AFCM, Inc et al v. Elite Global Farming and Logistics, Inc et al

Filing 105


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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 AFCM, INC.; and FO-FARMER’S OUTLET, INC., Plaintiffs, 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 No. C 11-4677 CW v. ELITE GLOBAL FARMING AND LOGISTICS, INC; RICHARD ESCAMILLA, SR.; JOSE ESCAMILLA; JOHN CREIGHTON; STEPHEN WYRICK; KENT CURLEY; DAVID GATTIS; AMBER RIGOR; and RICHARD ESCAMILLA, JR., ORDER DENYING DEFENDANT STEPHEN WYRICK’S MOTION TO VACATE AND SET ASIDE DEFAULT JUDGMENT, TO DISMISS THE COMPLAINT AND FOR SUMMARY JUDGMENT (Docket No. 94) Defendants. ________________________________/ Defendant Stephen Wyrick moves to vacate and set aside the 14 default judgment entered against him, to dismiss the claims 15 asserted against him by Plaintiffs AFCM, Inc. and FO-Farmer’s 16 Outlet, Inc. and for summary judgment on those claims. Plaintiffs 17 oppose the motions. Having considered the papers filed by the 18 parties, the Court DENIES Wyrick’s motion to vacate the default 19 judgment and DENIES his remaining requests as moot. 20 BACKGROUND 21 In the fall of 2010, Defendant Elite Global Farming and 22 Logistics, Inc. (Elite), through Wyrick and Defendant Richard 23 Escamilla, Sr., approached Thomas Angulo, Plaintiffs’ president. 24 Angulo Decl. ¶ 2. Wyrick and Escamilla proposed that Elite and 25 AFCM enter into a joint venture to grow approximately 130 acres of 26 crops for the 2010-11 farming season in Imperial Valley, 27 28 1 California, and then have Elite sell the crops on behalf of both 2 parties. 3 Id. On November 1, 2010, Wyrick sent Angulo an email outlining 4 Elite’s proposal regarding the division of labor and 5 responsibility for the crops. 6 Wyrick stated what Elite would provide, what it would like AFCM to 7 provide and asked Angulo for his thoughts on this. 8 complaint, Plaintiffs allege that AFCM and Elite did enter into an 9 oral joint growing agreement, with the basic split of United States District Court For the Northern District of California 10 11 Id. at ¶ 3 & Ex. A. responsibilities as outlined in Wyrick’s email. In the email, Id. In their Compl. ¶ 23. On January 11, 2011, Wyrick filed for Chapter 7 bankruptcy. 12 Mot. at 1;1 see also Docket No. 1, In re Stephen Frank Wyrick, 13 Case No. 11-50240 (Bankr. N.D. Cal.) (hereinafter, In re Wyrick).2 14 In his bankruptcy filing, he listed his address as 3376 Cienaga 15 Road in Hollister, California. 16 Docket No. 1, In re Wyrick. After the crops were harvested and sold, Elite sent AFCM an 17 accounting statement dated May 17, 2011, showing that AFCM was 18 owed $167,188.43 for the crops. 19 also Compl., Ex. B. 20 Angulo Decl. ¶ 4 & Ex. B; see Elite failed to pay AFCM its share of the proceeds for the 21 crops. 22 notice of intent to preserve trust benefits under the Perishable 23 Agricultural Commodities Act (PACA), alleging that Elite is 24 obliged to hold these proceeds in trust for AFCM until full Id. at ¶ 5. On July 26, 2011, AFCM sent Elite a written 25 26 27 1 Wyrick has sworn to the truth of the contents of his motion under penalty of perjury. Mot. at 4. 2 28 The Court takes judicial notice of the filings made in Wyrick’s bankruptcy proceedings. 2 1 payment has been made. 2 named recipients of this letter, which was sent to him at the 3 Cienaga Road address. 4 Id. at ¶ 5 & Ex. C. Wyrick was one of the Id. On September 21, 2011, Plaintiffs initiated the instant suit, 5 alleging that Wyrick was “a manager and/or direct or indirect 6 owner” of Elite and that he and others were “responsible for the 7 daily management and control” of Elite. 8 complaint, AFCM asserts the following claims against Wyrick: 9 (1) enforcement of PACA trust provisions and disgorgement (seventh Compl. ¶ 9, 16. In the United States District Court For the Northern District of California 10 cause of action); (2) violation of the PACA and the California 11 Food and Agriculture Code (FAC) §§ 55631, et seq., for failure to 12 account and pay promptly (eighth cause of action); (3) conversion 13 (ninth cause of action); (4) unjust enrichment (tenth cause of 14 action); (5) constructive trust and disgorgement (eleventh cause 15 of action); (6) declaratory judgment (twelfth cause of action); 16 and (7) injunctive relief (thirteenth cause of action). 17 18 On November 2, 2011, Wyrick was personally served with the summons at the Cienaga Road address. 19 Docket No. 17. On November 28, 2011, Plaintiffs filed a motion for entry of 20 default against Wyrick. 21 of the motion upon Wyrick at the Cienaga Road address. 22 41-2. 23 Docket No. 41. Plaintiffs served a copy On November 30, 2011, the Clerk entered default against 24 Wyrick. 25 default on Wyrick at the Cienaga Road address. 26 Docket No. Docket No. 43. Plaintiffs served a notice of entry of Docket No. 44. On February 23, 2012, Angulo and his counsel had a conference 27 call with Defendants Creighton and Curley and their attorney. 28 Angulo Decl. ¶ 7. During the conference call, Creighton and 3 1 Curley stated that Elite was established by Wyrick, who provided 2 the initial vegetable seed, land and equipment for the business, 3 and that he, along with Richard Escamilla and other members of the 4 Escamilla family, made the decisions on who Elite did business 5 with and which creditors were paid. 6 been given the same information during the course of AFCM’s 7 dealings with Elite. Id. at ¶¶ 7-8. Angulo had Id. at ¶ 9. 8 On May 25, 2012, Plaintiffs moved for default judgment 9 against Elite, Wyrick and Defendants Richard Escamilla, Sr., Jose United States District Court For the Northern District of California 10 Escamilla and Richard Escamilla, Jr. 11 Wyrick with a copy of this motion at the Cienaga Road address. 12 Docket No. 68-5. 13 Docket No. 68. They served This Court referred the motion to a Magistrate Judge for a 14 report and recommendation. 15 set a hearing on Plaintiffs’ motion for July 10, 2012. 16 70. 17 Cienaga Road address. 18 Docket No. 69. The Magistrate Judge Docket No. Plaintiffs served Wyrick with notice of the hearing at the Docket No. 72. On July 5, 2012, Wyrick called Plaintiffs’ counsel. 19 Anastassiou Decl. ¶ 7. 20 scheduled for July 10, 2012 and questioned her as to how he could 21 be held liable for Elite’s debt when he was Elite’s employee and 22 not its owner or officer. 23 new address or that he had problems receiving the documents in 24 this case. 25 He asked her about the hearing that was Id. He did not tell her that he had a Id. at ¶ 8. On July 10, 2012, the Magistrate Judge held a hearing on the 26 motion for default judgment. 27 any of the other Defendants appeared at the hearing. 28 date, the Magistrate Judge filed a report, recommending that the Docket No. 75. 4 Neither Wyrick nor Id. On that 1 Court grant Plaintiffs’ motion for default judgment. 2 76. 3 Wyrick at the Cienaga Road address. 4 Docket No. Plaintiffs served a copy of the report and recommendation on Docket No. 77. On July 19, 2012, Wyrick filed a declaration in opposition to 5 the motion for default judgment. 6 declaration, he asked to be dismissed from the lawsuit. 7 attested, “When I was originally served for this lawsuit I spoke 8 to my former employer, Richard Escallia [sic] Sr. and he told me 9 he would take care of having me removed from the action.” Docket No. 80. In his He Id. He United States District Court For the Northern District of California 10 stated, “My family and I lost our home to foreclosure in May 2012 11 and moved to a new house,” and that “it takes a long time for my 12 mail to be forwarded and delivered so I was never served any 13 paperwork at our new home until just days before a default 14 judgment was scheduled to be entered.” 15 have been, and continue to be in active bankruptcy,” and could 16 therefore not afford to hire an attorney to represent him in this 17 matter. 18 even a board member of Elite Global” or a “decision maker, or 19 responsible party for any contract elite [sic] engaged in” and 20 that he “was only an employee” of Elite. 21 Id. Id. He also stated, “I He further stated that he “was never an owner or Id. Wyrick had emailed a copy of this document to Plaintiffs on 22 July 16, 2012. 23 Plaintiffs a copy of this letter, which they received on July 18, 24 2012, in an envelope bearing a return address of 113 Best Road in 25 Hollister, California. 26 informed Plaintiffs or indicated that he had a mailing address 27 other than the Cienaga Road address. 28 letter, Plaintiffs regularly served Wyrick with copies of the Anastassiou Decl. ¶ 9 & Ex. A. Id. at ¶ 10. 5 He also mailed Wyrick had not previously Id. Prior to receiving this 1 relevant documents filed in this case at the Cienaga Road address 2 and these documents were never returned as undeliverable. 3 ¶¶ 3-6. 4 with the Court. 5 The Best Road address was not included in Wyrick’s filing On August 7, 2012, the Court adopted the Magistrate Judge’s 6 report and recommendation and addressed Wyrick’s filing. 7 No. 81. 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 Id. at Docket The Court stated, He admits that he was served with the complaint, but states that he relied upon a co-Defendant to take care of it. He indicates that he did receive later documents from the Court, although he did not receive them timely at his new address. However, he did not, and still does not, provide a new address. He also implies that he has filed a bankruptcy petition. If he has, he may be entitled to a stay of these proceedings, but he provides no information about his purported bankruptcy filing. Otherwise, he provides no meritorious objection to the Report and Recommendation and the Court adopts it in every respect. If Defendant Wyrick has not filed for bankruptcy, he may file a motion for relief from judgment and a motion to set aside his default, if he has other grounds to do so. Id. at 1-2. On August 20, 2012, Wyrick filed the instant motion to vacate 18 and set aside the default judgment, to dismiss the claims against 19 him and for summary judgment. Docket No. 94. 20 Plaintiffs oppose Wyrick’s motion. 21 Wyrick did not file a reply in support of his motion. 22 23 24 Docket Nos. 84, 87, 89.3 LEGAL STANDARD Federal Rule of Civil Procedure 55(c) provides that a court “may set aside a default judgment under Rule 60(b).” Rule 60(b) 25 26 27 3 28 Plaintiffs’ opposition papers were filed before the Court received Wyrick’s motion papers. 6 1 enumerates the following grounds upon which a motion for relief 2 from an order or judgment may be made: 3 1) mistake, inadvertence, surprise or excusable neglect; 4 5 2) newly discovered evidence which by due diligence could not have been discovered before the court’s decision; 6 3) fraud by the adverse party; 7 4) the judgment is void; 8 5) the judgment has been satisfied; or 9 6) any other reason justifying relief. United States District Court For the Northern District of California 10 The Ninth Circuit has stated that the three factors that 11 govern lifting entry of default for good cause under Rule 55(c) 12 also govern the vacating of a default judgment under Rule 60(b)(1) 13 for excusable neglect or mistake. 14 Knoebber, 244 F.3d 691, 696-97 (9th Cir. 2001); see also United 15 States v. Signed Personal Check No. 730 of Yubran S. Mesle 16 (Mesle), 615 F.3d 1085, 1091 n.1 (9th Cir. 2010) (noting that this 17 test is applied more liberally in the Rule 55(c) context than in 18 the Rule 60(b) context because in the former situation “there is 19 no interest in the finality of the judgment with which to 20 contend”). 21 “Falk factors,” are (1) whether the defendant’s culpable conduct 22 led to the default; (2) whether the defendant has a meritorious 23 defense; and (3) whether setting aside the default would prejudice 24 the plaintiff. 25 Cir. 2011) (citing Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 26 1984)). 27 free to deny relief if any of the three factors is true.” 28 653 F.3d at 1111 (quoting Franchise Holding II, LLC v. Huntington TCI Group Life Ins. Plan v. These three factors, to which courts refer as the Brandt v. Am. Bankers, 653 F.3d 1108, 1111 (9th The standard is disjunctive and “the district court is 7 Brandt, 1 Restaurants Group, Inc., 375 F.3d 922, 926 (9th Cir. 2004)) 2 (internal quotation marks and formatting omitted). 3 finding of culpability on the part of a defaulting defendant is 4 sufficient to justify the district court’s exercise of its 5 discretion to deny relief.” 6 neglect’” is “‘at bottom an equitable one, taking account of all 7 relevant circumstances surrounding the party’s omission.’” 8 1111. 9 Id. Thus, “a The “inquiry into ‘excusable The party seeking to vacate the entry of default bears the 10 United States District Court For the Northern District of California Id. at burden of demonstrating that these factors favor doing so. 11 Group Life Ins. Plan, 244 F.3d at 696. 12 DISCUSSION 13 14 I. TCI Rule 60(b)(4) Wyrick argues first that the default judgment should be set 15 aside pursuant to Rule 60(b)(4) because it violated the automatic 16 bankruptcy stay under 11 U.S.C. § 362 and thus was void as a 17 matter of law. 18 act to collect, assess, or recover a claim against the debtor that 19 arose before the commencement of the” bankruptcy petition and “the 20 commencement or continuation” of any “action or proceeding against 21 the debtor that was or could have been commenced before the 22 commencement of the” petition “or to recover a claim against the 23 debtor that arose before the commencement of the” petition. 24 U.S.C. § 362(a)(1),(6). 25 intended, “to bar proceedings for post-petition claims that could 26 not have been commenced before the petition was filed.” 27 First Federal Sav. & Loan Ass’n, 843 F.2d 153, 154 (3d Cir. 1988). 28 Here, both the conduct underlying the claim and the accrual of the In relevant part, that statute serves to stay “any 11 However, it does not, and was not 8 Taylor v. 1 claim itself occurred after Wyrick filed his bankruptcy petition. 2 Accordingly, this case was not subject to the automatic bankruptcy 3 stay and the judgment was not void as a result, as Wyrick 4 contends. 5 II. 6 Rule 60(b)(1) Wyrick also argues that good cause exists to set aside the 7 default judgment pursuant to Rule 60(b)(1). 8 whether any of the three Falk factors is met here. The parties dispute Under the first factor, “a defendant’s conduct is culpable if 10 United States District Court For the Northern District of California 9 he has received actual or constructive notice of the filing of the 11 action and intentionally failed to answer.” 12 at 697. 13 term ‘intentionally’ means that a movant cannot be treated as 14 culpable simply for having made a conscious choice not to answer” 15 or for having demonstrated “simple carelessness.” 16 “to treat a failure to answer as culpable, the movant must have 17 acted with bad faith, such as an ‘intention to take advantage of 18 the opposing party, interfere with judicial decisionmaking, or 19 otherwise manipulate the legal process.’” 20 (quoting TCI Group, 244 F.3d at 697); see also id. at 1094 21 (concluding it was error to find a defendant’s conduct culpable 22 based on “his failure to act after being notified of the need to 23 do so, in the absence of any indication that he acted in bad 24 faith”). 25 if “‘there is no explanation of the default inconsistent with a 26 devious, deliberate, willful, or bad faith failure to respond.’” 27 Id. at 1092 (quoting TCI Group, 244 F.3d at 698); see also TCI 28 Group, 244 F.3d at 697 (“Neglectful failure to answer as to which TCI Group, 244 F.3d The Ninth Circuit has explained that “in this context the Id. Instead, Mesle, 615 F.3d at 1092 The Ninth Circuit has typically found culpability only 9 1 the defendant offers a credible, good faith explanation negating 2 any intention to take advantage of the opposing party, interfere 3 with judicial decisionmaking, or otherwise manipulate the legal 4 process is not ‘intentional.’”). 5 Wyrick argues that his conduct was not culpable because he 6 “was not given proper service and the time to which I could defend 7 against this complaint.” 8 he was served with the complaint, he “assumed the matter was 9 subject to the bankruptcy’s automatic stay and bankruptcy process Mot. at 4. He also states that, after United States District Court For the Northern District of California 10 and no action was required,” and that he had turned over the 11 complaint to Elite and Richard Escamilla, Sr., who assured him 12 that they would take care of the matter. 13 had been foreclosed upon and that his mail was not forwarded to 14 his new address until mid-July 2012 and that it was only then that 15 he learned that Plaintiffs were continuing to prosecute claims 16 against him, that a default had been entered against him and that 17 they were seeking a default judgment. 18 He states that his home However, Wyrick has not provided a credible, good faith 19 explanation negating bad faith. 20 has attested in the instant motion contradict his sworn statements 21 elsewhere in the motion or in his earlier filing. 22 although he states that he was not properly served with the 23 complaint and thus was not given time to defend against it, Wyrick 24 also acknowledges that he was served with the complaint and that 25 he turned over defense of the action to Elite. 26 Many of the facts to which Wyrick For example, Further, although Wyrick’s misunderstanding about the 27 bankruptcy stay and his belief that Elite and Escamilla were 28 resolving this action for him may provide a good faith explanation 10 1 for his failure to respond initially to the complaint in a timely 2 fashion, they do not explain his failure to address the default 3 entered against him for more than seven months and he has not 4 provided a credible explanation for this delay. 5 entry of default and the default itself were filed and served upon 6 Wyrick at the Cienaga Road address in November 2011. 7 those filings, as he acknowledges in his motion, Wyrick reasonably 8 should have known that the case was proceeding against him, 9 despite his belief about the bankruptcy stay and the assurances of The motion for Through United States District Court For the Northern District of California 10 Elite and Escamilla. 11 attested that his home was foreclosed upon in May 2012 and that 12 his family had to move to a new address at that time. 13 Wyrick’s statement in the present motion that he did not receive 14 the motion for entry of default and the entry of default until 15 mid-July due to the foreclosure is not credible. 16 In his July 19, 2012 declaration, Wyrick Thus, In addition, Wyrick’s representation that he did not receive 17 the other filings until “mid-July” is also not credible. 18 previously noted, he called Plaintiffs’ counsel on July 5, 2012 19 regarding the motion for default judgment and hearing on that 20 motion. 21 (letter from Wyrick’s bankruptcy counsel to Plaintiffs’ counsel 22 acknowledged the telephone conversation took place on that date).4 As Anastassiou Decl. ¶¶ 7-8; see also id. at ¶ 12 & Ex. C 23 24 4 25 26 27 28 The Court notes that there are other contradictions between Wyrick’s various sworn representations. For example, he states in the instant motion that, had he known that this action was not subject to the bankruptcy stay or that Elite was not resolving the action, he would have immediately addressed the matter with his attorneys. Mot. at 1. However, in his prior filing, he asked that this action be dismissed, and represented that he could not afford a lawyer to represent him in this matter. Docket No. 80. 11 1 Further, to the extent that Wyrick appears to blame 2 Plaintiffs for sending him notices at the Cienaga Road address, 3 and states that Plaintiffs continue to send him service copies at 4 his former address, the Court notes that Wyrick never updated his 5 address in his bankruptcy case and that he continues to be served 6 with documents in that case at that address. 7 Nos. 58-59, In re Wyrick (September 12, 2012 Order Discharging 8 Debtor and certificate of service upon Wyrick at the Cienaga Road 9 address). See, e.g., Docket Since they were provided notice of his new address, United States District Court For the Northern District of California 10 Plaintiffs have served Wyrick at that address. 11 No. 83-1. 12 See, e.g., Docket Thus, Wyrick has not offered a credible and good faith 13 explanation for his failure to answer. 14 this case, including that Wyrick’s various sworn representations 15 materially contradict each other and suggest bad faith conduct, 16 the Court finds that Wyrick has not shown good cause to set aside 17 the default judgment and DENIES his motion. 18 Court need not reach the other Falk factors. 19 Considering the facts of Accordingly, the The Court notes, however, that to the extent that Wyrick 20 asserts that he cannot be held personally liable under PACA for 21 the actions of Elite, Plaintiffs have offered substantial evidence 22 that Wyrick did exercise sufficient control over Elite to incur 23 such liability. 24 (9th Cir. 1997) (“An individual who is in the position to control 25 the trust assets and who does not preserve them for the 26 beneficiaries has breached a fiduciary duty, and is personally 27 liable for that tortious act . . . [A] PACA trust in effect 28 imposes liability on a trustee, whether a corporation or a See Sunkist Growers v. Fisher, 104 F.3d 280, 283 12 1 controlling person of that corporation, who uses the trust assets 2 for any purpose other than repayment of the supplier.”) (internal 3 citation omitted). 4 witnesses with knowledge of Wyrick’s role in Elite and Wyrick’s 5 own emails, in which he directly participated in negotiating the 6 contract at issue here. 7 This includes testimony from a number of Further, although, in general, setting aside a default is 8 considered prejudicial only if the opposing party’s “ability to 9 pursue his claim will be hindered,” such as through “loss of United States District Court For the Northern District of California 10 evidence, increased difficulties of discovery, or greater 11 opportunity for fraud or collusion,” TCI Group, 244 F.3d at 701 12 (citations omitted), under the circumstances of the instant case, 13 the delay alone constitutes prejudice. 14 under PACA, which was created in 1930 “primarily for the 15 protection of the producers of perishable agricultural products-- 16 most of whom must entrust their products to a buyer or commission 17 merchant who may be thousands of miles away, and depend for their 18 payment upon his business acumen and fair dealing.” 19 Kornblum & Co., 81 F.3d 280, 283 (2d Cir. 1996) (quoting H.R. Rep. 20 No. 1196, 84th Cong., 1st Sess. 2 (1955)). 21 statute in 1984 to add an additional remedy: the perishable 22 commodities or proceeds from the sale of those commodities are 23 held in trust by the dealer for the benefit of the unpaid seller 24 until full payment is made.” 25 (citation omitted). 26 that prompt payment to producers of crops, such as AFCM, is an 27 important concern: Plaintiffs assert claims In re “Congress amended the Sunkist Growers, 104 F.3d at 282 At that time, the relevant House report noted 28 13 Producers and shippers of perishable commodities are, for the most part, small size businesses. The process of growing, harvesting, packing and shipping perishables is a real gamble; costs are high, capital is tied up in farm land and machinery, and returns are delayed until the crop is sold. If the grower-shipper cannot realize any returns on the sale of the crop when due, he may not be able to survive. 1 2 3 4 5 H. Rep. No. 98-543, 98th Cong., 1st Sess. 5 (1983). 6 also problematic because, once funds in a trust “are dissipated, 7 it is all but impossible to effect recovery.” 8 would be unduly prejudicial to AFCM to delay its ability to 9 recover based on Wyrick’s culpable failure to participate in these United States District Court For the Northern District of California 10 Id. Delays are Thus, here, it proceedings in a timely fashion. 11 CONCLUSION 12 For the reasons set forth above, the Court DENIES Wyrick’s 13 motion to vacate and set aside the default judgment and DENIES AS 14 MOOT his motion to dismiss and for summary judgment (Docket No. 15 94). 16 IT IS SO ORDERED. 17 18 19 Dated: 3/29/2013 CLAUDIA WILKEN United States District Judge 20 21 22 23 24 25 26 27 28 14

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