and deceit, (5) conversion, (6) accounting, and (7) breach of fiduciary duties.

On July 21, 2004, respondents filed a motion for judgment on the pleadings which asserted (1) the complaint in its entirety did not state facts sufficient to constitute a cause of action against them and (2) each of the seven claims in the complaint, considered individually, failed to state a cause of action against them.

On August 23, 2004, the superior court filed an order granting the motion without leave to amend stating that respondents "are entitled to judgment on the pleadings without leave to amend as a matter of law because said [respondents] were not parties to the contract, and any duties that they owed were owed to [Rast]." On September 27, 2004, a judgment on the pleadings without leave to amend against appellant and a judgment for costs against appellant were filed. Appellant subsequently filed a notice of appeal.

DISCUSSION

I. Motion for Judgment on the Pleadings—Standard of Review

A threshold issue in this appeal concerns how the allegations in the complaint should be interpreted. As a result, the rules of law governing the review of a complaint in the context of a motion for judgment on the pleadings will play a crucial role in the outcome of this appeal.

A. Stating a Cognizable Claim

A motion for judgment on the pleadings may be made on the ground that the complaint fails to state facts sufficient to constitute a legally cognizable claim. (Code Civ. Proc., §§ 438, subd. (c)(1)(B)(ii); Sofias v. Bank of America (1985) 172 Cal. App.3d 583, 586, 218 Cal.Rptr. 388.) In reviewing the grant of such a motion, an appellate court applies the same rules that govern review of the sustaining of a general demurrer. (Smiley v. Citibank (1995) 11 Cal.4th 138, 146, 44 Cal.Rptr.2d 441, 900 P.2d 690.) Thus, "we are not bound by the determination of ...