Bronia, Inc. v. Ho, 91 Civ. 1493 (WCC).

• Decision Date: 20 January 1995
• Docket Number: No. 91 Civ. 1493 (WCC).,91 Civ. 1493 (WCC).
• Citation: 873 F. Supp. 854
• Parties: BRONIA, INC., Country-Wide Produce, Inc., H & M Fleischer, Inc., Kleinman & Hochberg, Inc., Krisp-Pak Sales Corp., Megna Fruits & Produce, Inc., Mister Sprout, Inc., Schnell & Co., Inc., Sun Valley Produce, Inc., Tray-Wrap, Inc., Ven-Co Produce, Inc., and Wishnatzki & Nathel, Inc., Plaintiffs, v. Seo Young HO, Defendant.
• Court: U.S. District Court — Southern District of New York

873 F. Supp. 854

BRONIA, INC., Country-Wide Produce, Inc., H & M Fleischer, Inc., Kleinman & Hochberg, Inc., Krisp-Pak Sales Corp., Megna Fruits & Produce, Inc., Mister Sprout, Inc., Schnell & Co., Inc., Sun Valley Produce, Inc., Tray-Wrap, Inc., Ven-Co Produce, Inc., and Wishnatzki & Nathel, Inc., Plaintiffs, v. Seo Young HO, Defendant.

No. 91 Civ. 1493 (WCC).

United States District Court, S.D. New York.

January 20, 1995.

COPYRIGHT MATERIAL OMITTED

Law Offices of Leonard Kreinces, Great Neck, NY (Leonard Kreinces, of counsel), for plaintiffs.

Sullivan, Donovan, Bond & Bonner, New York City (Gary E. Ireland, Robert J.A. Zito, of counsel), for defendant.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

This case arises under the Perishable Agricultural Commodities Act ("PACA"), which creates statutory trusts in favor of unpaid sellers of perishable goods. Plaintiffs are unpaid sellers seeking trust benefits totalling $191,180.56 from the defendant Seo Young Ho in his capacity as the sole shareholder, officer, and director of Tradefield Produce Corporation ("Tradefield"). Before the court is plaintiffs' motion for summary judgment on their claims of liability against Seo. For the reasons set forth below, we grant the motion with regard to liability but reserve the issue of damages for trial.

I.

Prior to filing a petition for bankruptcy in 1991, the defendant's company, Tradefield, operated as a produce wholesaler out of Hunts Point Market in the New York City area. Between late 1989 and 1990, Tradefield purchased a total of $347,000 worth of commodities on credit in a series of transactions with the plaintiffs which it then resold to local Korean markets in Manhattan, Brooklyn and Queens. Despite numerous demands from the plaintiffs, however, Tradefield did not pay for its purchases and in January, 1991 filed a Chapter 7 petition for bankruptcy. Plaintiffs then filed this suit against Seo personally, claiming that he violated his obligations under PACA to hold the commodities and their proceeds in trust for the plaintiffs.

A. PACA and the Issues Arising Thereunder

In 1984, Congress amended PACA by creating a statutory trust that must be maintained by each purchaser of perishable goods in favor of unpaid suppliers and sellers of such commodities. The statute provides in pertinent part:

Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents.

7 U.S.C. § 499e(c)(2).

While the trust is automatically created under the statute, the unpaid seller will lose the trust benefits unless he "gives written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker and has filed such notice with the Secretary within thirty calendar days after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary." 7 U.S.C. § 499e(c)(3) (emphasis added). The regulations issued by the Secretary of Agriculture require that payment be made within 10 days of receipt of the goods. 7 C.F.R. 46.2(aa)(5). Thus the unpaid seller must give notice to both the purchaser and the Secretary within 40 days of the purchaser's receipt of the goods.

Pursuant to their summary judgment motion, plaintiffs' attorney submitted an affidavit stating that plaintiffs "have timely filed notices with the Secretary of Agriculture." The affidavit did not mention any notice given to Tradefield or Seo, however. In his response, Seo submitted an affidavit stating that Tradefield received notice of plaintiffs' intent to preserve the trust benefits only after Tradefield filed for bankruptcy on February 6, 1991. As the goods at issue were received in late 1989 and early 1990, notice in February 1991 would not comply with the forty-day requirement under the statute. In May, 1994, we held a hearing to decide whether Tradefield, and hence Seo, had received timely notice that plaintiffs intended to preserve their trust rights under PACA.¹ This Opinion incorporates the Court's findings of fact based on the evidence adduced at that hearing, pursuant to Rule 52, Fed.R.Civ. Pro.

B. The Evidentiary Hearing

Kleiman & Hochberg ("K & H") and Wishnatzki & Nathel ("W & N") were the only plaintiffs to participate in the hearing and to submit evidence on the notice issue. Since plaintiffs bore the burden of proof, at the hearing we granted defendant's oral motion to dismiss the non-participating plaintiffs' claims. With regard to K & H and W & N, however, the issues are more complex.

W & N claims that Seo is personally liable for $83,000² worth of produce purchases made by Tradefield in late 1989 through April 1990 and that these monies are subject to the PACA trust provisions. Ira Nathel, an accounts receivable supervisor at W & N, testified that on December 12, 1989, W & N sent a letter by certified mail (return receipt requested) to the United States Department of Agriculture ("USDA") and Tradefield informing them of W & N's intent to invoke its trust rights. On December 20, 1989, W & N sent the same letter by regular mail to Tradefield. This filing covered invoices from October 23, 1989 through December 12, 1989. W & N received the return receipt from the USDA mailing, indicating that the department had accepted the letter, but the Tradefield certified letter was returned with the acceptance receipt unsigned. W & N's letter sent by regular mail was not returned.

At the hearing W & N introduced receipts indicating that both the certified and regular mailings occurred on the above dates. Although these receipts did not indicate the contents of the USDA and Tradefield mailings, W & N provided certified copies of the USDA filings corresponding to the December 12 letter, which substantiate its claim that it did provide proper notice to the USDA. As to Tradefield however, only Nathel's testimony indicates that W & N supplied the requisite notice. Although Nathel was not the person responsible for actually mailing the letters, he testified that he directed the mailings to occur and another person in the office carried them out in accordance with standard office procedures.

Next, Nathel testified that on March 8, 1990 W & N sent to the USDA by certified mail and to Tradefield by both regular and certified mail notice of its intent to preserve the PACA trust as to invoices from January 23, 1990 through March 6, 1990. W & N introduced receipts covering the Tradefield regular and certified mailings, and a return receipt indicating that on March 9, 1990 Seo accepted delivery of the certified letter. Again, nothing on these receipts indicates the contents of the mailings. Similarly, because he did not perform the mailings himself, Nathel has no personal knowledge that these mailings actually occurred or contained the proper notice.

Finally, Nathel testified that after several of Tradefield's checks bounced, on April 4, 1990 W & N again sent a notice to the USDA by mail and to Tradefield by both certified and regular mail covering invoices from January 29, 1990 through February 5, 1990. Like the December certified mailing to Tradefield, the certified letter to it was returned undelivered. Interestingly, although W & N's and Tradefield's offices were located in the same building, W & N never attempted to hand deliver written notice to Tradefield, even after the December certified letter was returned.

K & H claims that Seo is liable for $50,000³ in unpaid invoices to Tradefield that are similarly subject to the PACA trust provisions. Helene Traeger, a K & H office manager, testified that K & H provided written notice of its intent to preserve its trust rights to the USDA and Tradefield by Federal Express on March 14, 1990 and March 15, 1990⁴ covering invoices from February 2, 1990 through February 8, 1990 and February 9, 1990 through February 23, 1990, respectively. K & H introduced the Federal Express receipts corresponding to the Tradefield mailings into evidence, but like the W & N receipts, nothing on them indicates what the mailings contained.⁵ Although these packages were not returned,⁶ K & H offered no direct evidence that the packages were received. Unlike Nathel, however, Traeger actually performed the mailings and testified that the receipts correspond to the notice mailings she sent out.

Again at the hearing, Seo denied that he received any of the mailings. He also testified that he was locked out of his business in late March or early April, 1990, although he is unsure exactly when this occurred. This would possibly explain why W & N's April certified mailing was returned as undeliverable.

II.

Under section 499e(c)(3) of PACA, the mere mailing of a notice is not sufficient to preserve a seller's trust rights. Instead, that section requires that written notice be delivered to the dealer or merchant. See In re John DeFrancesco & Sons, Inc., 114 B.R. 335, 338 (Bankr.D.Mass.1990) (notice must be given by the seller and received by the debtor); In re Marvin Properties, Inc., 854 F.2d 1183, 1186 (9th Cir.1988) (notice must be given directly to buyer). Based solely on the statutory language, defendant's contention that because he never received notice plaintiffs cannot enforce the trust against him is particularly compelling.

Under general New York law, however, the Second Circuit has indicated that mailing a letter creates a presumption that the addressee received it. Meckel v. Continental Resources Co., 758 F.2d 811, 817 ...