(UPDATED COVERAGE, June 17) Price after sale transactions by
receivers are not subject to the same state regulations as consignment
merchants, according to a decision by California’s Tulare County
Superior Court in Visalia.
The long-running case relates to complaints by Lindsay, Calif.-based pomegranate grower Jose Mendoza against broker Rast Produce, Visalia, and a dozen receivers throughout the U.S who handled and sold the grower’s fruit in 2001 and 2002. Mendoza claimed he was not paid fair value for his fruit and said price after sales transactions by receivers failed to comply with state law.
Mendoza argued that wholesalers, acting as subagents for Rast Produce, owed him the same duties that any agent owes a principal. Therefore, his lawyers said those receivers should be liable to Mendoza for conversion, breach of fiduciary duties, accounting, negligence, breach of contract and fraud.
The court instead ruled in favor of the receivers, finding price after sale transactions were not the same as consignment sales and not subject to the same requirements.
“In my view, I think it is a good decision for wholesalers and business on the terminal market generally,” said Lew Janowsky, a partner in the law firm Rynn & Janowsky, Newport Beach, Calif., who represented the receivers.
An attorney representing Mendoza did not return calls from The Packer seeking comment on the case.
The court ruled that price after sale transactions are legitimate transactions under California law and not subject to the same requirements under state law as consignment merchants.
Mendoza filed the lawsuit about six years ago. His attorneys argued that price after sale transactions don’t exist in the language of the California Bureau of Market Enforcement, but Janowsky said the judge ruled that the custom of the industry and the Uniform Commercial Code adopted by Cali-fornia recognizes such transactions.
“They would have loved to have gotten a different decision because they would have gone to town trying to sue all these receiving who ship price after sale whenever they didn’t like the price,” Janowsky said.
While legitimizing price after sale transactions for receivers, the court also awarded Mendoza $23,000 from Rast Produce for failure to properly document some transactions. That was less than a tenth of what the grower asked for in his lawsuit.
It is not known if Mendoza plans to appeal the decision, but Janowsky said he doubts that a court of appeals would overturn the original decision.
While challenges by growers against marketers or agents are not new in California, Janowsky said this is the first case against receivers based on the theory that price after sale transactions are the same as consignment sales. Janowsky said the tactic was used to try to increase the resources avail-able for a reward and a favorable verdict.
Fresno, Calif.-based attorney Russell Van Rozeboom, attorney for Rast Produce, said California laws that govern agents are very exacting and can be a burden on sales agents. The potential liability in even small sales may make it harder for small growers to find marketing agents willing to sell their crop, he said.
“Why sell a couple of pallets of pomegranates at 8% commission and subject yourselves to huge liability?” he said.
The original complaint named the following wholesalers who purchased Mendoza’s pomegranates from Rast:
- Continental Sales Co., Los Angeles;
- CDS Distributing Inc., San Francisco;
- Custom Produce Sales, Parlier, Calif.;
- Four Seasons Produce Inc., Ephrata, Pa.;
- Jacobs, Malcolm & Burtt Inc., San Francisco;
- JMB International Inc., San Francisco;
- M. Levin & Co. Inc., Philadelphia;
- Morita Produce Co. & Nuthouse, Los Angeles;
- River City Produce Co. Inc., San Antonio;
- Andrighetto Produce Inc. (doing business as Shasta Produce), South San Francisco, Calif.;
- Shapiro-Gilman-Shandler Co., Los Angeles;
- Val-Pro Inc. (doing business as Valley Fruit & Vegetable Co.), Los Angeles; and
- Royal Banana Co. Inc., Detroit.