Holtzinger Fruit ordered to pay grower
YAKIMA, Wash. — A Yakima tree fruit company has been ordered by a court to pay $126,000 to a grower and faces another lawsuit alleging it owes another grower $523,000.
C.M. Holtzinger Fruit Co. was sold by the Holtzinger family in about 2007 and has not had any Holtzingers associated with it since then.
The company, governed by Intracorp Capital, Seattle, was sued in 2011 by NCCS Farming, a Washington corporation, for underselling organic Braeburn apples in 2009. Yakima County Superior Court Judge Doug Federspiel signed a judgment April 22 awarding NCCS $121,000 in damages, plus legal costs.
“Holtzinger Fruit did not act in the best interest of its grower in this instance. Holtzinger Fruit acted in the best interest of Holtzinger Fruit, putting its financial interests ahead of its grower’s interests,” Federspiel wrote in his ruling.
Holtzinger’s Yakima attorney, Brendan Monahan, called it “an extremely puzzling conclusion” and that he’s unaware of any evidence Holtzinger put its interests ahead of the grower.
“It was a disappointing decision and clearly we saw the evidence in a different light. We think there are a number of findings that would not withstand scrutiny on appeal, but given the relatively modest financial award the prudent business decision is to move forward (not appeal),” Monahan told Capital Press.
The 240-acre NCCS Rancho Royale Orchard near Royal City is believed the largest contiguous organic Braeburn orchard in the U.S., representing about 60 percent of Washington’s Braeburn production.
NCCS split the crop equally by quantity and quality among three or more packing companies each year. From the 2009 crop, it netted $59,000 from Holtzinger, $186,000 from Gilbert Orchards and $213,000 from Pacific Organic, according to the ruling.
“The evidence was overwhelming that this return (from Holtzinger) was an unmitigated disaster,” Federspiel wrote.
“That’s a curious use of hyperbole. The reality is for five years in a row, Holtzinger outperformed the entire market when it came to organic Braeburn,” Monahan said.
According to the judge’s ruling, Holtzinger Fruit, under new ownership some seven years ago, divested itself of company-owned orchards, relying on packing and selling fruit from independent growers and selling fruit for other packers as its sole sources of income. It hired a new president, David Lawrence, with no prior apple industry experience. The company lost its two primary suppliers, reducing its sales volume from roughly 3 million boxes of apples annually to 1.5 million and resulting in a “significant loss in revenue,” the judge wrote.
The company had two new apple salesmen in 2009 with little to no experience selling organic apples. One of them raised that concern and suggested the company get out of the organic business, the judge wrote.
The company had trouble finding organic buyers. It then took 80 percent of the crop out of controlled atmosphere storage, within days of putting it in, to attempt to sell it in a declining fresh market. A large amount sat well beyond the normal 60-day limit in regular storage and had to be repacked to cull out deteriorated fruit.
“This decision was an extremely risky and overly aggressive decision running contrary to industry standards,” the judge wrote of pulling all the fruit from CA storage.
The ruling faults Holtzinger for not informing NCCS of a rejection of a shipment to the United Kingdom for quality issues, creating “a false narrative” about it and not getting an independent inspection of the fruit to mitigate the loss.
Monahan said Holtzinger removed the fruit from CA storage when the market was good, intending to sell it to UK buyers at $8 more per box than it could have been sold for domestically. The load was “unreasonably rejected” in the UK for defects found in two pallets of the load. That effectively shut down the UK market. While rejected, the load was rated a B-plus so chances of an independent inspection getting a better grade was “a crap shoot,” Monahan said. Holtzinger offered to go to the UK to discuss the matter but chose to take an informal approach and thought a reasonable adjustment could be worked out given its historical relationship with the buyer, he said.
“That confidence was misplaced,” he said.
Holtzinger learned of the problem with the load on Nov. 20 and told an NCCS fieldman in early December that the load likely would be rejected before the end of the year, Monahan said. The load was rejected at the end of January but NCCS upper management didn’t find out about it until March, he said.
Holtzinger argued its decisions were within the company’s discretion of business judgments, insulating it from liability. But Federspiel wrote they were not good business decisions and were not insulated from liability because they were not in the client’s best interests.
The ruling states Holtzinger Fruit violated state law by not giving NCCS a copy of commissions and charges and by “intentionally making a false statement” to NCCS that it sold its apples as organic when it sold them as conventional fruit at lower prices. It was “negligent misrepresentation and/or fraud by omission of critically material facts,” the judge wrote.
“We respectfully disagree,” Monahan said, noting state law requires posting of commissions and charges with the state, not the client.
Jim Berg, NCCS’s Yakima attorney, said Holtzinger charged a double commission for fruit it sold through another broker without telling NCCS.
“The law doesn’t allow that, a second broker without the approval of the grower,” Berg said. “But from my perspective the big deal was not holding fruit in CA, selling it as conventional, not organic, without telling the client and not selling in a timely manner.”
Monahan said plenty of companies use secondary brokers without client approval and that the requirement to do so has no enforcement mechanism.
Berg said he’s aware of at least one other claim against Holtzinger Fruit separate from a $532,743 lawsuit by ACL Farms, Zillah 270 and Kevin Gay Family (Gay Entities), all of Zillah, pending in Yakima County Superior Court.
In court documents, Gay Entities alleges Holtzinger is obligated to pay a $15 per bin packing rebate on fruit in the 2011 crop year. Holtzinger contends it was not obligated to pay any rebate and calls it a frivolous lawsuit.
Monahan said he represented Holtzinger in only the NCCS case and is unaware of other cases. An important take-away from the NCCS case, he said, is that commercial merchants like Holtzinger should have comprehensive contracts with growers, specifying the scope of marketing decisions.