[00:00:00] Speaker 01:
Good morning, Your Honors.

[00:00:02] Speaker 01:
My name is Effie Anastasio.

[00:00:04] Speaker 01:
I'm the attorney for Appellant Salinas Farms, who is a strawberry grower in Watsonville that grew approximately 27 acres of strawberries on a ranch in Watsonville, California in 2020 and 2021.

[00:00:20] Speaker 01:
The strawberries were sold by Appellee Driscoll's under Driscoll's label.

[00:00:27] Speaker 01:
Apili Aptos Farms, a Driscoll's affiliate, put the deal together and acted as Driscoll's agent to distribute strawberry sales proceeds to Salinas Farms.

[00:00:42] Speaker 01:
The key issue in this case is whether or not these transactions that the parties engaged in were governed by the Perishable Agricultural Commodities Act, a federal law also commonly known as PACA.

[00:00:59] Speaker 01:
Under the Perishable Agricultural Commodities Act, there is a specific provision that governs joint account transactions

[00:01:10] Speaker 01:
when the parties are engaged in a limited joint venture arrangement where they agree to share in a prescribed manner the costs, profits, or losses resulting from such transactions.

[00:01:26] Speaker 01:
And the key, if

[00:01:29] Speaker 01:
The transaction falls under that definition.

[00:01:33] Speaker 01:
Then there are many numerous requirements under the PACA which are grafted onto the contract that are above and beyond what the parties specifically agreed to.

[00:01:51] Speaker 01:
In this case, it was a limited joint venture arrangement

[00:01:57] Speaker 01:
because each party played a critical and indispensable role in the production and sale of the strawberries.

[00:02:07] Speaker 04:
What is the significance of the provision of the contract that expressly said it does not create a joint venture or partnership?

[00:02:14] Speaker 01:
Okay, so that particular provision I believe does not apply for several reasons.

[00:02:22] Speaker 01:
The first reason is that the provision does not state that it doesn't apply to a joint account transaction.

[00:02:38] Speaker 01:
The provision is very vague, and what it specifically states is that the agreement does not grant farmer, which was Salinas Farms, any right claimer interest in the land, the plants, or the berries.

[00:02:54] Speaker 01:
And my client never claimed an interest in the land.

[00:02:57] Speaker 01:
They were on their subleasing from Aptos.

[00:03:03] Speaker 01:
They never claimed a right to the plants, other than the fact they had paid for them, but they didn't claim a proprietary right in the plants.

[00:03:15] Speaker 01:
And they didn't claim to own the berries, only to own the proceeds.

[00:03:21] Speaker 01:
which is a valuable property right.

[00:03:24] Speaker 01:
And so the joint venture clause also was not negotiated, no joint venture was not negotiated by my client.

[00:03:35] Speaker 01:
And so there's case law in California that's cited in the brief that says if you're going to apply a boilerplate

[00:03:43] Speaker 01:
provisions such as this one, it must show that the parties intended for that to happen.

[00:03:49] Speaker 01:
Here, the parties were engaged in a joint venture.

[00:03:53] Speaker 04:
Just backing up a moment, when you say it wasn't negotiated by your client, I mean, this is a fairly lengthy contract for a large commercial transaction.

[00:04:06] Speaker 04:
They signed the contract.

[00:04:09] Speaker 04:
What exactly is the argument that they didn't negotiate that particular clause or aren't bound by it?

[00:04:15] Speaker 01:
Yes.

[00:04:16] Speaker 01:
Okay.

[00:04:16] Speaker 01:
So the party started originally with an oral contract back in the fall of 2020.

[00:04:23] Speaker 01:
And my client planted the berries, tended to the berries.

[00:04:27] Speaker 01:
They started harvesting the berries in March of 2021.

[00:04:31] Speaker 01:
And this agreement was not presented to my client for review until June of 2020.

[00:04:38] Speaker 01:
So the parties had already been engaging in a joint venture as a matter of

[00:04:44] Speaker 01:
The complaint alleges the

[00:04:58] Speaker 01:
and my client was asked to sign it on a take it or leave it basis.

[00:05:03] Speaker 01:
In other words, there was no negotiation, no opportunity for my client to say, hey, this doesn't apply or that doesn't apply.

[00:05:11] Speaker 01:
They just said, if you want to keep receiving proceeds,

[00:05:15] Speaker 01:
from the sale of the berries sign this now.

[00:05:18] Speaker 01:
And so that in and of itself under contract law makes a joint venture clause inapplicable.

[00:05:26] Speaker 04:
In addition, I have... Does that require us to find that the clause is unconscionable under California law?

[00:05:34] Speaker 01:
But not a finding of unconscionable, just inapplicable, because it was vague and ambiguous.

[00:05:43] Speaker 04:
How is it vague?

[00:05:44] Speaker 04:
I mean, it says this does not create any joint venture.

[00:05:47] Speaker 04:
That seems clear.

[00:05:49] Speaker 01:
Because this was a joint account transaction under PACA, which is different

[00:05:53] Speaker 01:
from a joint venture per se, and it talks about a joint venture in land, plants, or berries, which was not the joint venture.

[00:06:06] Speaker 01:
It was a joint venture to, in essence, to grow the berries, to plant, grow, harvest, market, sell the berries, and do proceeds.

[00:06:20] Speaker 01:
They weren't engaging in a long-term business.

[00:06:26] Speaker 01:
They had no rights to the property of one another.

[00:06:29] Speaker 01:
They were independent parties working together solely to plant, grow, harvest, and sell berries from this one particular farm for a one-time season.

[00:06:46] Speaker 01:
And that was it.

[00:06:47] Speaker 01:
And then I also argued the federal preemption argument in that... Could I just direct you to one other, a different issue for just a moment?

[00:06:58] Speaker 03:
Sure.

[00:06:58] Speaker 03:
Because your time is running out.

[00:06:59] Speaker 03:
You're down to three minutes here.

[00:07:00] Speaker 01:
Okay.

[00:07:01] Speaker 03:
So in your complaint, you made some allegations about agency.

[00:07:08] Speaker 03:
Correct.

[00:07:08] Speaker 03:
Correct.

[00:07:10] Speaker 03:
And the district court said those allegations were basically too conclusory to demonstrate a plausibility that, what was it?

[00:07:19] Speaker 01:
Aptos Farms.

[00:07:20] Speaker 03:
Aptos was an agent of Driscoll.

[00:07:24] Speaker 03:
Correct?

[00:07:25] Speaker 01:
That's what they said, right, and I disagree with that.

[00:07:28] Speaker 03:
Well, let me ask you this.

[00:07:30] Speaker 03:
You don't really seem to take that on too vigorously in your brief.

[00:07:37] Speaker 01:
Well, essentially, there's two bases for Aptos liability.

[00:07:47] Speaker 01:
Well, there's two bases for, so Aptos was acting as Driscoll's agent, and under the PACA regulations, any actions that Aptos took on behalf of Driscoll are the acts of Driscoll, and I cite that.

[00:08:04] Speaker 01:
under California law has an agent who violated a federal statute, they are obligated just as much as Driscoll's.

[00:08:15] Speaker 03:
Let me ask you this, the district court said that the allegations regarding agency were too conclusory.

[00:08:23] Speaker 03:
Right?

[00:08:24] Speaker 03:
So what facts in the complaint do you allege that demonstrates that there's a reasonable probability, a reasonable, a plausible showing, you can make a plausible showing, or you make a plausible showing in the complaint, that there was an agency, a real agency in play here.

[00:08:44] Speaker 03:
What are the allegations in the complaint other than just, well, Aptos is just school's agent.

[00:08:49] Speaker 01:
Okay, so in addition to what we say, the oral contract, in the actual patent sublicense, it states that Aptos is acting as Driscoll's agent

[00:09:08] Speaker 01:
to enter into the sublicense agreement, to enter into the agreement with the farmer, and there are numerous provisions in the sublicense agreement itself, and the attachments

[00:09:23] Speaker 01:
that say that Aptos is acting on Driscoll's behalf, including in the general provisions section where Aptos is specifically tasked to distribute the proceeds, which is where the violations actually occurred.

[00:09:40] Speaker 01:
And so if you look in the general provisions section, it states that the proceeds of sale of the strawberry are to be distributed by Aptos.

[00:09:50] Speaker 03:
Did you ask the district court for leave to further amend your complaint to flush out your allegations regarding agency?

[00:09:58] Speaker 01:
I didn't because I felt that they were right there in the complaint itself.

[00:10:04] Speaker 01:
It's right there in the actual agreement.

[00:10:08] Speaker 01:
And I cite to those provisions in my actual complaint.

[00:10:13] Speaker 01:
OK.

[00:10:14] Speaker 04:
Thank you.

[00:10:15] Speaker 04:
Thank you.

[00:10:15] Speaker 04:
We've taken you over your time.

[00:10:17] Speaker 01:
I was going to reserve time.

[00:10:19] Speaker 01:
There's 15 seconds left.

[00:10:21] Speaker 04:
Well, that's actually a negative 15 seconds.

[00:10:24] Speaker 04:
But we'll give you two minutes for a bottle.

[00:10:26] Speaker 01:
OK.

[00:10:26] Speaker 01:
Thank you so much.

[00:10:34] Speaker 04:
Mr. Waste.

[00:10:36] Speaker 02:
Good morning.

[00:10:37] Speaker 02:
May it please the court, John Jackson Waste, appearing on behalf of the Appellee, Driscoll Zink.

[00:10:43] Speaker 02:
So to start off, I just want to say we're not trying to take away, nor are we in any danger of taking away the appellant's stay in court.

[00:10:51] Speaker 02:
We're just trying to make sure it's the right court, and it shouldn't be a federal court.

[00:10:57] Speaker 02:
So, because I only have five minutes, I'm going to whip through some topics at the possible expense of narrative cohesion, but I wanted to start by addressing agency.

[00:11:08] Speaker 02:
Our view is pretty simple.

[00:11:09] Speaker 02:
Not only do we agree with the district court that agency was insufficiently supported with factual pleading,

[00:11:17] Speaker 02:
I would argue that even if that were not the case, even if the complaint adequately alleged, which it does not, the existence of an agent-principle relationship as between my client Driscoll's and Aptos Berry Farms, it wouldn't matter.

[00:11:30] Speaker 02:
And the reason it wouldn't matter is that an agent-principle relationship might mean in theory that Aptos, word acting within the course and scope of its agency, could bind Driscoll's to a contract.

[00:11:42] Speaker 02:
But there's nothing in the complaint, nothing in the contracts attached to the complaint

[00:11:46] Speaker 02:
and nothing that even springs readily to the imagination to suggest that it did so in fact.

[00:11:52] Speaker 02:
So even if Aptos were Driscoll's agent and could bind Driscoll's to contracts, the fact is it didn't.

[00:12:01] Speaker 02:
Driscoll's is not and never has been a party to any of the contracts it issued.

[00:12:06] Speaker 03:
Well, I mean, that's correct, literally, if you look at the documents.

[00:12:10] Speaker 03:
But they really had a big hand in this, didn't they?

[00:12:14] Speaker 02:
Well, I mean, Your Honor, the fact of the matter is, as the patent holder, whose patent was being licensed and then sub-licensed, the owner of the patents affected here, as the entity who had a commercial relationship, there's no question, with Aptos Berry Farms, yes, they were involved in the stream.

[00:12:33] Speaker 03:
But Driscoll's had folks even on the ground, you know, at the time of the harvest.

[00:12:38] Speaker 02:
Well, Your Honor, that's not unusual in the patent context because consider that we're, you know, we're talking about patented plants here.

[00:12:44] Speaker 02:
They're the patent holder dealing with, even with a sub-licensee with whom they're not in privity, they want to check on the manner in which the patent is practiced, make sure that the plants are... Who made the payments?

[00:12:56] Speaker 02:
Which payments, Your Honor?

[00:12:57] Speaker 02:
To the farmer.

[00:12:59] Speaker 02:
My understanding of the facts and... Well, not my understanding.

[00:13:02] Speaker 03:
You know the case well.

[00:13:04] Speaker 02:
Your Honor, Driscoll's paid Aptos, which in turn paid the plaintiff.

[00:13:10] Speaker 02:
And so, again, we find there simply isn't privity here that would support a claim under 499B4... Well, if there's a true agency, wouldn't that be sufficient?

[00:13:20] Speaker 02:
If there was a true agency, it would depend upon the course and scope of the agency and what agreements were made within that course and scope.

[00:13:29] Speaker 03:
I was just going to say... Judge Miller.

[00:13:33] Speaker 04:
Why do you say there isn't a sufficient allegation of agency?

[00:13:37] Speaker 04:
I mean, the complaint says that Picasso was told by Aptos that Aptos was an agent.

[00:13:45] Speaker 04:
Isn't that a fact that makes it plausible that there was, in fact, an agency relationship?

[00:13:51] Speaker 04:
Well, Your Honor, my issue is, yes, so what... I mean, it's not conclusive, but it only needs to be plausible, right?

[00:13:59] Speaker 02:
Understood.

[00:13:59] Speaker 02:
And what the complaint says is that there's a two-step process in their commercial relationship with these parties.

[00:14:05] Speaker 02:
And so initially, again, according to the complaint, an individual named Gilbert Urena, who worked reportedly with Aptos, according to the complaint, approached Mr. Picasso, describing himself as an agent of Driscoll's, and asked to

[00:14:21] Speaker 02:
get into some sort of business relationship.

[00:14:24] Speaker 02:
Well, they would later go on to define that business relationship according to the complaint, first in an oral contract and later in this written sublicense.

[00:14:33] Speaker 02:
And the important part is Driscoll's is not a party to that, neither in name nor in substance.

[00:14:38] Speaker 02:
In the oral contract,

[00:14:40] Speaker 02:
Exhibit one, I believe, of the complaint reflects the terms of this alleged oral contract.

[00:14:45] Speaker 02:
It's a series of text messages, and they lay out both the contractual benefits and the contractual burdens of this oral agreement.

[00:14:53] Speaker 02:
All of the work is to be performed by either Mr. Picasso or Aptos, and all of the consideration goes 6535 to those two parties.

[00:15:02] Speaker 02:
Similarly, again, that oral agreement would later be superseded by the written sublicense.

[00:15:08] Speaker 02:
And under the written sublicense, again, the benefits and the burdens, the parties to the contracts are explicitly Aptos and Mr. Picasso.

[00:15:18] Speaker 02:
Driscoll's is described as a third-party beneficiary, but a third-party beneficiary is by definition not a party to the agreement itself.

[00:15:26] Speaker 02:
So at the end of the day, our position is pretty straightforward.

[00:15:30] Speaker 02:
499B4 creates liability as between one party to a perishable commodities transaction to the other if there's a failure to account or pay promptly.

[00:15:42] Speaker 02:
Driscoll's and Mr. Picasso were never parties to the same transaction.

[00:15:47] Speaker 02:
As a result, liability under that particular section cannot be found, that being the plaintiff's only claim to federal subject matter jurisdiction

[00:15:56] Speaker 02:
The district court, in our view, got it right.

[00:15:59] Speaker 02:
And this matter, if it must be litigated at all, should be litigated in the superior court.

[00:16:04] Speaker 02:
Thank you.

[00:16:05] Speaker 02:
Thank you.

[00:16:05] Speaker 02:
Unless the court has further questions, I'll reserve the balance of my time.

[00:16:11] Speaker 04:
Thank you.

[00:16:19] Speaker 04:
Ms.

[00:16:19] Speaker 04:
Berg-James.

[00:16:21] Speaker 00:
Yes, good morning, your honors.

[00:16:22] Speaker 00:
May it please the court, Lindsay Berg-James, for appellee Aptos Berry Farms, Inc.

[00:16:27] Speaker 00:
An appellant's argument that Aptos and Driscoll's an appellant entered into a joint account transaction under PACA's implementing regulations simply does not apply to Aptos because Aptos is not a PACA licensee, nor is it required to be because it doesn't meet the statutory definitions of commission merchant, dealer, or broker.

[00:16:48] Speaker 00:
And so it appears now in the appellant's reply brief and in today's arguments, appellant is now relying on an agency theory that Aptos was an agent of Driscoll's, thereby imputing statutory obligations of Driscoll's onto Aptos.

[00:17:03] Speaker 00:
And there's a couple of things wrong with that.

[00:17:05] Speaker 00:
First being, the district court was correct.

[00:17:08] Speaker 00:
The allegations in the second amended complaint as to agency are conclusory and they assume the agency relationship.

[00:17:16] Speaker 00:
And council's comment that there's an express provision in the patent sublicense referring to Aptos as an agent of Driscoll's is incorrect.

[00:17:24] Speaker 00:
There is no such allegation, nor would they be.

[00:17:28] Speaker 00:
The relationship between Aptos and Driscoll's is contractual.

[00:17:32] Speaker 00:
Aptos has the contractual right to enter into sublicenses with growers pursuant to its license with Driscoll's.

[00:17:40] Speaker 00:
It's contractual only.

[00:17:42] Speaker 00:
And Appellant simply assumes an agency relationship by saying certain things happened, so Aptos must have been Driscoll's agent.

[00:17:50] Speaker 03:
Well, I mean, you know, if somebody from Aptos came along and said, hey, I'm working on behalf of Driscoll and I'm their agent for purposes of what we're dealing here.

[00:17:59] Speaker 03:
sort of signals that there might be an agency relationship, right?

[00:18:03] Speaker 00:
Certainly, Your Honor.

[00:18:04] Speaker 00:
And while we, of course, dispute the accuracy of that allegation, it is there.

[00:18:08] Speaker 00:
However, what the district court noted is that in order to create a sensible agency under California law, there have to be allegations of conduct

[00:18:17] Speaker 00:
or assertions by the principle of an agency relationship to the third party.

[00:18:22] Speaker 00:
Allegations of agency that solely relate to the alleged agent are insufficient.

[00:18:28] Speaker 03:
I can represent myself to be the agent of the... Weren't there sort of allegations or statements that Driscoll had a significant role in this particular project?

[00:18:39] Speaker 00:
There are, of course, your honor.

[00:18:41] Speaker 00:
However, Driscoll's involvement post-dated the agreement between the parties.

[00:18:46] Speaker 00:
Driscolls did not get involved with the appellant per the allegations in the Second Amendment complaint until they were already entered into the alleged oral contract.

[00:18:56] Speaker 00:
And so when that happens and Aptos sublicenses its right to grow berries for Driscolls to another farmer, Driscolls can come and participate in that process as the patent holder.

[00:19:07] Speaker 00:
However, Aptos does not go out and seek farmers as an agent of Driscolls.

[00:19:13] Speaker 00:
It does so on its own ability based on a contract, that it has the ability to sub-license its farming operations when it needs to.

[00:19:21] Speaker 00:
The other issue with the agency argument is that Appellant is trying to create statutory liability under PACA to Aptos Berry Farms as the alleged agent because the principal has alleged statutory obligations under PACA.

[00:19:39] Speaker 00:
That is not the law.

[00:19:40] Speaker 00:
An agent can bind a principal to a contract in theory depending on what the agency is.

[00:19:46] Speaker 00:
A principal may be liable for torsious conduct by the alleged agent as its role as the principal.

[00:19:55] Speaker 00:
However, case law is clear, an agent does not take on the alleged statutory obligations of its principal simply through agency.

[00:20:05] Speaker 00:
So APTOS, who is not a PACA licensee nor is it required to be, does not suddenly become subject to any obligations under PACA that would apply to Driscoll.

[00:20:14] Speaker 03:
So in this instance where the parties, well, APTOS and Driscoll designed or configured this farming operation, the farmer seems to get left out.

[00:20:33] Speaker 00:
The farmer is paid.

[00:20:34] Speaker 03:
I thought Paca was designed to sort of protect the farmer, to make sure the farmer gets paid.

[00:20:41] Speaker 00:
That is correct, Your Honor.

[00:20:43] Speaker 03:
How does the farmer get protected under Paca in this arrangement?

[00:20:49] Speaker 00:
Paca does not apply to Aptos statutorily.

[00:20:53] Speaker 00:
It does not meet any of the definitions of a commission merger, a dealer, or a broker.

[00:20:58] Speaker 00:
It is simply not subject to Paca.

[00:21:00] Speaker 00:
PACA does not apply to Aptos by definition.

[00:21:03] Speaker 00:
And so even though the goal of PACA is, of course, to protect the farmer, this is not a PACA case, because Aptos is not a PACA licensee, nor is it required to be one.

[00:21:19] Speaker 04:
Thank you.

[00:21:20] Speaker 00:
Thank you, Your Honors.

[00:21:25] Speaker 04:
Rebuttal?

[00:21:34] Speaker 01:
A couple of things of quick note.

[00:21:36] Speaker 01:
And that is, I cited a number of cases in the brief about the definition of transactions under PACA.

[00:21:44] Speaker 01:
And essentially, whenever there are proceeds being remitted to a party, it's considered to be a PACA transaction.

[00:21:55] Speaker 01:
So here, Aptos entered into a relationship with Salinas Farms

[00:22:04] Speaker 01:
and ask them to come out and pay their own money.

[00:22:09] Speaker 01:
So Salinas Farms paid to grow the plants, they paid for the plants, they paid for irrigation, they paid for the harvest.

[00:22:17] Speaker 01:
And the only compensation that they were going to get is proceeds.

[00:22:21] Speaker 01:
And the only person that could sell and obtain proceeds was Driscoll.

[00:22:26] Speaker 01:
So this transaction could not have happened without all three parties being involved.

[00:22:32] Speaker 01:
And so it is a fiction to say that Driscoll's had no involvement.

[00:22:38] Speaker 01:
And Driscoll's was involved from this transaction, from the date the strawberry plants were planted,

[00:22:44] Speaker 01:
until the date that the last berry was harvested and they sold them.

[00:22:49] Speaker 01:
They were involved the whole time.

[00:22:51] Speaker 01:
They were not just a patent holder.

[00:22:53] Speaker 01:
They were the ones marketing the produce.

[00:22:57] Speaker 01:
If you look at the complaint, almost every single exhibit in the complaint has Driscoll's name on it, from the delivery receipts for the plants, from the receipts for picking up cartons, from the delivery receipts from the berries.

[00:23:11] Speaker 01:
This was start to finish a Driscoll's transaction.

[00:23:14] Speaker 01:
The contract states that Aptos was going to deliver the proceeds of sale and provide the accounting.

[00:23:22] Speaker 01:
Aptos failed to provide an accounting that met the requirements of PACA.

[00:23:27] Speaker 01:
They failed to make the disclosures that PACA requires in this type of transaction.

[00:23:34] Speaker 01:
Both parties violated federal law.

[00:23:38] Speaker 01:
Thank you.

[00:23:38] Speaker 04:
Thank you, counsel.

[00:23:39] Speaker 04:
We thank all counsel for their arguments, and the case is submitted.