Opinion
20-cv-08201-VKD
06-03-2021
FFM MUSHROOMS INC., Plaintiff, v. RAIN FOREST PRODUCE INC., Defendant.
ORDER FOR REASSIGNMEMT TO A DISTRICT JUDGE
REPORT AND RECOMMENDATION RE MOTION FOR DEFAULT JUDGMENT
Dkt. No. 17
VIRGINIA K. DEMARCHI UNITED STATES MAGISTRATE JUDGE
Plaintiff FFM Mushrooms Inc. (“FFM Mushrooms”) moves for default judgment against defendant Rain Forest Produce Inc. (“Rain Forest Produce”) on FFM Mushrooms' claims for unfair conduct under the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499a et seq. and for enforcement of a reparation order issued by the Secretary of the U.S. Department of Agriculture. Dkt. No. 17. The Court finds the matter suitable for resolution without oral argument. Civ. L.R. 7-1(b).
FFM Mushrooms has consented to proceed before a magistrate judge. Dkt. No. 7. However, as Rain Forest Produce has not appeared and is in default, the undersigned magistrate judge does not have the consent of all parties. 28 U.S.C. § 636(c); Fed.R.Civ.P. 73. Accordingly, the Court directs the Clerk of the Court to reassign this action to a district judge, with the following report and recommendation that FFM Mushrooms' motion for default judgment be granted.
REPORT AND RECOMMENDATION
I. BACKGROUND
According to the complaint, FFM Mushrooms and Rain Forest Produce entered into an oral contract in which Rain Forest Produce agreed to purchase fresh mushrooms from FFM Mushrooms at the fixed price of $18 per pound, plus 1.5% interest per month. Dkt. No. 1 ¶¶ 9, 10. FFM Mushrooms alleges that between November 4, 2019 and January 23, 2020, it sold and delivered to Rain Forest Produce 4, 230 pounds of mushrooms in 34 shipments for which Rain Forest Produce failed to pay. Id. ¶ 10.
On February 10, 2020, FFM Mushrooms informally complained to the United States Secretary of Agriculture (“the Secretary”) about Rain Forest Produce's conduct. Id. ¶ 12. Four months later, FFM Mushrooms filed a formal complaint with the Secretary, seeking a reparation award against Rain Forest Produce for its failure to make full payment for the 34 shipments of mushrooms. Id. In an order issued on September 3, 2020, the Secretary found that Rain Forest Produce had violated section 2 of the PACA (7 U.S.C. § 499b) and ordered it to pay FFM Mushrooms $76,140 with prejudgment interest at a rate of 18% per year and post-judgment interest at a rate of 0.13% per year. Id. ¶¶ 13, 14 and Ex. 1. The Secretary also ordered Rain Forest Produce to pay FFM Mushrooms $500 to cover the handling fee FFM Mushroom paid when it filed its complaint. Id. ¶ 13 and Ex. 1. The Secretary gave Rain Forest Produce 30 days from the date of the order to make this reparation. Id. ¶ 14 and Ex. 1.
The reparation order states that “[t]he facts alleged in the formal Complaint are hereby adopted as Findings of Fact of this Default Order.” Dkt. No. 1, Ex. 1 at p. 1. However, the findings of fact are not part of the record before the Court.
FFM Mushrooms filed this action on November 20, 2020, asserting two claims against Rain Forest Produce: (1) unfair conduct, in violation of 7 U.S.C. § 499b, and (2) enforcement of the reparation order, pursuant to 7 U.S.C. § 499g(b). Id. ¶¶ 17-30. The complaint seeks compensatory damages and pre- and post-judgment interest, as well as exemplary and punitive damages, sanctions, attorneys' fees and costs. Id. at 6.
Although the record indicates that Rain Forest Produce was served with process (Dkt. No. 10), Rain Forest Produce did not respond to the complaint or otherwise appear in the action. At FFM Mushrooms' request, the Clerk of the Court entered default against Rain Forest Produce on March 17, 2021. Dkt. No. 14.
FFM Mushrooms now moves for default judgment. Dkt. No. 17. Rain Forest Produce did not respond to the motion, and briefing is closed.
II. LEGAL STANDARD
Default may be entered against a party who fails to plead or otherwise defend an action. Fed.R.Civ.P. 55(a). After entry of default, a court may, in its discretion, enter default judgment. Fed.R.Civ.P. 55(b)(2); Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In deciding whether to enter default judgment, a court may consider the following factors: (1) the possibility of prejudice to the plaintiff; (2) the merits of the plaintiff's substantive claim; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). In considering these factors, all factual allegations in the plaintiff's complaint are taken as true, except those relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). The court may hold a hearing to conduct an accounting, determine the amount of damages, establish the truth of any allegation by evidence, or investigate any other matter. Fed.R.Civ.P. 55(b)(2).
“A default judgment may be entered against a minor or incompetent person only if represented by a general guardian, conservator, or other like fiduciary who has appeared.” Fed.R.Civ.P. 55(b)(2). There are no such issues presented here.
III. DISCUSSION
A. Jurisdiction and Service of Process
“When entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Here, the Court possesses federal question jurisdiction pursuant to 28 U.S.C. § 1331 over FFM Mushrooms' claims, as both arise under the PACA, a federal statute.
The Court also possesses personal jurisdiction over defendant Rain Forest Produce. A district court may exercise general personal jurisdiction over a corporation that is incorporated or has its principal place of business in the state where the district court is located. See Fed. R. Civ. P. 4(k)(1)(A); Cal. C.C.P. § 410.10; Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011). Here, FFM Mushrooms alleges that Rain Forest Produce is a “FTB suspended”California corporation with its principal place of business in Los Angeles, California, Dkt. No. 1 ¶ 2, 10, satisfying the requirements for general personal jurisdiction.
According to the California Franchise Tax Board website, a corporation that is “FTB suspended” has been suspended for failure to file a tax return or failure to pay taxes, penalties, fees, or interest. “My business is suspended, ” State of California Franchise Tax Board, https://www.ftb.ca.gov/help/business/my-business-is-suspended.html#Why-is-my-business-suspended (last visited June 1, 2021). Because the capacity of a corporation to be sued is determined by the law under which it was organized, Fed.R.Civ.P. 17(b)(2), the Court looks to the relevant California law, Cal. C.C.P. § 416.20. That provision provides that a summons may be served on a corporation that has forfeited its right to do business. See also Grell v. Laci Le Beau Corp., 87 Cal.App.4th 1300, 1306 (Cal.Ct.App. 1999) (where a suspended corporation had been suspended for failure to pay taxes, it “may be sued, and service of process upon a suspended corporation is effected in the same manner as service upon a corporation that is not suspended.”).
Finally, it appears that Rain Forest Produce has been served. “A federal court does not have jurisdiction over a defendant unless the defendant has been served properly under Fed.R.Civ.P. 4.” Rain Design, Inc. v. Spinido, Inc., No. 17-cv-03681-JSC, 2018 WL 7269019, at *2 (N.D. Cal. Nov. 15, 2018) (quoting Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir. 1988)). Here, FFM Mushrooms has shown that it served Rain Forest Produce on February 16, 2021 by personal delivery of the complaint and summons to Fernando Pantoja, an officer of the corporation, at Rain Forest Produce's place of business in Los Angeles, as permitted by Fed.R.Civ.P. 4(h)(1)(B). Dkt. No. 10; Dkt. No. 17-2 ¶ 2.
The Court is satisfied that FFM Mushrooms has established that the Court has subject-matter and personal jurisdiction and that service was properly effected.
B. Eitel Factors
For the reasons discussed below, the Eitel factors weigh in favor of entering default judgment.
1. The possibility of prejudice to FFM Mushrooms
The first Eitel factor considers whether FFM Mushrooms would suffer prejudice if default judgment is not entered. Eitel, 782 F.2d at 1471. Unless default judgment is entered, FFM Mushrooms will have no other recourse for recovery against Rain Forest Produce, as it has already delivered produce to Rain Forest Produce for which it has not been paid. See, e.g, Tom Ver LLC v. Organic All., Inc., No. 13-CV-03506-LHK, 2015 WL 6957483, at *7 (N.D. Cal. Nov. 11, 2015) (finding prejudice consideration favored default judgment where PACA plaintiff would otherwise not obtain payment to which it was entitled for produce already delivered to defendant). The possibility of prejudice to FFM Mushrooms therefore weighs in favor of granting default judgment.
2. The merits of FFM Mushrooms' claims and the sufficiency of the complaint
The second and third Eitel factors concern the merits of FFM Musthrooms' claims and the sufficiency of the complaint. Eitel, 782 F.2d at 1471. The Ninth Circuit has suggested that together, these two factors require that plaintiff's allegations “state a claim on which the [plaintiff] may recover.” Kloepping v. Fireman's Fund, No. C 94-2684 TEH, 1996 WL 75314, at *2 (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)). The Court considers each of FFM Mushrooms' claims.
a. Unfair Conduct, 7 U.S.C. § 499b
For its first claim, FFM Mushrooms alleges that Rain Forest Produce's “[f]ailure . . . to pay . . . without reasonable cause constitutes unfair conduct and is a violation of PACA (7 U.S.C. § 499(b)).” Dkt. No. ¶ 21. The complaint does not identify which provision or provisions of § 499b Rain Forest Produce has violated, and the reparation order attached as Exhibit 1 to the complaint refers only to a violation of “section 2 of the PACA (7 U.S.C. § 499b)” without identifying any particular provision of that section. As noted above, because FFM Mushrooms has not provided the findings of fact adopted by the Secretary in the reparation order, the Court does not have the benefit of those findings in assessing the basis for and merits of FFM Mushrooms' claim for unfair conduct.
Any violation of § 499b concerning a failure to pay requires FFM Mushrooms to show at least that: (1) the mushrooms were perishable agricultural commodities, (2) Rain Forest Produce was a commission merchant, dealer, or broker, (3) the transactions occurred in contemplation of interstate or foreign commerce, and (4) FFM Mushrooms has not received full payment on the transaction. 7 U.S.C. § 499b(4); see Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997) (“Dealers violate PACA if they do not pay promptly and in full for any perishable commodity in interstate commerce.”) (citing 7 U.S.C. § 499(b)(4)).
Here, FFM Mushrooms alleged that the mushrooms were a perishable agricultural commodity, Dkt. No. 1 ¶ 10; Rain Forest Produce was a dealer as defined by PACA, id. ¶ 18; FFM Mushrooms sold and delivered 34 shipments of mushrooms to Rain Forest Produce “in the course of interstate commerce, ” id. ¶ 10; and FFM Mushrooms has not yet been paid for its 34 shipments. Taking FFM Mushrooms' factual allegations as true by virtue of Rain Forest Produce's default, TeleVideo, 826 F.2d at 917-18, the Court concludes that FFM Mushrooms has sufficiently alleged the elements for its unfair conduct claim and so sufficiently stated a claim. See, e.g., Corona Fruits and Veggies, Inc. v. MLC Berries, Inc., No. 2:20-cv-02525-SB-JPR, 2020 WL 9422353, at *4 (C.D. Cal. Oct. 20, 2020); Western Veg-Produce, Inc. v. Lexy Grp., No. 2:18-cv-00180-ODW (AGRx), 2018 WL 1804689, at *3 (C.D. Cal. Apr. 16, 2018).
b. Enforcement of Reparation Order, 7 U.S.C. § 499g(b).
Section 499g provides: “If any commission merchant, dealer, or broker does not pay the reparation award within the time specified in the Secretary's order, the complainant . . . may within three years of the date of the order file in the district court of the United States for the district in which he resides or in which is located the principal place of business of the commission merchant, dealer, or broker . . . . a petition setting forth briefly the causes for which he claims damages and the order of the Secretary in the premises.” 7 U.S.C. § 499g(b). Thus, to bring an enforcement action under this provision, a plaintiff must establish that (1) defendant is a commission merchant, dealer, or broker, (2) the Secretary of the Department of Agriculture issued a reparation award in favor of plaintiff and against defendant based on defendant's violations of the PACA, and (3) defendant has not paid the reparation award within the time specified in the reparation order issued by the Secretary. See Corona Fruits, 2020 WL 9422353, at *3; Western Veg-Produce, 2018 WL 1804689, at *3 (Apr. 16, 2018). Further, a plaintiff must file this enforcement action within three years of the date of the order. 7 U.S.C. § 499g(b).
Here, FFM Mushrooms alleges that defendant is a dealer as defined by the PACA. Dkt. No. 1 ¶ 18. FFM Mushrooms further alleges that the Secretary issued, on September 3, 2020, a reparation order in FFM Mushrooms' favor and against Rain Forest Produce in the amount of $76,140, plus interest and $500 (costs of the administrative action). Id. ¶ 26 and Ex. 1 at pp. 1-3. FFM Mushrooms also alleges that Rain Forest Produce has not paid the reparation award within the 30 days allotted from the entry of the Secretary's order. Id. ¶ 29 and Ex. 1 at p. 3. Finally, FFM Mushrooms filed suit on November 20, 2020, within three years of September 3, 2020, the date of the order.
As noted, FFM Mushrooms' factual allegations are accepted as true by virtue of Rain Forest Produce's default. TeleVideo, 826 F.2d at 917-18. Moreover, the PACA statute provides that “the findings and orders of the Secretary shall be prima-facie evidence of the facts therein stated.” 7 U.S.C. § 499g(b). The reparation order specifically finds that Rain Forest Produce is responsible for payment to FFM Mushrooms for the 34 shipments of mushrooms, interest, and costs for filing a complaint with the Secretary. Accordingly, the Court finds that FFM Mushrooms has properly stated an enforcement claim under 7 U.S.C. § 499g(b) upon which it may recover.
The fact that Rain Forest Produce is, according to FFM Mushrooms, a suspended corporation does not protect it from default judgment. Grell, 73 Cal.App.4th at 1306 (“[A] suspended corporation is not protected against judgment by default upon its failure to answer within time allowed.”).
The second and third Eitel factors therefore weigh in favor of default judgment as to FFM Mushrooms' unfair conduct claim and enforcement claim.
3. The amount of money at stake
The fourth Eitel factor requires the Court to consider the amount of money at stake in relation to the alleged misconduct. Eitel, 782 F.2d at 1471. When the sum of money at stake is tailored to the specific misconduct of the defendant, default judgment may be appropriate. See Bd. of Trustees of the Sheet Metal Workers Health Care Plan of N. Cal. v. Superhall Mechanical, Inc., No. C-10-2212 EMC, 2011 WL 2600898, at *2-3 (N.D. Cal. June 20, 2011) (amount of damages sought were appropriate as they were supported by adequate evidence provided by the plaintiffs). Here, FFM Mushrooms requests judgment in an amount equal to the Secretary's reparation award, which Rain Forest Produce has not yet paid. This award, which includes both pre- and post-judgment interest plus $500, reflects that actual damage to FFM Mushrooms and therefore is proportional to the misconduct alleged. Dkt. No. 1, Ex. 1 at p. 3. Thus, this factor weighs in favor default judgment in the amount claimed.
4. The possibility of dispute concerning material facts and whether defendant's default was due to excusable neglect
Under the fifth and sixth Eitel factors, the Court considers whether there is a potential for factual disputes and whether defendant's failure to respond was likely due to excusable neglect. Eitel, 782 F.2d at 1471-72. Because FFM Mushrooms plausibly pleads its claim for enforcement of the Secretary's reparation order, and because all allegations are deemed true, there is nothing before the Court that indicates a possibility of a dispute as to material facts. Moreover, there is no indication that Rain Forest Produce's default was due to excusable neglect. The record reflects that FFM Mushrooms personally served an officer of Rain Forest Produce with notice of this action on February 16, 2021. Dkt. No. 10. Notice of FFM Mushrooms' motion for default judgment was served by mail address to Rain Forest Produce at its principal business address on April 16, 2021. Dkt. No. 20; Fed.R.Civ.P. 5(b)(2)(C).
This factor thus weighs in favor of default judgment.
5. The strong policy favoring decisions on the merits
The seventh Eitel factor requires the Court to consider the strong policy favoring decisions on the merits. Eitel, 782 F.2d at 1472; Pena v. Seguros La Comercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985). Although default judgment is disfavored, Rule 55(b) of the Federal Rule of Civil Procedure permits entry of default judgment where a defendant refuses to participate in the litigation. See, e.g., Kloepping, 1996 WL 75314 at *3.
While the Court prefers to decide matters on the merits, Rain Forest Produce's failure to participate in this litigation makes that impossible. Default judgment against Rain Forest Produce is FFM Mushrooms' only recourse. See United States v. Roof Guard Roofing Co., Inc., No. 17-cv-02592-NC, 2017 WL 6994215, at *3 (N.D. Cal. Dec. 14, 2017) (“When a properly adversarial search for the truth is rendered futile, default judgment is the appropriate outcome.”).
This factor also weighs in favor of default judgment.
C. Requested Judgment
Because this Court concludes that default judgment is warranted, it now considers FFM Mushrooms' request for relief. “To recover damages after seeking a default judgment, a plaintiff must prove the relief it seeks through testimony or written affidavit.” Bd. of Tr. of the Laborers Health & Welfare Tr. Fund for N. Cal. v. A & B. Bldg. Maint. Co. Inc., No. C 13-00731 WHA, 2013 WL 5693728, at *4 (N.D. Cal. Oct. 17, 2013).
As an initial matter, the Court notes that FFM Mushrooms has already elected to obtain relief by complaint to the Secretary, see Dkt. No. 1, Ex. 1, and now seeks to enforce the Secretary's reparation order. The PACA provides that liability under § 499b “may be enforced either (1) by complaint to the Secretary as hereinafter provided, or (2) by suit any court of competent jurisdiction.” 7 U.S.C. § 499e(b) (emphasis added); see Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 285 (9th Cir. 1997). This election of remedies provision, as interpreted by the Secretary, appears to bar two suits arising from the same transaction from proceeding simultaneously before the agency and a court. See “R” Best Produce, Inc. v. Eastside Food Plaza, Inc., No. 02 CIV. 6925(DLC), 2003 WL 22231577, at *4 (S.D.N.Y. Sept. 30, 2003) (observing that no authority clearly precludes a claimant from filing a formal complaint and then later electing to file an action in court). However, while FFM Mushrooms may not be barred from bringing its unfair conduct claim in federal court after it has already obtained a reparation award from the Secretary, it acknowledges that it may not obtain a double recovery. Dkt. No. 17-4 at 2. FFM Mushrooms states that it only seeks damages in the amount awarded by the Secretary's reparation order. Dkt. No. 17-1 at 9.
The reparation award that FFM Mushrooms seeks to enforce, Dkt. No. 1 ¶¶ 22-30, includes the cost of the unpaid produce shipments ($76,140), pre- and post-judgment interest on that cost ($7,082.58, according to FFM Mushrooms), and the $500 fee paid by FFM Mushrooms to file its complaint with the Secretary. Id. at 10. Because the reparation order included in FFM
Mushrooms' complaint serves as prima-facie evidence of the Secretary's findings, 7 U.S.C. § 499g(b), and no evidence has been provided in rebuttal, the Court adopts the Secretary's findings as to damages. Dkt. No. 1, Ex. 1 at p. 3. Accordingly, the Court finds that FFM Mushrooms has established entitlement to an award as follows: $76,140, plus the handling fee of $500. Rain Forest Produce shall also pay interest on the amount of $76,140 at the rate of 18% per year from March 1, 2020, until the date of the reparation order, plus interest on the amount of $76,140 at the rate of 0.13% per year.
The Court disagrees with FFM Mushrooms' interest calculation. Dkt. No. 17-1 at 9 n.1. The Secretary's reparation order prescribes an interest rate of 18% per year “from March 1, 2020, until the date of this Order” and an interest rate of 0.13% per year “from the date of this Order, until paid.” Dkt. No. 1, Ex. 1 at p. 3. According to the Court's interpretation of the reparation order, the time between March 1, 2020 and September 3, 2020 does not include the end date. See Argi Exotic Trading, Inc. v. New Man Designed Sys., Ltd., No. 07-cv-0049 (NG)(MDG), 2008 WL 2397565, at *4 (E.D.N.Y. Jun. 12, 2008) (not including the end date in calculating the number of days between two dates). Thus, the number of days between those dates is 186, not 187 as provided by the plaintiff. Dkt. No. 17-1 at 9 n.1. Pre-judgment interest on $76,140 between March 1, 2020 until September 3, 2020, at a daily rate of $37.55, is $6,984.30. Post-judgment interest on $76,140, at a daily rate of $0.27, from September 3, 2020 as of June 3, 2021 is $73.71.
The Court concludes that FFM Mushrooms is owed a total of $76,140, plus the $500 handling fee and $7,058.01 in interest. IV. CONCLUSION
Because not all parties have consented to the undersigned's jurisdiction, IT IS ORDERED that this case be reassigned to a district judge. For the reasons discussed above, it is RECOMMENDED that:
1. FFM Mushrooms' motion for default judgment be granted; and
2. FFM Mushrooms be awarded damages on its second claim for enforcement of the Secretary's reparation order in the amount of $76,140, pre-judgment interest in the amount of $6,984.30, post-judgment interest in the amount of $73.71, and compensation for payment of the $500 handling fee for its administrative complaint. FFM Mushrooms shall promptly serve Rain Forest Produce with this Report and Recommendation and file a proof of service with the Court. Any party may serve and file objections to this Report and Recommendation within 14 days after being served. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72; Civ. LR. 72-3.
IT IS SO ORDERED.