San Miguel Produce, Inc. v. L.G. Herndon Jr. Farms, Inc.
| Decision Date | 10 December 2020 |
| Docket Number | Civil Action No.: 6:16-cv-35 |
| Citation | 506 F.Supp.3d 1344 |
| Parties | SAN MIGUEL PRODUCE, INC., Plaintiff, v. L.G. HERNDON JR. FARMS, INC., Defendant. |
| Court | U.S. District Court — Southern District of Georgia |
Amanda M. Waide, Annalise Peters, Pro Hac Vice, Nowell Donald Berreth, Alston & Bird, LLP - ATL, Atlanta, GA, for Plaintiff.
Craig A. Stokes, Stokes Law Office, LLP, San Antonio, TX, J. Michael Hall, Hall Law Group, P.C., Statesboro, GA, William James Keogh, III, Neal W. Dickert, Hull Barrett, PC, Augusta, GA, for Defendant.
This case concerns a contract dispute between Plaintiff San Miguel Produce, Inc., a shipper of produce, and Defendant L.G. Herndon Jr. Farms, Inc., a grower of produce. (Docs. 1, 30.) These parties entered into a grower-shipper agreement, under which L.G. Herndon Jr. Farms, Inc. ("Herndon Farms") was responsible for growing, harvesting, and delivering produce ordered by San Miguel Produce, Inc. ("San Miguel"), to a packing facility in Toombs County, Georgia, which was owned by an entity the parties had jointly formed. (Doc. 1, p. 5.) Their business relationship, however, eventually took a turn for the worse, and the present litigation ensued. (See id. at pp. 11–15.) At bottom, San Miguel alleges that Herndon Farms breached the terms of their grower-shipper agreement by not supplying the produce required thereunder, (doc. 1), while Herndon Farms alleges that San Miguel failed to remit payment for some of the produce it delivered, (doc. 30). After each party initially filed suit separately against the other, the Court, with the parties' consent, consolidated their actions into this single case. (Doc. 29.)
The matter is now before the Court on each party's respective Motion for Partial Summary Judgment.2 (Docs. 61, 66.) Herndon Farms moves for summary judgment as to all claims raised by San Miguel and as to its own first and third counterclaims. (Docs. 61; see also doc. 62.) San Miguel, meanwhile, moves for partial summary judgment on all but two of Herndon Farms' counterclaims. (Doc. 66.) These issues have been fully briefed, (docs. 62, 66, 76, 79, 83, 85), and are ripe for review. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Herndon Farms' Motion for Partial Summary Judgment, (doc. 61), and GRANTS San Miguel's Motion for Partial Summary Judgment, (doc. 66).
San Miguel, a California corporation, grows, processes, and distributes produce. (Doc. 22, p. 2.) Herndon Farms, a Georgia corporation, grows, distributes, and brokers produce. (Id. ) In September 2014, San Miguel and Herndon Farms executed a grower-shipper agreement ("GSA"), under which Herndon Farms agreed to grow, harvest, and deliver produce—ordered by San Miguel—to a packing facility in Toombs County, Georgia. (Doc. 66-2.) This facility was owned by ROBO Produce, LLC ("ROBO"), an entity the parties formed together. (Doc. 63, p. 4; doc. 66-3, p. 2.) San Miguel and Herndon Farms were equal members of ROBO, but San Miguel and ROBO had a separate Co-Packing Agreement whereby ROBO was compensated by San Miguel for processing the produce delivered by Herndon Farms.3 (Doc. 66-3, p. 2; doc. 64-14, p. 2.) At the time the parties made these agreements and throughout their business relationship, San Miguel did not have an agricultural dealer's license for the State of Georgia. (Doc. 63, pp. 2–3.)
San Miguel and Herndon Farms entered into the GSA "to create a mutually beneficial business relationship with respect to the production and distribution of [San Miguel's] ‘Cut ‘N Clean Greens’ brand." (Doc. 66-2, p. 2.) To that end, they executed a "contractual growing arrangement," but they explicitly disavowed any intention to create "a joint venture or a partnership." (Id. ) Nonetheless, Herndon Farms agreed to sell produce "at cost" to San Miguel, and the parties agreed to "divide equally the profits from the sale of all products processed, packed and shipped through" ROBO. (Id. at p. 4.) This profit-sharing included proceeds from additional crops that Herndon Farms did not itself grow but "actively participated in securing and delivering" to ROBO from third parties. (Id. ) The GSA was slated to last for five years beginning on November 1, 2014. (Id. at p. 2.) Any changes to the GSA had to "be in writing and signed by both parties." (Id. at p. 10.)
Herndon Farms was responsible for "[g]rowing, harvesting, and delivering" to ROBO "fresh produce, crops and varieties of raw vegetables ... in such quantities and prices as described in Addendum A, attached, and as may be modified in writing by the Parties from time to time during the term of [the GSA]." (Id. at p. 2.) The GSA required Herndon Farms to "make a good faith effort to grow Crops in sufficient quantity to meet the anticipated volume of orders set forth in Addendum A." (Id. at p. 3.) The attached Addendum A, however, does not specify any quantities, only prices. (Id. at p. 13.) Specifically, Addendum A provides that "Fresh Cut Greens-Conventional" were to be sold at $0.30 per field pound, and "Fresh Cut Greens-Organic" were to be sold at $0.40 per field pound. (Id. )
As for San Miguel, the GSA obligated it to purchase from Herndon Farms "the [c]rops set forth in Addendum A, attached, as the same are harvested during the calendar year, including such Crops as may be provided pursuant to Section 2.f." (Id. at p. 3.) In addition to agreeing to buy crops from Herndon Farms, San Miguel agreed to "[m]anage all sales and marketing of packaged fresh-cut products," including "sell[ing] and market[ing] all products to regional and national accounts." (Id. at p. 4.) Further, San Miguel would "[p]rovide sales and marketing opportunities for [Herndon Farms'] bunch/bulk product sales." (Id. )
Under the terms of the GSA, neither party had the right to terminate the agreement within its five-year term "except for cause." (Id. at p. 5.) Both parties also agreed "to mediate any dispute or claim arising out of [the GSA] before resorting to any legal action," and they agreed that if either party "commence[d] legal action without first attempting to resolve the matter through meditation ... then that party shall not be entitled to recover attorney's fees, even if attorney's fees would otherwise be available to that party...." (Id. at p. 6.)
Roy Nishimori and Jan Berk own San Miguel, and L.G. "Bo" Herndon, Jr. is the principal of Herndon Farms. (Doc. 63, p. 2.) Mr. Herndon and Mr. Nishimori first met in the 1990s when San Miguel opened a fresh cut greens processing plant in Atlanta, Georgia. (Id. at p. 3.) In 2013, San Miguel began efforts to open a new east-coast processing facility, and Mr. Nishimori contacted Mr. Herndon in this regard. (Id. ) Their discussions culminated in 2014, when the parties entered into a series of agreements, including the GSA and the Operating Agreement that created the jointly-owned ROBO.4 (Id. )
Herndon Farms planted produce according to 2014–2015 sales projections that San Miguel had provided approximately two months before they finalized and executed the GSA. (Doc. 66-11, p. 24; see doc. 64-8, pp. 41–45.) In addition, throughout their business relationship, San Miguel would send Herndon Farms "numerous projections of what product [it] thought [it] needed."5 (Doc. 66-11, p. 10.) Herndon Farms in turn "would figure out what acreage [it needed] ... to produce that volume to suffice [San Miguel's] needs." (Id. ) San Miguel normally bought greens from Herndon Farms on credit and then later remitted payment per Herndon Farms' invoices. (Doc. 63, pp. 7–8.) San Miguel made payments to Herndon Farms, without objection, for produce that was delivered and invoiced until December 2015, when it stopped making payments due to purported weight issues with Herndon Farms' delivered product. (Doc. 66-1, p. 3; doc. 66-15, p. 23.) Specifically, San Miguel concluded that Herndon Farms was overbilling it for greens based on inaccurate weights. (Doc. 66-15, p. 23.) It contends that Herndon Farms' billing and weighing practices resulted in more than $250,000 in overcharges. (Doc. 79, p. 17.) As a result, in San Miguel's estimation, Herndon Farms had an overall negative account balance, making further payment unwarranted. (Doc. 66-15, p. 23.) Although San Miguel disputes the accuracy of Herndon Farms' invoices, it is undisputed that the unpaid invoices—ranging from December 18, 2015 to February 1, 2016—total $486,095.83. (Doc. 63, p. 8.)
Though neither party clearly explains the invoice and weighing process, it appears that Herndon Farms would weigh between three and five totes of product from a pallet before delivery; the shipment's full weight would then be calculated from these sample weights. (Doc. 79-6, p. 8.) Herndon Farms would invoice San Miguel based on this weight calculation. (Id. ) When that shipment arrived at ROBO, however, employees there would weigh and record the weight of each individual pallet. (Doc. 79-7, pp. 6–7.) The scales utilized at the ROBO facility—initially a table scale and later a pallet scale—were not certified by the State of Georgia. (Doc. 63, pp. 8–9.) Using these ROBO weights, Mr. Nishimori conducted a comparative analysis with the invoiced weights and concluded that Herndon Farms had billed for approximately 740,000 pounds of produce not reflected in the ROBO weight reports. (Doc. 79-4, p. 14.) Notably, however, at no time did San Miguel obtain an inspection certificate from the United States Department of Agriculture ("USDA") regarding the weight of any of the produce that was delivered. (Doc. 63, p. 9.)
It became apparent in the fall of 2015 that the existing business format was not functioning well. (Id. ) The parties attempted to rectify the situation by negotiating a modified agreement, but they were unable to reach agreeable terms. (Docs. 76-2, 76-3, 76-4, 76-5.) In one email, Mr....
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