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BONAKDAR
Roger S. Bonakdar, #253920
(SPACE BELOW FOR FILING STAMP
E-FILED
1/18/2019 2:28 PM
ONLY)
2344 TULARE ST., SUITE 301 FRESNO COUNTY, SUPERIOR COURT
y: A. Rodriguez, Depu
FRESNO, CALIFORNIA 93721
PHONE (559) 495-1545
FAX (559) 495-1527
Attorney for Plaintiffs, RAUL SANTELLAN and RNS FARMS, LLC, a California Limited
Liability Company
SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 COUNTY OF FRESNO
10 CIVIL UNLIMITED DIVISION
OK
11
RAUL SANTELLAN, an individual; RNS Case No.: 19CECG00256
12 FARMS, a California Limited Liability
Company
13
Plaintiffs, COMPLAINT FOR: BREACH OF
14 FIDUCIARY DUTY; BREACH OF
Vv. CONTRACT; FRAUD; NEGLIGENCE;
15 TRESPASS & CONVERSION OF CHATEL;
JOHN G. HEIN, an Individual; MIKE WATTS DISSOLUTION; AND ACCOUNTING
16 (aka “Michael” Watts), an Individual;
SPECIALTY FRESH, a California Limited
17 Liability Company; GROW PURE CITRUS, a
California Limited Liability Company, GROW
18 PURE AGRIBUSINESS, a California Limited
Liability Company; and DOES 1 through 25,
19
Inclusive,
20
Defendants
21
22 COMES NOW THE PLAINTIFFS, RNS FARMS, LLC, (“RNS”) and RAUL
23 SANTELLAN (“Mr. Santellan”); RNS & Mr. Santellan are referred to hereinafter,
24 collectively as “Plaintiffs”), and hereinafter alleges as follows:
25 INTRODUCTORY ALLEGATIONS
26 1 Mr. Santellan is, and at all times mentioned herein was, an individual living
27 and working in Fresno County, and a member of RNS, and a member of GROW PURE
28 AGRIBUSINESS, LLC (herein “GPA”).
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2 RNS is a California Limited Liability Company, based out of Fresno County,
in the business of farming agricultural commodities; primarily citrus.
3 Plaintiffs are informed, believe, and herein allege that Defendant) OHN G.
HEIN (“Hein”) is an individual living and working in Fresno County, who is also the
principal of and sole agent for defendant SPECIALTY FRESH, LLC, and a member of
GPA.
4 Plaintiffs are informed, believe, and herein allege that Defendant
SPECIALITY FRESH (herein “SF”), is a California Limited Liability Company, doing
business in Fresno County, California.
10 5 Plaintiffs are informed, believe, and herein allege that Defendant MIKE (aka
11 “Michael”) WATTS (“Watts”) is an individual living and working in Fresno County, who is
12 also a principal and agent for defendant GROW PURE CITRUS, a California Limited
13 Liability Company, and a member of GPA.
14 6 Plaintiffs are informed, believe, and herein allege that Defendant GROW
15 PURE CITRUS (“GPC”, is a California Limited Liability Company, doing business in Tulare
16 County, California.
17 7 Defendant GPA is a California Limited Liability Company, located in Tulare
18 County, California.
19 8 Plaintiffs are ignorant of the true names and capacities of Defendants sued
20 as DOES 1 through 25, inclusive, and therefore sues these Defendants by these fictitious
21 names. Plaintiffs will amend this Complaint to allege the DOE Defendants’ true names
22 and capacities when ascertained. Plaintiffs are informed and believe and allege thereon
23 that each of the fictitiously named DOE Defendants are responsible in some manner for
24 the actions alleged herein, and Plaintiffs’ damages as alleged herein were proximately
25 caused by said DOE Defendants, along with those specifically named, above. Plaintiffs
26 are informed and believe and allege thereon that each of the Defendants is the agent,
27 servant, joint venture, partner, representative, co-conspirator, and or employee of each
28 other defendant and, in taking all of the actions alleged herein, was acting in the course
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and scope of, and to carryout, said agency, servitude, joint venture, partnership,
representation, conspiracy, and/or employment. Plaintiffs further allege on information
and belief that the acts of each of the Defendants were fully ratified by each and all of
them. Specifically, and without limitation, Plaintiff alleges on information and belief that the
actions, failures to act, breaches, and misrepresentations alleged herein and attributed to
one or more of the specific Defendants were approved, ratified, and done with the
cooperation and knowledge of the named currently named defendants, herein.
9 Mr. Santellan is a contractor and citrus farmer, by trade, anda
member/owner of RNS. RNS is in the farming business, and a local producer of several
10 varieties of citrus, including lemons, navel oranges, mandarins, cara-caras, and other
11 agricultural commodities, (hereinafter, collectively "citrus" or "fruit"). Mr. Santellan is
12 actively and significantly involved in RNS’ daily operations. Plaintiffs are referred to as
13 "growers" and/or "producers” in the California Food & Agriculture Code, and the Federal
14 Perishable Agricultural Commodities Act (“PACA”). Growers, such as Plaintiffs,
15 hire/partner/contract with third-parties to handle the post-cultivation phase of their
16 commodities (also referred to as the ‘field forward” phase of the agribusiness). Those
17 third-parties include “Marketers.”
18 10. Growers contract with Marketers to sell their commodities. This process
19 involves the Marketer locating the buyers, engaging the buyers on pricing and quantities,
20 and the Marketers actually consummating the transactions-- with the Marketer and the
21 ultimate buyer dealing directly, and without the involvement of the grower. The Marketer
22 handles essentially all of the acts necessary to bring the fruit to market, from the “field
23 forward.” Marketers select everyone from the harvesting/farm labor contractors, to the
24 trucking companies to ship the fruit from the field to a packing house to be sorted,
25 cleaned, prepared and packaged. In the agricultural industry, and specifically for citrus
26 related commodities, the packing houses are often owned and operated by Marketers, and
27 packing houses often own and operating marketing companies. (or vice versa), to obtain a
28 level of vertical integration. Marketers oversee and control picking, packing, sorting,
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shipping and collecting sales money. In so doing, the Marketer sells the fruit, collects the
proceeds, and then deducts agreed upon charges (such as packing charges and their
commissions) from the sales, and remitting the net funds to the Grower. This “net”
payment is known as the "Grower Return." Growers rely on the Marketer to act in the
Grower's best interests, to sell the fruit at the highest and best price available in the
market, and to truthfully and timely account for the proceeds from the sales. Individuals
and companies engaged in Defendants’ trade and business are referred to as
“commission merchants" or "marketers" under the Food & Agriculture Code.
11. Defendant WATTS is also in the farming/ranching business, and operation
10 of packing house/commodity marketing business, for citrus. Defendant WATTS is
11 engaged in said business activity in his individual capacity, on behalf of defendant GPC
12 and GPA.
13 12. Defendant HEIN is in the commodity marketing business, for not only citrus,
14 but several other types of commodities including garlic. Defendant HEIN is engaged in
15 said business activity in his individual capacity, and on behalf of defendant
SF and GPA.
16 13. Mr. Santellan comes from very humble beginnings. As a young man he
17 toiled in farm fields, as a hard-working laborer— picking and harvesting agricultural
18 commodities of many types. He then answered the call of duty and enlisted in the armed
19 services, and honorably served the United States as a US Marine. Mr. Santellan was
20 deployed to fight in the Vietnam War. When he returned from honorably serving our
21 country, his dream was to one day own one of the ranches that he once worked at as a
22 laborer. Having little to no money, Mr. Santellan took a job working for a concrete
23 contractor, mastered the trade, and started his own small concrete construction business.
24 Mr. Santellan and his wife would have three children, each of whom would join their father
25 in the concrete construction business. Mr. Santellan and his family worked to grow the
26 concrete business, and then made the leap to achieve his dream and bought his first plot
27 of land, with orange trees. From there, the family soldiered on, and their small ranch grew
28 to RNS Farms—with several varieties of citrus.
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14. As RNS Farms grew, Mr. Santellan learned the importance of packing
houses and marketers to the success of the RNS operation. In so doing, he saw that other
farmers experienced significant growth and savings by partnering with marketers, to geta
level of vertical integration, and to get better net sales prices for their commodities. In and
about the 2016, Defendants WATTS and HEIN approached Mr. Santellan concerning an
opportunity to make that next step in business efficiency, with a partnership opportunity in
what would be Grow Pure Agribusiness.
15. WATTS and HEIN each represented themselves to be seasoned
professionals in the agriculture business. Specifically, HEIN represented that he owned
10 and operated Defendant
SF for years, with great success. In so doing, HEIN represented
11 that he had significant connections for the marketing of citrus, including special
12 relationships with large commercial buyers like Costco, and Walmart. WATTS represented
13 that he himself was a farmer, and knew the packing and marketing industry just as well as
14 he knew how to grow crops, if not better.
15 16. WATTS and HEIN then set out on a campaign to convince Mr. Santellan
16 that he NEEDED a Stake in a marketing and packing operation. HEIN and WATTS stated
17 that the marketing industry is fraught with self-dealing, and conflicts of interest.
18 Defendants HEIN and WATTS went so far as to try and convince Mr. Santellan that he
19 has never received an “honest” pack-out in his life. WATTS and HEIN each of them
20 offered their experience and knowledge of instances where they, or someone close to
21 them, would be given a pack-out from their marketer stating that commodities were sold
22 forX dollars, whereas the real and true sale was for a higher price, and the marketer had
23 manipulated records to show a lower sale price. HEIN stated that if the three of them could
24 open their own operation, HEIN would make sure Mr. Santellan had complete
25 transparency on RNS fruit sales— that he would produce the cancelled checks for every
26 unit of RNS fruit, and that he had a computer system that would give him exactitude, to the
27 penny.
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17. WATTS would join in and affirm the representations of HEIN, vouch for
HEIN’s honesty, experience and reliability. WATTS then spoke of the stealing and fraud
that goes on in the packing houses who, in WATTS and HEIN’s words, are all “in cahoots”
with one another
to make money at the Grower's expense. WATTS and HEIN together
explained to Mr. Santellan that the packing houses will cheat the grower, for the sake of
the Marketer, by under-counting, or misclassifying the Grower's fruit—so as to create
“free” inventory for the Marketer. Specifically, both WATTS and HEIN described how
packing houses will represent that the fruit sorted such that X percentage of the fruit was
not marketable, for condition issues such as rot. In those instances, the farmer/grower
10 gets nothing for that unit of fruit, but still pays the harvesting, trucking, and sorting
11 charges. The packer then takes the “good” fruit that was allegedly “rot” and packs it for the
12 Marketer who then sells the unit at market price, pocketing the entire proceeds minus the
13 packing house charges. So, HEIN and WATTS explained, the packing house and
14 Marketer make money, but the grower loses. HEIN and WATTS continued that the “only”
15 way to eliminate the stealing was to own the house; so the house doesn't steal from you
16 because “you” are the “house.” HEIN then “returned the favor” to WATTS by vouching for
17 WATTS’ and how WATTS would “have your back” at the packing house, and watch every
18 unit of fruit from Mr. Santellan/RNS as his own.
19 18. HEIN and WATTS proceeded to sell Mr. Santellan that if the three of them
20 could join forces (WATTS running the packing, HEIN doing the marketing, and Mr.
21 Santellan with capital and credit), they would all profit, as partners. HEIN and WATTS
22 stated that Mr. Santellan and RNS could then run their citrus at the joint venture house,
23 get better than market returns (because RNS would get the profits for the actual sales,
24 instead of the “adjusted” prices from other marketers) and effectively cut his packing
25 expenses by one-third (as a one-third owner of the whole operation). Mr. Santellan,
26 enamored by the gorgeous picture painted by HEIN and WATTS agreed and the three set
27 out to create Grow Pure Agribusiness (herein “GPA”.)
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19. GPA was created in and about August of 2016. HEINZ, WATTS and Mr.
Santellan would each own one-third of the enterprise. GPA would enter into a lease for
GPA’'s business premises in Porterville, and GPA would acquire equipment and materials
to run the operation—from sorting equipment to bins, and the like.
20. When the trio created GPA, Mr. Santellan suggested they each make equal
cash capital contributions. WATTS and HEIN both balked at the suggestion, telling Mr.
Santellan “that just isn’t how things are done in the industry.” WATTS and HEIN
represented that while they both had adequate resources to capitalize the business, as
Mr. Santellan did, the “right” way to do things was with the “bank’s money.” WATTS and
10 HEIN convinced Mr. Santellan to take on debt to fund GPA—debt that the three of them
11 would ultimately jointly guarantee. In the course of the next several months, GPA would
12 take on loans in the sum of more than $2,300,000 for operating cash. Mr. Santellan relied
13 on the representations of WATTS and HEIN (based on their represented experience and
14 expertise) that this amount of debt was necessary, and their projections for business
15 revenue would make it easy to not only clear the debt, but make hefty profits. In reliance
16 on those representations, Mr. Santellan agreed, and signed for loan obligations to fund
17 GPA.
18 21. HEIN and WATTS, however, arranged for the loans to be procured in a
19 manner that placed Mr. Santellan at unique and greater risk. Specifically, the $2,300,000
20 came in the form of three different loans— one through a private money lender, in the
21 amount of approximately $300,000, another from United Security Bank for $1,000,000,
22 and a third loan from Corporate America Lending for another $1,000,000. Mr. Santellan
23 was uneasy about taking on this level of debt. He was unsure of whether GPA really
24 needed that much cash on hand to operate. When he expressed that concern, HEIN and
25 WATTS both dismissed the concern as “rookie jitters” and told him to “trust” them—
26 explaining that you have to “spend money to make money.” They further tried to assuage
27 Mr. Santellan’s concerns by stating that they would each agree to personally guarantee
28 the debt—so that they would all have the same level of “skin” in the game. WATTS and
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HEIN then promised that neither would take any money for themselves out of the business
until it was established and profitable, and then only with unanimous consent.
22. The only way to get the “needed” $1,000,000 loan from Corporate America,
GPA would have to put up collateral. HEIN and WATTS looked to Mr. Santellan for that
collateral. HEIN and WATTS cajoled Mr. Santellan into placing one of his ranches as
collateral for the $1,000,000 loan—the ranch was worth far in excess of the amount of the
loan and, if GPA/Mr. Santellan would default, it would have resulted in substantial windfall
for the creditor.
23. GPA would then proceed to operate with WATTS running the packing house
10 portion of the enterprise, and HEIN running the actual sales. It was agreed that HEIN
11 could still operate SF, separate from GPA, but that no citrus sales would be ran through
12 SF—all citrus would be ran under GPA, to ensure that GPA would not have to compete
13 with HEIN and his SF.
14 24. Mr. Santellan, who owns a percentage of RNS and is a member of RNS,
15 brought some of RNS’ citrus to GPA, for it to run and market. It was understood that RNS’
16 fruit was a contribution by Mr. Santellan, individually to GPA, and that a separate and
17 complete accounting would have to be made to RNS for all units ran. HEIN and WATTS
18 both expressed significant enthusiasm about RNS’ fruit, because they knew it was of
19 premium quality and that buyers would love it—inuring to the benefit of GPA and the
20 collective enterprise. RNS was not, however, GPA’s only grower. To the contrary, there
21 were other growers who brought in fruit during the 2017 season, and GPA packed and
22 sold the fruit for those growers.
23 25. HEIN and WATTS agreed that RNS would be treated specially, and would
24 get paid on a monthly basis, with complete records of actual packing and sales. HEIN and
25 WATTS then proceeded to push RNS (through Mr. Santellan) for fruit— stating thaty they
26 needed certain units to fill orders and how the returns were going to be “out of this world.”
27 As developed later, below, HEIN was also concurrently bilking Mr. Santellan of other and
28 additional monies for different commodities and loans. Relying on the honesty and
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integrity of his partners, Mr. Santellan (on behalf of RNS) agreed and allowed a substantial
lot of citrus to be picked and taken to GPA for packing and marketing, through the 2017
season.
26. Within a few weeks of RNS’ blocks being picked, Mr. Santellan would
inquire about the sales, and request information concerning returns. WATTS would
respond by telling Mr. Santellan that RNS’ fruit was “beautiful” and that boxes were “flying
off the shelves.” HEIN, for his part, would join the chorus and proclaim that RNS would
have “the best return its ever had” on the units delivered. Only WATTS and HEIN were
privy to the truth or accuracy of these statements, as those two were the only ones who
10 had access to the raw packing/sales data, and company accounts.
11 27. When Mr. Santellan would request packouts and initial accountings for RNS
12 fruit from WATTS and HEIN, each of them would agree but tell Mr. Santellan that the other
13 would get the materials to him, in short order. When Mr. Santellan would follow up for the
14 sales related materials, WATTS and HEIN would proclaim temporary inability to get the
15 records— saying they were “slammed” with orders and pushing fruit, and otherwise
16 significant endeavors that were making GPA a success. These representations would later
17 prove to be lies, designed to buy time. WATTS and HEIN would affirm the promises
18 concerning RNS’ fruit, and ask for additional time. Mr. Santellan, trusting his “partners” felt
19 obliged to give them the latitude requested, and would relent for a period.
20 28. When Mr. Santellan would later renew his requests for RNS’ records,
21 WATTS and HEIN later demonstrated offense to the insistence from Mr. Santellan—
22 calling his commitmentto GPA into question. Mr. Santellan tried explaining that he had a
23 duty to account to RNS, and that RNS was entitled to this information as a grower who
24 had given fruit to GPA by law—let alone as a partner in GPA. HEIN and WATTS deflected
25 and made representations that GPA was still getting its organizational bearings, and
26 working the “bugs out” of their systems. Each of them assured Mr. Santellan that GPA was
27 doing well, and generating substantial returns for all growers— especially RNS. The pair
28 (WATTS and HEIN) then proceeded to pump Mr. Santellan and RNS for more fruit.
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29. In and about early Summer of 2017, WATTS and HEIN came to Mr.
Santellan with the “opportunity of a lifetime.” They had located another packing facility
which was listed on the market for sale. Said packing house came complete with a client
list, of “guaranteed” units of fruit to run, vis a vis the current seller who was also a grower.
The purchase price for the new facility was several million dollars. HEIN and WATTS
pushed Santellan to agree to purchase the property with them—to again put up additional
ranches as collateral for monies to be used as a down payment and operating money. Mr.
Santellan was uneasy with the request. He had already guaranteed $2 million in loans,
placed one ranch at risk by pledging it as collateral, and had allowed GPA to market
10 millions of dollars in RNS’ fruit, with little in payments having been received. Mr. Santellan
11 then asked if GPA could afford the venture, and how it was doing financially. WATTS and
12 HEIN represented that GPA was “making a killing” and the “sky was the limit” with this new
13 packing house acquisition presenting an opportunity for generational wealth for Mr.
14 Santellan’s children who worked with him in the Santellan businesses.
15 30. Mr. Santellan explained that he needed information concerning the well-
16 being of GPA in order to think about it; he noted to HEIN and WATTS that they were the
17 only ones who had access to the books and finances. HEIN and WATTS balked in offense
18 and engaged in “gas-lighting” of Santellan— accusing him of being self-centered. Mr.
19 Santellan expressed concern about how RNS had not been paid in full for its fruit, and that
20 this was a big issue to him. HEIN and WATTS responded aggressively telling Santellan
21 that they hadn’t taken any money out of GPA and that his demand for RNS’ money was
22 akin to a dirty money-grab. Mr. Santellan explained that if RNS were to get paid, he’d be
23 inclined to give the new packing house additional thought. HEIN and WATTS agreed and
24 made a partial payment to RNS for its already sold fruit.
25 31. Unbeknownst to Mr. Santellan shortly thereafter, a rift had developed
26 between HEIN and WATTS. Mr. Santellan again pressed the two for RNS’ returns for its
27 fruit, and for sales records. But this time, instead of an explanation for delay and a promise
28 of future performance, WATTS ratted HEIN out. WATTS disclosed, for the first time, that
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HEIN and SF were dipping into GPA coffers. Specifically, WATTS disclosed that HEIN had
been selling grower fruit (some of which was RNS’) through SF, and that HEIN was
refusing to account for the monies. WATTS then disclosed that he had known that HEIN
was Selling citrus through SF, and that HEIN had taken “advances” of hundreds of
thousands of dollars from GPA. Between the “advances” and monies that HEIN had
received for fruit sold, HEIN and SF owed GPA (and Mr. Santellan) in excess of $620,000.
32. Mr. Santellan was utterly floored, as this disclosure from WATTS was the
first time he had heard that HEIN was running citrus through SF, and that HEIN had taken
“advances” from GPA funds. From there, the collective relationship spiraled downward.
10 HEIN had all but disappeared; WATTS had turned against HEIN; Mr. Santellan was left
11 with nothing to show, but significant debt and loss of over $1,000,000 in unpaid RNS
12 citrus.
13 33. GPA, as a going concern, is an epic failure. Under the control of WATTS
14 and HEIN, GPA was used as WATTS’ and HEIN’s personal slush-fund, from which
15 WATTS and HEIN blew through not only the $2,300,000 in loan money, but all the
16 proceeds from the packing revenues and marketing commissions from citrus sales
17 operations. GPA’s failure, and the losses of Mr. Santellan and RNS, are solely due to the
18 bad acts of WATTS, HEIN, SF and GPC, described in this Complaint.
19 34. The full scope of the wrongdoing of WATTS, HEIN, SF and the other
20 Defendants is presently unknown to Plaintiffs, as Defendants have had sole possession of
21 company books and records. Defendants, and each of them, shut Plaintiff out from access
22 of the relevant information, materials and partnership business. Therefore, despite a
23 reasonable and diligent inquiry by Plaintiffs, the full scope breaches, misfeasance,
24 malfeasance and otherwise culpable conduct of Defendants is not presently known. As
25 such, the claims and wrongful conduct described in this Complaint is not to be construed
26 as an exhaustive list or description of the basis for this action, or all of the reasons
27 Defendants face liability. Plaintiffs anticipate that discovery and investigation will reveal
28
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further factual basis to support the claims asserted, as well as new claims, and reserve the
right to amend to allege the same.
I:
Claims of Raul Santellan
FIRST CAUSE OF ACTION
(BREACH OF FIDUCIARY DUTY - AGAINST HEIN & WATTS)
35. Plaintiff incorporates here and by reference each and every allegations set
forth in paragraphs 1 through 34 above, as though fully set forth herein.
36. WATTS and HEIN were Mr. Santellan’s partners in GPA, as the three were
10 equal owners and members in GPA. As such, HEIN and WATTS owed Plaintiffa fiduciary
11 duty, at all times relevant to this action. Pursuant to GPA’s Operating Agreement, and by
12 operation of California Law, WATTS and HEIN owed Mr. Santellan several duties—
13 including but not limited to the duty of loyalty, candor, due care, fairness and disclosure.
14 Both WATTS and HEIN breached their duties to Mr. Santellan, and did so through a
15 coordinated and deceitful conspiracy to benefit each other, at the expense of GPA and Mr.
16 Santellan.
17 37. HEIN and WATTS, both individually and collectively, failed to truthfully
18 account to Mr. Santellan concerning the income and expenses of GPA.
19 38. HEIN and WATTS, both individually and collectively, took money and
20 compensation from GPA, without the knowledge and consent of Mr. Santellan, for their
21 separate and personal purposes and gain. They did so despite affirmative representations
22 to Mr. Santellan that they would not take compensation or payments until GPA was stable
23 and profitable. Because of WATTS’ and HEIN’s deceitful and wrongful conduct, not only
24 was GPA never profitable, but it never had a chance to so develop because Defendants,
25 and each of them, were secretly bilking GPA and Mr. Santellan of monies and corporate
26 opportunities—to benefit themselves, at the expense of GPA and Mr. Santellan.
27 39. HEIN and WATTS, both individually and collectively, were misusing GPA
28 funds and resources, for their owner personal, private and separate exploits. HEIN, with
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the knowledge and cooperation of WATTS, was taking monies from GPA in the form of
“advances” and diverting GPA’s money (from the $2.3 million in loans which Mr. Santellan
personally guaranteed) to SF and himself. HEIN took in excess of $620,000 from GPA
funds. HEIN could not have accomplished the foregoing without the knowing assistance of
WATTS. WATTS had a duty to disclose that HEIN was attempting to draw funds, and to
refuse and stop HEIN’s bad acts.
40. WATTS also wrongfully took money from GPA, paying himself, paying
personal expenses, and running up charges and expenses under the guise of “business
expenses,” to the detriment of GPA and Mr. Santellan. By way of example, before the
10 formation of GPA, and getting access to the $2.3 million in borrowed operating capital,
11 WATTS would typically be seen driving an older, heavily used looking pickup. When asked
12 why he did not get himself a nice new truck, WATTS response was that it was
13 “unnecessary” and “wasteful” since his truck “ran just fine.” After GPA was formed, and the
14 borrowed monies poured into its account, WATTS purchased an expensive new pickup.
15 Plaintiffs are informed and believe that WATTS’ that purchase of this previously “wasteful”
16 and “unnecessary purchase” was with GPA funds. Plaintiff is further informed and believes
17 that WATTS was paying utility bills fora non-GPA property from GPA funds. HEIN knew
18 that WATTS was taking GPA monies and misusing GPA resources, but worked with
19 WATTS to conceal that information from Mr. Santellan, as a form of quid pro quo for
20 WATTS cooperation with HEIN in his misuse and abuse. WATTS could not have
21 accomplished the foregoing without the knowing assistance of HEIN. HEIN had a duty to
22 disclose that WATTS was misusing GPA resources, and to refuse and stop WATTS’ bad
23 acts.
24 41. HEIN engaged in unlawful and prohibited self-dealing. SF, by and through
25 HEIN, acted as a “commission merchant” (discussed, infra ) for fruit consigned to GPA by
26 growers/farmers, such as RNS. HEIN, abused and misused his position as an officer of
27 GPA to divert commodities to SF, so that SF could earn commissions on commodities that
28 were consigned to GPA. WATTS was aware of this unlawful diversion, and worked with
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HEIN to do so— actively facilitating the diversion by and through GPA’s accounting and
computer systems. HEIN took separate profits and gains through this unlawful funneling,
by way of this prohibited usurpation of partnership opportunity and business.
42. WATTS is now presently engaged in misuse and self-dealing. As noted
elsewhere, herein, WATTS started GPC—a direct market competitorto GPA. GPC is
operating out of the GPA leased premises, using GPA equipment, and has consumed
GPA supplies. WATTS has not accounted to Mr. Santellan for the profits from said
enterprise, or the value of the money or benefit GPC and WATTS derive from their
consumption and use of GPA property, supplies and equipment. GPA’s Operating
10 Agreement expressly prohibits any member from competing with GPA.
11 43. WATTS and HEIN conned Mr. Santellan into bringing RNS fruit to GPA for
12 packing and sale. They misrepresented when and how they would account for the sales of
13 RNS citrus. To this date, HEIN and WATTS have failed to provide Plaintiffs ofa true and
14 accurate accounting of the disposition of Plaintiffs’ citrus. HEIN and WATTS failure to
15 timely and truthfully account is rooted in their shared, agreed upon and mutual goal of
16 extracting cash and cash equivalents from Mr. Santellan, in order to convert them for their
17 separate use and benefit. WATTS and HEIN used the proceeds from the sales of
18 Plaintiffs’ citrus as their own, by taking in the sales revenues into GPA and/or SF, but
19 failing to ever actually pay Plaintiffs for the fruit. In so doing, WATTS, HEIN, SF and GPA
20 used Plaintiffs’ money as their own separate operating fund—in contravention of
21 partnership law and the GPA Operating Agreement (herein “Agreement”.) Defendants
22 WATTS, HEIN, and GPA had/have a statutory duty (under the Food & Agriculture Code)
23 to pay Plaintiffs for their citrus, within 10 days of their disposition. Defendants failed to so
24 pay for the citrus, and still owe Plaintiffs money for the citrus.
25 44. As noted above, GPA took in a substantial amount of borrowed money,
26 including $1,000,000 borrowed from Corporate America Lending, which is secured against
27 Mr. Santellan’s ranch. Defendants WATTS and HEIN personally guaranteed the Corporate
28 America Lending loan, and failed to and continue to refuse to make any payments on that
BONAKDAR'S 14
COMPLAINT
loan. WATTS and HEIN did so because they knew and knowthat said loan is
collateralized by Mr. Santellan’s ranch property, and that the value of said ranch greatly
exceeds the debt. The Corporate American Lending loan went into default, because
WATTS and HEIN refused to make their share of the installment payments, despite having
the revenue and resources to pay. Instead, HEIN and WATTS prioritized their personal,
separate, and unlawful uses of GPA monies above Mr. Santellan’s, thereby placing Mr.
Santellan’s property at risk of forfeiture. The failure to timely pay their share of the
Corporate American Lending loan is a breach of fiduciary duty. Mr. Santellan suffered
harm by way of Defendants’ failure and refusal to pay, by way of the principle and interest
10 payments that were due, in order to avoid foreclosure of his ranch.
11 45. Defendants WATTS and HEIN had a duty to truthfully account to Mr.
12 Santellan for the RNS citrus brought to GPA, including the true and correct number of
13 units, grading and sale prices for the citrus. WATTS and HEIN, acting in concert, failed to
14 truthfully account for the fruit— understating the true number of units delivered by Mr.
15 Santellan/RNS, the quality/grade of the units delivered, as well as the gross sales price for
16 units sold. Mr. Santellan suffered significant losses as a result of the foregoing, by way of
17 lost revenue for the subject crop, and in excess of $1 million.
18 46. Defendants and each of them, displayed conduct that is despicable,
19 deplorable, and with the intent of abusing the relationship and trust that then existed
20 between Plaintiff and Defendants; thereby meriting the imposition of punitive damages
21 against Defendants to discourage them from similar despicable conduct in the future.
22 Second Cause of Action
23 (Breach of Contract - Against Hein & Watts)
24 47. Plaintiff incorporates here and by reference each and every allegation set
25 forth in paragraphs 1 through 46 above, as though fully set forth herein.
26 48. In or aboutJ anuary of 2017, HEIN and WATTS entered into a written
27 agreement with Plaintiff and Corporate America Lending, for a loan in the amount of
28 $1,000,000. Among other terms, Defendants WATTS and HEIN, each, agreed to pay one-
BONAKDAR'S 15
COMPLAINT
third (1/3) of the interest and principle payments of the loan. WATTS and HEIN failed and
refused to make any payments, in breach of said written agreement. Plaintiff has been
harmed by way of said breach, by way of having to bear the interest and principle
payments of the loan on his own; and the loss of other financial opportunities by way of
partial loss of liquidity.
49. No part of the performance of WATTS or HEIN with respect to this
agreement were waived or extinguished by Mr. Santellan. Mr. Santellan has performed all
obligations relative to this agreement, unless excused or prevented by WATTS and/or
HEIN.
10 50. As noted above, WATTS, HEIN and Mr. Santellan entered into a written
11 operating agreement with respect to GPA. Pursuant to that agreement, no member was
12 permitted to take compensation from GPA without the informed consent of the other
13 members. WATTS and HEIN both took compensation from GPA, without the informed
14 consent of Mr. Santellan, in violation of the GPA Operating Agreement.
15 51. The GPA operating agreement further provides that no member shall create
16 or participate in a business that directly competes with GPA. In and about September of
17 2017, WATTS opened his own citrus packing and marketing business, and named it
18 “Grow Pure Citrus.” GPC is operating out of GPA’s location in Porterville, and using GPA’s
19 equipment, and materials. WATTS is separately and privately profiting from this
20 enterprise, in violation of the Operating Agreement. Mr. Santellan has been harmed by
21 way of lost revenue, proportionate to his share of interest in GPA.
22 Third Cause of Action
23 (Breach of Contract- Against Hein & SF, Only)
24 52. Plaintiff incorporates here and by reference each and every allegation set
25 forth in paragraphs 1 through 51 above, as though fully set forth herein.
26 53. As explained above, before the creation of GPA, HEIN and SF represented
27 they had a robust agricultural commodity business. One aspect of this alleged business
28 included export of commodities like garlic. After the creation of GPA, and thus, after HEIN
BONAKDAR'S 16
COMPLAINT
knowingly, intelligently and voluntarily assumed a fiduciary relationship with Mr. Santellan,
HEIN (both on his own behalf, individually, and on behalf of SF) approached Mr. Santellan
regarding an “opportunity”
on shipping containers loaded with garlic. HEIN, on his own
behalf and on behalf of SF, represented that he regularly bought and sold containers of
garlic for $57,000, and would make about $12,000 on their shipment to the buyer.
54. HEIN represented that if Mr. Santellan would loan him the $57,000 to
acquire the containers of garlic, he would pay Mr. Santellan $5,700 of the profit, plus 10%
interest; all payable within 10 days after purchase of the shipping container of garlic
(herein “the Garlic Deal”). HEIN represented that he offered the same deal to WATTS, but
10 WATTS said his money was ‘tied up” but that WATTS really wanted “in on this deal” and
11 “would have done it if he could.” Thereafter, on or about August 5, 2016, HEIN
12 (individually and on behalf of SF) entered into a written agreement with Mr. Santellan,
13 pursuant to the terms set forth in this paragraph. In consideration for the promises of
14 HEIN, Mr. Santellan in fact loaned the money; HEIN has failed to pay any sum on this
15 contract and is, therefore in breach.
16 55. HEIN further extracted another note loan from Mr. Santellan, in the amount
17 of $180,000. HEIN, again in his individual capacity and on behalf of SF, entered into a
18 written note loan. The loan called for repayment within 1 week. HEIN represented that
19 he/SF had a specific liquidity issue that had arisen due to a shipping delay, and was in
20 desperate need of the $180,000; HEIN represented that if he didn’t get the money right
21 away, it would jeopardize him and the future of GPA (the “Bailout Loan”). In reliance on
22 the foregoing, Mr. Santellan again agreed. On or about May 22, 2017, Defendants HEIN
23 and SF executed a further promissory note, affirming the debt from the Garlic Deal and the
24 Bailout Loan. As of May 22, 2017, the cumulative total debt on the Garlic Deal and Note
25 Loan was $242,797.55. Defendants HEIN and SF have made no payments since then,
26 and interest on the Garlic Deal and Bailout Loan have continued to accrue.
27 56. HEIN and SF are in default of the Garlic Deal and the Bailout Loan. Mr.
28 Santellan has performed all terms and obligations under the Garlic Deal and the Bailout
B
Preview
BONAKDAR Roger S. Bonakdar, #253920 (SPACE BELOW FOR FILING STAMP E-FILED 1/18/2019 2:28 PM ONLY) 2344 TULARE ST., SUITE 301 FRESNO COUNTY, SUPERIOR COURT y: A. Rodriguez, Depu FRESNO, CALIFORNIA 93721 PHONE (559) 495-1545 FAX (559) 495-1527 Attorney for Plaintiffs, RAUL SANTELLAN and RNS FARMS, LLC, a California Limited Liability Company SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF FRESNO 10 CIVIL UNLIMITED DIVISION OK 11 RAUL SANTELLAN, an individual; RNS Case No.: 19CECG00256 12 FARMS, a California Limited Liability Company 13 Plaintiffs, COMPLAINT FOR: BREACH OF 14 FIDUCIARY DUTY; BREACH OF Vv. CONTRACT; FRAUD; NEGLIGENCE; 15 TRESPASS & CONVERSION OF CHATEL; JOHN G. HEIN, an Individual; MIKE WATTS DISSOLUTION; AND ACCOUNTING 16 (aka “Michael” Watts), an Individual; SPECIALTY FRESH, a California Limited 17 Liability Company; GROW PURE CITRUS, a California Limited Liability Company, GROW 18 PURE AGRIBUSINESS, a California Limited Liability Company; and DOES 1 through 25, 19 Inclusive, 20 Defendants 21 22 COMES NOW THE PLAINTIFFS, RNS FARMS, LLC, (“RNS”) and RAUL 23 SANTELLAN (“Mr. Santellan”); RNS & Mr. Santellan are referred to hereinafter, 24 collectively as “Plaintiffs”), and hereinafter alleges as follows: 25 INTRODUCTORY ALLEGATIONS 26 1 Mr. Santellan is, and at all times mentioned herein was, an individual living 27 and working in Fresno County, and a member of RNS, and a member of GROW PURE 28 AGRIBUSINESS, LLC (herein “GPA”). BONAKDAR |g COMPLAINT 2 RNS is a California Limited Liability Company, based out of Fresno County, in the business of farming agricultural commodities; primarily citrus. 3 Plaintiffs are informed, believe, and herein allege that Defendant) OHN G. HEIN (“Hein”) is an individual living and working in Fresno County, who is also the principal of and sole agent for defendant SPECIALTY FRESH, LLC, and a member of GPA. 4 Plaintiffs are informed, believe, and herein allege that Defendant SPECIALITY FRESH (herein “SF”), is a California Limited Liability Company, doing business in Fresno County, California. 10 5 Plaintiffs are informed, believe, and herein allege that Defendant MIKE (aka 11 “Michael”) WATTS (“Watts”) is an individual living and working in Fresno County, who is 12 also a principal and agent for defendant GROW PURE CITRUS, a California Limited 13 Liability Company, and a member of GPA. 14 6 Plaintiffs are informed, believe, and herein allege that Defendant GROW 15 PURE CITRUS (“GPC”, is a California Limited Liability Company, doing business in Tulare 16 County, California. 17 7 Defendant GPA is a California Limited Liability Company, located in Tulare 18 County, California. 19 8 Plaintiffs are ignorant of the true names and capacities of Defendants sued 20 as DOES 1 through 25, inclusive, and therefore sues these Defendants by these fictitious 21 names. Plaintiffs will amend this Complaint to allege the DOE Defendants’ true names 22 and capacities when ascertained. Plaintiffs are informed and believe and allege thereon 23 that each of the fictitiously named DOE Defendants are responsible in some manner for 24 the actions alleged herein, and Plaintiffs’ damages as alleged herein were proximately 25 caused by said DOE Defendants, along with those specifically named, above. Plaintiffs 26 are informed and believe and allege thereon that each of the Defendants is the agent, 27 servant, joint venture, partner, representative, co-conspirator, and or employee of each 28 other defendant and, in taking all of the actions alleged herein, was acting in the course BONAKDAR'S 2 COMPLAINT and scope of, and to carryout, said agency, servitude, joint venture, partnership, representation, conspiracy, and/or employment. Plaintiffs further allege on information and belief that the acts of each of the Defendants were fully ratified by each and all of them. Specifically, and without limitation, Plaintiff alleges on information and belief that the actions, failures to act, breaches, and misrepresentations alleged herein and attributed to one or more of the specific Defendants were approved, ratified, and done with the cooperation and knowledge of the named currently named defendants, herein. 9 Mr. Santellan is a contractor and citrus farmer, by trade, anda member/owner of RNS. RNS is in the farming business, and a local producer of several 10 varieties of citrus, including lemons, navel oranges, mandarins, cara-caras, and other 11 agricultural commodities, (hereinafter, collectively "citrus" or "fruit"). Mr. Santellan is 12 actively and significantly involved in RNS’ daily operations. Plaintiffs are referred to as 13 "growers" and/or "producers” in the California Food & Agriculture Code, and the Federal 14 Perishable Agricultural Commodities Act (“PACA”). Growers, such as Plaintiffs, 15 hire/partner/contract with third-parties to handle the post-cultivation phase of their 16 commodities (also referred to as the ‘field forward” phase of the agribusiness). Those 17 third-parties include “Marketers.” 18 10. Growers contract with Marketers to sell their commodities. This process 19 involves the Marketer locating the buyers, engaging the buyers on pricing and quantities, 20 and the Marketers actually consummating the transactions-- with the Marketer and the 21 ultimate buyer dealing directly, and without the involvement of the grower. The Marketer 22 handles essentially all of the acts necessary to bring the fruit to market, from the “field 23 forward.” Marketers select everyone from the harvesting/farm labor contractors, to the 24 trucking companies to ship the fruit from the field to a packing house to be sorted, 25 cleaned, prepared and packaged. In the agricultural industry, and specifically for citrus 26 related commodities, the packing houses are often owned and operated by Marketers, and 27 packing houses often own and operating marketing companies. (or vice versa), to obtain a 28 level of vertical integration. Marketers oversee and control picking, packing, sorting, BONAKDAR'S 3 COMPLAINT shipping and collecting sales money. In so doing, the Marketer sells the fruit, collects the proceeds, and then deducts agreed upon charges (such as packing charges and their commissions) from the sales, and remitting the net funds to the Grower. This “net” payment is known as the "Grower Return." Growers rely on the Marketer to act in the Grower's best interests, to sell the fruit at the highest and best price available in the market, and to truthfully and timely account for the proceeds from the sales. Individuals and companies engaged in Defendants’ trade and business are referred to as “commission merchants" or "marketers" under the Food & Agriculture Code. 11. Defendant WATTS is also in the farming/ranching business, and operation 10 of packing house/commodity marketing business, for citrus. Defendant WATTS is 11 engaged in said business activity in his individual capacity, on behalf of defendant GPC 12 and GPA. 13 12. Defendant HEIN is in the commodity marketing business, for not only citrus, 14 but several other types of commodities including garlic. Defendant HEIN is engaged in 15 said business activity in his individual capacity, and on behalf of defendant SF and GPA. 16 13. Mr. Santellan comes from very humble beginnings. As a young man he 17 toiled in farm fields, as a hard-working laborer— picking and harvesting agricultural 18 commodities of many types. He then answered the call of duty and enlisted in the armed 19 services, and honorably served the United States as a US Marine. Mr. Santellan was 20 deployed to fight in the Vietnam War. When he returned from honorably serving our 21 country, his dream was to one day own one of the ranches that he once worked at as a 22 laborer. Having little to no money, Mr. Santellan took a job working for a concrete 23 contractor, mastered the trade, and started his own small concrete construction business. 24 Mr. Santellan and his wife would have three children, each of whom would join their father 25 in the concrete construction business. Mr. Santellan and his family worked to grow the 26 concrete business, and then made the leap to achieve his dream and bought his first plot 27 of land, with orange trees. From there, the family soldiered on, and their small ranch grew 28 to RNS Farms—with several varieties of citrus. BONAKDAR'S 4 COMPLAINT 14. As RNS Farms grew, Mr. Santellan learned the importance of packing houses and marketers to the success of the RNS operation. In so doing, he saw that other farmers experienced significant growth and savings by partnering with marketers, to geta level of vertical integration, and to get better net sales prices for their commodities. In and about the 2016, Defendants WATTS and HEIN approached Mr. Santellan concerning an opportunity to make that next step in business efficiency, with a partnership opportunity in what would be Grow Pure Agribusiness. 15. WATTS and HEIN each represented themselves to be seasoned professionals in the agriculture business. Specifically, HEIN represented that he owned 10 and operated Defendant SF for years, with great success. In so doing, HEIN represented 11 that he had significant connections for the marketing of citrus, including special 12 relationships with large commercial buyers like Costco, and Walmart. WATTS represented 13 that he himself was a farmer, and knew the packing and marketing industry just as well as 14 he knew how to grow crops, if not better. 15 16. WATTS and HEIN then set out on a campaign to convince Mr. Santellan 16 that he NEEDED a Stake in a marketing and packing operation. HEIN and WATTS stated 17 that the marketing industry is fraught with self-dealing, and conflicts of interest. 18 Defendants HEIN and WATTS went so far as to try and convince Mr. Santellan that he 19 has never received an “honest” pack-out in his life. WATTS and HEIN each of them 20 offered their experience and knowledge of instances where they, or someone close to 21 them, would be given a pack-out from their marketer stating that commodities were sold 22 forX dollars, whereas the real and true sale was for a higher price, and the marketer had 23 manipulated records to show a lower sale price. HEIN stated that if the three of them could 24 open their own operation, HEIN would make sure Mr. Santellan had complete 25 transparency on RNS fruit sales— that he would produce the cancelled checks for every 26 unit of RNS fruit, and that he had a computer system that would give him exactitude, to the 27 penny. 28 BONAKDAR'S COMPLAINT 17. WATTS would join in and affirm the representations of HEIN, vouch for HEIN’s honesty, experience and reliability. WATTS then spoke of the stealing and fraud that goes on in the packing houses who, in WATTS and HEIN’s words, are all “in cahoots” with one another to make money at the Grower's expense. WATTS and HEIN together explained to Mr. Santellan that the packing houses will cheat the grower, for the sake of the Marketer, by under-counting, or misclassifying the Grower's fruit—so as to create “free” inventory for the Marketer. Specifically, both WATTS and HEIN described how packing houses will represent that the fruit sorted such that X percentage of the fruit was not marketable, for condition issues such as rot. In those instances, the farmer/grower 10 gets nothing for that unit of fruit, but still pays the harvesting, trucking, and sorting 11 charges. The packer then takes the “good” fruit that was allegedly “rot” and packs it for the 12 Marketer who then sells the unit at market price, pocketing the entire proceeds minus the 13 packing house charges. So, HEIN and WATTS explained, the packing house and 14 Marketer make money, but the grower loses. HEIN and WATTS continued that the “only” 15 way to eliminate the stealing was to own the house; so the house doesn't steal from you 16 because “you” are the “house.” HEIN then “returned the favor” to WATTS by vouching for 17 WATTS’ and how WATTS would “have your back” at the packing house, and watch every 18 unit of fruit from Mr. Santellan/RNS as his own. 19 18. HEIN and WATTS proceeded to sell Mr. Santellan that if the three of them 20 could join forces (WATTS running the packing, HEIN doing the marketing, and Mr. 21 Santellan with capital and credit), they would all profit, as partners. HEIN and WATTS 22 stated that Mr. Santellan and RNS could then run their citrus at the joint venture house, 23 get better than market returns (because RNS would get the profits for the actual sales, 24 instead of the “adjusted” prices from other marketers) and effectively cut his packing 25 expenses by one-third (as a one-third owner of the whole operation). Mr. Santellan, 26 enamored by the gorgeous picture painted by HEIN and WATTS agreed and the three set 27 out to create Grow Pure Agribusiness (herein “GPA”.) 28 BONAKDAR'S COMPLAINT 19. GPA was created in and about August of 2016. HEINZ, WATTS and Mr. Santellan would each own one-third of the enterprise. GPA would enter into a lease for GPA’'s business premises in Porterville, and GPA would acquire equipment and materials to run the operation—from sorting equipment to bins, and the like. 20. When the trio created GPA, Mr. Santellan suggested they each make equal cash capital contributions. WATTS and HEIN both balked at the suggestion, telling Mr. Santellan “that just isn’t how things are done in the industry.” WATTS and HEIN represented that while they both had adequate resources to capitalize the business, as Mr. Santellan did, the “right” way to do things was with the “bank’s money.” WATTS and 10 HEIN convinced Mr. Santellan to take on debt to fund GPA—debt that the three of them 11 would ultimately jointly guarantee. In the course of the next several months, GPA would 12 take on loans in the sum of more than $2,300,000 for operating cash. Mr. Santellan relied 13 on the representations of WATTS and HEIN (based on their represented experience and 14 expertise) that this amount of debt was necessary, and their projections for business 15 revenue would make it easy to not only clear the debt, but make hefty profits. In reliance 16 on those representations, Mr. Santellan agreed, and signed for loan obligations to fund 17 GPA. 18 21. HEIN and WATTS, however, arranged for the loans to be procured in a 19 manner that placed Mr. Santellan at unique and greater risk. Specifically, the $2,300,000 20 came in the form of three different loans— one through a private money lender, in the 21 amount of approximately $300,000, another from United Security Bank for $1,000,000, 22 and a third loan from Corporate America Lending for another $1,000,000. Mr. Santellan 23 was uneasy about taking on this level of debt. He was unsure of whether GPA really 24 needed that much cash on hand to operate. When he expressed that concern, HEIN and 25 WATTS both dismissed the concern as “rookie jitters” and told him to “trust” them— 26 explaining that you have to “spend money to make money.” They further tried to assuage 27 Mr. Santellan’s concerns by stating that they would each agree to personally guarantee 28 the debt—so that they would all have the same level of “skin” in the game. WATTS and BONAKDAR'S 7 COMPLAINT HEIN then promised that neither would take any money for themselves out of the business until it was established and profitable, and then only with unanimous consent. 22. The only way to get the “needed” $1,000,000 loan from Corporate America, GPA would have to put up collateral. HEIN and WATTS looked to Mr. Santellan for that collateral. HEIN and WATTS cajoled Mr. Santellan into placing one of his ranches as collateral for the $1,000,000 loan—the ranch was worth far in excess of the amount of the loan and, if GPA/Mr. Santellan would default, it would have resulted in substantial windfall for the creditor. 23. GPA would then proceed to operate with WATTS running the packing house 10 portion of the enterprise, and HEIN running the actual sales. It was agreed that HEIN 11 could still operate SF, separate from GPA, but that no citrus sales would be ran through 12 SF—all citrus would be ran under GPA, to ensure that GPA would not have to compete 13 with HEIN and his SF. 14 24. Mr. Santellan, who owns a percentage of RNS and is a member of RNS, 15 brought some of RNS’ citrus to GPA, for it to run and market. It was understood that RNS’ 16 fruit was a contribution by Mr. Santellan, individually to GPA, and that a separate and 17 complete accounting would have to be made to RNS for all units ran. HEIN and WATTS 18 both expressed significant enthusiasm about RNS’ fruit, because they knew it was of 19 premium quality and that buyers would love it—inuring to the benefit of GPA and the 20 collective enterprise. RNS was not, however, GPA’s only grower. To the contrary, there 21 were other growers who brought in fruit during the 2017 season, and GPA packed and 22 sold the fruit for those growers. 23 25. HEIN and WATTS agreed that RNS would be treated specially, and would 24 get paid on a monthly basis, with complete records of actual packing and sales. HEIN and 25 WATTS then proceeded to push RNS (through Mr. Santellan) for fruit— stating thaty they 26 needed certain units to fill orders and how the returns were going to be “out of this world.” 27 As developed later, below, HEIN was also concurrently bilking Mr. Santellan of other and 28 additional monies for different commodities and loans. Relying on the honesty and BONAKDAR'S 8 COMPLAINT integrity of his partners, Mr. Santellan (on behalf of RNS) agreed and allowed a substantial lot of citrus to be picked and taken to GPA for packing and marketing, through the 2017 season. 26. Within a few weeks of RNS’ blocks being picked, Mr. Santellan would inquire about the sales, and request information concerning returns. WATTS would respond by telling Mr. Santellan that RNS’ fruit was “beautiful” and that boxes were “flying off the shelves.” HEIN, for his part, would join the chorus and proclaim that RNS would have “the best return its ever had” on the units delivered. Only WATTS and HEIN were privy to the truth or accuracy of these statements, as those two were the only ones who 10 had access to the raw packing/sales data, and company accounts. 11 27. When Mr. Santellan would request packouts and initial accountings for RNS 12 fruit from WATTS and HEIN, each of them would agree but tell Mr. Santellan that the other 13 would get the materials to him, in short order. When Mr. Santellan would follow up for the 14 sales related materials, WATTS and HEIN would proclaim temporary inability to get the 15 records— saying they were “slammed” with orders and pushing fruit, and otherwise 16 significant endeavors that were making GPA a success. These representations would later 17 prove to be lies, designed to buy time. WATTS and HEIN would affirm the promises 18 concerning RNS’ fruit, and ask for additional time. Mr. Santellan, trusting his “partners” felt 19 obliged to give them the latitude requested, and would relent for a period. 20 28. When Mr. Santellan would later renew his requests for RNS’ records, 21 WATTS and HEIN later demonstrated offense to the insistence from Mr. Santellan— 22 calling his commitmentto GPA into question. Mr. Santellan tried explaining that he had a 23 duty to account to RNS, and that RNS was entitled to this information as a grower who 24 had given fruit to GPA by law—let alone as a partner in GPA. HEIN and WATTS deflected 25 and made representations that GPA was still getting its organizational bearings, and 26 working the “bugs out” of their systems. Each of them assured Mr. Santellan that GPA was 27 doing well, and generating substantial returns for all growers— especially RNS. The pair 28 (WATTS and HEIN) then proceeded to pump Mr. Santellan and RNS for more fruit. BONAKDAR'S 9 COMPLAINT 29. In and about early Summer of 2017, WATTS and HEIN came to Mr. Santellan with the “opportunity of a lifetime.” They had located another packing facility which was listed on the market for sale. Said packing house came complete with a client list, of “guaranteed” units of fruit to run, vis a vis the current seller who was also a grower. The purchase price for the new facility was several million dollars. HEIN and WATTS pushed Santellan to agree to purchase the property with them—to again put up additional ranches as collateral for monies to be used as a down payment and operating money. Mr. Santellan was uneasy with the request. He had already guaranteed $2 million in loans, placed one ranch at risk by pledging it as collateral, and had allowed GPA to market 10 millions of dollars in RNS’ fruit, with little in payments having been received. Mr. Santellan 11 then asked if GPA could afford the venture, and how it was doing financially. WATTS and 12 HEIN represented that GPA was “making a killing” and the “sky was the limit” with this new 13 packing house acquisition presenting an opportunity for generational wealth for Mr. 14 Santellan’s children who worked with him in the Santellan businesses. 15 30. Mr. Santellan explained that he needed information concerning the well- 16 being of GPA in order to think about it; he noted to HEIN and WATTS that they were the 17 only ones who had access to the books and finances. HEIN and WATTS balked in offense 18 and engaged in “gas-lighting” of Santellan— accusing him of being self-centered. Mr. 19 Santellan expressed concern about how RNS had not been paid in full for its fruit, and that 20 this was a big issue to him. HEIN and WATTS responded aggressively telling Santellan 21 that they hadn’t taken any money out of GPA and that his demand for RNS’ money was 22 akin to a dirty money-grab. Mr. Santellan explained that if RNS were to get paid, he’d be 23 inclined to give the new packing house additional thought. HEIN and WATTS agreed and 24 made a partial payment to RNS for its already sold fruit. 25 31. Unbeknownst to Mr. Santellan shortly thereafter, a rift had developed 26 between HEIN and WATTS. Mr. Santellan again pressed the two for RNS’ returns for its 27 fruit, and for sales records. But this time, instead of an explanation for delay and a promise 28 of future performance, WATTS ratted HEIN out. WATTS disclosed, for the first time, that BONAKDAR'S 10 COMPLAINT HEIN and SF were dipping into GPA coffers. Specifically, WATTS disclosed that HEIN had been selling grower fruit (some of which was RNS’) through SF, and that HEIN was refusing to account for the monies. WATTS then disclosed that he had known that HEIN was Selling citrus through SF, and that HEIN had taken “advances” of hundreds of thousands of dollars from GPA. Between the “advances” and monies that HEIN had received for fruit sold, HEIN and SF owed GPA (and Mr. Santellan) in excess of $620,000. 32. Mr. Santellan was utterly floored, as this disclosure from WATTS was the first time he had heard that HEIN was running citrus through SF, and that HEIN had taken “advances” from GPA funds. From there, the collective relationship spiraled downward. 10 HEIN had all but disappeared; WATTS had turned against HEIN; Mr. Santellan was left 11 with nothing to show, but significant debt and loss of over $1,000,000 in unpaid RNS 12 citrus. 13 33. GPA, as a going concern, is an epic failure. Under the control of WATTS 14 and HEIN, GPA was used as WATTS’ and HEIN’s personal slush-fund, from which 15 WATTS and HEIN blew through not only the $2,300,000 in loan money, but all the 16 proceeds from the packing revenues and marketing commissions from citrus sales 17 operations. GPA’s failure, and the losses of Mr. Santellan and RNS, are solely due to the 18 bad acts of WATTS, HEIN, SF and GPC, described in this Complaint. 19 34. The full scope of the wrongdoing of WATTS, HEIN, SF and the other 20 Defendants is presently unknown to Plaintiffs, as Defendants have had sole possession of 21 company books and records. Defendants, and each of them, shut Plaintiff out from access 22 of the relevant information, materials and partnership business. Therefore, despite a 23 reasonable and diligent inquiry by Plaintiffs, the full scope breaches, misfeasance, 24 malfeasance and otherwise culpable conduct of Defendants is not presently known. As 25 such, the claims and wrongful conduct described in this Complaint is not to be construed 26 as an exhaustive list or description of the basis for this action, or all of the reasons 27 Defendants face liability. Plaintiffs anticipate that discovery and investigation will reveal 28 BONAKDAR'S i COMPLAINT further factual basis to support the claims asserted, as well as new claims, and reserve the right to amend to allege the same. I: Claims of Raul Santellan FIRST CAUSE OF ACTION (BREACH OF FIDUCIARY DUTY - AGAINST HEIN & WATTS) 35. Plaintiff incorporates here and by reference each and every allegations set forth in paragraphs 1 through 34 above, as though fully set forth herein. 36. WATTS and HEIN were Mr. Santellan’s partners in GPA, as the three were 10 equal owners and members in GPA. As such, HEIN and WATTS owed Plaintiffa fiduciary 11 duty, at all times relevant to this action. Pursuant to GPA’s Operating Agreement, and by 12 operation of California Law, WATTS and HEIN owed Mr. Santellan several duties— 13 including but not limited to the duty of loyalty, candor, due care, fairness and disclosure. 14 Both WATTS and HEIN breached their duties to Mr. Santellan, and did so through a 15 coordinated and deceitful conspiracy to benefit each other, at the expense of GPA and Mr. 16 Santellan. 17 37. HEIN and WATTS, both individually and collectively, failed to truthfully 18 account to Mr. Santellan concerning the income and expenses of GPA. 19 38. HEIN and WATTS, both individually and collectively, took money and 20 compensation from GPA, without the knowledge and consent of Mr. Santellan, for their 21 separate and personal purposes and gain. They did so despite affirmative representations 22 to Mr. Santellan that they would not take compensation or payments until GPA was stable 23 and profitable. Because of WATTS’ and HEIN’s deceitful and wrongful conduct, not only 24 was GPA never profitable, but it never had a chance to so develop because Defendants, 25 and each of them, were secretly bilking GPA and Mr. Santellan of monies and corporate 26 opportunities—to benefit themselves, at the expense of GPA and Mr. Santellan. 27 39. HEIN and WATTS, both individually and collectively, were misusing GPA 28 funds and resources, for their owner personal, private and separate exploits. HEIN, with BONAKDAR'S 12 COMPLAINT the knowledge and cooperation of WATTS, was taking monies from GPA in the form of “advances” and diverting GPA’s money (from the $2.3 million in loans which Mr. Santellan personally guaranteed) to SF and himself. HEIN took in excess of $620,000 from GPA funds. HEIN could not have accomplished the foregoing without the knowing assistance of WATTS. WATTS had a duty to disclose that HEIN was attempting to draw funds, and to refuse and stop HEIN’s bad acts. 40. WATTS also wrongfully took money from GPA, paying himself, paying personal expenses, and running up charges and expenses under the guise of “business expenses,” to the detriment of GPA and Mr. Santellan. By way of example, before the 10 formation of GPA, and getting access to the $2.3 million in borrowed operating capital, 11 WATTS would typically be seen driving an older, heavily used looking pickup. When asked 12 why he did not get himself a nice new truck, WATTS response was that it was 13 “unnecessary” and “wasteful” since his truck “ran just fine.” After GPA was formed, and the 14 borrowed monies poured into its account, WATTS purchased an expensive new pickup. 15 Plaintiffs are informed and believe that WATTS’ that purchase of this previously “wasteful” 16 and “unnecessary purchase” was with GPA funds. Plaintiff is further informed and believes 17 that WATTS was paying utility bills fora non-GPA property from GPA funds. HEIN knew 18 that WATTS was taking GPA monies and misusing GPA resources, but worked with 19 WATTS to conceal that information from Mr. Santellan, as a form of quid pro quo for 20 WATTS cooperation with HEIN in his misuse and abuse. WATTS could not have 21 accomplished the foregoing without the knowing assistance of HEIN. HEIN had a duty to 22 disclose that WATTS was misusing GPA resources, and to refuse and stop WATTS’ bad 23 acts. 24 41. HEIN engaged in unlawful and prohibited self-dealing. SF, by and through 25 HEIN, acted as a “commission merchant” (discussed, infra ) for fruit consigned to GPA by 26 growers/farmers, such as RNS. HEIN, abused and misused his position as an officer of 27 GPA to divert commodities to SF, so that SF could earn commissions on commodities that 28 were consigned to GPA. WATTS was aware of this unlawful diversion, and worked with BONAKDAR'S 13 COMPLAINT HEIN to do so— actively facilitating the diversion by and through GPA’s accounting and computer systems. HEIN took separate profits and gains through this unlawful funneling, by way of this prohibited usurpation of partnership opportunity and business. 42. WATTS is now presently engaged in misuse and self-dealing. As noted elsewhere, herein, WATTS started GPC—a direct market competitorto GPA. GPC is operating out of the GPA leased premises, using GPA equipment, and has consumed GPA supplies. WATTS has not accounted to Mr. Santellan for the profits from said enterprise, or the value of the money or benefit GPC and WATTS derive from their consumption and use of GPA property, supplies and equipment. GPA’s Operating 10 Agreement expressly prohibits any member from competing with GPA. 11 43. WATTS and HEIN conned Mr. Santellan into bringing RNS fruit to GPA for 12 packing and sale. They misrepresented when and how they would account for the sales of 13 RNS citrus. To this date, HEIN and WATTS have failed to provide Plaintiffs ofa true and 14 accurate accounting of the disposition of Plaintiffs’ citrus. HEIN and WATTS failure to 15 timely and truthfully account is rooted in their shared, agreed upon and mutual goal of 16 extracting cash and cash equivalents from Mr. Santellan, in order to convert them for their 17 separate use and benefit. WATTS and HEIN used the proceeds from the sales of 18 Plaintiffs’ citrus as their own, by taking in the sales revenues into GPA and/or SF, but 19 failing to ever actually pay Plaintiffs for the fruit. In so doing, WATTS, HEIN, SF and GPA 20 used Plaintiffs’ money as their own separate operating fund—in contravention of 21 partnership law and the GPA Operating Agreement (herein “Agreement”.) Defendants 22 WATTS, HEIN, and GPA had/have a statutory duty (under the Food & Agriculture Code) 23 to pay Plaintiffs for their citrus, within 10 days of their disposition. Defendants failed to so 24 pay for the citrus, and still owe Plaintiffs money for the citrus. 25 44. As noted above, GPA took in a substantial amount of borrowed money, 26 including $1,000,000 borrowed from Corporate America Lending, which is secured against 27 Mr. Santellan’s ranch. Defendants WATTS and HEIN personally guaranteed the Corporate 28 America Lending loan, and failed to and continue to refuse to make any payments on that BONAKDAR'S 14 COMPLAINT loan. WATTS and HEIN did so because they knew and knowthat said loan is collateralized by Mr. Santellan’s ranch property, and that the value of said ranch greatly exceeds the debt. The Corporate American Lending loan went into default, because WATTS and HEIN refused to make their share of the installment payments, despite having the revenue and resources to pay. Instead, HEIN and WATTS prioritized their personal, separate, and unlawful uses of GPA monies above Mr. Santellan’s, thereby placing Mr. Santellan’s property at risk of forfeiture. The failure to timely pay their share of the Corporate American Lending loan is a breach of fiduciary duty. Mr. Santellan suffered harm by way of Defendants’ failure and refusal to pay, by way of the principle and interest 10 payments that were due, in order to avoid foreclosure of his ranch. 11 45. Defendants WATTS and HEIN had a duty to truthfully account to Mr. 12 Santellan for the RNS citrus brought to GPA, including the true and correct number of 13 units, grading and sale prices for the citrus. WATTS and HEIN, acting in concert, failed to 14 truthfully account for the fruit— understating the true number of units delivered by Mr. 15 Santellan/RNS, the quality/grade of the units delivered, as well as the gross sales price for 16 units sold. Mr. Santellan suffered significant losses as a result of the foregoing, by way of 17 lost revenue for the subject crop, and in excess of $1 million. 18 46. Defendants and each of them, displayed conduct that is despicable, 19 deplorable, and with the intent of abusing the relationship and trust that then existed 20 between Plaintiff and Defendants; thereby meriting the imposition of punitive damages 21 against Defendants to discourage them from similar despicable conduct in the future. 22 Second Cause of Action 23 (Breach of Contract - Against Hein & Watts) 24 47. Plaintiff incorporates here and by reference each and every allegation set 25 forth in paragraphs 1 through 46 above, as though fully set forth herein. 26 48. In or aboutJ anuary of 2017, HEIN and WATTS entered into a written 27 agreement with Plaintiff and Corporate America Lending, for a loan in the amount of 28 $1,000,000. Among other terms, Defendants WATTS and HEIN, each, agreed to pay one- BONAKDAR'S 15 COMPLAINT third (1/3) of the interest and principle payments of the loan. WATTS and HEIN failed and refused to make any payments, in breach of said written agreement. Plaintiff has been harmed by way of said breach, by way of having to bear the interest and principle payments of the loan on his own; and the loss of other financial opportunities by way of partial loss of liquidity. 49. No part of the performance of WATTS or HEIN with respect to this agreement were waived or extinguished by Mr. Santellan. Mr. Santellan has performed all obligations relative to this agreement, unless excused or prevented by WATTS and/or HEIN. 10 50. As noted above, WATTS, HEIN and Mr. Santellan entered into a written 11 operating agreement with respect to GPA. Pursuant to that agreement, no member was 12 permitted to take compensation from GPA without the informed consent of the other 13 members. WATTS and HEIN both took compensation from GPA, without the informed 14 consent of Mr. Santellan, in violation of the GPA Operating Agreement. 15 51. The GPA operating agreement further provides that no member shall create 16 or participate in a business that directly competes with GPA. In and about September of 17 2017, WATTS opened his own citrus packing and marketing business, and named it 18 “Grow Pure Citrus.” GPC is operating out of GPA’s location in Porterville, and using GPA’s 19 equipment, and materials. WATTS is separately and privately profiting from this 20 enterprise, in violation of the Operating Agreement. Mr. Santellan has been harmed by 21 way of lost revenue, proportionate to his share of interest in GPA. 22 Third Cause of Action 23 (Breach of Contract- Against Hein & SF, Only) 24 52. Plaintiff incorporates here and by reference each and every allegation set 25 forth in paragraphs 1 through 51 above, as though fully set forth herein. 26 53. As explained above, before the creation of GPA, HEIN and SF represented 27 they had a robust agricultural commodity business. One aspect of this alleged business 28 included export of commodities like garlic. After the creation of GPA, and thus, after HEIN BONAKDAR'S 16 COMPLAINT knowingly, intelligently and voluntarily assumed a fiduciary relationship with Mr. Santellan, HEIN (both on his own behalf, individually, and on behalf of SF) approached Mr. Santellan regarding an “opportunity” on shipping containers loaded with garlic. HEIN, on his own behalf and on behalf of SF, represented that he regularly bought and sold containers of garlic for $57,000, and would make about $12,000 on their shipment to the buyer. 54. HEIN represented that if Mr. Santellan would loan him the $57,000 to acquire the containers of garlic, he would pay Mr. Santellan $5,700 of the profit, plus 10% interest; all payable within 10 days after purchase of the shipping container of garlic (herein “the Garlic Deal”). HEIN represented that he offered the same deal to WATTS, but 10 WATTS said his money was ‘tied up” but that WATTS really wanted “in on this deal” and 11 “would have done it if he could.” Thereafter, on or about August 5, 2016, HEIN 12 (individually and on behalf of SF) entered into a written agreement with Mr. Santellan, 13 pursuant to the terms set forth in this paragraph. In consideration for the promises of 14 HEIN, Mr. Santellan in fact loaned the money; HEIN has failed to pay any sum on this 15 contract and is, therefore in breach. 16 55. HEIN further extracted another note loan from Mr. Santellan, in the amount 17 of $180,000. HEIN, again in his individual capacity and on behalf of SF, entered into a 18 written note loan. The loan called for repayment within 1 week. HEIN represented that 19 he/SF had a specific liquidity issue that had arisen due to a shipping delay, and was in 20 desperate need of the $180,000; HEIN represented that if he didn’t get the money right 21 away, it would jeopardize him and the future of GPA (the “Bailout Loan”). In reliance on 22 the foregoing, Mr. Santellan again agreed. On or about May 22, 2017, Defendants HEIN 23 and SF executed a further promissory note, affirming the debt from the Garlic Deal and the 24 Bailout Loan. As of May 22, 2017, the cumulative total debt on the Garlic Deal and Note 25 Loan was $242,797.55. Defendants HEIN and SF have made no payments since then, 26 and interest on the Garlic Deal and Bailout Loan have continued to accrue. 27 56. HEIN and SF are in default of the Garlic Deal and the Bailout Loan. Mr. 28 Santellan has performed all terms and obligations under the Garlic Deal and the Bailout B