NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS MAR 20 2023

MOLLY C. DWYER, CLERK

FOR THE NINTH CIRCUIT U.S. COURT OF APPEALS

EAGLE EYE PRODUCE, INC., an Idaho No. 21-16274 corporation, D.C. No. 4:16-cv-00103-SHR Plaintiff-Appellee,

v.

MEMORANDUM*

AGRICOLA FAADER S.P.R. DE R.L., a Mexican rural production society;

FERNANDO ESPINOZA DE LOS

MONTEROS BAZUA, a resident of the Republic of Mexico; SANTA SOFIA HORTICOLA S.A. DE C.V., a Mexican Corporation,

Defendants-Appellants.

Appeal from the United States District Court for the District of Arizona Scott H. Rash, District Judge, Presiding

Argued and Submitted June 14, 2022 San Francisco, California

Before: BYBEE, CALLAHAN, and COLLINS, Circuit Judges.

Defendants Agricola Faader S.P.R. de R.L. (“Faader”), Fernando Espinoza

De Los Monteros Bazua (“Espinoza”), and Santa Sofia Horticola S.A. de C.V.

(“Santa Sofia”) (collectively, “Defendants”) appeal from the district court’s entry

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. of a consent judgment, which expressly preserved Defendants’ right to appeal

specified adverse orders that had been entered earlier in the case. The district court

had jurisdiction under 28 U.S.C. § 1332, and we have jurisdiction under 28 U.S.C.

§ 1291. We affirm.

1. We reject Defendants’ challenge to the district court’s August 2018 order

holding that, as a sanction for Defendants’ failure to comply with the court’s

January 2018 discovery order, it would be “taken as established for purposes of the

action[] that Santa Sofia is the successor entity to FAADER.”

After a protracted discovery dispute, the district court in January 2018

granted Plaintiff’s motion to compel under Federal Rule of Civil Procedure 37, and

the court ordered Defendants to produce “all 2016 & 2017 financial records by

February 3, 2018.” The district court did not clearly err in concluding that

Defendants had failed to comply with the January 2018 order. See Merchant v.

Corizon Health, Inc., 993 F.3d 733, 739 (9th Cir. 2021) (holding that “any factual

findings related to [a discovery] sanction are reviewed for clear error”).

Defendants contend that, with respect to the categories of unproduced documents

referenced in the August 2018 order, Defendants had produced either the

documents in question or other documents from which the information could be

derived. But even if Defendants are correct that some of the referenced documents

(such as a checkbook register and many weekly financial reports) had already been

2 produced, many others had not. Indeed, after the August 2018 sanctions order,

there was a substantial production of further documents from Santa Sofia—

including tax returns,1 additional electronic records, and additional hardcopy

financial records—and that belated production underscores the extent of

Defendants’ failure to comply with the January 2018 order.2 And although the

language of the January 2018 order could have been more clearly expressed, its

meaning was clear enough, especially in light of the particulars of the parties’

disputes that preceded it.

The district court did not abuse its discretion in choosing to impose an issue

sanction for Defendants’ failure to comply with the January 2018 discovery order.

See Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096

(9th Cir. 2007) (“We review discovery sanctions for abuse of discretion”). Rule 37

expressly grants district courts discretion to direct, as a sanction for failure to

1 We reject Defendants’ contention that tax returns do not qualify as “financial records” within the scope of the January 2018 order. Plaintiff’s description of the range of financial records sought in its motion to compel, as set forth in the detailed request-by-request schedule required by the local rules, see D. ARIZ. L. CIV. R. 37.1, clearly confirmed that tax returns were being sought by that motion. Accordingly, construed in context of the parties’ moving papers, the court’s order required the production of tax returns for 2016 and 2017. 2 Defendants complain that the district court’s order failed to separately discuss the various defendants, but there was no prejudicial error. Faader and Espinoza failed even to respond to the motion for sanctions, and Plaintiff’s presentation concerning their failure to comply with the January 2018 order therefore stood largely unrebutted. Santa Sofia, by contrast, did defend its document production, but as we have explained, the district court did not commit clear error in concluding that its production efforts were insufficient.

3 comply with a discovery order, that “designated facts be taken as established for

purposes of the action.” See FED. R. CIV. P. 37(b)(2)(A)(i). Moreover, the issue

taken as established by the district court bore “a reasonable relationship to the

subject of discovery that was frustrated by sanctionable conduct.” Navellier v.

Sletten, 262 F.3d 923, 947 (9th Cir. 2001). Plaintiff explained in its motion to

compel that it sought the requested financial documents from Defendants precisely

in order to understand the relationship between Faader and Santa Sofia and to

establish that “Santa Sofia can be deemed the successor to FAADER.” Defendants

argue that only the initial alleged transfers of assets between Faader and Santa

Sofia in 2015 were relevant, and that additional financial records from 2016 and

2017 were immaterial to the successor issue. But the district court did not abuse its

discretion in ordering discovery of a broader range of financial information, which

could conceivably elucidate more clearly the financial relationship between the

two companies after Santa Sofia’s formation. Nor did it abuse its discretion in

subsequently ruling that, when Defendants failed to comply, this particular

sanction should be imposed with respect to the relevant issue that was the subject

of that discovery.

Finally, Defendants assert that the district court’s issue sanction amounted to

a “terminating sanction” that could not be imposed unless the court first made a

finding of willfulness and applied the multipart test for “determin[ing] whether a

4 case-dispositive sanction under Rule 37(b)(2) is just.” Conn. Gen. Life, 482 F.3d

at 1096. But the class of such “case-dispositive” sanctions does not include one

that, “although onerous, was less than a dismissal.” Yeti by Molly, Ltd. v. Deckers

Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001); see also Conn. Gen. Life, 482

F.3d at 1096 (describing a “terminating sanction” as a “default judgment against a

defendant or dismissal of a plaintiff’s action”). As the continued litigation that

followed the sanction order confirms, the court’s issue sanction was not case-

dispositive and did not amount to a dismissal. Cf. Hester v. Vision Airlines, Inc.,

687 F.3d 1162, 1169–70 (9th Cir. 2012) (identifying “an adverse inference

instruction” as a “less drastic sanction[]” than default judgment).

2. Defendants contend that the district court erred in granting Plaintiff’s

partial summary judgment motion, but we find no reversible error.

a. We reject Defendants’ challenge to the district court’s order granting

Plaintiff’s motion to strike certain items of evidence that Defendants submitted

with their opposition to Plaintiff’s summary judgment motion. By its plain terms,

that order struck only paragraphs 9, 12, and 16, and Exhibits E and J, of Espinoza’s

declaration in opposition to summary judgment. Because the “USDA Market

News Reports” attached to Espinoza’s declaration were contained in Exhibit D,

Defendants are simply wrong in contending that the order struck them.

Exhibits E and J consisted of spreadsheets in which Espinoza purported to

5 undertake certain analyses of underlying pricing data, and Espinoza sought to

authenticate these analyses in Paragraphs 12 and 16 of his declaration. Defendants

do not contest that these August 2019 analyses were not disclosed before the May

9, 2019 deadline for the completion of discovery, but Defendants argue that it

makes no sense for the district court to have stricken Espinoza’s analyses when the

underlying data remained in the summary judgment record. This argument,

however, merely underscores that, even if there was any error by the district court,

it was harmless. If, as Defendants contend, Espinoza’s analysis merely consisted

of simple comparison and “addition of numbers in the unstruck exhibits,” the

striking of those exhibits makes no ultimate difference to the range of inferences

that a reasonable jury could draw from the underlying data. And, as we explain

below, the underlying materials that Espinoza analyzed are insufficient to defeat

summary judgment. See infra at 8–10.

Paragraph 9 of Espinoza’s declaration merely set forth his subjective

understanding of the contractual language concerning Plaintiff’s obligation to

“endeavor to obtain the best prices.” But even assuming that it was erroneous to

strike this paragraph, any error was harmless given that the contracts remained in

the summary judgment record and Espinoza’s brief description of his subjective

understanding of the contracts’ meaning adds nothing to the relevant contractual

analysis. See infra at 10–11 (explaining that, under Arizona law, a contract is

6 construed in accordance with the objective meaning of its terms).

b. Defendants assert that the district court erred in granting summary

judgment to Plaintiff with respect to Defendants’ counterclaims and related

affirmative defenses and with respect to the issue of Defendants’ liability on

Plaintiff’s claim for breach of contract. Specifically, Defendants allege that the

district court erred in finding no triable issue of material fact as to (1) whether

Plaintiff failed to endeavor to obtain the best prices; (2) whether Plaintiff engaged

in self-dealing; and (3) whether the “Foodservice Rebate” charged by Plaintiff was

fictitious. We review the district court’s grant of summary judgment de novo, see

Sandoval v. County of Sonoma, 912 F.3d 509, 515 (9th Cir. 2018), and we construe

the evidence in the light most favorable to Defendants, see Frudden v. Pilling, 877

F.3d 821, 828 (9th Cir. 2017). We affirm the district court’s grant of partial

summary judgment as to each of these three issues.

(i). There is no genuine dispute as to whether Plaintiff endeavored to get the

best prices.

The relevant contracts required Plaintiff to “endeavor to obtain the best

prices for the kind and quality of crops produced,” but they also stated that Plaintiff

“makes no guarantee as to prices actually received for the Crops” (emphasis

added). Thus, on their face, the contracts did not guarantee that Defendants would

actually receive the best prices, but only that Plaintiff would “endeavor” to obtain

7 such prices. Accordingly, to create a genuine issue as to whether Plaintiff

complied with this obligation, Defendants had to do more than simply show that

others in the market obtained higher prices; they had to show that Plaintiff failed to

“endeavor” to obtain the best prices that were reasonably available under the

circumstances. Defendants failed to do so.

Defendants rely heavily on the USDA Market News Reports, which they

contend show that the market average prices were above those obtained by

Plaintiff. But even assuming that that is what these reports show, that would

merely establish that Plaintiff did not succeed in obtaining the best prices. Without

more, these reports do not show that Plaintiff did not endeavor to obtain such

prices.

Defendants contend that Plaintiff’s failure to endeavor to obtain better prices

is shown by what they assert is record evidence of Plaintiff’s self-dealing.

Defendants point to invoices showing that Plaintiff sold some of the crops to Eagle

Eye Grape Guys, LLC (“EEGG”)—an affiliate of Plaintiff—and that EEGG

subsequently resold the products for a higher price, often times even on the same

day. In opposing summary judgment below, Plaintiff argued that these

discrepancies “could be explained by any number of factors including billing of

freight charges in the invoice price or other factors not attributable to any

wrongdoing,” and that Defendants had presented no evidence to guide the trier of

8 fact in determining what inferences to draw from the bare fact of the discrepancy.

We agree that the mere existence of such discrepancies, without more, does not

support a nonspeculative inference of self-dealing. Even assuming that Defendants

are correct in positing that Plaintiff’s sales to EEGG are essentially sales to itself,

such on-paper sales would not be expected to involve an actual movement of

goods, with associated freight charges, but the subsequent sales prices to outside

vendors would be expected to reflect such costs.3 Absent some record evidence to

elucidate these sorts of considerations, a jury would have to rely on sheer

speculation to know what to make of the same-day invoices with different prices.

Defendants simply failed to carry their burden to present evidence in opposition to

summary judgment that would address these critical gaps.

(ii). In addition to arguing that Plaintiff failed to obtain the best prices,

Defendants also contended that Plaintiff engaged in prohibited self-dealing in

violation of 7 C.F.R. § 46.29(c), a regulation issued under the Perishable

Agricultural Commodities Act, 7 U.S.C. § 499a et seq. That regulation provides

that a “commission merchant” such as Plaintiff may not sell “produce received on

consignment or joint account” to “any person or firm having direct or indirect

3 Indeed, in many of the instances in which there are same-day sales first to EEGG and then to the Kroger/Smith’s supermarket chain, the sales invoice to EEGG lists the place of delivery as “Kroger/Smith’s” or “Smith’s.” That confirms that there was no contemplated interim physical movement of goods to EEGG that would generate a need to cover freight costs, unlike the sales and deliveries to Kroger/Smith’s.

9 control over his business, without specific prior authority of the consignor or the

joint account partner.” See 7 C.F.R. § 46.29(c). However, in the contracts at issue,

Defendants expressly “acknowledge[d] and approve[d] the sale of the Produce to

companies related to [Plaintiff], specifically Eagle Eye California and Eagle Eye

Farms.” Even assuming arguendo that EEGG’s omission from the list of the two

companies “specifically” mentioned means that EEGG is not covered by this

language, Defendants have failed to present sufficient evidence to support the view

that Defendants were thereby affected in any way that would support their

counterclaims or affirmative defenses. Defendants’ sole theory on this score in

their opening brief is that sales to EEGG allowed Plaintiff to earn a “mark-up”

when the goods were promptly resold from EEGG to retailers, but that theory fails

for the reasons that we have already explained.

(iii). Defendants also failed to create a triable issue as to whether Plaintiff

impermissibly charged a “food service rebate.”

The plain language of the contracts states that, in addition to a “commission

equal to ten percent (10%) of the gross sales price of the Crops,” Plaintiff “shall

also charge a food service rebate of 2% of the gross sales price of the Crops.”

Although the labels attached to the two charges differ, the unambiguous meaning

of this language is that Plaintiff would charge a total of 12% of the gross sales

price. Espinoza stated in his declaration that he subjectively thought this language

10 meant that the moneys collected under this 2% charge would only be used by

Plaintiff to pay rebates to customers, but his declaration does not state that he ever

communicated that understanding of the language to Plaintiff prior to the execution

of the contracts. It is well settled that “the undisclosed intent, motive or opinion of

the signer is not admissible as evidence of the meaning of the written agreement.”

Helena Chem. Co. v. Coury Bros. Ranches, Inc., 616 P.2d 908, 913 (Ariz. Ct. App.

1980). Rather, “[a] contract is construed in accordance with the intention of the

parties as ‘judged by objective standards and not by their secret intentions or

motives.’” Id. (citation omitted). Here, the contractual language authorizing the

charge plainly imposes no such limitation on how the funds may be spent, nor does

it impose, for example, any requirement that Plaintiff first show that it owes

rebates to customers before it may collect the charge. It simply imposes an

additional 2% flat charge and calls it a “food service rebate.” Accordingly,

Defendants failed to raise a triable issue that Plaintiff breached the contracts in this

respect.

Finally, Espinoza’s declaration does not say that Plaintiff ever affirmatively

communicated to him that it shared his alleged subjective understanding of the 2%

charge, such that Espinoza was thereby misled in signing the contracts. Although

Espinoza’s declaration does contend that Plaintiff “apparently has the same

understanding” of what a “rebate” means, he based that claim only on an internal

11 spreadsheet created by Plaintiff after the contracts were signed. Defendants thus

failed to establish any fraud-based affirmative defense arising out of the

contractual provision imposing the 2% charge.

c. For the foregoing reasons, all of Defendants’ challenges to the district

court’s grant of partial summary judgment fail.

AFFIRMED.

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