Euler Hermes North America Insurance Company v. Mestizos Group LLC

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

EULER HERMES NORTH AMERICA §

INSURANCE COMPANY, §

§

Plaintiff, §

§ Civil Action No. 3:22-CV-01127-E

v. §

§

MESTIZOS GROUP LLC, GERARDO §

GUILLEN, MICHELL P. TORRES, and §

LUIS RODRIGUEZ, §

§

Defendants. §

MEMORANDUM OPINION AND ORDER

Before the Court is Plaintiff’s Motion for Default Judgment filed July 15, 2022 (“Plaintiff’s

Motion”) (Doc. 17), which seeks relief against Defendants Mestizos Group LLC (Mestizos);

Guillen; and Torres.1 Having reviewed Plaintiff’s Motion and the applicable law, the Court finds

that Plaintiff’s Motion for Default Judgment should be and is hereby GRANTED as follows.

I. BACKGROUND

On May 20, 2022, Plaintiff initiated this action against Defendants by verified complaint,

alleging numerous claims (i) under the Perishable Agricultural Commodities Act (PACA); (ii) for

breach of contract; (iii) for breach of guaranty agreement; (iv) for interference with receipt of trust

assets; and (v) for breach of fiduciary duty. (Doc. 1 at 12-23). The Complaint alleges Mestizos

entered into agreements with two companies—Produce Team, LLC (Produce Team) and London

Fruit, Inc. (London Fruit), collectively referred as Assignors—in transactions involving shipments

1 On July 1, 2022, Plaintiff requested the Court to terminate Defendant Rodriguez from the suit, which the

Court granted. (Docs. 15, 16).

of vegetable produce. (Doc. 1). The Complaint alleges Mestizos accepted and sold the produce but

did not pay the corresponding invoices from Produce Team and London Fruit. (Doc. 1).

Plaintiff asserts both Produce Team and London Fruit—both holders of USDA-issued

PACA licenses—assigned all right, title, and interest in the unpaid invoices to Plaintiff, and

Plaintiff insured the Assignors. (Doc. 1 at 8). The Complaint asserts (i) Mestizos “is the holder of

PACA license number 20210472, which the United States Department of Agriculture (USDA) issued

to Mestizos on or about February 12, 2021 and was active throughout Mestizos’ dealings with the

Assignors[.]” and (ii) Guillen and Torres (collectively referred as Principals) are or were both

employees, officers, directors, or members of Mestizos “in a position to exercise dominion and control

over Mestizos at all times relevant to this action and otherwise participated in the tortious conduct or

other wrongs set forth herein” (Doc. 1 at 2-3). Regarding Produce Team, the Complaint alleges:

22. Between August 5 and 27, 2021, Mestizos and Produce Team, LLC (“Produce

Team”) entered into a series of five (5) Produce transactions involving shipments

of tomatoes. At all times relevant hereto, Produce Team grew and sold Produce,

specifically fresh tomatoes.

23. The USDA provides a list of perishable agricultural commodities covered under

PACA, which includes tomatoes.

24. Mestizos received the Produce originating in Mexico from Produce Team at

their warehouse location in McAllen, Texas. Because Produce Team delivered

Produce originating in Mexico to Mestizos, through a warehouse located in

McAllen, Texas in the United States, the Produce transactions at issue herein took

place in interstate and foreign commerce.

25. Produce Team delivered Produce to Mestizos in shipments of Produce that

totaled or exceeded 2,000 pounds in weight. Because Mestizos received individual

shipments of produce weighing far in excess of 2,000 pounds, Mestizos was

engaged in the purchase of Produce in wholesale or jobbing quantities.

26. At all times relevant hereto, Mestizos was engaged, directly or indirectly, in the

business of purchasing and/or selling Produce in wholesale or jobbing quantities

and, therefore, is a “dealer” of Produce as defined by PACA.

27. At all times relevant hereto, Mestizos was engaged in the business, directly or

indirectly, of purchasing Produce from growers or others and distributing such

Produce in commerce by resale or other methods, and, is therefore a “shipper” of

Produce as defined by PACA.

28. Mestizos received and accepted all of the Produce from Produce Team Invoices.

29. Produce Team invoiced Mestizos for all of the Produce identified in the Produce

Team Invoices and Mestizos agreed that, “[a]fter payment is due, interest will

accrue on unpaid balances at a rate of 18% per annum until paid,” and that, “[i]n

the event a legal or other action is commenced to collect sums due under this

invoice, the prevailing party shall be entitled to

reimbursement of all costs and fees including reasonable attorney’s fees incurred.”

The total amount of the Produce Team invoices assigned to Euler Hermes is

$38,548.45.

30. Subsequent to Mestizos’ receipt and acceptance of the Produce identified in the

Produce Team Invoices, Produce Team assigned all right, title, and interest in and

to the resulting unpaid Produce Team Invoices to Euler Hermes, including any and

all PACA trust rights, and the right to receive payment under the Produce Team

Invoices.

31. Further, on information and belief, Mestizos sold all of the Produce described

in the Produce Team Invoices to third parties and collected the proceeds thereof.

(Doc. 1 at 6-8) (footnotes omitted). Regarding London Fruit, the Complaint alleges:

32. Between July 2 and August 24, 2021, Mestizos and London Fruit, Inc. (“London

Fruit”) entered into a series of two Produce transactions involving shipments of

avocados.

33. At all times relevant hereto, London Fruit grew and sold Produce, specifically

fresh avocados. The USDA provides a list of perishable agricultural commodities

covered under PACA, which includes avocados.

34. Mestizos received the Produce originating in Mexico from London Fruit at their

warehouse location in Pharr, Texas. Because London Fruit delivered Produce

originating in

Mexico to the Mestizos, which is located in Garland, Texas in the United States,

the Produce transactions at issue herein took place in interstate and foreign

commerce.

35. London Fruit delivered Produce to Mestizos in shipments of Produce that

totaled or exceeded 2,000 pounds in weight. Because Mestizos received individual

shipments of produce weighing far in excess of 2,000 pounds, Mestizos was

engaged in the purchase of Produce in wholesale or jobbing quantities.

36. At all times relevant hereto, Mestizos was engaged, directly or indirectly, in the

business of purchasing and/or selling Produce in wholesale or jobbing quantities

and, therefore, is a “dealer” of Produce as defined by PACA.

37. At all times relevant hereto, Mestizos was engaged in the business, directly or

indirectly, of purchasing Produce from growers or others and distributing such

Produce in commerce by resale or other methods, and, is therefore a “shipper” of

Produce as defined by PACA.

38. Mestizos received and accepted all of the Produce from London Fruit identified

in the London Fruit Invoices.

39. London Fruit invoiced Mestizos for all of the Produce identified in the London

Fruit Invoices. London Fruit and Mestizos agreed that, “[a]ll over due accounts

accrue interest at the rate of one percent (1%) per month,” and that Mestizos agreed

“[t]o pay all reasonable collection costs, attorney’s fees, and court costs incurred in

enforcing collection on this account.” The total amount of the London Fruit

invoices assigned to Euler Hermes is $21,440.00.

40. To secure credit with London Fruit, Guillen entered into and executed a

personal guaranty on July 2, 2021.

41. Subsequent to Mestizos’ receipt and acceptance of the Produce identified in the

London Fruit Invoices, London Fruit assigned all right, title, and interest in and to

the resulting unpaid London Fruit Invoices to Euler Hermes, including any and all

PACA trust rights, and the right to receive payment under the London Fruit

Invoices.

42. Further, on information and belief, Mestizos sold all of the Produce described

in the London Fruit Invoices to third parties and collected the proceeds thereof.

(Doc. 1 at 8-10) (footnotes omitted).

The Complaint further alleges that Assignors’ respective invoices for the outstanding

balance(s)—(i) Produce Team’s $38,548.45 balance at 18% per annum and (ii) London Fruit’s

$21,440 balance at 12% per annum (collectively referred as Invoices)—perfected and preserved

its PACA trust rights in and to each load of Produce listed therein because each Invoice stated:

The perishable agricultural commodities listed on this invoice as sold subject to the

statutory trust authorized by Section 5(c) of the Perishable Agricultural

Commodities Act, 1930 (7 USC § 499e(c)). The seller of these commodities retains

a trust claim over these commodities, all inventories of food or other products

derived from these commodities, and any receivables or proceeds from the sale of

the commodities until full payment is received.

(Doc. 1 at 10-11). The Complaint alleges that (i) Plaintiff has the right to receive proceeds from

the Invoices and (ii) Mestizos failed to pay the total of the Invoices, despite demands from

Plaintiff’s collection agent. (Doc. 1 at 11).

The Complaint alleges Mestizos—by and through its principals—engaged in bad faith

dealings with Assignors because (i) “Mestizos failed to preserve sufficient funds to fully satisfy

all qualified PACA claims”; (ii) “failed to ensure that its funds were freely available to satisfy its

outstanding obligations to” the PACA trust rights; (iii) Mestizos lacked the liquidity or free cash

flow to pay” the Invoices; and (iv) “Mestizos lacked adequate capitalization to pay its Produce

suppliers and to sustain any losses resulting from its inability to collect upon its own accounts

receivables.” (Doc. 1 at 11-12). The Complaint asserts “Mestizos improperly shifted the risk of

Mestizos’ undercapitalization or bad debt risk to Assignors” and that “Mestizos was insolvent.”

(Doc. 1 at 12).

The Court issued summons on May 23, 2022. (Doc. 7). Thereafter, Plaintiff filed proofs of

service, which show Defendants Mestizos, Guillen, and Torres were served with a copy of the

summons and complaint on May 24, 2022, respectively. (Docs. 10-12). Defendants did not file an

answer or other responsive pleading “within 21 days after being served with the summons and

complaint.” Fed. R. Civ. P. 12(a)(1)(A)(i). Plaintiff moved for the Clerk’s entry of default on June

30, 2022, (Doc. 13), which the Clerk entered on July 1, 2022. (Doc. 14). The Complaint and

Plaintiff’s Motion both seek monetary damages, injunctive relief, and attorney’s fees. (Docs. 1,

17). Defendants did not respond to Plaintiff’s Motion. The issue is now ripe for consideration.

II. LEGAL STANDARD

The Fifth Circuit favors resolving cases on their merits and generally disfavors default

judgments. Rogers v. Hartford Life & Accident Ins. Co., 167 F.3d 933, 936 (5th Cir. 1999); see

also Sun Bank of Ocala v. Pelican Homestead & Sav. Ass’n, 874 F.2d 274, 276 (5th Cir. 1989)

(“Default judgments are a drastic remedy, not favored by the federal rules and resorted to by the

courts only in extreme situations.”). This policy, however, is “counterbalanced by considerations

of social goals, justice, and expediency, a weighing process [that] lies largely within the domain

of the trial judge’s discretion.” Rogers, 167 F.3d at 936 (quoting Pelican Prod. Corp. v. Marino,

893 F.2d 1143, 1146 (10th Cir. 1990) (internal quotations omitted)); see also Merrill Lynch Mortg.

Corp. v. Narayan, 908 F.2d 246, 253 (7th Cir. 1990) (noting that default judgments allow courts

to manage their dockets “efficiently and effectively”).

Thus, entry of a default judgment is within the Court’s discretion. Lindsey v. Prive Corp.,

161 F.3d 886, 893 (5th Cir. 1998) (“[A] district court has the discretion to decline to enter a default

judgment.”). The Fifth Circuit looks to the following six factors when considering whether to enter

a default judgment: (i) if the default was caused by a good faith mistake or excusable neglect; (ii) if

there has been substantial prejudice; (iii) the harshness of a default judgment; (iv) if there are

material issues of fact; (v) if grounds for a default judgment are clearly established; and (vi) if the

court would think itself obligated to set aside the default on the defendant’s motion. Lindsey, 161

F.3d at 893 (holding that a district court did not abuse its discretion when denying a motion for

default judgment when these factors weighed against granting the motion).

The determination of whether to enter a no-answer default judgment involves a three-step

analysis. New York Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996). First, it must be found

that—after service—a defendant failed to plead or otherwise respond to the complaint within the

time required by the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 12(a)(1)(A)(i). Second,

the Clerk must have entered a default—after default was established by affidavit or otherwise. Fed.

R. Civ. P. 55(a). Third, a plaintiff must have applied for a default judgment and proven entitlement

to same. Fed. R. Civ. P. 55(b)(2) (“the party must apply to the court for a default judgment.”).

III. ANALYSIS

A. Whether Defendants Failed to Timely Plead or Otherwise Respond to the Complaint

As a prerequisite for the Defendants’ obligation to answer or respond to a suit, the Court

must determine whether Plaintiff properly served Defendants. Fed. R. Civ. P. 4(c). Federal Rule

of Civil Procedure 4(h) describes the process for serving a corporation, partnership, or

association—such as Mestizos. Fed. R. Civ. P. 4(h). If the association is served within a judicial

district of the United States, it may be served “in the manner prescribed by Rule 4(e)(1) for serving

an individual.” Fed. R. Civ. P. 4(h)(1)(A-B). Federal Rule of Civil Procedure 4(e)(1) states:

(e) Serving an Individual Within a Judicial District of the United States. Unless

federal law provides otherwise, an individual—other than a minor, an incompetent

person, or a person whose waiver has been filed—may be served in a judicial

district of the United States by:

(1) following state law for serving a summons in an action brought in courts

of general jurisdiction in the state where the district court is located or where

service is made[.]

Fed. R. Civ. P. 4(e)(1). Thus, under Rule 4(e)(1), the Court looks to the Texas Rules of Civil

Procedure to determine propriety of service. Fed. R. Civ. P. 4(e)(1). Under the Texas Rules of

Civil Procedure, service may be effectuated by “delivering to the defendant, in person, a copy of

the citation, showing the delivery date, and of the petition.” Tex. R. Civ. P. 106(a)(1). Under Texas

law, filing entities—including limited liability companies—may be served through their president,

vice president, or registered agent. Tex. Bus. Orgs. Code Ann. § 5.201(b) (“The registered agent

. . . is an agent of the entity on whom may be served any process, notice, or demand required or

permitted by law to be served on the entity[.]”); see also Bus. Orgs. § 5.255(1). Texas law requires

“strict compliance with the rules for service.” Primate Const., Inc. v. Silver, 884 S.W.2d 151, 152

(Tex. 1994).2

Texas Rule of Civil Procedure 107 enumerates the information that must appear on the

return of service. Tex. R. Civ. P. 107(b)(9), (10).

The return of service is not a trivial, formulaic document. It has long been

considered prima facie evidence of the facts recited therein. . . . . The recitations in

the return of service carry so much weight that they cannot be rebutted by the

uncorroborated proof of the moving party.”

Primate, 884 S.W.2d at 152 (internal citations and parentheticals omitted).

2 “There are no presumptions in favor of valid issuance, service, and return of citation in the face of a writ

of error attack on a default judgment.” Primate Const., Inc. v. Silver, 884 S.W.2d 151, 152 (Tex. 1994).

Here, the return of service documents provide the summons and complaint were delivered

to Defendant Mestizos by personal service on May 24, 2022. (Doc. 11). The return of service

otherwise meets the requirements for effective service under Texas law. See Tex. R. Civ P. 106,

107. Thus, Plaintiff effectively served Defendant Mestizos in accordance with both the Federal

and Texas law. See Fed. R. Civ. P. 4(e)(1), (h); Tex. R. Civ. P. 106(a)(1); Bus. Orgs. § 5.201(b).

On the record before the Court, there is no evidence to rebut the recitations of service. See Primate,

884 S.W.2d at 152. The Court must conclude Plaintiff properly served Mestizos.

Regarding service on individual Defendants Guillen and Torres, Rule 4 provides for

personal service of the summons on individuals by “delivering a copy of the summons and of the

complaint to the individual personally[.]” Fed. R. Civ. P. 4(e)(2)(a). Here, the returns of service

documents provide the summons and complaint were delivered to Defendants Guillen and Torres

by personal service on May 24, 2022. (Docs. 10, 12). The returns of service otherwise meet the

requirements for effective service under Federal law. Fed R. Civ. P. 4(e)(2)(a); see also Tex. R.

Civ P. 106, 107. Thus, Plaintiff effectively served Defendant Mestizos in accordance with Federal

law. See Fed. R. Civ. P. 4(e)(2)(a). On the record before the Court, there is no evidence to rebut

the recitations of service. See Fed. R. Civ. P. 4. The Court must conclude Plaintiff properly served

Guillen and Torres.

Despite receiving proper service, the Court’s docket and record show Defendants have not

filed an answer or other responsive pleading “within 21 days after being served with the summons

and complaint.” Fed. R. Civ. P. 12(a)(1)(A)(i). To date, no Defendant has filed any answer or any

responsive pleading in this case. Thus, the Court must also conclude that Defendants failed to

timely plead or otherwise respond to the complaint under the Federal Rules of Civil Procedure.

See Fed. R. Civ. P. 12(a)(1)(A)(i).

B. Whether the Clerk Entered a Default in Accordance with Federal Rule of Civil

Procedure 55

Regarding entry of a default, Federal Rule of Civil Procedure 55 states:

(a) Entering a Default. When a party against whom a judgment for affirmative

relief is sought has failed to plead or otherwise defend, and that failure is shown by

affidavit or otherwise, the clerk must enter the party’s default.

Fed. R. Civ. P. 55(a). As concluded above, Defendants failed to plead or otherwise defend against

Plaintiff’s claims in this case. See Fed. R. Civ. P. 55(a).

Here, Plaintiff supported its request for entry of Clerk’s default with a declaration from

Plaintiff’s counsel, Nicholas R. O’Conner. (Doc. 13-1 at 2-3). The O’Conner declaration declares,

under penalty of perjury, that

Defendants Mestizos, Guillen, and Torres were served with the summons and a

copy of the Original Complaint on May 24, 2022, at 125 E. Schreiber Street,

Garland, Texas 75040. Defendants Mestizos, Guillen, and Torres’ answers or other

response to the Original Complaint was due on or before June 15, 2022.

I further certify that Defendants Mestizos, Guillen, and Torres have failed to serve

an answer or other responsive pleading; no extension has been granted or any

extension has expired; and we have no reason to believe Defendants Mestizos,

Guillen, and Torres are infants (under the age of 21) or incompetent persons.

Euler Hermes and the undersigned have determined that Defendants Mestizos,

Guillen, and Torres are not in the military services.

(Doc. 13-1 at 2-3). The O’Conner declaration is otherwise consistent with the returns of service.

(Docs. 10-12). Upon review of Plaintiff’s request for entry of Clerk’s default, the corresponding

O’Conner declaration, and the returns of service, the Court must conclude the Clerk properly

entered a default against Defendants in accordance with Rule 55. See Fed. R. Civ. P. 55(a).

C. Whether Plaintiff Applied for and Has Proven Entitlement to Default Judgment

i. Whether an Entry of Default Judgment is Procedurally Warranted

Demonstrably, Plaintiff has applied for default judgment against Defendants. (Doc. 17).

Next, the Court determines whether Plaintiff has proven entitlement to default judgment—

beginning with whether default judgment is procedurally warranted under the six Lindsey factors.

See Lindsey, 161 F.3d at 893. First, Defendants have not filed any responsive pleadings, so there

exists no material issues of fact. Lindsey, 161 F.3d at 893; Nishimatsu Const. Co. v. Houston Nat.

Bank, 515 F.2d 1200, 1206 (5th Cir. 1975) (“[t]he defendant, by his default, admits the plaintiff’s

well-pleaded allegations of fact”). Second, Defendants’ “‘failure to respond threatens to bring the

adversary process to a halt, effectively prejudicing Plaintiff’s interests.’” J & J Sports Prods., Inc.

v. Morelia Mexican Rest., Inc., 126 F. Supp. 3d 809, 814 (N.D. Tex. 2015) (quoting Ins. Co. of the

W. v. H & G Contractors, Inc., No. C-10-390, 2011 WL 4738197, at *3 (S.D. Tex. Oct. 5, 2011)).

Third—given that Defendants have had sufficient time to file either an answer to Plaintiff’s

complaint or explain why they has not done so—the grounds for default are clearly established.

Cf. Elite v. KNR Grp., No. 99-41263, 2000 WL 729378, at *1 (5th Cir. May 19, 2000) (per curiam)

(holding default judgment to be inappropriate where defendant sent letter to court explaining his

failure to appear was due to financial privation). Fourth, there is no evidence before the Court to

suggest Defendants’ silence is the result of a “good faith mistake or excusable neglect.” Lindsey,

161 F.3d at 893. Fifth, Plaintiff seeks only the relief the law provides, which “mitigat[es] the

harshness of a default judgment.” John Perez Graphics & Design, LLC v. GreenTree Inv. Grp.,

Inc., No. 12-CV-4194-M, 2013 WL 1828671, at *3 (N.D. Tex. May 1, 2013). Finally, the Court is

not aware of any facts that would give rise to “good cause” to set aside the default if it were

challenged by Defendants. Lindsey, 161 F.3d at 893. For those reasons, the Court must conclude

default judgment against Defendants is procedurally warranted. Lindsey, 161 F.3d at 893.

ii. Whether There is a Sufficient Basis in the Pleadings for a Default Judgment

Where, as here, a default has been entered under Rule 55, “the factual allegations of the

complaint are taken as true.” Pathway Senior Living LLC v. Pathways Senior Living LLC, No.

3:15-CV-02607-M, 2016 WL 1059536, at *2 (N.D. Tex. Mar. 17, 2016).3 And, as discussed above,

the result of this default is that Defendants have admitted to Plaintiff’s well-pleaded allegations of

fact. Nishimatsu, 515 F.2d at 1206. Nonetheless, the Court must review the pleadings to determine

whether they present a sufficient basis for Plaintiff’s claims for relief. Nishimatsu, 515 F.2d at

1206.

In determining whether there is a sufficient basis in the pleadings for judgment, the Fifth

Circuit “draw[s] meaning from the case law on Rule 8.” Wooten v. McDonald Transit Assocs.,

Inc., 788 F.3d 490, 497 (5th Cir. 2015). Factual allegations in the complaint need only “be enough

to raise a right to relief above the speculative level, on the assumption that all the allegations in

the complaint are true (even if doubtful in fact).” Wooten, 788 F.3d at 497 (quoting Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 555 (2007)). The pleading must present “more than an unadorned, the-

defendant-unlawfully-harmed-me accusation,” but “detailed factual allegations” are not

required. Wooten, 788 F.3d at 497 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). This “low

threshold” is less rigorous than that under Rule 12(b)(6). Wooten, 788 F.3d at 498. Recognizing

that “a defendant must invoke Rule 12 in order to avail itself of that Rule’s protections, [while] a

default is the product of a defendant’s inaction,” the Fifth Circuit has “decline[d] to import Rule 12

standards into the default-judgment context.” Wooten, 788 F.3d at 498 n.3. Furthermore, under

Rule 8(b)(6), “[a]n allegation—other than one relating to the amount of damages—is admitted if

a responsive pleading is required and the allegation is not denied.” Fed. R. Civ. P. 8(b)(6).

3 See generally Jackson v. FIE Corp., 302 F.3d 515, 525 (5th Cir. 2002) (citing 10A Charles Alan Wright,

Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 2688 (3d ed. 1998)).

a) Recovery Under PACA

Plaintiff first seeks liability against Defendant Mestizos under PACA. See generally

7 U.S.C. §§ 499a-499t. “In 1930, Congress enacted PACA to regulate the sale of perishable

agricultural commodities in interstate commerce.” Paisano Capital SA de CV v. 23 Tex. Produce,

Inc., No. 3:19-CV-0852-B, 2019 WL 3239152, at *3 (N.D. Tex. July 18, 2019) (citing Endico

Potatoes, Inc. v. CIT Grp./Factoring, Inc., 67 F.3d 1063, 1066 (2d Cir. 1995)). “[P]erishable

agricultural commodities” are defined as “[f]resh fruits and fresh vegetables of every kind and

character.” 7 U.S.C. § 499a(b)(4). The “PACA requires all commission merchants, dealers, and

brokers in perishable agricultural commodities to be licensed,” and it prohibits them “from

engaging in certain unfair trade practices, including a failure to pay promptly.” 7 U.S.C.

§ 499b(4); Paisano Capital, 2019 WL 3239152, at *3 (citing 7 U.S.C. § 499b(4)); see Matter of

Delta Produce, L.P., 845 F.3d 609, 612 (5th Cir. 2016).

Congress strengthened the PACA’s protections in 1984 to require produce buyers “to hold

either the produce or all proceeds or accounts receivable from a subsequent sale of produce in trust

for the benefit of unpaid sellers until ‘full payment of the sums owing in connection with the

transactions has been received by’ the supplier.” Matter of Delta Produce, 845 F.3d at 612–

13 (citing 7 U.S.C. § 499e(c)(2)); see Paisano Capital, 2019 WL 3239152, at *3–4. The trust is

created automatically “when the dealer [typically, the buyer] accepts the goods so long as the

supplier complies with the specific notice requirements set out in 7 U.S.C. § 499e(c) and 7 C.F.R.

§ 46.46(f).” Patterson Frozen Foods, Inc. v. Crown Foods Intern., Inc., 307 F.3d 666, 669 (7th Cir.

2002) (citation omitted); Paisano Capital, 2019 WL 3239152, at *4 (citing 7 U.S.C. § 499e(c)(2)).

A PACA trust has five elements:

(1) the commodities sold were perishable agricultural commodities; (2) the

purchaser of the perishable agricultural commodities was a commission merchant,

dealer, or broker; (3) the transaction occurred in interstate or foreign commerce;

(4) the seller has not received full payment on the transaction; and (5) the seller

preserved its trust rights by giving written notice to the purchaser within the time

provided by law.

Paisano Capital, 2019 WL 3239152, at *4 (citing 7 U.S.C. § 499e). Pertinent here—if the notice

is provided on the seller’s billing or invoice statement to the buyer—the billing or invoice

statement must contain the following exact language:

“The perishable agricultural commodities listed on this invoice are sold subject to

the statutory trust authorized by section 5(c) of the Perishable Agricultural

Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains

a trust claim over these commodities, all inventories of food or other products

derived from these commodities, and any receivables or proceeds from the sale of

these commodities until full payment is received.”

7 U.S.C.A. § 499e(4) (quotations in original). Without this language, the unpaid seller loses its

trust benefits unless it provides written notice as specified in 7 U.S.C. § 499e(c)(3).

If a commission merchant, dealer, or broker fails to “make full payment promptly in respect

of any transaction in any such commodity to the person with whom such transaction is had,” they

“shall be liable to the person or persons injured thereby for the full amount of damages . . .

sustained in consequence of such violation.” 7 U.S.C. §§ 499b(4), 499e(a).4 A buyer may be held

liable if it fails to “maintain trust assets in a manner that such assets are freely available to satisfy

outstanding obligations” to its suppliers. 7 C.F.R. § 46.46(d)(1). “Any act or omission which is

inconsistent with this responsibility, including dissipation of trust assets, is unlawful” and subjects

the dealer to liability. 7 C.F.R. § 46.46(d)(1).5 The trust rights created by the PACA ”take priority

4 “‘Full payment promptly’ means payment within ten days after the buyer accepts the produce.” Bocchi

Americas Assocs. Inc v. Com. Fresh Mktg. Inc., 515 F.3d 383, 388 (5th Cir. 2008) (citing 7 C.F.R. §

46.2(aa)(5),(11)).

5 This provision regarding PACA provides:

(1) Licensees and persons subject to license are required to maintain trust assets in a manner

so that the trust assets are freely available to satisfy outstanding obligations to sellers of

over the interests of all other creditors, including secured creditors.” Patterson Frozen Foods, 307

F.3d at 669; see Matter of Delta Produce, 845 F.3d at 613 (citing cases).

Liability under the PACA ”may be enforced either by (1) complaint to the Secretary [of

Agriculture] . . . , or (2) by suit in any court of competent jurisdiction[.]” 7 U.S.C. at

§§ 499e(b), 499f(a); see Patterson Frozen Foods, 307 F.3d at 669. Courts have interpreted the

current version of PACA as providing a cause of action only to a trust beneficiary and the Secretary

of Agriculture. E.g., Jacobs Silver K Farms v. Taylor Produce, L.L.C., 101 F. Supp. 3d 962, 968

(D. Idaho 2015) (“[T]he plain text of PACA does not expressly provide for a private right of action

for anyone other than the Secretary of Agriculture and the PACA trust beneficiaries.”). Thus, to

recover under PACA, Plaintiff must establish that it is a trust beneficiary, and that a PACA trust

was formed.6 Paisano Capital, 2019 WL 3239152, at *4.

Here, Plaintiff has established that (i) it is a trust beneficiary and (ii) a PACA trust was

formed. As discussed hereabove, the record shows Plaintiff—having been assigned all all right,

title, and interest from Assignors, including PACA trust rights—are entitled to proceed as a trust

beneficiary for the Invoices at issue. Next, the Complaint and corresponding attachments show:

(i) the commodities sold were perishable agricultural commodities of fresh tomatoes and fresh

perishable agricultural commodities. Any act or omission which is inconsistent with this

responsibility, including dissipation of trust assets, is unlawful and in violation of section

2 of the Act (7 U.S.C. 499b). Growers, licensees, and persons subject to license may file

trust actions against licensees and persons operating subject to license. Licensees and

persons subject to license are bound by the trust provisions of the Act (7 U.S.C. 499(e)).

7 C.F.R. § 46.46(d)(1).

6 “General trust principles govern PACA trusts unless the principle conflicts with PACA.” Nickey Gregory

Co., LLC v. AgriCap, LLC, 597 F.3d 591, 595 (4th Cir.2010); accord C.H. Robinson v. Alanco Corp., 239

F.3d 483, 487 (2d Cir.2001) (“Trusts created under PACA are statutory trusts, and common law trust

principles are not applicable if they conflict with the language of the statute, the clear intent of Congress in

enacting the statute, or the accompanying regulations.”); Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282

(9th Cir.1997).

avocados; (ii) as purchaser of the perishable agricultural commodities, Mestizos was a commission

merchant, dealer, or broker—licensed under the USDA, license number 20210472; (iii) the

transaction occurred in interstate or foreign commerce between Mexico and Texas; (iv) the sellers

(Assignors) have not received full payment on the transaction; and (v) the sellers (Assignors)

preserved their trust rights by giving written notice to the purchaser within the time provided by

law, including the mandatory statutory notice language.7 (Docs. 1, 1-1); see 7 U.S.C.A. § 499e(4).

Thus, Plaintiff has demonstrated that a PACA trust exists. See Paisano Capital, 2019 WL

3239152, at *4 (citing 7 U.S.C. § 499e). Consequently, the Court must find and conclude that

Plaintiff may recover under PACA.

b) Defendants’ Liability Under PACA

The Fifth Circuit has explained liability under PACA as follows:

We have recognized that PACA is a “tough law”. In addition to protecting

consumers, Congress expressly designed it to protect the producers of perishable

agricultural products, most of whom must entrust their products to a buyer who

may be thousands of miles away, and depend for their payment upon his business

acumen and fair dealing. An investor in a perishable commodities corporation

“should know at the beginning of his association with such a corporation that he is

‘buying into’ a corporation which is strictly regulated by the federal government

through PACA.”

PACA liability attaches first to the licensed commission merchant, dealer, or broker

of perishable agricultural commodities. If, however, the assets of the licensed

commission merchant, dealer, or broker are insufficient to satisfy the PACA

liability, then others may be held secondarily liable if they had some role in causing

the corporate trustee to commit the breach of trust.

Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir. 2000) (internal

footnotes omitted). Furthermore, “PACA requires corporate licensees [] to list on the license all

7 The record of Invoices show that the dates of the invoices were either the same day or one day after the

corresponding shipment of the Produce. (Doc. 1-1 at 20-24, 73-76).

officers, directors, and holders of more than 10% of the corporation’s stock.” Golman-Hayden,

217 F.3d at 352 n.19.

Here, Mestizos’ license shows “Reported Principal(s)” as Defendants Guillen and Torres.

(Doc. 1-1 at 4). Furthermore, the Business Organizations Inquiry from the Texas Secretary of State

show both Guillen and Torres as “Managers” of Mestizos. (Doc. 1-1 at 10). Coupled with the facts

alleged in the Complaint—that Guillen and Torres had control over Mestizos’ financial dealings,

including the PACA trust assets—the Court finds and concludes Guillen and Torres may be jointly

and severally liable with Mestizos.

c) Claim for Breach of Contract

Plaintiff further seeks recovery against Defendant Mestizos for breach of contract. Under

Texas law, the elements for a breach of contract are:

(1) a valid contract exists;

(2) the plaintiff performed or tendered performance as contractually required;

(3) the defendant breached the contract by failing to perform or tender performance

as contractually required; and

(4) the plaintiff sustained damages due to the breach.

Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd., 574 S.W.3d 882, 890 (Tex. 2019). Here, the

Complaint and corresponding attachments show that (i) Mestizos entered into valid contracts with

each Assignor; (ii) the Assignors performed under the contracts by delivering Produce;

(iii) Mestizos breached the contract by failing to pay for the Produce; and (iv) Assignors sustained

damages due to the breach in the form of unpaid invoices totaling to $59,988.45. (Doc. 1, 1-1).

Thus, the Court must find and conclude Plaintiff has demonstrated each element for a breach of

contract regarding both of Mestizos’s agreements with Produce Team and London Fruit.

d) Claim for Breach of Guaranty Agreement

Plaintiff seeks recovery against Guillen for the personal guaranty she executed to secure

credit with London Fruit. To recover pursuant to a guaranty, Plaintiff must prove:

(1) the existence and ownership of the guaranty contract, (2) the terms of the

underlying contract by the holder, (3) the occurrence of the conditions upon which

liability is based, and (4) the failure or refusal to perform the promise by the

guarantor.”

Haggard v. Bank of Ozarks Inc., 668 F.3d 196, 199 (5th Cir. 2012) (citing Marshall v. Ford Motor

Co., 878 S.W.2d 629, 631 (Tex. App.—Dallas, 1994, no writ)).

Here, the Complaint and corresponding attachments show (i) a guaranty contract existed

between Guillen and London Fruit; (ii) that Guillen would be jointly liable for all debts of Mestizos

including all reasonable collection costs, attorney’s fees and court costs to enforce collection;

(iii) that Mestizos failed to pay under the contract and the corresponding invoices are overdue; and

(iv) that Guillen has not paid under the guaranty. Thus, the Court must find and conclude Plaintiff

has demonstrated each element for a breach of guaranty agreement.

In summary, the Court finds and concludes Plaintiff has shown sufficient basis in the

Pleadings for recovery under PACA, for breach of contract, and for breach of guaranty agreement.

The Court next addresses Plaintiff’s various requests for relief.8

iii. Requests for Relief

Plaintiff’s requests for relief fall into three categories: (i) damages, including interest, from

the Invoices; (ii) a permanent injunction; and (iii) attorney’s fees. The Court next addresses each

request for relief.

8 Plaintiff’s Motion does not expressly seek relief regarding its remaining counts for interference with

receipt of trust assets or breach of fiduciary duty. (See Doc. 1 at 19-23).

First, the Court—having entered its findings and conclusions above regarding the Invoices,

recovery under PACA, breach of contract, and the guaranty agreement—must find and conclude

that Plaintiff is entitled to monetary judgment against Defendants, jointly and severally. Regarding

the Produce Team assignment, Plaintiff shall recover the amount of $38,548.45 with interest of

18% per annum ($19.01 per diem) from August 28, 2021, until the date of judgment from

Defendants. Regarding the London Fruit assignment, Plaintiff shall recover the amount of

$21,440.00 with interest of 12% per annum ($7.04 per diem) from August 26, 2021, until the date

of judgment from Defendants.

Second, the Court declines to enter injunctive relief against Defendants. Although Courts

have power to grant injunctions sought in motions for default judgment, the plaintiff must still

demonstrate it is entitled to a permanent injunction in its particular case. Pathway Senior Living

LLC, 2016 WL 1059536, at *4; see Fed. R. Civ. P. 54(c). A party seeking a permanent injunction

must demonstrate:

(1) that it has suffered an irreparable injury; (2) that remedies available at law, such

as monetary damages, are inadequate to compensate for that injury; (3) that,

considering the balance of hardships between the plaintiff and defendant, a remedy

in equity is warranted; and (4) that the public interest would not be disserved by a

permanent injunction.

Abraham v. Alpha Chi Omega, 708 F.3d 614, 626–27 (5th Cir. 2013). Although Plaintiff asserts it

has met the requirements for a permanent injunction, the Court finds and concludes that—on the

record before the Court—Plaintiff has not demonstrated entitlement to such injunctive relief.

Third, the Court finds and concludes Plaintiff is entitled to its reasonable attorney’s fees.

The Complaint and corresponding attachments show that Assignors and Mestizos respectively

agreed to reimburse the prevailing party in a legal action related to the transaction for the cost of

its attorney’s fees. (Doc. 1-1 at 13, 64). Furthermore, Texas Civil Practice and Remedies Code

§ 38.001 permits recovery of reasonable attorney’s fees, in accordance with the Court’s discretion,

“if the claim is for: . . . an oral or written contract.” Tex. Civ. Prac. & Rem. Code Ann.

§ 38.001(b)(8).9 Here, the dispute at issue involves written contracts. For those reasons, the Court

must find and conclude Plaintiff is entitled to award of reasonable attorney’s fees.

Consistent with Texas law, the Court uses the “lodestar method,” a “short hand version”

of the Arthur Andersen factors,10 to determine reasonable and necessary attorney’s fees. Rohrmoos

Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469, 496, 498 (Tex. 2019). The Court first

determines the reasonable hours spent by counsel and the reasonable hourly rate for counsel’s

work. El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 760 (Tex. 2012). Then, the Court multiplies the

number of reasonable hours counsel worked by the applicable rate to determine the lodestar, which

is presumed to reflect the reasonable and necessary attorney’s fees. Rohrmoos, 578 S.W.3d at 499.

The Court may adjust the lodestar up or down if relevant factors indicate an adjustment is

necessary. Rohrmoos, 578 S.W.3d at 500–01.

9 “Under Texas law, when a prevailing party in a breach of contract suit seeks fees, an award of reasonable

fees is mandatory, as long as there is proof of reasonable fees.” Mathis v. Exxon Corp., 302 F.3d 448, 462

(5th Cir. 2002).

10 These factors for determining whether an award of attorney’s fees is reasonable are:

(1) the time and labor required, the novelty and difficulty of the questions involved, and

the skill required to perform the legal service properly; (2) the likelihood ... that the

acceptance of the particular employment will preclude other employment for the lawyer;

(3) the fee customarily charged in the locality for similar legal services; (4) the amount

involved and results obtained; (5) the time limitations imposed by the client or by the

circumstances; (6) the nature and length of the professional relationship with the client; (7)

the experience, reputation, and ability of the lawyer or lawyers performing the services;

and (8) whether the fee is fixed or contingent on results obtained or uncertainty of

collection before the legal services have been rendered.

Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997) (citation omitted).

The party seeking attorney’s fees has the burden to provide sufficient evidence of both the

reasonable hours worked and the reasonable hourly rate. Rohrmoos, 578 S.W.3d at 498. “Sufficient

evidence includes, at a minimum, evidence of (1) particular services performed, (2) who performed

the services, (3) approximately when the services were performed, (4) the reasonable amount of

time required to perform the services, and (5) the reasonable hourly rate for each attorney

performing the services.” Rohrmoos, 578 S.W.3d at 498.

Here, Plaintiff submitted a declaration of its counsel, O’Conner, which testified to the

reasonableness and necessity of Plaintiff’s attorney’s fees. (Doc. 18 at 17-21). O’Conner testified

to a total of $25,884.50 attorney’s fees for invoiced time and $2,458.27 in invoiced expenses. (Doc.

18 at 19-20). O’conner testifies he is familiar with the usual and customary fees charged in Texas

for legal services rendered in cases such as this one and is familiar with the work done to prosecute

Plaintiff’s claims. (Doc. 18 at 20-21). O’Conner’s declaration attaches partially redacted invoices

to Plaintiff for attorney’s fees, which show the information required under the lodestar method and

Rohrmoos. See Rohrmoos, 578 S.W.3d at 498. The Court finds that these rates are customary in

the community and the fees and costs requested are reasonable and were reasonably necessary to

prosecute this action. Accordingly, Plaintiff is entitled to an award of attorney’s fees and costs in

the amount of $28,342.77.

IV. CONCLUSION

For the reasons above, Plaintiff’s Motion for Default Judgment, (Doc. 17), is GRANTED.

It is ORDERED that default judgment be entered for Plaintiff, Euler Hermes North America

Insurance Company in the amount of (i) $59,988.45 in actual damages; (ii) $14,211.33 in

interest!'; and (iii) $28,342.77 in reasonable attorney’s fees and costs. In accordance with Rule 58

of the Federal Rules of Civil Procedure, a default judgment will issue by separate document.

SO ORDERED.

24th day of February, 2023.

ADA BROWN

UNITED STATES DISTRICT JUDGE

Calculated as of August 28, 2021, and August 26, 2021, respectively.

MEMORANDUM OPINION AND ORDER Page 21 of 21