Bocchi Americas Assoc. v. Commerce Fresh Marketing

• Decision Date: 23 January 2008
• Docket Number: No. 06-20939.,06-20939.
• Citation: 515 F.3d 383
• Parties: BOCCHI AMERICAS ASSOCIATES, INC., Plaintiff-Appellant, v. COMMERCE FRESH MARKETING, INC.; Diran A. Elsaifi, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

515 F.3d 383

BOCCHI AMERICAS ASSOCIATES, INC., Plaintiff-Appellant, v. COMMERCE FRESH MARKETING, INC.; Diran A. Elsaifi, Defendants-Appellees.

No. 06-20939.

United States Court of Appeals, Fifth Circuit.

January 23, 2008.

Craig Alan Stokes (argued), Jessie Lopez, Santos Stokes, LLP, San Antonio, TX, for Plaintiff-Appellant.

Dennis Albert McQueen (argued), Pagel, Davis & Hill, Houston, TX, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before WIENER, DeMOSS, and PRADO, Circuit Judges.

PRADO, Circuit Judge:

Plaintiff-Appellant Bocchi Americas Associates, Inc. appeals the district court's entry of, judgment in favor of Defendant-Appellee Diran A. Elsaifi. For the reasons stated below, we affirm.

I. FACTS AND PROCEDURAL HISTORY

A. Factual Background

Bocchi Americas Associates, Inc. ("Bocchi"), a Delaware corporation, is a wholesale supplier of fresh fruits and vegetables. Between December 10, 2002, and June 27, 2003, Bocchi sold and delivered twenty shipments of perishable agricultural commodities to Commerce Fresh Marketing, Inc. ("CFM"), a Texas corporation. The parties have stipulated that CFM failed to pay for many of these deliveries and that CFM owes Bocchi $123,000.

On June 27, 2003, Bocchi sent its last invoice to CFM. CFM claims that on the date of the last invoice, Diran A. Elsaifi ("Elsaifi"), CFM's president and sole shareholder, mailed to Bocchi a check for $2,000 accompanied by a letter requesting that Bocchi accept weekly payments of $2,000 until the full balance was paid. The letter stated, in part,

Enclosed please find a payment in the amount of $ 2,000.00 to be applied to Commerce Fresh Marketing, Inc.'s account with Bocchi Americas, Inc. [sic] Pursuant to our agreement, Bocchi Americas Inc. [sic] will accept partial payments to be applied towards this account, on a weekly basis until the balance of $103,132.85 is paid.

Should the above correctly reflect the terms of our payout agreement, please deposit the check, apply the amount against the account balance, and send a new statement reflecting the new balance due on the account.

Bocchi deposited the check but claims it never received the above-quoted letter. Nevertheless, between July 2003 and October 2004, Bocchi accepted approximately seven additional $2,000 payments and applied them to CFM's unpaid invoices.¹ On December 9, 2003, Bocchi's president, Tom Leonardi, sent a fax to CFM demanding it begin making weekly payments to settle three overdue invoices. The overdue amount was never paid; and on June 23, 2004, Bocchi Wed this suit.

On July 13, 2004, CFM again wrote to Bocchi, proposing to make monthly payments of $2,000 until the end of 2004 and monthly payments of $5,000 thereafter. Leonardi responded three days later in a handwritten fax that stated, in part,

Bocchi Americas does not wish to hinder the operations of Commerce Fresh but the complete balance due of $158,577.00 is to be paid in full immediately.

A set monthly payment has never been agreed nor your proposed $2000.00 monthly payout cannot be deemed acceptable. All files must be paid as invoiced to you as stated.

Don, you have promised to pay complete invoices in full within a year's time and only limited file payments have been done.

On November 10, 2004, Bocchi and CFM entered into an agreement in which Bocchi agreed to dismiss its July 2005 court date in exchange for CFM's promise to pay, the outstanding balance of its debt. CFM agreed to make $5,000 monthly payments in November and December 2004, and $20,000 monthly payments thereafter until the remaining balance was paid. CFM made the first two payments but defaulted on the remaining debt. Bocchi then moved forward with this suit.

B. Procedural History

On June 23, 2004, Bocchi filed this suit against CFM and Elsaifi, alleging common law breach of contract and seeking damages under the Perishable Agricultural Commodities Act of 1930 ("PACA"), as amended, 7 U.S.C. § 499a, et seq. By consent of the parties, a magistrate judge conducted all proceedings in this case, including a bench trial and entry of final judgment. See 28 U.S.C. § 636(c).

On October 6, 2006, the magistrate judge entered final judgment on behalf of Bocchi and against CFM, awarding $123,000 plus prejudgment interest, postjudgment interest, and attorneys' fees. However, the magistrate judge ruled that Bocchi waived its rights to special trust protection under PACA and that therefore, there was no basis for judgment against Bocchi filed this timely appeal, challenging the magistrate judge's conclusion that Bocchi waived its rights under PACA.

C. Statutory Scheme

Congress originally enacted PACA "to regulate the sale of perishable commodities and promote fair dealing in the sale of fruits and vegetables." Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336 F.3d 410, 413 (5th Cir.2003) (internal quotation marks omitted). PACA requires buyers of produce to make "full payment promptly." 7 U.S.C. § 499b(4). If a buyer fails to do so, the seller may file a complaint with the United States Department of Agriculture or file a civil suit against the buyer.² Id. § 499e(a), (b).

In 1984, Congress amended PACA to strengthen the rights of sellers of perishable commodities on short-term credit. See Am. Banana Co. v. Republic Nat'l Bank of N.Y., N.A., 362 F.3d 33, 37 (2d Cir.2004). PACA now gives these sellers two powerful tools with which to enforce buyers' payment obligations. First, PACA creates, immediately upon delivery of the produce, a nonsegregated "floating" trust in favor of unpaid sellers, which attaches to the products themselves and any proceeds. 7 U.S.C. § 499e(c)(2); 7 C.F.R. § 46.46(b); see also Reaves, 336 F.3d at 413. If the seller is not paid promptly, the buyer must preserve trust assets, and the seller has a "superpriority" right that trumps the rights of the buyer's other secured and unsecured creditors. Reaves, 336 F.3d at 413.

Second, PACA imposes secondary liability on persons who are in a position to control the trust assets and fail to do so. Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir.2000). Thus, if the buyer's assets are insufficient to satisfy the seller's claim, this provision allows a seller to seek payment from the buyer's principals, individually.³ That power is particularly important in cases such as this where the corporate buyer is no longer in business, and a common-law breach of contract claim only would yield an unenforceable judgment.⁴

In order to take advantage of these powers, however, the PACA statute and regulations set forth specific rules that sellers must follow. Relevant to this appeal, PACA applies only to produce sold on a short-term credit basis, in accordance with the statute's "full payment promptly" provision. See 7 U.S.C. § 499b(4). "Full payment promptly" means payment within ten days after the buyer accepts the produce. See 7 C.F.R. § 46.2(aa)(5),(11). However, a buyer and seller may agree to extend the time for payment, as long as the aggregate time for payment does not exceed thirty days after the buyer receives and accepts the commodities. Id. § 46.46(e)(2). Therefore, if a seller of produce agrees to extend the time for payment more than thirty days following delivery and acceptance of the produce, the seller may no longer assert any right to a PACA trust or seek recovery from a principal of the buyer. See Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 206 n. 9 (3d Cir.1998). Under this rule, the magistrate judge in this case found that Bocchi and CFM had entered into an such an agreement, and therefore, Bocchi's right to PACA trust protection was lost.

II. STANDARD OF REVIEW AND JURISDICTION

We review the district court's findings of fact for clear error and conclusions of law de novo. Lewis v. Dretke, 355 F.3d 364, 366 (5th Cir.2003). We have jurisdiction to hear an appeal of the final judgment of a district court under 28 U.S.C. § 1291.

III. DISCUSSION

PACA imposes a strict set of requirements on produce sellers seeking to benefit from the law's protections. Relevant to this appeal is the rule that a seller may enter into a pre-transaction payment agreement and still qualify for PACA trust protection only if the agreement does not extend the date for payment beyond thirty days after the buyer's receipt and acceptance of the commodities. 7 C.F.R. § 46.46(e)(1)-(2). Notably, the PACA statute and regulations explicitly refer only to pre-transaction agreements. See, e.g., 7 U.S.C. § 499e(c)(3) ("The unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker within thirty calendar days ... (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction ...." (emphasis added)); 7 C.F.R. § 46.46(e)(1) ("Parties who elect to use different times for payment must reduce their agreement to writing before entering into the transaction ....").

The PACA statute and Fifth Circuit precedent are silent on whether the thirty-day limit also applies to agreements made after the buyer and seller have entered into the transaction. However, five circuits have held that the thirty-day limit does apply to post-transaction agreements. See Am. Banana Co. v. Republic Nat'l Bank of N.Y., N.A., 362 F.3d 33, 43-44 (2d Cir.2004); Overton Distribs., Inc. v. Heritage Bank, 340 F.3d 361, 366-68 (6th Cir. 2003); Patterson Frozen Foods, Inc. v. Crown Foods Int'l, Inc., 307 F.3d 666, 669-71 (7th Cir.2002); Greg Orchards & Produce, Inc. v. Roncone, 180 F.3d 888, 892 (7th Cir.1999); Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 208-09 (3d Cir.1998); In re Lombardo Fruit & Produce Co., 12 F.3d 806, 809-10 (8th Cir. 1993). Following the overwhelming weight of...