Etchegaray Farms, LLC v. Lehr Bros., Inc.

Citation: 326 F. Supp. 3d 987Docket: CASE NO. 1:17-CV-1449 AWI JLT

Court: District Court, E.D. California; June 19, 2018; Federal District Court

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The case involves the Perishable Agricultural Commodities Act (PACA) related to the sale of organic lemons and is consolidated with Lehr Bros. Inc. v. Etchegaray Farms, LLC. Etchegaray Farms has filed a motion to dismiss Lehr Brothers and California Potato Sales' (CPS) first two causes of action—open book account and money lent—under Rule 12(b)(6) and alternatively seeks summary judgment under Rule 56. The court partially grants the motion to dismiss and the motion for summary judgment, allowing for amendments.

Factual background reveals that Lehr contracted with Etchegaray in 2011 for packing and marketing organic lemons, with CPS authorized to sell the lemons on Etchegaray's behalf. CPS advanced funds to Etchegaray for harvesting, expecting repayment from future sales proceeds. However, CPS discovered that the amounts advanced since 2013 greatly exceeded the sales proceeds, with discrepancies totaling over $415,000 by 2016. Lehr and CPS found that their accountings inaccurately reported fruit packed, bins sold, and hauling costs, leading to a false impression that advances had been repaid. Upon identifying these discrepancies, they notified Etchegaray.

Lehr and CPS allege that, over the past four years, Etchegaray owes them $726,456.22 for both the open book account and money lent, which Etchegaray has refused to repay after demand.

Under Federal Rule of Civil Procedure 12(b)(6), a claim can be dismissed if the plaintiff fails to state a claim upon which relief can be granted. Dismissals can occur due to a lack of a valid legal theory or insufficient factual allegations. In evaluating a complaint, courts must accept well-pleaded facts as true and construe them favorably for the non-moving party. However, vague statements or formulaic recitations of legal elements are insufficient. Courts need factual content that allows for a reasonable inference of liability. "Plausibility" requires more than mere possibility but less than probability, and allegations must provide fair notice for the opposing party to effectively defend itself.

The Ninth Circuit outlines that complaints should contain sufficient factual allegations to suggest entitlement to relief, allowing for the expense of litigation. Courts can consider documents attached to the complaint or judicially noticeable matters when assessing motions to dismiss. If a dismissal is granted, leave to amend should typically be allowed unless it would be futile or the plaintiff has not rectified issues after multiple opportunities.

In Etchegaray's argument regarding an open book account, he asserts that there was no valid open account since he received final accountings after each growing season. He contends that the claims of an open account are inconsistent, as the complaint states a balance due of over $700,000 but also claims that Lehr and CPS only recently determined a balance was owed, which contradicts the nature of an open book account that should display a balance continuously over the years.

Etchegaray contends that the claims for money lent in 2013, 2014, and 2015 are barred by California's two-year statute of limitations under Code of Civil Procedure § 339(1). In contrast, Lehr and CPS assert they have sufficiently pled a plausible book account claim, acknowledging an existing book account agreement but disputing its open or closed status. The distinction is relevant only in terms of the statute of limitations, which for a closed account does not commence until the account is closed. Since the complaint seeks sums within four years of filing, the limitations issue is deemed irrelevant. Lehr and CPS also request leave to amend the complaint to reflect a closed account if necessary.

Under California law, common counts serve as general pleadings to recover money owed without specifying the claim's nature. An open book account and money lent are categorized as common counts. A book account, as defined by statute, must satisfy a three-part test: it must record transactions between debtor and creditor, be maintained in the creditor's regular business course, and be kept in a reasonably permanent manner. However, incidental record-keeping alone does not establish a book account; it must stem from the parties' agreement or conduct in a commercial transaction.

Moneys due under an express contract cannot be recovered through an action on an 'open book account' unless there is an agreement to the contrary. An express contract, which can be oral or written, requires clear intent from the parties to be bound, as debts accruing under such contracts are not typically classified as open book accounts. The determination of whether a book account exists is generally a factual question. 

In the context of money lent, the law implies an obligation to repay, and a common count for money lent is a recognized legal action for recovery. To successfully plead this, a plaintiff must allege the indebtedness and non-repayment of the loaned amount.

In a specific case, a complaint alleges an open book account with approximately $726,000 owed by Etchegaray, arising from money advanced for lemon crops over four years. While the complaint sufficiently identifies the cause of action and the amount owed, it lacks details on how the book account was maintained in a permanent form, which is necessary for a plausible claim. Additionally, debts from express contracts are generally not considered open book accounts unless there is an explicit agreement to treat them as such.

The court case involves H. C Global and examines allegations in a Complaint regarding a debt stemming from an express agreement between Etchegaray and Lehr/CPS. The Complaint's allegations invoke the general rule which undermines the claim of a book account, as it lacks assertions that the parties agreed for the advanced funds and proceeds to constitute a book account despite their express agreement. The court finds the Complaint does not present a plausible claim, as it fails to demonstrate any exceptions to the general rule. 

Etchegaray argues that inconsistent allegations exist within the Complaint, particularly regarding the existence of a book account and the timing of identifying errors. However, the court clarifies that California pleading rules do not apply in federal court, and finds no clear inconsistency in the arguments presented. The fact that the debt was undisclosed until 2017 does not negate the possibility of a book account, as timing irregularities do not automatically invalidate a claim. 

To succeed, Lehr/CPS must prove that the accounting errors were reasonable to recover the $726,000 owed. The Complaint also details that CPS advanced funds to Etchegaray, which were to be repaid through lemon sales, but ongoing accounting errors prevented repayment. Ultimately, the court determines that the Complaint inadequately alleges a permanent book record and an agreement to establish a book account, leading to the dismissal of the first cause of action for an open book account. Additionally, it states that Etchegaray owes $726,456.22, covering a four-year span, and has not repaid the advanced funds despite demands for repayment.

The complaint alleges that CPS lent money to Etchegaray, who has not repaid the amount, establishing a plausible common count for money lent. The statute of limitations varies based on the agreement's nature—four years for written agreements and two years for oral agreements, per California Code of Civil Procedure sections 337(1) and 339(1)—but the complaint does not clarify this, indicating no statute of limitations issue exists. Therefore, dismissal of the second cause of action for money lent is deemed inappropriate.

In the context of summary judgment, it is appropriate when there are no genuine issues regarding material facts, and the moving party is entitled to judgment as a matter of law. The burden initially lies with the party seeking summary judgment to demonstrate the lack of genuine issues of material fact. If successful, the burden shifts to the opposing party to show that such issues do exist. Mere allegations are insufficient; specific factual evidence is required.

Etchegaray contends that the transactions do not constitute book accounts due to the lack of intention for ongoing obligations, as accounts were settled at the end of each growing season and renegotiated thereafter. Final accounts were provided by Lehr/CPS, and the parties intended no continuity into the next season. Etchegaray points out that since no written agreements existed before the 2016/2017 season, the applicable agreements for 2013, 2014, and 2015 were oral, and thus, the final accounting and payment for 2015 occurred more than two years before the complaint was filed.

Claims for money lent associated with the 2013, 2014, and 2015 growing seasons are barred by the four-year statute of limitations under California Code of Civil Procedure § 339(1). There is consensus that a book account existed; thus, whether it is open or closed is irrelevant as the complaint seeks recovery only for claims within the four-year period. Lehr/CPS contend there were multiple written agreements between the parties, yet Etchegaray has not provided any contracts for review. Steve Etchegaray's declaration fails to indicate any intent to close accounts at year-end, which is immaterial to contract interpretation.

Lehr/CPS argue that Etchegaray has not shown that a written agreement does not address the advanced funds. Leslie Lehr, an officer of CPS, states that growing seasons and related accountings may overlap, necessitating estimates for anticipated future returns until the product is fully processed and paid for. Adjustments for overages or shortfalls typically occur in subsequent growing seasons. CPS and Lehr assert they have not waived their right to recover amounts reimbursed by season's end, and during the 2011-2017 period, CPS continually provided crop advances to Etchegaray Farms, with adjustments made as crops were harvested and sold.

Despite various accountings being performed, there was no agreement that any miscalculations or oversights would release CPS or Lehr from recovering the full amounts advanced. Notable discrepancies were observed in accountings from 2013 to 2016, including unusually high packout percentages and low hauling costs, which should have been recognized by a grower of Etchegaray Farms' experience. 

Steven Etchegaray declared that since 2010, he has used CPS and Lehr to pack and market his organic lemon crops, but did not negotiate or execute a formal written marketing agreement for seasons prior to 2016-2017. For the 2016 and 2017 seasons, Lehr and CPS agreed to sell the lemons for guaranteed minimum payments of $600 or $700 per bin, depending on timing.

Lehr and CPS provided Etchegaray with final accountings at the end of each growing season, detailing units sold, average prices, total sales, and deductions for picking, packing, and hauling charges. Each accounting indicated the net amount payable to Etchegaray and was prepared by Lehr and CPS. Discussions to negotiate terms for the next season began anew each year, with no obligations carried over from the previous season. Final accounts for the 2013, 2014, and 2015 seasons showed balances due to Etchegaray of $31,061.68, $763,348.17, and $380,484.08, respectively, and payments were typically made within 30 to 45 days after these accounts were received. The parties intended for accounts to be settled at the end of each season without any carryover obligations. Etchegaray's evidence, including documents from CPS and Lehr, confirms that each season was treated as distinct, with separate accountings that did not show any balance forward or continuous obligations. While Leslie Lehr acknowledged that accountings might overlap in general practice, she did not provide evidence of such overlap in Etchegaray's case, reinforcing the conclusion that the seasons and accounts were independently managed.

Etchegaray's evidence demonstrates that there was no overlapping debt between him and Lehr/CPS that was intended to carry over into subsequent years. Lehr acknowledges that no further adjustments were made, except for alleged accounting errors identified in 2017, and that final payments for crops were issued within 30 to 45 days following the completion of accounting documents for 2013, 2014, and 2015. Leslie Lehr confirms an ongoing relationship from 2011 to 2017 but does not dispute that negotiations were conducted for each new crop season nor does she assert that advances were to be recorded as a continuous account. Lehr states that CPS did not treat growing seasons as separate for credit extension or outstanding balances, yet this does not address the core issue of how advancements were treated between the parties and whether they constituted a book account. Further, Lehr claims no agreement existed regarding waivers for accounting mistakes, but Etchegaray argues that no book account was formed during 2011-2017, which is unrelated to the concept of waiver. Lehr also mentions that certain miscalculations deviated from industry norms, asserting that Etchegaray should have recognized errors, but this is irrelevant to whether a book account existed. The evidence indicates that no book account was established between the parties from 2011 to 2017, as each growing season involved separate negotiations and final accounts, with no balances carried forward. Thus, the claim for a continuous book account covering 2013 to 2017 lacks merit, warranting summary judgment. Additionally, the statute of limitations for claiming money lent under an oral agreement is two years, while a written agreement allows for four years, per California law.

The dispute centers on the applicable statute of limitations for claims between Etchegaray and Lehr/CPS regarding the advancement of money for lemon crops. Etchegaray argues for a two-year period, while Lehr/CPS assert a four-year period. The court finds that summary judgment is warranted in favor of Etchegaray because he has established that no written agreements existed prior to the 2016/2017 season, as supported by Steve Etchegaray's declaration, which indicates all agreements from 2010 to 2015 were oral. Lehr/CPS failed to provide evidence of written agreements, shifting the burden to them to demonstrate any genuine dispute. Consequently, claims for money lent in 2016 and 2017 fall under the four-year limitation (Cal. Code Civ. Proc. § 337(1)), while claims for money lent prior to 2016 are subject to the two-year limitation (Cal. Code Civ. Proc. § 339(1)). Since Lehr/CPS filed their complaint on October 16, 2017, any claims for money lent before October 16, 2015, are time-barred. Specific claims for the years 2013, 2014, and 2015 are confirmed as time-barred since final accountings and checks were received well before the applicable cut-off date. The court recognizes the appropriateness of summary judgment regarding the book account claim as presented, but notes that the evidence does not eliminate all claims related to book accounts, as Lehr/CPS argues the statute of limitations is four years from the last entry, regardless of whether accounts are open or closed.

Lehr/CPS are pursuing damages only from 2013 onward, adhering to a four-year limitation period. They contend there may be four separate book accounts corresponding to the 2013, 2014, 2015, and 2016 lemon growing seasons. Evidence from declarations by Leslie Lehr and Steve Etchegaray supports that CPS advanced funds to Etchegaray, with repayments tied to lemon crop sales, and that records were maintained for these transactions. The Court acknowledges that a book account does not need to document every transaction, as per California Code of Civil Procedure § 337, allowing for both single and multiple transaction records. Therefore, the Court permits Lehr/CPS to amend their complaint to include claims for four closed book accounts, provided they comply with Federal Rule of Civil Procedure 11 and address any deficiencies noted under Rule 12(b)(6). The Court's order includes granting Etchegaray’s motion to dismiss the first cause of action for open book account while denying it for the second cause of action related to money lent. Additionally, the order permits Lehr/CPS to file an amended complaint within 14 days, with Etchegaray having 14 days to respond thereafter. If Lehr/CPS fail to amend timely, the opportunity to do so will be revoked. The Court will evaluate the allegations under Rule 12(b)(6), allowing Etchegaray to contest the validity of entries in the book account, despite Lehr/CPS's assertion of multiple contracts for lemon sales, which lacked citation support.

The Court clarifies that it only recognizes Etchegaray's admission of a written contract for the 2016-2017 growing season and not "numerous written contracts," rendering counsel's claims unsupported and incompetent as evidence. Without a written contract, the Court lacks the necessary language to ascertain the parties' intent, relying solely on Etchegaray's declaration, which indicates distinct negotiations for each season that concluded without ongoing obligations. Leslie Lehr's declaration, discussing general practices, does not specifically address Etchegaray’s agreements and fails to adequately counter his declaration.

Lehr/CPS argue against summary judgment due to the premature stage of the case and lack of discovery, seeking relief under Rule 56(d). To qualify for this relief, they must demonstrate specific facts sought from further discovery, that these facts exist, and that they are essential to counter the summary judgment motion. Lehr/CPS's counsel noted that discovery would investigate Etchegaray’s awareness of accounting errors relevant to the amount owed, although this does not pertain to the existence of a book account.

The Court finds that Lehr/CPS have not requested Rule 56(d) relief regarding the money lent claim, and it agrees with their statute of limitations analysis, which states that the limitations period for a book account is four years from the last entry. The statute began running when each account closed, determined by the issuance of a final check. Merely keeping records does not constitute a "book account," and although the evidence may later reveal that records alone were maintained without an agreement to create a book account, the current evidence does not conclusively establish that no book accounts exist. No further substantive amendments are permitted.