2017-00218749-CU-BC

California Grown vs. Lopez AG Service, Inc.

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication

Filed By: Jaime, Matthew C.

Defendants Lopez AG Service, Inc. (“LAS”), Alfred Lopez, and Alfred Lopez, Jr.’s motion for summary judgment, or in the alternative, summary adjudication, is denied.

Defendants’ request for judicial notice is granted.

Plaintiffs California Gown, Green Wave Farm, and Green Wave, Inc. filed their

complaint against Kong Grow, LLC (“Kong Grow”) and Defendant LAS, Jeremy Olen, Alfred Lopez, and Alfred Lopez, Jr. Plaintiffs allege causes of action for negligence, negligent misrepresentation, intentional misrepresentation, breach of contract, strict liability, breach of express warranty and breach of the implied warranty of fitness. Plaintiffs operate three cannabis farms and allege that soil purchased Kong Grow contained contaminants or was unsuitable for growing cannabis plants and resulted in significant crop loss. The complaint seeks over $15 million in damages.

Since the motion was filed, Defendants Alfred Lopez and Alfred Lopez, Jr. have been dismissed from the action. As a result, the motion is for all intents and purposes only brought by Lopez AG Service, Inc. Therefore the Court will simply refer to LAS in addressing the arguments raised in support of the motion.

Any party may move for summary judgment in any action or proceeding if the party contends that (1) the action or proceeding has no merit or (2) there is no defense to the action or proceeding. CCP 437c(a). A cause of action has no merit if one or more of the elements of the cause of action cannot be separately established, even if that element is separately pleaded, or a defendant establishes an affirmative defense to that cause of action. CCP §437c(o).

The Court must grant a motion for summary judgment if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. (CCP §437c(c); Mann v. Cracchiolo (1985) 38 Cal.

3d 18, 35). Section 437c(c) imposes an affirmative duty on a Court to grant summary judgment motion in appropriate case. (Preach v. Moister Rainbow (1993) 12 Cal. App. 4th 1441, 1450). The Court must decide if a triable issue of fact exists; if none does, and the sole remaining issue is one of law, the Court has a duty to determine it. ( Pittelman v. Pearce (1992) 6 Cal. App. 4th 1436, 1441; see also Seibert Sec. Servs., Inc. v. Superior Court (1993) 18 Cal. App. 4th 394, 404).

In evaluating a motion for summary judgment or summary adjudication the court engages in a three step process. The Court first identifies the issues framed by the pleadings. The pleadings define the scope of the issues on a motion for summary judgment or summary adjudication. (FPI Dev. Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-382). Because a motion for summary judgment or summary adjudication is limited to the issues raised by the pleadings (Lewis v. Chevron (2004) 119 Cal. App. 4th 690, 694), all evidence submitted in support of or in opposition to the motion must be addressed to the claims and defenses raised in the pleadings. An issue that is “within the general area of issues framed by the pleadings” is properly before the court on a summary judgment or summary adjudication motion. (Lennar Northeast Partners v. Buice (1996) 49 Cal. App. 4th 1576, 1582-1583.) The Court cannot consider an unpleaded issue in ruling on motion for summary judgment or adjudication. Roth v. Rhodes (1994) 25 Cal.App.4th 530, 541. The papers filed in response to a defendant’s motion for summary judgment may not create issues outside the pleadings and are not a substitute for an amendment to the pleadings. Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1342.

Next, the Court is required to determine whether the moving party has met its burden. A defendant moving for summary judgment bears the burden of persuasion that one or more elements of the plaintiffs cause of action cannot be established, or that there is a complete defense to the cause of action. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal 4th 826, 850, quoting CCP §437c(p)(2)). A defendant is not required to

conclusively negate one or more elements of the plaintiffs cause of action; (Saelzer v Advance, Group 400 (2001) 25 C4th 763, 780-781). Rather, to meet its burden, the defendant is only required to show that the plaintiff cannot prove an element of its cause of action, i.e., that the plaintiff does not possess and cannot reasonably obtain evidence necessary to show this element. Aguilar v Atlantic Richfield Co., supra, 25 Cal 4th at pp. 853-855). Once the moving party has met its burden, the burden shifts to the opposing party to show that a material factual issue exists as to the cause of action alleged or a defense to it. CCP 437c(p). (see, generally Bush v. Parents Without Partners (1993) 17 Cal. App. 4th 322, 326-327). In ruling on the motion, the court must consider the evidence and inferences reasonably drawn from the evidence in the light most favorable to the party opposing the motion. (Aguilar, supra, 25 Cal.4th at p. 843.)

Once the burden shifts, Plaintiff may not rely on mere allegations or denials, but instead must set forth evidence of specific facts. (Code Civ. Proc, § 437c, subd. (o).) Speculation does not constitute the kind of “substantial responsive evidence” plaintiff needs to carry her burden on a motion for summary judgment. (Hersant v. Department of Social Services (1997) 57 Cal.App.4th 997,1009.)

The crux of the entire motion for summary judgment and the various motions for summary adjudication is that Plaintiffs have never had any interactions with LAS. LAS maintains that Plaintiffs brought this suit based on a sale of Jungle Dirt Premium Soil (“Jungle Dirt”) to use to grow and cultivate cannabis crops, the sale was conducted by Defendant Kong Grow, a separate company that purchased compost from LAS, and which made changes to the compost to create the material that was sold to Plaintiffs. According to LAS, neither LAS itself nor its CEO and owner Alfred Lopez and its employee Alfred Lopez, Jr., dealt directly with Plaintiffs. LAS contends that Kong Grow and its president Mitch Lopez had no authority to do business with Plaintiffs on LAS’s behalf.

LAS’s separate statement includes the following. Alfred Lopez is the President and Owner of LAS and is in charge of running LAS’s operations and equipment. Alfred Lopez has always been employed in the agricultural industry. Alfred Lopez is the father of Mitch Lopez and Alfred Lopez, Jr. Alfred Lopez, Jr. is an employee at LAS. Mitch Lopez has been an employee of LAS for 10 years and held the title of Transportation Director for approximately 8 years. (UMF 1-6) Mitch Lopez served as LAS’s Vice President from 2012 through 2016. Mitch Lopez ceased being Vice President because his father did not want him or his brother running the business. Mitch Lopez is not an officer or director of LAS. Mitch Lopez was expressly directed not to deal with members of the cannabis industry on LAS’s behalf. (UMF 7-15) Prior to this lawsuit Alfred Lopez had not done business with or had any communications with Plaintiffs and did not make any representations to Plaintiffs that Mitch Lopez (president and owner of Kong Grow) was authorized to do business with Plaintiffs on behalf of LAS. (UMF 16)

In addition to being a LAS employee, Mitch Lopez owns Kong Grow which does business as Jungle Dirt. Kong Grow is not affiliated with LAS and the two companies do not commingle funds. Alfred Lopez, Jr. is not involved with Kong Grow. Mitch Lopez has been Kong Grow’s CEO for the past five years. (UMF 26-27) Kong Grow is in the business of producing soil and sells Jungle Dirt. Kong Grow sells to the cannabis industry, organic growers, vegetable growers, and farmers. Kong Grow sells various types of Jungle Dirt. It sold Jungle Dirt compost with perlite to Plaintiffs. (UMF 28-33)

For its part, LAS manufactures organic compost. Its organic compost is subdivided into multiple lots. The compost undergoes regular testing by Sunland Labs in Rancho Cordova to ensure compliance with county regulations. The compost is tested for nutrients, heavy metals, E.Coli, and overall composition. LAS had approximately 18 or 19 employees in the summer of 2017. (UMF 34-38)

Kong Grow buys organic compost from LAS to use in creating Jungle Dirt. Kong Grow would bring its own loader to LAS to pick up the compost, and load it into the loader. The loader contained materials that were mixed into the compost to manufacture Jungle Dirt. After loading the compost and mixing it to create Jungle Dirt, the loader would be brought back to Kong Grow’s facilities. Alfred Lopez declares that he had no way of knowing what compost was incorporated into Jungle Dirt or how it was altered after it left LAS’s control. (UMF 39-42)

Plaintiffs allege that they met with Mitch Lopez to purchase soil, that they purchased soil and that their crops began to fail after using the soil.

Summary Judgment

LAS first argues that it is entitled to summary judgment because Mitch Lopez and Kong Grow had no actual or ostensible authority to bind LAS.

“To properly prove a contract claimed to be binding on the corporation, it should be shown that it was made on its behalf by someone who had authority to act for it. It must be shown that the officer was expressly authorized, or that the act was fairly within the implied powers incidental to his office, or that the corporation is stooped to deny his authority by reason of having accepted the benefit of the contract or otherwise.” (Meyer v. Glenmoor Homes, Inc. (1966) 246 Cal.App.2d 242, 252-253.) Stated otherwise, where a corporation holds out to the world as its agents persons apparently clothed with power to transact its ordinary business, third parties will not be permitted to suffer from the acts of such agents by the corporation’s attempted defense that the ostensible authority was not in fact conferred. (Dore v. Southern Pacific Co., 163 Cal. 182; Stevens v. Selma Fruit Co., Inc., 18 Cal. App. 242; Aigeltinger v. Burke, 176 Cal. 621.) An agent’s actual authority to bind a corporation may be express of implied. LAS points to its evidence that it never did business with Plaintiffs and that Mitch Lopez was acting for Kong Grow in contracting with Plaintiffs and only selling Jungle Dirt, a Kong Grow product, and further argues that Mitch Lopez had no authority to act on LAS’s behalf.

Assuming LAS’s evidence is sufficient to sustain its burden, Plaintiffs have demonstrated the existence of a triable issue of material fact. To that end they offer evidence that Mitch Lopez served as LAS’s Vice President until at least August/September 2017 which directly disputes LAS’s UMF 9 which states that he was LAS’s Vice President only until 2016. (Plfs’ Resp. UMF 9.) This alone requires that the motion be denied.

In addition, Plaintiffs present evidence that Mitch Lopez was asked to step down as LAS’s VP because of this lawsuit, which directly disputes UMF 11 which stated that he stepped down because Alfred Lopez did not want the brothers running the business. (Plfs’ Resp. UMF 11.) Plaintiffs provide evidence that Mitch Lopez was LAS’s VP at the time of the subject transactions, which directly disputes UMF 14 that he was not an

officer or director. (Plfs’ Resp. UMF 14.) Plaintiffs present evidence that Alfred Lopez, LAS’s CEO, knew and saw Mitch Lopez meeting with Plaintiffs at LAS’s service site to transact for compost to be used for growing cannabis, which directly disputes UMF 15 that states that Mitch was expressly directed not to deal with members of the cannabis industry. (Plfs’ Resp. UMF 15.) These triable issues of fact alone require the motion be denied, but there are more.

For example, Plaintiffs present evidence that they were looking to purchase OMRI Certified Soil and that they located LAS as a manufacturer in the area. (Plfs’ Additional Material Facts (“AMF”) 102, 103.) One of Plaintiffs’ representatives, Richard Saldago, contacted LAS at its listed phone number and spoke with Mitch Lopez. (AMF 103-105) Mr. Saldago asked Mitch Lopez if LAS sold soil for cannabis use and he responded that they did and that it was called “Jungle Dirt” and invited Mr. Saldago to “tour our facility.” (AMF 106-107) Plaintiffs’ representatives toured the facility on March 6, 2017 (again it must be noted Plaintiffs have presented evidence that Mitch Lopez was still the VP and Director of Sales and Marketing at the time). There was a sign at the facility that stated “SACRAMENTO COMPOST AND RECYCLING FACILITY, A SUBSIDIARY OF LOPEZ AG SERVICE, INC.” (AMF 108-109) There were no other signs or any identification of Kong Grow. Plaintiffs’ representatives were informed by Mitch Lopez that he developed Jungle Dirt and he stood on a pile of soil which he identified as Jungle Dirt. The pile was not segregated or marked off from any other soil to indicate that more than one company was doing business at the location. Mitch Lopez also indicated that the Jungle Dirt was OMRI certified. (AMF110-118) More representatives of Plaintiffs visited the same facility and had similar encounters with Mitch Lopez. (AMF 120-136) Anthony Vasquez then negotiated the price of the soil with Mitch Lopez and ultimately agreed on a price of $70 per yard. Mitch Lopez never informed any of Plaintiffs’ representatives that the agreement was with any entity other than LAS. (AMF 136-138) With each truckload of soil that Plaintiffs received, they were provided a delivery slip of LAS’s letterhead indicating that “Jungle Dirt” was delivered as opposed to organic compost (which box was unmarked). (AMF 142)

All of the above evidence creates clear and numerous triable issues of material fact as to whether Mitch Lopez had actual authority to act on LAS’s behalf, and/or whether LAS was itself the seller/distributor of the Jungle Dirt. As a result, the motion for summary judgment on the basis that Mitch Lopez lacked actual authority must be denied.

Given that there are triable issues on actual authority, the motion on the basis that Mitch Lopez lacked ostensible authority because LAS took no action to lead Plaintiffs to believe he had such authority must also be denied. Indeed, the same factual disputes exist. “Ostensible authority is such as a principal, intentionally, or by want of ordinary care, causes of allows a third person to believe the agent to possess.” (Civ. Code § 2317.) “It is elementary that there are three requirements necessary before recovery may be had against a principal for the act of an ostensible agent. The person dealing with the agent must do so with the belief in the agent’s authority and this belief must be a reasonable one; such belief must be generated by some act or neglect of the principal sought to be charged; and the third person in relying on the agent’s apparent authority must not be guilty of negligence. [citation omitted]” (Kaplan v. Coldwell Banker Residential Affiliates, Inc. (1997) 59 Cal.App.4th 741, 747.) Whether ostensible agency exists is a question of fact that may be implied from the circumstances. (Id. at 748.)

As set forth above, there are numerous disputes as to various UMFs which require the motion be denied. Further, the AMFs provided by Plaintiffs, as set forth above reveal that Plaintiffs contacted LAS at its phone number was invited by the then VP (Mitch Lopez) to “tour our” facility where they saw a sign “SACRAMENTO COMPOST AND RECYCLING FACILITY, A SUBSIDIARY OF LOPEZ AG SERVICE, INC.” and were shown Jungle Dirt which was not separated from any other type of soil and there were no indications that any other entity was involved and indeed Plaintiffs never were informed of Kong Grow. This creates a triable issue of fact as to whether Plaintiffs had a reasonable belief that Mitch Lopez had the authority to act on LAS’s behalf. Further the AMFs demonstrate that Alfred Lopez was at least aware that Mitch Lopez met with Plaintiffs at the LAS location, that there were no signs there identifying Kong Grow and that the delivery slips for the sales were on LAS’s letterhead showing delivery from LAS, not some other entity. This creates a triable issue of fact as to whether Plaintiffs’ belief that Mitch Lopez had the authority to act on LAS’s behalf was generated by some act or negligence on LAS’s part. As a result the motion premised on a lack of ostensible agency must be denied.

The Court notes that LAS objected to any evidence regarding statements made by Mitch Lopez as hearsay. However, as set forth above Plaintiffs’ evidence showed that he was LAS’s Vice President and Director of Sales and Marketing at the time the statements were made and if that is found to be true by the trier of fact the statements would fall within Evidence Code 1222.

As a result, the motion for summary judgment premised on the argument that Mitch Lopez lacked actual or ostensible authority to bind LAS is denied.

Summary Adjudication

First Cause of Action (Negligence)

LAS’s motion is denied. The essential elements of a negligence cause of action are

(1) duty, (2) breach, (3) causation, and (4) damages. (See Quelimane Co. v. Stewart Title Guar. Co. (1998) 19 Cal.4th 26, 57.) LAS argues that it owed no duty to Plaintiffs because the sale of compost from LAS to Kong Grow was not intended to benefit Plaintiffs and LAS had no direct dealings with Plaintiffs. LAS also argues that it did not cause injury to Plaintiffs because the compost it sold to Kong Grow was changed to create Jungle Dirt which is a superseding cause.

Here, the motion is premised on the identical 46 facts upon which the motion for summary judgment was based. Given that Plaintiffs’ disputed a number of those facts, the motion must necessarily be denied. Further the motion is premised on the contention that no duty was owed because LAS had no dealings with Plaintiffs and yet as set forth above there are numerous triable issues of material fact as to whether Mitch Lopez had the authority to act on LAS’s behalf in selling Kong Grow and whether in fact LAS was the actual seller. As a result there are triable issues of fact as to whether a duty was owed by LAS and whether LAS injured Plaintiffs.

The court need not address Plaintiffs’ arguments in opposition regarding breach, damages, etc. The motion was premised on a lack of duty and injury on the sole basis that LAS had no dealings with Plaintiffs.

LAS’s argument in reply that Plaintiffs’ opposition makes clear that the first cause of

action is superfluous of the negligence cause of action premised on products liability and that the motion should therefore be granted is rejected. This was not a basis for the instant motion.

Second and Third Causes of Action (Negligent and Intentional Misrepresentation)

LAS’s motion is denied. The elements of fraud “are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’);

(c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) The elements for negligent misrepresentation are similar except for the intent element. The motion is premised on the argument that LAS made no representations to Plaintiffs and any representation by Mitch Lopez is not attributable to LAS. Again, the motion is premised on the identical 46 facts upon which the motion for summary judgment was based a number of which are directly disputed. Given that Plaintiffs’ disputed a number of those facts, the motion must necessarily be denied. Also again, the motion is premised on the contention that LAS had no dealing with Plaintiffs and yet there are numerous triable issues of material fact as to whether Mitch Lopez had the authority to act on LAS’s behalf in selling Kong Grow and whether in fact LAS was the actual seller. As a result there are triable issues of fact as to whether LAS made a misrepresentation.

The Court need not address Plaintiffs’ arguments regarding intent, reliance, etc. Again the motion was premised on the alleged lack of dealings between LAS and Plaintiffs and Mitch Lopez’s lack of authority.

Fourth Cause of Action (Breach of Contract)

LAS’s motion is denied. The elements of a breach of contract cause of action are: (1) the existence of a contract; (2) Plaintiff’s performance or excuse for nonperformance;

(3) breach; and (4) that the breach caused Plaintiff’s harm. (Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913.) LAS argues that there is no evidence of any contract between itself and Plaintiffs which necessarily means there was no breach or any damage. Again this motion is based on the same 46 facts as the motion for summary judgment and at is core is premised on Mitch Lopez’s apparent lack of authority, an issue which is rife with triable issues of material fact.

The Court need not address Plaintiffs’ arguments in opposition regarding breach, etc. Again LAS did not specifically analyze any contract or breach but solely argued there was no contract that could have been breached based on the lack of dealings between LAS and Plaintiffs.

Fifth and Sixth Causes of Action (Strict Products Liability and Negligence for Manufacturing Defect)

LAS’s motion is denied. LAS argues that the compost it provided to Kong Grow which was incorporated into Jungle Dirt was not defective in any manner and that it was the Jungle Dirt itself that was defective. LAS points to case law holding that manufacturers are not liable when non-defective material they supply is substantially changed when incorporated into the end product and the supplier has a limited role in the design and development of the end product. (O’Neil v. Crane Co. (2012) 53 Cal.4th

335, 355.) Again, this motion is based on the same 46 facts as the motion for summary judgment and at is core is premised on Mitch Lopez’s apparent lack of authority. The motion must be denied for all the reasons set forth above.

The Court need not address Plaintiffs’ arguments in opposition regarding the soil containing high levels of Boron, etc. LAS’s motion merely assumes that the end product was defective but simply seeks to distance itself from the sale of Jungle Dirt to Plaintiffs. As set forth above there are a plethora of triable issues of material fact in that regard.

Seventh and Eighth Causes of Action (Breach of Express and Implied Warranties)

LAS’s motion is denied. LAS argues that there is no evidence of any express warranty because there was no contract between Plaintiffs and LAS and no implied warranty because there were no dealing between Plaintiffs and LAS. The motion is again based on the same 46 facts as the motion for summary judgment. Again as seen above there are numerous disputed issues of fact including whether Mitch Lopez had actual and/or ostensible authority to bind LAS and whether LAS was the actual seller of Jungle Dirt as a result.

Again, the Court need not address Plaintiffs’ arguments regarding the content of any warranty they argue was made by Mitch Lopez and the quality of the product. LAS only argued that it made no warranties because it had no contract or dealings with Plaintiffs.

Alter-Ego

LAS’s motion is denied. LAS argues that the alter-ego doctrine is inapplicable here to impose liability upon it as it was entirely separate from Kong Grow.

“In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist.” Second, there must be an inequitable result [to plaintiffs] if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 528 [citations omitted].)

“It is a fundamental rule that ‘[the] conditions under which the corporate entity may be disregarded, or the corporation be regarded as the alter ego of the stockholders necessarily vary according to the circumstances in each case inasmuch as the doctrine is essentially an equitable one and for that reason is particularly within the province of the trial court. Only general rules may be laid down for guidance.” ( Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.2d 825, 836-837.) There are numerous factors that the Courts will look to in making such a determination, including comingling funds, treating corporate assets as one’s own, failure to maintain corporate records, identical ownership in the two entities, use of same employees/attorneys, etc. (Id. 838-840.)

Here, the motion is denied as again it is based on the same 46 facts as the motion for summary judgment and there are numerous triable issues. Further, even if LAS was theoretically correct on this point, it would not completely dispose of any cause of

action, affirmative defense, claim for damages, or an issue of legal duty as required by CCP § 437c(f)(1). The statute is not intended to be available as a means of piecemeal disposition of cases. This is expressed by subdivision (f)(1), which was enacted to preclude, except as expressly provided, motions for summary adjudication of “issues”;

§ 437(c) does not permit adjudication or summary judgment as to isolated parts of a prayer for relief. “A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (C.C.P. § 437c(f).) As applied to the instant case, there are triable issues of material fact as to whether Mitch Lopez had the authority to bind LAS and/or whether LAS itself was the actual seller of the Jungle Dirt product.

In addition, Plaintiffs have provided evidence of common management between LAS and Kong Grow (e.g. Mitch Lopez), common physical location (with no indication that any entity other than LAS was doing business), similar employees, commingling of materials, meetings for the Jungle Dirt purchase were conducted at LAS, LAS captioned delivery slips were provided to Plaintiffs for purchases of Jungle Dirt, OMRI certification provided to Plaintiffs in the name of LAS, money from Kong Grow to LAS was never recorded or deposited in LAS’ accounts and was put into Alfred Lopez’s personal account, etc. (AMF 105, 107, 138, 142-144, 147-150, 152, 154-159, 161-163, 165, 167-170, 173-176) There are numerous triable issues of material fact.

The motion is denied in its entirety.

LAS’s evidentiary objections are overruled.

Plaintiffs’ counsel is directed to prepare an order for the Court’s signature pursuant to CCP § 437c(g) and CRC Rule 3.1312.