JOSE MENDOZA v. RAST PRODUCE CO., INC

Filed 6/29/06

CERTIFIED FOR PARTIAL PUBLICATION^*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Tulare County. Patrick J. O'Hara, Judge.

Law Offices of M. Irene Daniel and M. Irene Daniel for Plaintiff and Appellant.

Rynn & Janowsky and Lewis P. Janowsky for Defendants and Respondents.

Appellant is a grower who used a commission merchant to market his pomegranate crop. The respondents are various businesses that obtained the pomegranate crop in transactions with the commission merchant. Appellant sued respondents alleging that they obtained the crop on a reconsignment basis, sold it, provided false or misleading documents about those sales, and kept money that should have been remitted to appellant. Respondents moved for judgment on the pleadings on the ground that they had no privity of contract with appellant and therefore his claims must fail. The superior court agreed and granted respondents' motion without leave to amend.

Appellant argues that the common law and statutory duties imposed on commission merchants apply to respondents based on their status as reconsignees. Respondents contend there were no reconsignments and that all of their transactions with the commission merchant were sales.

We conclude that the complaint, although ambiguous, does sufficiently allege that respondents were reconsignees and that the commission merchant was authorized by appellant to enter into reconsignment relationships. We further conclude that the complaint presents the legal theory that the commission merchant was appellant's agent and respondents were subagents engaged by the commission merchant. California law recognizes that (1) commission merchants are agents, (2) an agent owes fiduciary duties to his or her principal, and (3) a subagent owes the principal the same duties as the agent where the agent was authorized by the principal to retain subagents. Applying these rules of law to the facts alleged in the complaint, appellant has presented the legal theory that respondents were appellant's subagents and, as such, owed him a fiduciary duty. The appellant's other allegations, when considered with this fiduciary duty, are sufficient to state claims for conversion, breach of fiduciary duty, accounting, and negligence.

As to appellant's claims for breach of contract, breach of the covenant of good faith and fair dealing, and fraud, we conclude the allegations are insufficient to state those claims, but direct that the trial court grant leave to amend.

Accordingly, we reverse the judgment and remand for further proceedings. We publish this opinion because, based on the rules of law applicable to subagents, it extends the ruling in Fischer v. Machado (1996) 50 Cal.App.4th 1069 (Fischer). In Fischer, the court held that a commission merchant can be liable for the conversion of proceeds from the sale of farm products that he sells as an agent for the farmer. Here, we hold that a subagent, like an agent, may be liable for converting sale proceeds.

FACTS AND PROCEEDINGS^[1]

Appellant Jose Mendoza is engaged in the business of growing farm products, does business under the fictitious name of San Joaquin Labor Service, and has his principal place of business in Lindsay, California.

Sometime in 2001, appellant entered an oral agreement with Ken Britten, who does business as Alta Peak Packing Company (Britten),^[2] to market appellant's pomegranates through normal channels at the highest cash price and best terms available in exchange for payment of 8.5 percent of the gross sales price plus reimbursement for actual packing and cooling charges.

Appellant did not know that Britten was not licensed as a commission merchant or that he hired John Rast, doing business as Rast Produce Company,^[3] to assume primary responsibility for selling the 2001 pomegranate crop and agreed to pay Rast 8.5 percent of the sales price and any costs and expenses actually incurred.

Appellant learned of Rast's involvement when he received reports of what purported to be a summary of the sales, receipts, and disposition of all of appellant's produce and the money received. Appellant alleges that Rast, among other things, sold his 2001 pomegranate crop on unauthorized terms, made secret profits, failed to fully account for the proceeds, and made materially false statements to appellant about the sale and disposition of the crop.

Unaware of Rast's conduct regarding the 2001 crop, appellant entered a written contract with Rast under which Rast agreed to function as a commission merchant and market appellant's 2002 pomegranate harvest (Marketing Agreement). A copy of the 10-page Marketing Agreement was attached as an exhibit to the complaint.

Appellant completed the cultivation and harvest of the 2002 pomegranate crop and delivered it to Rast. Subsequently, appellant received information and documents from Rast that reported the packout, grades, quality, weights, sales, proceeds, and expenses of sale. In reviewing this information and comparing it with similar reports for the 2001 crop, appellant noted some sales appeared irregular and others suggested a pattern of below-market pricing. In some instances, appellant suffered a loss on the sales and was billed $1.33 per case by Rast when the current market price was approximately $10 to $15 per case.

Appellant alleges that Rast â€