Produce Alliance, LLC v. West Central Produce, Inc. ( 2022 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 29 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
PRODUCE ALLIANCE, LLC, No. 20-56230
Plaintiff-Appellee, D.C. No.
2:20-cv-02921-PSG-AGR
PRODUCE CAPITAL GROUP, LLC,
Intervenor-Plaintiff- MEMORANDUM*
Appellant,
TAYLOR FARMS RETAIL, INC.; DOLE
FRESH FRUIT COMPANY; HARVEST
SENSATIONS, LLC; C.H. BELT &
ASSOCIATES, INC., a corporation,
Intervenor-Plaintiffs-
Appellees,
v.
WEST CENTRAL PRODUCE, INC., a
California corporation; HSBC BANK, USA,
NA,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, Chief District Judge, Presiding
Argued and Submitted February 16, 2022
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Pasadena, California
Before: BRESS and BUMATAY, Circuit Judges, and GLEASON,** District
Judge.
Produce Capital Group, Inc. (“ProCap”) appeals the district court’s order
dismissing its complaint under the Perishable Agricultural Commodities Act
(“PACA”), 7 U.S.C. § 499a et seq. We have jurisdiction under 28 U.S.C. § 1291.
We review the district court’s dismissal under Federal Rules of Civil Procedure
12(b)(1) and 12(b)(6) de novo. Moore v. Trader Joe’s Co., 4 F.4th 874, 880 (9th
Cir. 2021); McLachlan v. Bell, 261 F.3d 908, 910 (9th Cir. 2001). We review the
district court’s interpretation of its own Consent Order “with deference . . . based on
the court’s extensive oversight of the decree from the commencement of the
litigation to the current appeal.” Labor/Cmty. Strategy Ctr. v. L.A. Cnty. Metro.
Transp. Auth., 564 F.3d 1115, 1119 (9th Cir. 2009) (quotations and citation omitted).
We affirm.
The district court did not err when it voided the Bill of Sale because the
transaction between ProCap and West Central violated the court’s Consent Order.
Under the Consent Order, which was designed to allow the orderly liquidation of
West Central’s PACA Trust Assets, West Central “agree[d] to not[] . . . remove,
**
The Honorable Sharon L. Gleason, Chief United States District Judge
for the District of Alaska, sitting by designation.
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withdraw, transfer, conceal, pay, encumber, assign[,] sell or otherwise dissipate . . .
PACA Trust Assets or other properties acquired or maintained with the use of PACA
Trust Assets . . . .” The Consent Order defined “Trust Assets” to include “assets
comingled with, purchased with, maintained, or otherwise acquired with such
proceeds, as permitted by applicable law.”
West Central acquired an assignment of certain produce suppliers’ interests in
PACA trust claims (the “Assigned Litigation Rights”) with checks written on a West
Central bank account. That bank account contained funds that “were commingled
with the proceeds of non-Produce related goods.” As a result, the Assigned
Litigation Rights became impressed with the PACA trust because they had been
acquired with PACA trust funds. And “[a] cause of action that may be brought on
behalf of the trust is itself a trust asset, and any recovery ordinarily belongs to the
trust estate, regardless of who prosecuted the action.” Restatement (Third) of Trusts,
§ 107 cmt. e (2012).
When West Central then sold the Assigned Litigation Rights at a deep
discount to ProCap, it therefore violated the Consent Order’s prohibition on
“transfer[ing],” “assign[ing],” or “sell[ing]” “properties acquired . . . with the use of
PACA Trust Assets.” The plain language of the Bill of Sale confirms this conclusion
because it specifically stated that West Central’s “receipt of the full amount of the
Purchase Price from ProCap . . . removes [the accounts payable] from [West
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Central’s] PACA trust assets, and . . . replaces it with the proceeds of the Purchase
Price itself.” As the district court recognized, “[t]his language expressly
acknowledges that the assets exchanged between West Central and ProCap were
PACA trust assets.” While ProCap tries to dismiss this problematic language in the
Bill of Sale as merely “mistaken,” other provisions in the Bill of Sale confirm that
the transaction removed PACA assets and converted them to cash.
ProCap argues that the Assigned Litigation Rights cannot be PACA trust
assets because they have no value. That is incorrect because the Assigned Litigation
Rights had value to the PACA trust beneficiaries, which is confirmed by the fact that
ProCap sought $4.1 million through its PACA trust claim. ProCap also argues that
the Assigned Litigation Rights cannot be PACA trust assets because they are not a
“commodity-related liquid asset.” But ProCap cites no authority suggesting that
litigation rights cannot be impressed with the PACA trust when they are acquired
with PACA trust funds. That is what occurred here.
Because West Central violated the Consent Order, the district court properly
exercised its authority to void the transaction between West Central and ProCap.
See Nehmer v. U.S. Dep’t of Veterans Affairs, 494 F.3d 846, 855 (9th Cir. 2007) (“A
court of appeals will uphold a district court’s reasonable interpretation of a consent
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decree.”) (quotations and citation omitted). Without the agreement in place, ProCap
has no stake in this litigation and lacks standing to intervene.1
AFFIRMED.
1
Because we agree with the district court that ProCap lacked standing to intervene,
we do not reach the issue of whether ProCap’s claims were also barred by the
doctrine of in pari delicto.
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