Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-00892/USCOURTS-casd-3_14-cv-00892-0/pdf.json

Nature of Suit Code: 891
Nature of Suit: Agricultural Acts
Cause of Action: 07:499 Agricultural Commodities Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

BIO-HORTICULTURA LAS

PARRITAS, S.A. de C.V., a Mexican

Corporation,

Plaintiffs,

Civil No. 14cv0892-WQH-DHB

ORDER

vs.

AVIARA PARKWAY FARMS, INC.,

A California Corporation, 

Defendants.

HAYES, Judge:

The matter before the Court is Plaintiff’s Motion to Dismiss Defendant’s Third

Counterclaim for Promissory Fraud. (ECF No. 14).

BACKGROUND

On April 15, 2014, Plaintiff Bio-Horticultura Las Parritas, S.A. de C.V. (“BioHorticultura”), initiated this action against Defendant Aviara Parkway Farms, Inc.

(“Aviara”) by filing the Complaint. (ECF No. 1). The Complaint states that “[o]n or

about February 8, 2012, fresh-produce-grower BIO-HORTICULTURA entered into a

written contract with fresh-produce-distributer [sic] AVIARA under which AVIARA

agreed to market and sell BIO-HORTICULTURA’s perishable produce – its fresh

cucumbers and grape tomatoes – on consignment.” Id. at 2. The Complaint states that

“[b]etween in or about May 2012 and in or about January 2013, AVIARA received

from BIO-HORTICULTURA – and AVIARA sold as a commercial merchant –

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numerous loads of BIO-HORTICULTURA’s fresh cucumbers and grape tomatoes.” 

Id. at 3.

The Complaint alleges that Aviara, “(1) engaged brokers to assist it in selling

BIO-HORTICULTURA’s produce, and deduct[ed] their fees from the sales proceeds,

without first obtaining BIO-HORTICULTURA’s permission; (2) sold BIOHORTICULTURA’s produce to other produce distributors at below market prices as

‘strawman buyers’ who then re-sold the produce to others at true market prices; (3)

unilaterally reduced the sales prices for BIO-HORTICULTURA’s produce, made other

price adjustments, and/or rejected or dumped – or allowed customers to reject or dump

– BIO-HORTICULTURA’s produce without first obtaining neutral and impartial

inspection, the approval of BIO-HORTICULTURA, or the requisite proof to support

the price reductions; [and] (4) failed to utilize its best efforts with respect to its sale of

BIO-HORTICULTURA’s produce...” Id. at 5. The Complaint further alleges that “[a]s

a direct and proximate result of AVIARA’s breaches of the Contract...BIOHORTICULTURA has suffered damages ...” Id. at 6.

On May 8, 2014, Defendant Aviara filed an Answer and Counterclaim against

Plaintiff Bio-Horticultura. (ECF No. 4). The Counterclaim states that “[f]rom February

8, 2012 through October 15, 2012, AVIARA PARKWAY FARMS loaned to BIOHORTICULTURA monies to fund BIO-HORTICULTURA’s growing operations.” Id.

at 12. “The loans were documented by written promissory notes that were signed by

BIO-HORTICULTURA.” Id. The Counterclaim alleges the following four causes of

action: Breach of Written Promissory Notes, Breach of Written Contract, Fraud -

Promise Without Intent to Perform, and Breach of Implied Covenant of Good Faith and

Fair Dealing. (ECF No. 4 at 12-17).

On July 28, 2014, Plaintiff/Counterdefendant Bio-Horticultura, filed the Motion

to Dismiss Aviara’s counterclaim for fraud on grounds of failure to state a claim

pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 14). 

On August 25, 2014, Defendant/Counterclaimant Aviara filed an Opposition to

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the Motion to Dismiss the Third Cause of Action in the Counterclaim, and, in the

alternative, requests leave to amend its Counterclaim. (ECF No. 17).

ALLEGATIONS OF FRAUD COUNTERCLAIM

The Third Cause of Action for fraud in Aviara’s Counterclaim alleges:

15. At the time that BIO-HORTICULTURA entered into the contract

and promissory notes, BIO-HORTICULTURA, by and through its

principal, Vincent Gomez, promised to comply with the terms of the promissory notes and contract, and further promised to utilize its best efforts to provide quality, re-saleable produce for distribution by AVIARA PARKWAY FARMS in order to ensure repayment of substantial loans pursuant to the promissory notes. 

16. At the time that BIO-HORTICULTURA made the promises to AVIARA PARKWAY FARMS, BIO-HORTICULTURA had no intention

of performing the promises. 

17. The promises were made with the intent to induce AVIARA

PARKWAY FARMS to advance substantial loans to BIOHORTICULTURA to fund its growing operations. 

18. AVIARA PARKWAY FARMS, at the time these promises were made and at the time that it advances the loans, was ignorant of BIO- HORTICULTURA’s secret intention not to perform and AVIARA

PARKWAY FARMS could not, in the exercise of reasonable diligence, have discovered BIO-HORTICULTURA’s secret intention. In reliance on

the promises of BIO-HORTICULTURA, AVIARA PARKWAY FARMS advanced and loaned $429,186.50 to BIO-HORTICULTURA.

19. BIO-HORTICULTURA failed to abide by its promises by

delivering substandard produce for distribution and failing to repay all of the loans advanced to it. There is still due, owing and unpaid the sum of $272,191.22 as of March 31, 2014, together with interest thereon at the

rate of 10% per annum which continues to accrue from and after March

31, 2014. 

20. As a result of BIO-HORTICULTURA’s fraud and deceit as herein

alleged, AVIARA PARKWAY FARMS has suffered general and special damages, including but not limited to the unpaid sum of $272,191.22 as of March 31, 2014, all in an amount to be proven at trial. 

21. The aforementioned conduct of BIO-HORTICULTURA was an

intentional misrepresentation, deceit, or concealment of a material fact

known to BIO-HORTICULTURA with the intention of the part of BIO- HORTICULTURA of thereby depriving AVIARA PARKWAY FARMS of property or legal rights or otherwise causing injury, and was despicable conduct that subjected AVIARA PARKWAY FARMS to a cruel and

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unjust hardship in conscious disregard of AVIARA PARKWAY FARMS’

rights, so as to justify an award of exemplary and punitive damages. 

(ECF No. 4 ¶ 15-21).

CONTENTIONS OF PARTIES

Bio-Horticultura contends that the Third Cause of Action fails to state a claim for

fraud because the claim alleges only Bio-Horticultura’s purported failure to repay all

of the promissory notes under the terms of the contract. (ECF No. 14 at 4-5). Aviara

contends that it has alleged sufficient facts to support fraud allegations. Aviara asserts

that the promise by Bio-Horticultura to use its best efforts to provide quality, re-saleable

produce was a separate and fraudulent promise that induced Aviara to enter into the

contract. (ECF No. 17 at 4). Aviara asserts that it relied on Bio-Horticultura’s promise

to deliver quality, re-saleable produce when it loaned money to Bio-Horticultura. Id.

at 7. Aviara asserts that Bio-Horticulutura’s failure to provide quality produce shows

that its promises to repay the loans and deliver quality produce were false when made. 

Id.

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state

a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Federal Rule of

Civil Procedure 8(a) provides that “[a] pleading that states a claim for relief must

contain ... a short and plain statement of the claim showing that the pleader is entitled

to relief.” Fed. R. Civ. P. 8(a)(2). Dismissal under Rule 12(b)(6) is appropriate where

the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable

legal theory. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

“[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’

requires more than labels and conclusions, and a formulaic recitation of the elements

of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

(quoting Fed. R. Civ. P. 8(a)). “To survive a motion to dismiss, a complaint must

contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,

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550 U.S. at 570). “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.” Id. (citation omitted). “[T]he tenet that a court must

accept as true all of the allegations contained in a complaint is inapplicable to legal

conclusions. Threadbare recitals of the elements of a cause of action, supported by

mere conclusory statements, do not suffice.” Id. (citation omitted). “In sum, for a

complaint to survive a motion to dismiss, the non-conclusory factual content, and

reasonable inferences from that content, must be plausibly suggestive of a claim

entitling the plaintiff to relief.” Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir.

2009) (quotations omitted).

RULING OF COURT

The elements of a fraud under California law are: (1) misrepresentation, (2)

knowledge of falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting

damage. Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). Promissory fraud is a

subspecies of fraud which permits a plaintiff to state a cause of action in tort when a

defendant fraudulently induces him to enter into a contract. See Lazar, 12 Cal. 4th at

638. Claims sounding in fraud must comply with the heightened pleading requirements

of Federal Rule of Civil Procedure 9(b), which requires that a complaint “must state

with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). 

This heightened particularity requirement must be met regardless of whether the claim

is contractual or non-contractual, so long as the claim is grounded in fraud. See Vess

v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1107 (9th Cir. 2003). The Court of Appeals

for the Ninth Circuit has identified two aspects of the particularity requirement. In re

GlenFed, Inc., Sec. Lit., 42 F.3d 1541, 1547-48 (9th Cir. 1994). First, the plaintiff’s

allegations must identify the time, place, and content of the alleged misrepresentation

so that the defendant can identify the statement. Id. Second, a plaintiff must plead facts

explaining why the statement was false when it was made. Id. “Mere conclusory

allegations of fraud are insufficient.” Id. (quoting Moore v. Kayport Package Exp., Inc.,

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885 F.2d 531, 540 (9th Cir. 1989).

In this case, Aviara’s alleges: “[a]t the time that BIO-HORTICULTURA entered

into the contract and promissory notes..., BIO-HORTICULTURA, by and through its

principal, Vincente Gomez, promised to comply with the terms of the promissory notes

and contract, and further promised to utilize its best efforts to provide quality, resaleable produce for distribution by AVIARA PARKWAY FARMS in order to ensure

repayment of substantial loans pursuant to the promissory notes.” (ECF No. 17 at 3). 

The specific dates of the promissory notes are alleged in the Counterclaim to be “[f]rom

February 8, 2012 through October 15, 2012.” (ECF No. 4 at 12). The Counterclaim

alleges that “[a]t the time BIO-HORTICULTURA made the promises to AVIARA

PARKWAY FARMS, BIO-HORTICULTURA had no intention of performing the

promises,” and that, “promises were made with the intent to induce AVIARA

PARKWAY FARMS to advance substantial loans to BIO-HORTICULTURA to fund

its growing operations.” (ECF No. 4 at 16). 

The Counterclaim fails to allege facts to support the conclusory allegation that

Bio-Horticultura’s promise to utilize its best efforts to provide quality, re-saleable

produce was false when made. Aviara’s reliance on Bio-Horticultura’s subsequent

failure to perform as promised to satisfy the pleading requirement for fraudulent intent

is insufficient to meet the heightened pleading requirements of Federal Rule of Civil

Procedure 9(b). See Smith v. Allstate Ins. Co., 160 F. Supp. 2d 1150, 1152 (S.D. Cal.

2001) (“This fraudulent intent cannot be proven...by simply pointing to the defendant’s

subsequent failure to perform as promised.”).

The allegations in Aviara’s Third Cause of Action fail to meet the heightened

particularity requirements of Rule 9(b). Bio-Horticultura’s Motion to Dismiss the Third

Cause of Action of Aviara’s Counterclaim is granted.

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IT IS HEREBY ORDERED that the Motion to Dismiss the Third Cause of

Action of Defendant’s Counterclaim (ECF No. 4) is GRANTED. Any request to file

an amended counterclaim must be done by motion.

DATED: September 30, 2014

WILLIAM Q. HAYES

United States District Judge

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