Hull Co. v. Hauser's Foods, Inc.

• Decision Date: 29 January 1991
• Docket Number: No. 89-5614,89-5614
• Citation: 924 F.2d 777
• Parties: HULL COMPANY and J & J Distributing Co., Appellees, v. HAUSER'S FOODS, INC., individually and doing business as Forest Lake Foods; Maple Foods, Inc., doing business as Rainbow Foods; Hauser's IGA, Inc., Hauser's Family Center, Inc.; and Gateway Foods of Minneapolis, Inc., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 777

924 F.2d 777

HULL COMPANY and J & J Distributing Co., Appellees, v. HAUSER'S FOODS, INC., individually and doing business as

Forest Lake Foods; Maple Foods, Inc., doing

business as Rainbow Foods; Hauser's

IGA, Inc., Hauser's Family Center, Inc.;

and

Gateway Foods of Minneapolis, Inc., Appellant.

No. 89-5614.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 10, 1990.

Decided Jan. 29, 1991.

Mark S. Schmitt, Milwaukee, Wis., for appellant.

Lawrence H. Meuers, St. Paul, Minn., for appellees.

Before McMILLIAN, Circuit Judge, BRIGHT, Senior Circuit Judge, and BOWMAN, Circuit Judge.

BRIGHT, Senior Circuit Judge.

This case arises under provisions of the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. Secs. 499a-499t (1988), which impose a trust upon the perishable agricultural commodities (fruits and vegetables) and their proceeds held by a buyer in favor of the seller until the seller has received full payment. Hull Company (Hull) and J & J Distributing Co. (J & J), unpaid wholesale distributors of perishable agricultural products who sold perishables to Hauser's Foods, Inc. (Hauser), a now defunct operator of retail grocery stores, brought these actions to enforce their trust rights in Hauser's assets which had been seized by Gateway Foods of Minneapolis, Inc. (Gateway), Hauser's secured creditor. Gateway had seized Hauser's assets on April 14, 1989, as a secured creditor holding a perfected security interest in all of Hauser's assets and inventory. All parties held licenses to deal in perishable agricultural commodities under PACA. 7 U.S.C. Sec. 499d. The district court, 721 F.Supp. 224, by summary judgments entered under Federal Rule of Civil Procedure 54(b), granted trust relief to the unpaid sellers, Hull and J & J. Gateway brings this appeal.

Gateway raises two issues on appeal: (1) Hull orally agreed to a forty-five-day payment period with Hauser and J & J agreed to a thirty-day payment period with Hauser. Gateway contends that these oral agreements to extend credit beyond the payment periods established by PACA regulations disqualify both produce sellers from any trust relief, and (2) as to J & J, Gateway contends that its notice preserving trust protection did not meet regulatory requirements for entitlement to trust benefits. We reject both contentions and affirm the district court.

I. BACKGROUND

The undisputed facts substantially established by stipulation show that Hull and J & J have supplied Hauser's retail stores with perishable goods over a period of several years. Sometime during that period, Hull and Hauser orally agreed to a payment due date of forty-five days after delivery, notwithstanding that each invoice stated that payment was due ten days after delivery. Similarly, J & J and Hauser orally agreed to a thirty-day payment due date after delivery of its perishables. J & J's invoices did not disclose a payment due date.

As we have noted, Gateway held a perfected security interest in Hauser's goods and, by foreclosure on the assets and inventory of Hauser, took over operation of Hauser's business on April 14, 1989. At the time of foreclosure, Hauser owed Hull the sum of $40,737.10 and J & J the sum of $8,949.89 for unpaid invoices. Thereafter, Gateway and the sellers continued in a course of business, with Gateway paying for all subsequent purchases.

On April 17, 1989, after Gateway's foreclosure, Hull filed a notice to preserve trust benefits in compliance with the notice requirements under PACA for unpaid invoices extending from February 13 through April 14, 1989.

J & J sent a notice on April 21, 1989 to the United States Department of Agriculture (USDA) indicating that Maple Foods, an entity operated by Hauser, had failed to meet its payment obligations in compliance with PACA for invoices dating from March 6 through April 11, 1990. J & J's notice included the invoice number, commodity, date and amount shipped, and cost. It also listed the name and address of the debtor and itself. However, the notice failed to include an express statement that it constituted a notice of intent to preserve trust benefits, as well as an explicit statement as to the payment due date. See 7 C.F.R. Sec. 46.46(g)(3) (1990). Nevertheless, the USDA treated the document as a notice of intent to preserve trust benefits under PACA.

By separate letter, J & J informed Maple Foods that it was filing a notice of intent to claim trust benefits with the USDA. The letter indicated that under PACA regulations, payment was due within ten days of receipt. J & J listed and attached copies of the invoices for which collection was being sought.

In May of 1989, Hull and J & J commenced this suit seeking payment from Gateway under the trust provisions of PACA. Hull and J & J moved the district court for summary enforcement of the statutory trust provisions of PACA. Gateway responded with its own motion for summary judgment. The district court granted the sellers' motions for summary judgment.

In its decision in favor of the sellers, the district court initially observed that the PACA regulations relating to trust benefits prescribe ten days as the time by which payment for produce must be made, 7 C.F.R. Sec. 46.2(aa)(5), but that parties may, by written agreement, elect up to thirty days for payment and the seller of perishable goods will retain eligibility for trust benefits. 7 C.F.R. Sec. 46.46(f). The district court determined that, notwithstanding the oral credit arrangements extending the time for payment beyond the ten days specified in the regulation, Hull and J & J were entitled to trust benefits under the statute and regulations.

The district court reasoned that:

if [C.F.R.] Section 46.46(f) is read as a whole, it appears that the type of agreements to which Section 46.46(f)(2) refers are written agreements. Section 46.46(f)(1) makes clear that "parties who elect to use different times for payment must reduce the agreement to writing." The regulations and the statute also state in a number of other places that extensions of payment must be in writing. See 7 C.F.R. Secs. 46.2(aa)(11) and 46.46(g); 7 U.S.C. Sec. 499e(c)(3). The logical reading of the regulation then is that in order to have effect, agreements for payment beyond the 10 day limit set by 7 C.F.R. Sec. 46.2(aa)(5) must be in writing and that 7 C.F.R. Sec. 46.46(f)(2) bars trusts only where there is a written agreement in excess of 30 days.

Order dated October 5, 1989 at 5.

As to the sufficiency of J & J's notice, the district court determined that the notice given by J & J amounted to substantial compliance, sufficient to preserve trust benefits.

Defendant claims plaintiff's notices to the debtor and to the USDA lack certain information and therefore are invalid. However, although it may not be spelled out clearly, all the information required by Sec. 46.46(g)(3) can be gotten from the letter sent by plaintiff to the debtor with its accompanying invoices. Missing from the notice sent to the USDA by plaintiff are an explicit statement that it is a notice to preserve trust benefits and the date payment was due. However, the fact that plaintiff wished to preserve trust benefits is evident from the correspondence. Indeed, the USDA treated the letter as such a notice. Also, in the absence of any mention of an agreement to the contrary, it can be assumed that payment is due within 10 days of delivery. 7 C.F.R. Sec. 46.2(aa)(5).

... Although the notices are not flawless and certainly could be drafted to convey this information much more clearly, the court finds they are sufficient to preserve the benefits of the trust.

Order dated December 11, 1989 at 3.

II. DISCUSSION

A. The statutory scheme and regulations

The original PACA enactments served "to provide a practical remedy to small farmers and growers who were vulnerable to the sharp practices of financially irresponsible and unscrupulous brokers in perishable commodities." Chidsey v. Guerin, 443 F.2d 584, 587 (6th Cir.1971); see also O'Day v. George Arakelian Farms, Inc., 536 F.2d 856 (9th Cir.1976). To that end, PACA requires that buyers make "full payment promptly" for all commodities received from produce suppliers. 7 U.S.C. Sec. 499b(4). Failure to satisfy the prompt payment rules gives rise to civil liabilities in favor of the injured seller, 7 U.S.C. Sec. 499e(a), and repeated or flagrant violations may result in the revocation of a buyer's agricultural license. Id. Sec. 499h(a); In re The Caito Produce Co., 48 Agric.Dec. ----, No. D 88-511, slip op. (June 11, 1989); In re Carpenito Bros., 46 Agric.Dec. 486 (1987), aff'd, 851 F.2d 1500 (D.C.Cir.1988).

While PACA generally has worked well in making the marketing of perishable agricultural commodities more orderly and efficient, H.R.Rep. No. 543, 98th Cong., 2d Sess. (1983), reprinted in 1984 U.S.Code Cong. & Admin.News 405, 406 (H.R.Rep. No. 543), Congress nevertheless amended PACA in 1984 to provide additional protection to produce sellers. Congress recognized that, under the prevailing law, "sellers of fresh fruits and vegetables [were] unsecured creditors and receive[d] little protection in any suit for recovery of damages where a buyer ha[d] failed to make payment as required by the contract." H.R.Rep. at 407. The statutory amendments make a legislative finding that financing arrangements made by commission merchant dealers and brokers who have not made payment for the goods deprive suppliers of payment and disserve the public interest. 7 U.S.C. Sec. 499e(c)(1).

Congress remedied this situation by amending PACA to make produce sellers' interests in the commodities superior to those of the buyers' secured creditors. Under the amendments, buyers of perishable agricultural commodities are now required to hold the purchased commodities, and any resulting proceeds, in trust for the benefit of the sellers until the sellers are paid in full. 7 U.S.C. Sec. 499e(c)(2). ¹ The statutory history indicates...