Jacobs Silver K Farms, Inc. et al v. Taylor Produce, LLC, et al

Filing 94

MEMORANDUM DECISION AND ORDER The Motions to Dismiss (Dkt. 53 and 61 ) are GRANTED. The Third-Party Complaint and Amended Third-Party Complaint (Dkt. 35 , 52 ) are DISMISSED as to the claim against Silver K Trucking. Defendants shall have until on or before 5/4/15 in which to file their Second Amended Third-Party Complaint as to their State Law Claim against Silver K Trucking. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
JACOBS SILVER K FARMS, INC., et al.,
Plaintiffs,
vs.
TAYLOR PRODUCE, LLC, et al.,
Defendants.
AND RELATED COUNTERCLAIMS,
CROSSCLAIMS, AND THIRD-PARTY
CLAIMS.
SUNRISE POTATO, LLC,
Plaintiff,
vs.
TAYLOR PRODUCE, LLC, et al.,
Defendants.
AND RELATED CROSSCLAIMS AND
THIRDPARTY CLAIMS.
GVO FARM SERVICES, INC., et al.,
Plaintiffs,
vs.
TAYLOR PRODUCE, LLC, et al.,
Defendants.

MEMORANDUM DECISION AND ORDER - Page 1

Cons. Case No.: 4:13-cv-535-EJL-CWD
MEMORANDUM DECISION
AND ORDER

Before the Court in the above-entitled matter are the Third-Party Defendant’s
Motion to Dismiss the Third-Party Complaint and Motion to the Dismiss Amended ThirdParty Complaint. The parties have filed their responsive briefing and the matter is ripe for
the Court’s consideration. Having fully reviewed the record herein, the Court finds that
the facts and legal arguments are adequately presented in the briefs and record.
Accordingly, in the interest of avoiding further delay, and because the Court conclusively
finds that the decisional process would not be significantly aided by oral argument, the
Motions shall be decided on the record before this Court without oral argument.
FACTUAL AND PROCEDURAL BACKGROUND
This case arises under the Perishable Agricultural Commodities Act of 1930
(“PACA”). Plaintiffs, Jacobs Silver K Farms, Inc., Kirk M. Jacobs, a/k/a Kirk Jacobs
Farms, and Reynolds Brothers, LLP (collectively “Plaintiffs”), are wholesale sellers of
perishable agricultural commodities in Rexburg, Idaho. (Dkt. 23.) In October and
November of 2013, Plaintiffs entered into contracts to ship certain produce to Defendant
Taylor Produce, LLC in the total amount of $1,539,077.35. (Dkt. 23 at ¶ 8.) Defendant
Taylor Produce, a commission merchant, dealer, or broker subject to PACA, accepted
delivery of the produce allegedly making it a statutory trustee of a PACA trust held for
the benefit of Plaintiffs in the amount of the contracts. Ultimately, Taylor Produce failed
to pay Plaintiffs for the produce it received. As a result, Plaintiffs initiated this action
against Taylor Produce, Alan Taylor Produce, and Alan L. Taylor, (collectively the
“Taylor Defendants”) for relief as provided for under PACA as well as breach of contract,
MEMORANDUM DECISION AND ORDER - Page 2

breach of fiduciary duty to PACA trust beneficiaries, and conversion/unlawful retention
of PACA trust assets. (Dkt. 1, 23.)1
Plaintiffs further allege claims for conversion, unlawful retention, and alter ego of
PACA trust assets against the other named Defendants: Idaho Potato Packers
Corporation, Nonpareil Corporation, Nonpareil Farms Incorporated, Nonpareil Processing
Corporation, and Nonpareil Dehydrated Potatoes Incorporated (collectively “IPPNonpareil”). (Dkt. 23.) These claims allege the produce received by Defendant Taylor
Produce were PACA trust assets that were transferred to IPP-Nonpareil by Taylor
Produce in breach of the PACA trust. As a result, IPP-Nonpareil was required to hold
those assets in trust for the benefit of the Plaintiffs who were the PACA trust
beneficiaries.
IPP-Nonpareil have filed a Third-Party Complaint and an Amended Third-Party
Complaint alleging a third-party claim against, as relevant to this Motion to Dismiss,
Silver K Trucking, LLC (“Silver K Trucking”). (Dkt. 35, 52.)2 This third-party claim
alleges that if IPP-Nonpareil are found to be liable for the claims brought against them by
Plaintiffs, then IPP-Nonpareil are in turn entitled to subrogation/contribution recovery
from Silver K Trucking because it too received PACA trust assets directly or indirectly
from Taylor Produce with notice or knowledge that receipt of such assets was in breach
1

This case has been consolidated with other cases alleging similar PACA claims against Taylor Produce, LLC:
Sunrise Potato, LLC v. Taylor Produce, LLC, et al., and Case No. 4:14-cv-00141-EJL and GVO Farm Serv., Inc. v.
Taylor Produce LLC, et al., 4:14-cv-247-EJL. (Dkt. 51, 70.) In those actions, Sunrise Potato alleges it delivered
$2,113,406.78 and GVO Farm Services/VO Enterprises allege they collectively delivered $686,070.45 in produce to
Taylor Produce.
2

The Third-Party Complaint also names Christopher T. Abend Randi Abend Phillips as Third-Party Plaintiffs. (Dkt.
52.) GVO Farm Services, Inc. and VO Enterprises are named as Defendants additional in the Third-Party Complaint.
(Dkt. 52.)

MEMORANDUM DECISION AND ORDER - Page 3

of the PACA trust by Taylor Produce. (Dkt. 52 at ¶ 23.) Silver K Trucking moves to
dismiss the third-party claim against it, which the Court takes up in this Order. (Dkt. 53,
61.)
STANDARD OF REVIEW
A motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6)
tests the sufficiency of a party’s claim for relief. The Court’s inquiry on such a motion is
whether the allegations in a pleading are sufficient under applicable pleading standards.
Federal Rule of Civil Procedure 8(a) sets forth minimum pleading rules, requiring only a
“short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.
R. Civ. P. 8(a)(2).
A motion to dismiss will only be granted if the complaint fails to allege “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged. The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). Although
“we must take all of the factual allegations in the complaint as true, we are not bound to
accept as true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at
555. Therefore, “conclusory allegations of law and unwarranted inferences are
insufficient to defeat a motion to dismiss for failure to state a claim.” Caviness v. Horizon
Comm. Learning Cent., Inc., 590 F.3d 806, 811-12 (9th Cir. 2010) (citation omitted).
MEMORANDUM DECISION AND ORDER - Page 4

DISCUSSION
1.

Motion to Dismiss
Silver K Trucking argues IPP-Nonpareil’s third-party claim should be dismissed

because there is no private right of action under PACA and the state law claim fails to
state a cause of action. IPP-Nonpareil maintains that their third-party claim is properly
brought under Idaho state law as well as an implied private right of action under PACA.
A.

Private Right of Action Under PACA

Silver K Trucking alleges that IPP-Nonpareil are not PACA trust beneficiaries and,
therefore, cannot raise their third-party claim under PACA directly. (Dkts. 53, 61 at 2.)
Further, Silver K Trucking argues IPP-Nonpareil cannot show an implied cause of action
exists for their third-party claim under PACA. (Dkts. 53, 61 at 6.) IPP-Nonpareil counter
that they as well as Silver K Trucking are both potentially liable to Plaintiffs under
PACA’s statutory trust remedy and that they have an implied private right of action under
PACA to bring their third-party claim. (Dkt. 69 at 4, 13-17.) Silver K Trucking asserts
PACA’s text evidences Congress’s intent to refuse a private right of action to any one not
specifically identified; e.g., the Secretary of Agriculture or the PACA trust beneficiaries.
(Dkt. 53 at 8.)
In considering the question of congressional intent, the Court begins with the text
of the statute itself and presumes that “Congress expressed its intent through the statutory
language it chose.” Logan v. U.S. Bank Nat. Ass’n, 722 F.3d 1163, 1171 (9th Cir. 2013)
(citations omitted). The Court finds the plain text of PACA does not expressly provide for
a private right of action for anyone other than the Secretary of Agriculture and the PACA
MEMORANDUM DECISION AND ORDER - Page 5

trust beneficiaries. See 7 U.S.C. § 499e(a)-(c). PACA applies to dealings between buyers,
sellers, and brokers of perishable agricultural commodities in wholesale quantities. 7
U.S.C. §§ 499a(b)(4)(A), (b)(6). One who fails to maintain the trust as required under
§ 499e(c) is liable to the trust beneficiaries. 7 U.S.C. § 499b(4). “Such liability may be
enforced either (1) by complaint to the Secretary [of Agriculture]” as provided in PACA
or (2) by a suit brought by trust beneficiaries to enforce payment from the trust in any
court of competent jurisdiction. 7 U.S.C. § 499e(b), (c)(5). Thus, PACA does not
expressly provide for a private right of action for anyone other than a trust beneficiary or
the Secretary.
The Court further finds that Congress did not intend to create an implied private
right of action under PACA to parties other than the Secretary of Agriculture or the
PACA trust beneficiaries. Both sides cite to the four-factor test articulated in Cort v. Ash,
422 U.S. 66, 78 (1975) as the applicable analysis for determining whether a federal
statutory scheme provides for an implied private right of action where not explicitly
provided for in the statute’s provisions. (Dkt. 53 at 7) (Dkt. 69 at 14.) There, the Supreme
Court stated:
In determining whether a private remedy is implicit in a statute not
expressly providing one, several factors are relevant. First, is the plaintiff
“one of the class for whose especial benefit the statute was enacted,”- that
is, does the statute create a federal right in favor of the plaintiff? Second, is
there any indication of legislative intent, explicit or implicit, either to create
such a remedy or to deny one? Third, is it consistent with the underlying
purposes of the legislative scheme to imply such a remedy for the plaintiff?
And finally, is the cause of action one traditionally relegated to state law, in
an area basically the concern of the States, so that it would be inappropriate
to infer a cause of action based solely on federal law?
MEMORANDUM DECISION AND ORDER - Page 6

Cort, 422 U.S. at 78 (citations omitted). This framework, however, has since been refined
to analyzing the issue by focusing on the determinative factor of “whether Congress
intended to create, either expressly or by implication, a private cause of action.” Logan,
722 F.3d at 1170 (quoting Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76
(1979)). The four Cort factors, however, remain a “useful guide to determining
Congress’s intent.” Id. (quoting Orkin v. Taylor, 487 F.3d 734, 739 (9th Cir. 2007)).
IPP-Nonpareil argues that because the rights of contribution and subrogation
among co-trustees existed in common law prior to Congress’s enactment of PACA, that
Congress must have intended to allow PACA trustees to seek these forms of equitable
relief. (Dkt. 69 at 14.) Further, IPP-Nonpareil points out that the Ninth Circuit has
recognized that ordinary trust principles apply to the extent they do not contradict PACA
and, therefore, allowing contribution and subrogation claims is not inconsistent with
PACA’s purpose. (Dkt. 69 at 14-17.) Silver K Trucking asserts that neither the legislative
history nor the Cort factors support finding an implied right of action as alleged by IPPNonpareil. (Dkt. 53 at 9-10.)
PACA was enacted in 1930 “to prevent unfair business practices and promote
financial responsibility in the fresh fruit and produce industry.” Boulder Fruit Exp. &
Heger Organic Farm Sales v. Transportation Factoring, Inc., 251 F.3d 1268, 1270 (9th
Cir. 2001) (citing Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997)
(citing Farley & Calfee, Inc. v. USDA, 941 F.2d 964, 966 (9th Cir. 1991)). Congress
amended the statute in 1984 to create the PACA trust:

MEMORANDUM DECISION AND ORDER - Page 7

Perishable agricultural commodities received by a commission merchant,
dealer, or broker in all transactions, and all inventories of food or other
products derived from perishable agricultural commodities, and any
receivables or proceeds from the sale of such commodities or products,
shall be held by such commission merchant, dealer, or broker in trust for the
benefit of all unpaid suppliers or sellers of such commodities or agents
involved in the transaction, until full payment of the sums owing in
connection with such transactions has been received by such unpaid
suppliers, sellers, or agents.

Id. (quoting § 499e(c)(2); 7 C.F.R. § 46.46 (2000)). “This provision imposes a
‘non-segregated floating trust’ on the commodities and their derivatives, and permits the
commingling of trust assets without defeating the trust. Through this trust, the sellers of
the commodities maintain a right to recover against the purchasers superior to all
creditors, including secured creditors.” Endico Potatoes, Inc. v. CIT Group/Factoring,
Inc., 67 F.3d 1063, 1067 (2d Cir. 1995) (citations omitted).
PACA’s purpose is “to ensure payment to the unpaid seller in the perishable
agricultural commodities industry.” Tanimura & Antle, Inc. v. Packed Fresh Produce,
Inc., 222 F.3d 132, 138 (3rd Cir. 2000); see also 7 U.S.C. § 499e(c). IPP-Nonpareil’s
third-party claims here do not relate or further PACA’s purpose. Instead, these are private
claims by non-trust beneficiaries against other non-trust beneficiaries. While the Ninth
Circuit has recognized that general trust principles may apply to questions involving the
PACA trust where those principles do not directly conflict with PACA, there is nothing in
the language of PACA or its purpose, legislative history, legislative scheme, or
Congressional intent to support a conclusion that Congress intended for an implied

MEMORANDUM DECISION AND ORDER - Page 8

private right of action under PACA as alleged in the third-party claim here. Boulder Fruit,
251 F.3d at 1271 (citing Sunkist, 104 F.3d at 282).
Based on the foregoing, the Court finds there is no expressed or implied private
right of action available for IPP-Nonpareil to use to raise their third-party claim under
PACA. Accordingly, Silver K Trucking’s Motion to Dismiss is granted in this respect.
B.

Idaho State Law Claim For Contribution/Subrogation

IPP-Nonpareil’s

Third-Party

Complaint

asserts

an

equitable

contribution/subrogation claim under Idaho’s common law against Silver K Trucking.
(Dkt. 52.) IPP-Nonpareil argues that the Court has supplemental jurisdiction over this
state law cause of action which is not preempted by PACA. (Dkt. 69 at 7-13.) Silver K
Trucking argues because neither it nor IPP-Nonpareil are trustees of the PACA trust, they
do not share any common law burden of indebtedness necessary for contribution and/or
subrogation equitable remedies. (Dkt. 73 at 4-6.) IPP-Nonpareil maintains its claim is
viable because they have alleged that Silver K Trucking’s receipt of trust property was
taken subject to the PACA trust because Silver K Trucking had notice of the trust when it
received the trust property. (Dkt. 83 at 3.)
1.

PACA is a Non-Exclusive Remedy

“It is well-established that Congress has the power to preempt state law.”
Montalvo v. Spirit Airlines, 508 F.3d 464, 470 (9th Cir. 2007) (citing U.S. CONST. ART.
VI, cl. 2; Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992)). The Supremacy
Clause of the United States Constitution, Article VI, Clause 2, declares that “the laws of
the United States ... shall be the supreme law of the land,” thereby “invalidat[ing] state
MEMORANDUM DECISION AND ORDER - Page 9

laws that interfere with, or are contrary to, federal law.” Goodspeed Airport, LLC v. East
Haddam Inland Wetlands and Watercourses Com’n, 681 F.Supp.2d 182, 199 (D. Conn.
2010) (quoting Air Transp. Ass'n of Am., Inc. v. Cuomo, 520 F.3d 218, 220 (2d Cir.
2008)). When considering a claim of federal preemption, a court’s principal focus is
discerning whether Congress intended to displace an area of state law. Id. (citing Crosby
v. Nat'l Foreign Trade Council, 530 U.S. 363, 372 (2000); Pacific Gas & Elec. Co. v.
State Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190, 203 (1983)). “Federal law
will preempt state laws that interfere[s] with, or are contrary to, federal law only if that
was the clear and manifest purpose of Congress.” Johnson v. Rancho Santiago Comm.
Coll. Dist., 623 F.3d 1011, 1022-23 (9th Cir. 2010) (citations and quotations omitted).
Preemption may be either express or implied. Montalvo, 508 F.3d at 470.
“Congress’ intent may be ‘explicitly stated in the statute’s language or implicitly
contained in its structure and purpose.’” Id. (quoting Cipollone, 505 U.S. at 516) (citation
omitted). There are two types of implied preemption: conflict preemption and field
preemption. Conflict preemption exists when a state law actually conflicts with federal
law or when a state law stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress in enacting the federal law. See Shaw v. Delta
Air Lines, Inc., 463 U.S. 85, 95 (1983); Crosby v. Nat'l Foreign Trade Council, 530 U.S.
363, 373 (2000). Field preemption occurs when Congress indicates in some manner an
intent to occupy a given field to the exclusion of state law or, when federal law so
thoroughly occupies a legislative field “as to make reasonable the inference that Congress
left no room for the States to supplement it.” Cipollone, 505 U.S. at 516 (citing Fidelity
MEMORANDUM DECISION AND ORDER - Page 10

Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153 (1982)). The Court finds that
PACA does not preempt the state law claim raised against Silver K Trucking in this case.
PACA's remedies are in addition to other remedies available at common law or by
state statute. See Logan v. Tiegs, No. CV03-435-BR, CV 03-470-BR, 2004 WL 2851949,
at * 19-20 (D.Or. Dec. 13, 2004) (citing Rothenberg v. H. Rothstein & Sons, 183 F.2d
524, 528 (3rd Cir. 1950) (Where a state statute of frauds provision renders a contract void
it precludes the use of the voided contract in an a PACA enforcement case but where the
provision is procedural and does not void the disputed contract, the contract can be used
in a PACA case)); see also United Potato Co. v. Burghard & Sons, Inc., 18 F.Supp.2d
894, 898 (N.D. Ill. 1998) (discussing Rothenberg’s holding with regard to the
applicability of a statute of frauds provision in PACA cases). The remedies provision of
PACA, 7 U.S.C. § 499e, provides: “this section shall not in any way abridge or alter the
remedies now existing at common law or by statute, and the provisions of this chapter are
in addition to such remedies.” 7 U.S.C. § 499e(b). This provision serves PACA’s “broad
remedial goal” of adding “a remedy beyond those already provided by the states and other
statutes.” United Potato, 18 F. Supp.2d at 899.
Other courts have likewise held that the broad remedial statement in 7 U.S.C.
§ 499e(b) and the policy behind the statute support the finding that the rights and
remedies available at common law are preserved under PACA. See Tanimura & Antle,
Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 137-38 (3rd Cir. 2000) (considering a
seller’s private right of action seeking an injunction to enforce payment under the trust in
aid of trust beneficiaries). Section 499e(c)(5) does not contradict this finding as it does
MEMORANDUM DECISION AND ORDER - Page 11

not speak to permissible remedies but, instead, simply establishes jurisdiction over
specific actions brought by either the Secretary of Agriculture or the trust fund
beneficiaries. Id. at 138.
Based on the foregoing, the Court finds that remedial nature of the PACA statute
does not preclude or preempt the state law claim brought by IPP-Nonpareil here.
2.

Third-Party Contribution/Subrogation Claim

Silver K Trucking also argues the contribution/subrogation claim fails because it
and IPP-Nonpareil are not “trustees” under general principles of trust law and, therefore,
they do not share the same obligations necessary to assert a constructive trust theory.
(Dkt. 73 at 5.) IPP-Nonpareil asserts it has an implied right of action for equitable
contribution/subrogation because it and Silver K Trucking share the same liabilities under
the PACA trust in this case. (Dkt. 69 at 9) (Dkt. 83.)
“Subrogation is an equitable principle based on the general theory that one
compelled to pay for damages caused by another should be able to seek recovery from
that party.” Van Horn v. Nelson, 2002 WL 32864540, at *5 (Idaho October 22, 2002)
(citing May Trucking v. International Harvester Co., 543 P.2d 1159 (Idaho 1975)).
“Subrogation, in its broadest sense, is the substitution of one person for another, so that he
may succeed to the rights of the creditor in relation to the debt or claim and its rights,
remedies and securities.”Id. (quoting Houghtelin v. Diehl, 277 P. 699, 700 (Idaho 1929)).
Contribution, on the other hand, has been defined as: “When there are two or more
parties bound in the same degree by a common burden, equity demands, as between
themselves, that each shall discharge a proportionate share, and when one of such parties
MEMORANDUM DECISION AND ORDER - Page 12

has actually paid or satisfied more than his fair share of the burden, he is entitled to a
contribution from each and all of the others similarly bound, in order to reimburse him for
the excess paid over his share, and thus to equalize their common burden.” Shattuck v.
Ellis, 288 P. 162, 163 (Idaho 1930) (quoting 5 Pomeroy's Equity Jurisprudence (4th Ed.)
§ 2338, p. 5169). “To entitle one to contribution, the payment must be compulsory in the
sense that the party paying was under legal obligation to pay.” Id. (citation omitted).
The parties in this case disagree on the law concerning the imposition of a
constructive trust upon a third-party transferee. Silver K Trucking cites to United States v.
Pegg, which states:
The Restatement of Restitution § 160 (1937)...describes the nature of a
constructive trust: “[W]here a person holding title to property is subject to
an equitable duty to convey it to another on the ground that he would be
unjustly enriched if he were permitted to retain it, a constructive trust arises.
A constructive trust is thus an equitable remedy compelling a person who
has property to which he is not justly entitled to transfer it to the person
entitled.

United States v. Pegg, 782 F.2d 1498, 1500 (9th Cir. 1986) (citations omitted). In Pegg
the court determined that “three conditions are necessary for a plaintiff to establish a
constructive trust for its benefit: the existence of a res (some property or some interest in
property), the plaintiff's right to that res, and the defendant's gain of the res by fraud,
accident, mistake, undue influence or other wrongful act.” Id. (applying California law)
(citation omitted).

MEMORANDUM DECISION AND ORDER - Page 13

IPP-Nonpareil filed a sur-reply brief on this issue arguing that because Silver K
Trucking received PACA trust property knowing of the breach of the trust, Silver K
Trucking took the trust property subject to a constructive trust and is therefore a “trustee”
under general trust law as well as both state and federal common law. (Dkt. 83 at 2-4.)
IPP-Nonpareil cites to Deer Creek, Inc. v. Clarendon Hot Springs Ranch, Inc., 688 P.2d
1191, 1199 (Idaho App. 1984) which involved a trustee’s transfer of three parcels of
property belonging to a trust in violation of the trust instrument to a transferee who had
knowledge of the violation. There, the Idaho court recognized that where trust property is
transferred in violation of the terms of the trust instrument, a transferee with knowledge
of the violation does not take free and clear title to the property. Rather, the transferee
becomes the constructive trustee of the property and has the same duties as the original
trustee to hold the trust property in trust for the benefit of the trust’s beneficiaries. Id. IPPNonpareil also cite to two Second Circuit federal cases which are in accord. (Dkt. 83 at
5.)
The Court agrees with the law as stated by IPP-Nonpareil in regards to third-party
transfers of trust property. See Taylor v. Maile, 127 P.3d 156, 164 (Idaho 2005)
(discussing the Restatement (Second) of Trusts § 326 (1969) and Idaho case law). A
transferee who knows that trust property was transferred to it in violation of the trust must
hold the trust property subject to the terms of the trust just as if they are the original
trustee. Id. This rule, however, does not save IPP-Nonpareil’s claim from dismissal here.

MEMORANDUM DECISION AND ORDER - Page 14

The Third-Amended Complaint does not allege facts which give rise to a plausible
claim for contribution/subrogation against Silver K Trucking. (Dkt. 52.) In fact, there are
no factual allegations made concerning Silver K Trucking in the Third-Amended
Complaint. The Third-Amended Complaint instead makes only conclusory allegations
that Silver K Trucking is believed to have been the “recipient and trustee of ‘PACA Trust
Assets’” and states:
If liability is imposed on any or all of the Third-party Plaintiffs as a result of
the matters alleged in the Complaint, such Third-party Plaintiffs are entitled
to be subrogated to all the claims of the Plaintiffs that could have been
asserted against Trucking and DOES I-X (collectively, the “Third-party
Defendants”) based on, and as a result of, their receipt of PACA Trust
Assets directly or indirectly from Defendant Taylor Produce, LLC (“Taylor
Produce”) with notice or knowledge that their receipt thereof constituted a
breach of trust by Taylor Produce.
If liability is imposed on any or all of the Third-party Plaintiffs as a result of
the matters alleged in the Complaint, the Third-party Defendants, and each
of them, have an equitable duty of contribution to such Third-party
Plaintiffs with respect to their liability, based on the relative amount of
PACA Trust Assets held by each party to this civil action adjudged to be a
trustee of PACA Trust Assets and the total amount of PACA Trust Assets
such party would otherwise be entitled to recover from other parties, if any.

(Dkt. 52 at ¶¶ 12, 23-24.) The Third-Amended Complaint also references the Plaintiffs’
Complaint. There are, however, no facts in the Plaintiffs’ Complaint concerning Silver K
Trucking. (Dkt. 1, 23.)3 The only facts relating to conduct by Silver K Trucking appear in
IPP-Nonpareil’s brief in opposition to the Motion to Dismiss. There, IPP-Nonpareil
states:

3

The Court also reviewed the Complaints filed in the consolidated actions and found those documents likewise
contained no factual allegations concerning Silver K Trucking.

MEMORANDUM DECISION AND ORDER - Page 15

Upon Nonpareil’s information and belief, Taylor Produce transferred a
substantial portion of those proceeds to Silver K Trucking as payment for
services in transporting the produce. Silver K Trucking, therefore, received
monies which Taylor Produce should have instead paid Silver K and
Sunrise.
As a third-party service provider for PACA trustee Taylor Produce, Silver
K Trucking was not entitled to receive any PACA trust monies to the extent
an unpaid PACA beneficiary was entitled to payment. And because Taylor
Produce paid Silver K Trucking before Silver K and Sunrise were paid in
full, the payments received by Silver K Trucking were made in beach of the
PACA trust.
(Dkt. 69 at 5-6.)4
In order to survive a motion to dismiss, however, the complaint must state a
plausible claim for relief. Iqbal, 556 U.S. at 679. “In determining the propriety of a Rule
12(b)(6) dismissal, a court may not look beyond the complaint to a plaintiff's moving
papers, such as a memorandum in opposition to a defendant's motion to dismiss.”
Schneider v. Cal. Dept. of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (citation
omitted); see also 2 Moore's Federal Practice, § 12.34[2] (Matthew Bender 3d ed.) (“The
court may not ... take into account additional facts asserted in a memorandum opposing
the motion to dismiss, because such memoranda do not constitute pleadings....”). The
Third-Party Complaint here does not allege facts to support its state law claim for
contribution/subrogation against Silver K Trucking. Because there are no factual
allegations concerning Silver K Trucking’s receipt of PACA trust assets contained within

4

“As further alleged by Nonpareil, because Silver K Trucking has retained monies improperly paid to it by Taylor
Produce in breach of trust, Silver K Trucking is also liable as a PACA trustee, or obligor, against whom Silver K and
Sunrise should be enforcing the PACA trust.” (Dkt. 69 at 2-3.)

MEMORANDUM DECISION AND ORDER - Page 16

the four corners of the Third-Party Complaint itself, the Court will grant the Motion to
Dismiss.
2.

Leave to Amend
Nonpareil requests leave to amend the Complaint in the event the Court grants the

Motion to Dismiss this claim. Federal Rule of Civil Procedure 15(a) provides that, once a
responsive pleading has been served, a party may amend its pleading “only with the
opposing party’s written consent or the court’s leave. The court should freely give leave
when justice so requires.” Fed. R. Civ. P. 15(a)(2). The Ninth Circuit Court of Appeals
recognizes that “the underlying purpose of Rule 15 [is] to facilitate [a] decision on the
merits, rather than on the pleadings or technicalities,” and, therefore, “Rule 15's policy of
favoring amendments to pleadings should be applied with extreme liberality.” Chudacoff
v. University Med. Cent. of Southern Nev., 649 F.3d 1143, 1152 (9th Cir. 2011) (quoting
United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)).
The decision whether to grant or deny a motion to amend pursuant to Rule 15(a)
rests in the sole discretion of the trial court. The four factors that are commonly used to
determine the propriety of a motion for leave to amend are: 1) undue delay, bad faith or
dilatory motive on the part of the movant; 2) repeated failure to cure deficiencies by
amendments previously allowed; 3) undue prejudice to the opposing party by virtue of
allowance of the amendment; and 4) futility of amendment. C.F. ex rel. Farnan v.
Capistrano Unified Sch. Dist., 654 F.3d 975, 985 n. 5 (9th Cir. 2011) (quoting Foman v.
Davis, 371 U.S. 178, 182 (1962)).

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However, “[t]hese factors . . . are not of equal weight in that delay, by itself, is
insufficient to justify denial of leave to amend.” Webb, 655 F.2d at 979 (“The mere fact
that an amendment is offered late in the case is . . . not enough to bar it.”); Bowles v.
Beade, 198 F.3d 752, 758 (9th Cir. 1999). “Only where prejudice is shown or the movant
acts in bad faith are courts protecting the judicial system or other litigants when they deny
leave to amend a pleading.” Webb, 655 F.2d at 980 (citation omitted). The Ninth Circuit
has held that although all these factors are relevant to consider when ruling on a motion
for leave to amend, the “crucial factor is the resulting prejudice to the opposing party.”
Howey v. United States, 481 F.2d 1187, 1189 (9th Cir. 1973). Indeed, prejudice is the
touchstone of the inquiry under Rule 15(a). Eminence Capital, LLC v. Aspeon, Inc., 316
F.3d 1048, 1052 (9th Cir. 2003). Ultimately, “[u]nless undue prejudice to the opposing
party will result, a trial judge should ordinarily permit a party to amend its complaint.”
Howey, 481 F.2d at 1190.
The Court finds leave to amend in this case would be futile as to the PACA claims.
There is no private right of action available to IPP-Nonpareil under PACA to bring their
third-party claims. As such, leave to amend is denied on the PACA claims.
As to the state law claim, however, the Court will grant the request for leave to
amend as it cannot be said at this time that it would be futile for IPP-Nonpareil to state a
plausible claim for contribution and/or subrogation against Silver K Trucking. In doing
so, the Court makes no determination at this time as to whether the facts alleged by IPPNonpareil in their briefing are sufficient to overcome a future Rule 12(b)(6) motion or
that the law supports their claim. At this stage, the Court concludes only that IPPMEMORANDUM DECISION AND ORDER - Page 18

Nonpareil’s state law claim is not futile and leave to amend is appropriate. Accordingly,
leave to amend as to the state law claims is granted.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that the Motions to Dismiss
(Dkt. 53 and 61) are GRANTED. The Third-Party Complaint and Amended Third-Party
Complaint (Dkt. 35, 52) are DISMISSED as to the claim against Silver K Trucking.
IT IS FURTHER ORDERED that Defendants shall have until on or before May 4,
2015 in which to file their Second Amended Third-Party Complaint as to their State Law
Claim against Silver K Trucking.

DATED: March 30, 2015

Honorable Edward J. Lodge
U. S. District Judge

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