San Miguel Produce, Inc. v. L. G. Herndon Jr. Farms, Inc.

• Decision Date: 18 May 2020
• Docket Number: S20Q0374
• Citation: 843 S.E.2d 403,308 Ga. 812
• Parties: SAN MIGUEL PRODUCE, INC. v. L. G. HERNDON JR. FARMS, INC.
• Court: Georgia Supreme Court

308 Ga. 812

843 S.E.2d 403

SAN MIGUEL PRODUCE, INC.

v.L. G. HERNDON JR. FARMS, INC.

S20Q0374

Supreme Court of Georgia.

Decided: May 18, 2020

Nowell Donald Berreth, Amanda Michele Waide, General Counsel, Max Paul Marks, Alston & Bird, LLP, One Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424, Attorneys for the Appellant.

Craig Alan Stokes, Stokes Law Office LLP, 3330 Oakwell Court, Suite 225, San Antonio, Texas 78218, Joseph M. Hall, Hall Law Group, PC, 2036 Highway 21 South, Springfield, Georgia 31329, William James Keogh, III, Neal W. Dickert, Hull Barrett, PC, 801 Broad Street, Ste 700, Augusta, Georgia 30901-1564, Attorneys for the Appellee.

Ross Warren Bergethon, Deputy Solicitor-General, Christopher M. Carr, Attorney General, Isaac Byrd, Deputy Attorney General, Margaret Kemmerly Eckrote, Assistant Attorney General, Robin Joy Leigh, Senior Assistant Attorney General, Andrew Alan Pinson, Solicitor-General, Department of Law, 40 Capitol Square, S.W., Atlanta, Georgia 30334-1300, Attorneys for the Neutral Amicus.

Boggs, Justice.

The United States District Court for the Southern District of Georgia has certified three questions to this Court regarding the scope of the Georgia Dealers in Agricultural Products Act, Ga. L. 1956, p. 617 (codified as amended at OCGA §§ 2-9-1 to 2-9-16 ) ("the Act"). See San Miguel Produce, Inc. v. L. G. Herndon Jr. Farms, Inc., Case No. 6:16-cv-35, 2019 U.S. Dist. LEXIS 154960, 2019 WL 4309021 (Sept. 11, 2019). At issue here is the effect of the Act's provisions upon contracts entered into by an agricultural products dealer that has failed to obtain a license from the Georgia Commissioner of Agriculture: in this case, a contract entered into between San Miguel Produce, Inc. ("San Miguel"), a California corporation, and L. G. Herndon Jr. Farms, Inc. ("Herndon Farms"), a Georgia corporation.

In its certification order, the district court noted that most of the claims in the litigation depend upon interpretation of the Act, which the appellate courts of Georgia have never before construed. Reluctant to decide questions of Georgia "state public policy and legislative intent" in the first instance, San Miguel Produce, 2019 WL 4309021, at *5, 2019 U.S. Dist. LEXIS 154960, at *14, the district court certified the following three questions to this Court:

(1) Does an entity that purchases produce from other growers, has it processed, and then markets, sells, and ships that produce qualify as a "[d]ealer in agricultural products" as defined in OCGA § 2-9-1 (2), or does that entity meet the "farmers ... in the sale of agricultural products grown by themselves" exemption in OCGA § 2-9-15 (a) (1) because at times it also processes, markets, sells, and ships produce that it grew itself as part of the same business operation?

(2) Under the contract rule restated in Paulsen Street Investors v. EBCO Gen. Agencies , [237 Ga. App. 116, 514 S.E.2d 904 (1999) ], and quoted in this Order, are the licensing requirements set forth by the Dealers in Agricultural Products Act, OCGA § 2-9-1 et seq. , regulatory in the public interest or merely for revenue purposes?

3. If a "[d]ealer in agricultural products," as defined by OCGA § 2-9-1 (2), fails to obtain a license, as required by OCGA § 2-9-2, prior to engaging in a business that comes within the terms of the Act, is it precluded from recovering on a contract made to carry out that business?

(Emphasis in original.) San Miguel Produce, 2019 WL 4309021, at *6, 2019 U.S. Dist. LEXIS 154960, at *16-17.

As explained below, we conclude, first, that an entity as described by the district court does qualify as a dealer in agricultural products under the Act and is not exempt under OCGA § 2-9-15 (a) (1), with the limited exception of specific transactions "in the sale of agricultural products grown by [itself]." Second, we conclude that the Act's licensing requirements are part of a comprehensive regulatory scheme in the public interest and not merely a revenue measure. Finally, we conclude that if a dealer has failed to obtain a license as required by OCGA § 2-9-2, it may not recover under a contract to the extent that the contract relates to business coming within the terms of the Act.¹

1. In September 2014, San Miguel and Herndon Farms entered into several agreements, including one styled "Grower-Shipper Agreement" ("the GSA"). Under the GSA, Herndon Farms was responsible for growing and delivering produce ordered by San Miguel to ROBO Produce, LLC ("ROBO"), a packing and processing facility in Toombs County jointly owned by San Miguel and Herndon Farms.² In the GSA, Herndon Farms agreed to source crops from other growers in the event that it could not meet San Miguel's anticipated volume of orders. San Miguel agreed to purchase the produce delivered by Herndon Farms, to sell and market all products to its regional and national accounts, and to provide sales and marketing opportunities for Herndon Farms’ bulk products sales. The GSA provides that it "shall be construed pursuant to and in accordance with the laws of the State of Georgia." At no point during the making of the parties’ agreements or during their short-lived business arrangements did San Miguel obtain a Georgia agricultural products dealer license.

Issues arose with Herndon Farms’ ability to deliver or source sufficient produce from third-party growers to meet San Miguel's requirements, and San Miguel began shipping its own produce from California to the ROBO facility. The business arrangement proved unsuccessful, and in February 2016, the parties terminated their relationship.

On March 25, 2016, San Miguel filed a complaint in the district court against Herndon Farms, and on April 5, 2016, Herndon Farms filed a separate action against San Miguel in the Superior Court of Toombs County, which was removed to federal court. The actions were consolidated, and the parties filed cross-motions for partial summary judgment.

According to the district court's order, many of the parties’ claims have been abandoned, and the remaining claims asserted by Herndon Farms concern two alleged breaches of the GSA by San Miguel: failing to pay invoices on delivered produce and inducing Herndon Farms to grow produce before terminating the GSA. San Miguel's remaining claims, apart from a federal-law claim and a claim for breach of the ROBO operating agreement, are based on the GSA.³ Therefore, as the district court noted, the application of the relevant Georgia law to the GSA is "the determinative question" upon which the case turns.

2. At the time San Miguel and Herndon Farms entered into the GSA, the Act had been in effect for more than half a century. See Ga. L. 1956, p. 617. The Act bears some similarities to an earlier federal law, the Perishable Agricultural Commodities Act, 1930, Pub. L. No. 71-325, 46 Stat. 531 (codified as amended at 7 USC §§ 499a to 499s ) ("PACA").

Congress enacted the PACA in 1930 to prevent unfair business practices and promote financial responsibility in the interstate commerce of shipping and handling of perishable agricultural commodities, like fresh fruits and vegetables. The statute requires that brokers and dealers be licensed by the Secretary, and that licensees refrain from unfair business conduct. The PACA also provides a system of penalties for these violations. The Secretary may revoke or suspend the license of a licensee who fails to make full payment promptly for perishable shipments.

(Citations and punctuation omitted.) Bama Tomato Co. v. United States Dept. of Agriculture , 112 F.3d 1542, 1545 (II) (11th Cir. 1997). See also George Steinberg & Son, Inc. v. Butz , 491 F.2d 988, 990 (2d Cir. 1974) ("Essentially [PACA] provides a system of licensing and penalties for violations.").

Georgia's Act imposes a similar, though not identical, licensing system upon dealers in agricultural products who engage in such business in Georgia.⁴ Subject to the exemptions in OCGA § 2-9-15, a "dealer in agricultural products," as that term is defined in OCGA § 2-9-1 (2), is required to obtain a license from the Commissioner of Agriculture. See OCGA § 2-9-3. See also OCGA § 2-9-2 ("It shall be unlawful for any dealer in agricultural products who comes within the terms of this article to engage in such business in this state without a state license issued by the Commissioner."). The Commissioner may decline to grant a license, or suspend or revoke a license already granted, for certain enumerated instances of misconduct. See OCGA § 2-9-7 (1) – (7). Agricultural products dealers must post a surety bond in an amount to be determined by the Commissioner, not exceeding an amount equal to the maximum amount of products actually or estimated to be purchased from or sold on behalf of Georgia producers in any month, ranging from a minimum of $10,000 up to a maximum of $500,000 depending on the agricultural products involved. See OCGA § 2-9-5. The Act imposes record-keeping and prompt payment requirements, see OCGA § 2-9-9 to 2-9-9.1, and provides for the investigation of complaints, inspections, and quality assurance, see OCGA §§ 2-9-10 to 2-9-12. The Act also authorizes the Commissioner to promulgate and enforce rules and regulations and to seek injunctions and restraining orders. See OCGA §§ 2-9-13 to 2-9-14. Finally, the Act makes it a misdemeanor for any dealer in agricultural products to violate any provision of the Act or to interfere with an agent of the Commissioner in the enforcement of the Act. See OCGA § 2-9-16.

3. The first certified question involves two separate provisions of the Act, OCGA §§ 2-9-1 (2) and 2-9-15 (a) (1). OCGA § 2-9-1 (2) states in relevant part:

"Dealer in agricultural products" means any person, association, itinerant dealer, partnership, or corporation engaged in the business of buying, receiving, selling, exchanging, negotiating, or soliciting the sale, resale, exchange, or transfer of any agricultural products purchased from the producer or his or her

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