STANLEY A. BOONE, Magistrate Judge.
On May 29, 2018, Plaintiff Nathel International, Inc. filed this action against Defendant Vincent B. Zaninovich & Sons, Inc. seeking declaratory relief. (ECF No. 1.) Currently before the Court is Defendant's motion to dismiss which has been referred to the undersigned for the preparation of findings and recommendations. (ECF No. 9.)
Oral argument on the motion to dismiss was heard on September 12, 2018. Counsel Craig Stokes appeared telephonically for Plaintiff and counsel C. Russell Georgeson and Greg Brown appeared for Defendant. Having considered the the moving, opposition, and reply papers, arguments presented at the September 12, 2018 hearing, as well as the Court's file, the Court issues the following findings and recommendations.
During November and December 2017, Plaintiff purchased approximately 11,184 boxes of grapes from Defendant to be shipped to the Middle East. (Compl. ¶ 9.) Plaintiff alleges that the grapes that were received were not of suitable shipping condition. (
On May 29, 2018, Plaintiff filed this action alleging breach of contract and violation of the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. § 499 et seq., and is seeking declaratory judgment. (ECF No. 1.) On July 17, 2018, Defendant filed a motion to dismiss for lack of jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. (ECF No. 8.) At the order of the Court, on August 29, 2018, Defendant filed supplemental briefing in support of the motion to dismiss. (ECF Nos. 13, 14.) Plaintiff filed an opposition to the motion to dismiss on August 31, 2018. (ECF No. 15.) Defendant filed a reply on September 5, 2018. (ECF No. 16.)
Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of an action for lack of subject matter jurisdiction. A jurisdictional attack under Rule 12(b)(1) may be facial or factual.
A factual attack challenges truth of the allegations that would otherwise invoke federal jurisdiction.
"In general, a district court is permitted to resolve disputed factual issues bearing upon subject matter jurisdiction in the context of a Rule 12(b)(1) motion unless "the jurisdictional issue and the substantive issues are so intermeshed that the question of jurisdiction is dependent on decision of the merits."
Defendant contends that PACA only provides jurisdiction to hear disputes that seek to impose damages liability, and secondly, that Plaintiffs have not alleged facts to support a separate diversity jurisdiction. Defendant argues that, since Plaintiff is only seeking declaratory relief, the Court does not have jurisdiction over this dispute. Defendant also contends that this court should decline to decide the complaint for declaratory relief because there is an alternative forum, the United States Department of Agriculture ("USDA") that is deciding the same issue and has primary jurisdiction over the matter. Alternately, Defendant seeks for the Court to stay this action pending resolution of the proceedings in the USDA to avoid a waste of resources and conflicting judicial determinations.
Plaintiff counters that the complaint sets forth sufficient facts to state a cognizable claim, that Plaintiff has selected the federal court to hear this matter, and since they are the first to file this matter should be decided by the federal court. Plaintiff argues that there is no other action currently pending as Defendant has not filed a formal complaint with the USDA, and the informal complaint was filed after the filing of this action. Plaintiff also asserts that this court has both federal question and diversity jurisdiction over this action.
Defendant responds that Plaintiff has failed to address the legal arguments raised in the motion to dismiss. Defendant contends that Plaintiff's response misses the point that this court does not have jurisdiction over the matter. Defendant argues that even if the court finds that it has jurisdiction, Defendant is still able to proceed with the reparations proceedings before the USDA and this action should be stayed to conserve judicial resources and avoid the risk of conflicting judgments.
Plaintiff brings this action pursuant to PACA and also alleges diversity jurisdiction under 28 U.S.C. § 1332. Defendant contends that Plaintiff has not adequately alleged diversity of citizenship or that the amount in controversy meets the jurisdictional requirement. Plaintiff counters that the allegations in the complaint are sufficient to allege diversity jurisdiction.
District courts have original jurisdiction of all civil actions between citizens of different States in which "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs." 28 U.S.C. § 1332(a). This requires complete diversity of citizenship and the presence "of a single plaintiff from the same State as a single defendant deprives the district court of original diversity jurisdiction over the entire action."
A corporation is deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.
Defendant also argues that the amount in controversy in this action is the value of the declaratory relief, the $59,690.00 for which Plaintiff seeks declaratory relief, and therefore, the jurisdictional requirement is not met. While Plaintiff argues that the amount in controversy is the full amount of the invoices, $89,633.00, "[i]n actions seeking declaratory or injunctive relief, it is well established that the amount in controversy is measured by the value of the object of the litigation."
In this action, Plaintiff is seeking a declaration that it does not owe the $59,690.00 that is being demanded by Defendant. (Compl. ¶ 16.) While Plaintiff argued at the hearing that they are seeking a declaration that the amount paid is payment in full for the full amount of the $246,688.00 sought in the USDA action, complaint itself only alleges that the amount of the invoices is $89,633.00. While Plaintiff may be able to cure the deficiency by amendment of the complaint, the amount in controversy as alleged in the complaint is less than $75,000, and diversity jurisdiction does not exist in this action.
Pursuant to 28 U.S. C. § 1331, federal courts have original over "all civil actions arising under the Constitution, laws, or treaties of the United States. Plaintiff also alleges that this Court has federal question jurisdiction pursuant to PACA. PACA was enacted in 1930 to prevent unfair business practices and promote financial responsibility in the fresh fruit and produce industry.
Second, PACA provides a procedure for "sellers of perishable agricultural commodities who have been damaged by unfair conduct as defined in § 2 of PACA" to "obtain from the Department of Agriculture an order requiring the offending dealer, broker or commission merchant to pay damages to the injured sellers." Andrew M. Campbell, Annotation,
Defendant contends that PACA only provides the district court with jurisdiction over liability for damages for violations of section 499b. Defendant argues that, since Plaintiff is not seeking damages from Defendant, the federal court has no jurisdiction over the claim. Plaintiff does not address the issue of whether a complaint must seek damages for a federal court to have jurisdiction under PACA, but generally asserts that the federal court has jurisdiction over disputes.
First, Defendant argues that only trust beneficiaries or the secretary can commence an action in the district court under PACA. Pursuant to section 499e(c) "[t]he several district courts of the United States are vested with jurisdiction specifically to entertain (i) actions by trust beneficiaries to enforce payment from the trust, and (ii) actions by the Secretary to prevent and restrain dissipation of the trust." 7 U.S.C. § 499e(c)(5). Defendant argues that 499e(c) is the jurisdictional limits and only grants jurisdiction for the trust beneficiaries or the secretary to commence an action as support for the argument that there is no jurisdiction for the buyer to bring a suit for declaratory relief. However, Plaintiff has not sought to enforce the trust and therefore 499e(c) is not applicable in this action.
Defendant also argues that jurisdiction does not exist because Plaintiff is not seeking to impose liability for damages. Section 499e(a) provides that any commission merchant, dealer or broker who violates any of the prohibitions in section 499b is liable to the person injured for the full amount of damages sustained due to the violation. 7 U.S.C. § 499e(a). "Such liability" under PACA "may be enforced either (1) by complaint to the Secretary as hereinafter provided, or (2) by suit in any court of competent jurisdiction; but 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). Defendant argues that this section does not provide jurisdiction here because it only allows a suit that would impose liability for damages and Plaintiff is not seeking to impose liability for damages.
Pursuant to the statute "any commission merchant, dealer or broker" may bring suit in a court of competent jurisdiction. Plaintiff alleges in the complaint that it is a PACA licensee, a merchant, and trades in agricultural commodities. (Compl. ¶¶ 6, 8.) However, the statute defines a "commission merchant" as "any person engaged in the business of receiving in interstate or foreign commerce any perishable agricultural commodity for sale, on commission, or for or on behalf of another." 7 U.S.C. § 499a(d)(5). Plaintiff has not included any allegations by which the Court can infer that it receives agricultural commodities "on commission, or for or on behalf of another." Therefore, Plaintiff has not alleged sufficient facts for the Court to find that Plaintiff is a commission merchant under PACA.
The statute defines dealer as "any person engaged in the business of buying or selling in wholesale or jobbing quantities, as defined by the Secretary, any perishable agricultural commodity in interstate or foreign commerce, except that . . . no person buying any such commodity solely for sale at retail shall be considered as a "dealer" until the invoice cost of his purchases of perishable agricultural commodities in any calendar year are in excess of $230,000; and (C) no person buying any commodity other than potatoes for canning and/or processing within the State where grown shall be considered a "dealer" whether or not the canned or processed product is to be shipped in interstate or foreign commerce, unless such product is frozen or packed in ice, or consists of cherries in brine, within the meaning of paragraph (4) of this section." 7 U.S.C. § 499a(6). Plaintiff has not alleged that it is a dealer under the statute.
Finally, the statute defines a broker as "any person engaged in the business of negotiating sales and purchases of any perishable agricultural commodity in interstate or foreign commerce for or on behalf of the vendor or the purchaser. . . ." 7 U.S.C. § 499a(7). Plaintiff has not alleged that it is a broker under the statute.
The Court finds that Plaintiff has not alleged facts to establish that it is a "commission merchant", dealer, or broker as defined by PACA in order to bring a suit under section 499e(1) and (2). The Court recommends that Plaintiff's motion to dismiss for failure to state a claim be granted.
The Court considers whether the statute has provided the federal court with jurisdiction over the PACA claim to determine whether leave to amend the claim should be granted. At issue here is subsection (2) of section 499b which makes it unlawful for a dealer to "fail to deliver in accordance with the terms of the contract without reasonable cause any perishable agricultural commodity. . . ." 7 U.S.C. 499b(2). Plaintiff alleges that the parties' agreement was for Defendant to provide grapes that were suitable to be shipped internationally, and the grapes received were not suitable for international shipping. (Compl. ¶ ¶ 9, 10.) This would be sufficient to state a claim that arises under PACA.
Defendant contends that PACA only provides the district court with jurisdiction over liability for damages for violations of section 499b. Defendant argues that, since Plaintiff is not seeking damages from Defendant, the federal court has no jurisdiction over the claim. In the opposition, Plaintiff does not address the issue of whether a complaint must seek damages for a federal court to have jurisdiction under PACA, but generally asserts that the federal court has jurisdiction over disputes. At the September 12, 2018 hearing, Plaintiff conceded that the plain language of the text creates a remedy only in the seller.
Under PACA, any commission merchant, dealer or broker who violates any of the prohibitions in section 499b is liable to the person injured for the full amount of damages sustained due to the violation. 7 U.S.C. § 499b(a). "Such liability" under PACA "may be enforced either (1) by complaint to the Secretary as hereinafter provided, or (2) by suit in any court of competent jurisdiction; but 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).
There is no question that if Defendant, as the seller, was bringing this action in federal court to recover the money owed by Plaintiff this Court would have jurisdiction by means of federal question jurisdiction under PACA.
Defendant relies on
The plaintiff argued that the first cause of action for breach of contract also arose under PACA, but the court disagreed finding "[t]he duty to pay for produce arises under the law of contract and the Uniform Commercial Code, neither of which has been displaced by PACA."
The
Here, Plaintiff brings a claim under PACA asserting that Defendant violated PACA by failing to deliver produce in accordance with the terms of the contract. This claim arises under PACA and 499e provides that liability for damages for violations of section 499b may be enforced by a suit in any court of competent jurisdiction. 7 U.S.C. § 499e(a)(b). The question therefore is whether "such liability" is liability for violations of section 499b or is limited to liability for damages for violations of section 499b.
When interpreting a statute, the court "is to ascertain the intent of Congress and to give effect to legislative will."
Here, subsection (a) provides that any commission merchant, dealer or broker who violates any of the prohibitions in section 499b is liable to the person injured for the full amount of damages sustained due to the violation. 7 U.S.C. § 499e(a). Subsection (b) provides that "such liability may be enforced either (1) by complaint to the Secretary as hereinafter provided, or (2) by suit in any court of competent jurisdiction; but 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). The plain language of the statute indicates that Congress only intended to provide the ability to bring a claim under the act for liability for damages. If Congress had intended for suits to be brought solely based on violation of the statute they would not have included the language "for the full amount of damages". The most persuasive evidence of congressional intent is the words selected by Congress.
Plaintiff argues that if that were the case a claim for declaratory relief could never be brought under any federal statute. However, had Congress stated that the injured party could bring suit for liability due to violations of the statute there would be no question that Congress intended to allow suits other than those for damages. Further, this reading of the statute is consistent with the purpose for which it was enacted which was "to protect sellers of perishable agricultural commodities (basically, fruits and vegetables) from unfair conduct by dealers, brokers and commission-merchants dealing in such commodities, including failure to pay promptly and fully for produce ordered." Andrew M. Campbell, Annotation,
The Court finds that PACA does not grant jurisdiction for Plaintiff in this action to bring a claim for declaratory relief. Accordingly, it is recommended that the PACA claim be dismissed without leave to amend.
Defendant argues that the USDA has primary jurisdiction over the claims in this action and this Court should decline jurisdiction to allow the USDA to decide the issues raised.
PACA provides that
7 U.S.C. § 499f(a).
Primary jurisdiction is "a prudential doctrine under which courts may, under appropriate circumstances, determine that the initial decisionmaking responsibility should be performed by the relevant agency rather than the courts."
The primary jurisdiction doctrine requires that questions that raise issues that should be considered in the interests of a uniform and expert administration of the regulatory scheme laid down by an act must be initially submitted to the agency.
"Primary jurisdiction is properly invoked when a claim is cognizable in federal court but requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency."
Plaintiff also brings this action alleging breach of contract claim. Defendant contends that second cause of action does not allege a breach of contract and does not seek damages. Plaintiff counters that the complaint adequately alleges that the parties agreed that Defendant would provide produce suitable for shipment to the Middle East and the produce received was not in such condition which is sufficient to allege a breach of contract.
The elements of a breach of contract claim under California law are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.
Plaintiff alleges that a contract was entered into with Defendant for the purchase and sale of produce to be shipped to the Middle East. (Compl. ¶ 20.) Defendant shipped defective produce and the produce received by Plaintiff was not suitable for shipment. (
Defendant also seeks for this Court to exercise its discretion to deny declaratory relief, or alternately to stay this action pending resolution of the USDA proceedings. Plaintiff counters that there is no other state case or USDA action proceeding at this time.
With recognized exceptions that do not apply here, the Declaratory Judgment Act provides that where a case or controversy exists within its jurisdiction, "any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). "Under the Declaratory Judgment Act, a district court may decline to exercise jurisdiction over a declaratory action even though subject matter jurisdiction is otherwise proper."
Defendant seeks for this court to abstain under the factors set forth in
The district court should first determine whether the state and federal action are parallel and may also consider "whether the declaratory action will settle all aspects of the controversy; whether the declaratory action will serve a useful purpose in clarifying the legal relations in issue; whether the declaratory action is being sought merely for the purposes of procedural fencing or to obtain a "res judicata" advantage; or whether the use of a declaratory action will result in entanglement between the federal and state court systems. In addition, the district court might also consider the convenience of the parties, and the availability and relative convenience of other remedies."
Defendants rely on
However, Courts have found that where there is no parallel state action abstention is inapplicable and it may be an abuse of discretion to dismiss a declaratory relief action.
A stated rational for
The Court finds that since there is no parallel state action, the reasons to abstain under
Defendant argues that Plaintiff filed this action to deny them their choice of forum to resolve the dispute. Plaintiff contends that since they were the first to file the forum choice should be theirs.
The first filed rule provides that "`where an action is brought in one federal district court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action' . . . unless `there are special circumstances which justify giving priority to the second.'"
One of the recognized exceptions to the first filed rule "occurs when a party files suit seeking a declaratory judgment immediately after receiving notice of planned suit from the other party."
Defendant was engaged in months of negotiations to resolve this dispute and asserts that only after telling Plaintiff that they were going to pursue a suit under PACA did Plaintiff hastily file this action. Defendant states that after consultation with their attorney, a reparation complaint was filed with the USDA against Plaintiff seeking to recover $246,688,00 owed for the grapes, plus accrued interest and attorney fees. Defendant contends that Plaintiff filed this suit to deprive them of their selected forum, and proceeding in federal court will greatly increase their cost in litigating this action.
Here, although Plaintiff filed this action prior to Defendant filing a complaint with the USDA, Plaintiff did so only after being informed by Defendant that they would be consulting with their attorney about filing a suit with the USDA. Defendant is the party who was seeking to enforce the agreements between the parties in an attempt to collect $246,688.00 owed by Plaintiff, plus accrued interest and attorney fees. The defendant here is the natural plaintiff in the action; and therefore, should be entitled to the choice of forum. Despite Plaintiff's assertion that this action was not filed as a form of forum shopping, the timing of the filing of this complaint and Plaintiff's opposition itself demonstrates the opposite. The Court finds that special circumstances exist such that the first filed rule should not govern here.
"[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants."
A trial court may "find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case."
The Court finds that this action should be stayed to allow the USDA reparations complaint to proceed to avoid the possibility that simultaneous review by the agency authority and the court would result in conflicting rulings.
There is no urgency in these proceedings as the dispute is over the amount owed for grapes that were shipped in November and December of 2017. Plaintiff has not identified any prejudice that would be suffered by staying this action pending resolution of the USDA proceedings. Finally, given that the Fresno Division of the Eastern District of California now has one of the heaviest District Judge caseload in the entire nation it would be a waste of judicial and the parties' resources to litigate the same issue here and in the parallel USDA proceedings.
For these reasons, the Court finds that Defendant's request that this action be stayed to allow for the reparations complaint to be decided by the USDA should be granted.
Plaintiff contends that since discovery under PACA is discretionary, they would be severely prejudiced because there is no requirement that the USDA must allow the use of a voluntary deposition in a reparations procedure and neither party has the right to depose anyone in the United States. Plaintiff requests that, if this action is stayed, the Court allow discovery of Defendant and the surveyor during the pendency of the stay. Defendant counters that the regulatory scheme provides for discovery, including the taking of depositions. Further, Defendant argues that there would be no prejudice to Plaintiff because it is seeking to take the deposition of its own agent who will be able to provide an affidavit in support of any motion for summary judgment filed by Plaintiff. Finally, any prejudice from the failure to allow depositions would be to Defendant because they would have no manner of testing the accuracy of the surveyor's conclusions or other documents they prepared.
The section cited to in Plaintiff's opposition, 7 C.F.R. § 47.17, provides
7 C.F.R. § 47.17.
The Court assumes that Plaintiff meant to refer to section 47.16 which provides that upon application of the party to the proceeding that examiner may order the taking of testimony by deposition. 7 C.F.R. § 47.16(a). "If, after examination of the application, the examiner is of the opinion that the deposition should be taken, or if the parties are using depositions in lieu of affidavits pursuant to § 47.20(b)(2), the examiner shall order the taking of the deposition." 7 C.F.R. § 47.16(b)(1).
To the extent that Plaintiff contends that prejudice will be suffered should they be unable to take the deposition of their witnesses, the documentary procedures set forth allow the use of verified statements or depositions. 7 C.F.R. § 47.20(a). Plaintiff has not set forth any reason why verified statements or a voluntary deposition of the surveyor would be inadequate given the regulatory language. Further, it is only where the examiner finds that the deposition should not be taken that Plaintiff would be precluded from taking the deposition of the defendant.
The Court finds that the USDA regulations provide for the taking of discovery and for the parties to present their evidence by verified affidavit or deposition. Therefore, it is unnecessary for this Court to involve itself in discovery for the USDA action. Accordingly, Plaintiff's request for discovery should be denied.
The Court finds that Plaintiff's complaint does not contain sufficient factual allegations to support a finding that federal or diversity jurisdiction exists in this matter. However, Plaintiff may be able to cure the deficiencies in the diversity claim by amendment. Therefore, Plaintiff should be granted an opportunity to file an amended complaint once the stay in this action is lifted.
Based on the foregoing, IT IS HEREBY RECOMMENDED that:
This findings and recommendations is submitted to the district judge assigned to this action, pursuant to 28 U.S.C. § 636(b)(1)(B) and this Court's Local Rule 304. Within fourteen (14) days of service of this recommendation, any party may file written objections to this findings and recommendations with the court and serve a copy on all parties. Such a document should be captioned "Objections to Magistrate Judge's Findings and Recommendations." The district judge will review the magistrate judge's findings and recommendations pursuant to 28 U.S.C. § 636(b)(1)(C). The parties are advised that failure to file objections within the specified time may result in the waiver of rights on appeal.
