Skyline Potato Co. v. Hi-Land Potato Co.

• Decision Date: 06 December 2012
• Docket Number: No. CIV 10–0698 JB/RHS.,CIV 10–0698 JB/RHS.
• Citation: 909 F.Supp.2d 1225
• Parties: SKYLINE POTATO COMPANY, INC., Plaintiff, v. HI–LAND POTATO COMPANY, INC., Carl Worley, Gerald R. Anderson, and Julie A. Anderson, Defendants, and Tan–O–On Marketing, Inc., Defendant/Third–Party Plaintiff, v. Hi–Land Potato Company, Inc., Carl Worley, RPE, Inc., and Russell Wysocki, Third–Party Defendants. Folson Farm Corporation, Mart Produce Corporation, Billingsley Produce Sales, Inc., Alsum Produce, Inc., and Peterson Bros. River Valley Farms, Inc., Intervening Plaintiffs, v. Tan–O–On Marketing, Inc., and Hi–Land Potato Company, Inc., Defendants.
• Court: U.S. District Court — District of New Mexico

909 F.Supp.2d 1225

SKYLINE POTATO COMPANY, INC., Plaintiff,

v.HI–LAND POTATO COMPANY, INC., Carl Worley, Gerald R. Anderson, and Julie A. Anderson, Defendants,andTan–O–On Marketing, Inc., Defendant/Third–Party Plaintiff,

v.Hi–Land Potato Company, Inc., Carl Worley, RPE, Inc., and Russell Wysocki, Third–Party Defendants.

Folson Farm Corporation, Mart Produce Corporation, Billingsley Produce Sales, Inc., Alsum Produce, Inc., and Peterson Bros. River Valley Farms, Inc., Intervening Plaintiffs,

v.Tan–O–On Marketing, Inc., and Hi–Land Potato Company, Inc., Defendants.

No. CIV 10–0698 JB/RHS.

United States District Court, D. New Mexico.

Dec. 6, 2012.

James T. Burns, Heather S. Jaramillo, Patrick J. Griebel, Albuquerque Business Law, P.C., Justin P. Pizzonia, Johanna A. Pickel, Gonzalez & Pizzonia LLC, Albuquerque, NM, for Plaintiff.

Gordon H. Rowe, III, The Rowe Law Firm, P.C., Henry M. Bohnhoff, Leslie McCarthy Apodaca, Melanie B. Stambaugh, Rodey Dickason Sloan Akin & Robb, P.A., Albuquerque, NM, for Defendants and Third–Party Defendants Hi–Land Potato Company, Inc. and Carl Worley.

Gordon H. Rowe III, The Rowe Law Firm, P.C., Albuquerque, NM, for Defendants Mark Lounsbury and Bill Metz.

Shannon Robinson, Albuquerque, NM, for Defendants and Third–Party Plaintiffs Tan–O–On Marketing Inc., Gerald Anderson, and Julie Anderson.

Justin P. Pizzonia, Gonzalez & Pizzonia LLC, Albuquerque, NM, Katy Koestner Esquivel, Meuers Law Firm, PL, Naples, FL, for Intervening Plaintiffs Folson Farm Corporation; Potandon Produce, L.L.C.; Mart Produce Corporation; Billingsley Produce Sales, Inc.; Alsum Produce, Inc.; and Peterson Bros. River Valley Farms, Inc.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on: (i) Defendants Hi–Land Potato Company Inc. and Carl Worley's Motion for Summary Judgment Against Skyline Potato Company, Inc. and the Folson Farm Group, filed August 8, 2012 (Doc. 250); and (ii) Plaintiff and Interviewing Plaintiffs' Joint Motion for Partial Summary Judgment and Incorporated Memorandum of Law, filed August 8, 2012 (Doc. 253). The Court held a hearing on September 27, 2012. The primary issues are: (i) whether Defendant Hi–Land Potato Company, Inc. (“Hi–Land Potato”) is a trust beneficiary of Defendant Tan–O–On Marketing, Inc.'s trust pursuant to the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a-t, (“PACA”); and (ii) whether Hi–Land Potato breached its duty as a co-beneficiary of Tan–O–On Marketing's PACA trust when it received full payment for potato shipments that Tan–O–On Marketing arranged while the other PACA co-beneficiaries went unpaid. The Court concludes that, because a supplier becomes a beneficiary of a commission merchant's, dealer's, or broker's PACA trust automatically upon transfer of the supplier's produce's title, Hi–Land Potato was a beneficiary of Tan–O–On Marketing's PACA trust. The Court concludes that, in light of Tan–O–On Marketing operating out of Hi–Land Potato's premises, Hi–Land Potato handling the billing, bookkeeping, and collection for its potato shipments Tan–O–On Marketing arranged, and Tan–O–On Marketing paying Hi–Land Potato fully for its potatoes, while other producers went unpaid, a genuine issue of material fact exists whether Hi–Land Potato violated the duty it owed its co-beneficiaries of Tan–O–On Marketing's PACA trust by participating in Tan–O–On Marketing's breach of the PACA trust. The Court thus cannot properly grant summary judgment on either motion.

FACTUAL BACKGROUND

This lawsuit arises from Defendant Tan–O–On Marketing's failure to pay Plaintiff Skyline Potato Company, Inc. (“Skyline Potato”), and Intervening Plaintiffs Folson Farm Corporation, Mart Produce Corporation, Billingsley Produce Sales, Inc., Alsum Produce, Inc., and Peterson Bros. River Valley Farms, Inc. (together “Folson Farm Group”) for sales of potatoes they made to Tan–O–On Marketing between October and December 2009. During that time period, Tan–O–On Marketing paid Hi–Land for potatoes that Hi–Land shipped to customers between October and December 2009.

1. Background of the Parties.

This dispute arises out of Tan–O–On Marketing, a produce broker and sales agent, ceasing its business operations without paying fully the produce suppliers for whom it acted as a produce broker. See Deposition of Gerald Anderson at 57:11–25 (taken May 7–8, 2012), filed August 8, 2012 (Doc. 252–1)(“Anderson Depo.”). At all times material to this case, Skyline Potato and the Folson Farm Group were produce-sellers operating under valid PACA licenses issued by the United States Department of Agriculture (U.S.D.A.). See Affidavit of Bryan R. Folson, President and Treasurer of Folson Farm Corporation in Support of Plaintiff and Intervening Plaintiffs' Motion for Summary Judgment ¶ 6, at 2, (executed July 24, 2012), filed August 8, 2012 (Doc. 253–5); Affidavit of Chod Sill, Sales Agent of Billingsley Produce Sales, Inc. in Support of Plaintiff and Intervening Plaintiffs' Motion for Summary Judgment ¶ 6, at 2, (not executed), filed August 8, 2012 (Doc. 253–6); Affidavit of Jim McBride, Sales Manager of Mart Produce Corp. in Supportof Plaintiff and Intervening Plaintiffs' Motion for Summary Judgment ¶ 6, at 2, (executed July 18, 2012), filed August 8, 2012 (Doc. 253–7); Affidavit of Lawrence Alsum, President of Alsum Farms & Produce, Inc. f/k/a Alsum Produce, Inc. in Support of Plaintiff and Intervening Plaintiffs' Motion for Summary Judgment ¶ 6, at 2, (executed July 24, 2012), filed August 8, 2012 (Doc. 253–8); Affidavit of Art Peterson, President of Peterson Bros. River Valley Farms, Inc. in Support of Plaintiff and Intervening Plaintiffs' Motion for Summary Judgment ¶ 6, at 2, (executed July 24, 2012), filed August 8, 2012 (Doc. 253–9); Affidavit of Michael D. Jones, Chief Financial Officer of Skyline Potato Co. in Support of Plaintiff and Intervening Plaintiffs' Motion for Summary Judgment ¶ 6, at 2, (executed July 27, 2012), filed August 8, 2012 (Doc. 253–10); Plaintiff and Intervening Plaintiffs' Joint Motion for Partial Summary Judgment and Incorporated Memorandum of Law ¶ 16, at 8, filed August 8, 2012 (Doc. 253)(“Skyline and FFG's MSJ”)(setting forth this fact); Defendant Hi–Land Potato Company Inc.'s Response to Plaintiff and Intervening Plaintiffs' Motion for Partial Summary Judgment at 8, filed August 27, 2012 (Doc. 266)(“Response to Skyline and FFG's MSJ”)(not disputing this fact). ¹ Hi–Land Potato has been a potato producer, shipping potatoes to customers such as Kroger Co. and Kroger Co.'s predecessor, King Soopers, for thirty-four years. See Declaration of Carla J. Worley ¶ 3, at 2, filed August 8, 2012 (Doc. 252–2)(“Carla Worley Decl.”); Defendants Hi–Land Potato Company Inc. and Carl Worley's Motion for Summary Judgment Against Skyline Potato Company Inc. and the Folson Farm Group ¶ 2, at 5, filed August 8, 2012 (Doc. 250)(“Hi–Land Potato MSJ”)(setting forth this fact); Plaintiff and Intervening Plaintiffs' Joint Opposition to Hi–Land Potato Company, Inc. and Carl Worley's Motion [sic] Summary Judgment at 3, filed August 27, 2012 (Doc. 265)(“Response to Hi–Land Potato's MSJ”).² At all times material to this case, Tan–O–On Marketing's income has been exclusively derived from produce sales. See Deposition of Carla Worley 23:13–25:21, 29:22–32:2 (taken May 17, 2012), filed August 8, 2012 (Doc. 253–3)(“Carla Worley Depo.”); Deposition of Shannon Casey 139:8–11, 144:8–12; 160:3–5, 214:11–16 (taken Oct. 22, 2010), filed August 8, 2012 (Doc. 253–1)(“2010 Shannon Casey Depo.”) ³; Skyline and FFG's MSJ ¶ 4, at 6 (setting forth this fact); Response to Skyline and FFG's MSJ at 8 (not disputing this fact).

a. Tan–O–On Marketing.

Tan–O–On Marketing was involved in carrying on the business of buying wholesale quantities of perishable agricultural commodities—“produce”—from produce suppliers and reselling the produce to its customers. See Anderson Depo. at 57:11–25; Hi–Land Potato MSJ ¶ 1, at 5 (setting forth this fact); Response to Hi–Land Potato's MSJ at 5 (not disputing this fact); Skyline and FFG's MSJ ¶ 2, at 5 (setting forth this fact); Response to Skyline and FFG's MSJ at 8 (not disputing this fact). Gerald Anderson organized Tan–O–On Marketing in the 1990s, with the company's principal place of business located in Hi–Land Potato's packing shed in Monte Vista, Colorado. See Anderson Depo. at 7:13–8:5; 8:22–11:3; Carla Worley Decl. ¶ 5, at 2–3; Hi–Land Potato's MSJ ¶ 5, at 6 (setting forth this fact).⁴ Carl Worley served as a director of Tan–O–On Marketing at Anderson's request until his resignation around 2005, but was never a shareholder or officer. See Anderson Depo. at 19:11–20:14; Carl Worley Deposition at 39:9–25 (taken May 16, 2012), filed August 8, 2012 (Doc. 252–4)(“Carl Worley Depo.”); Hi–Land Potato MSJ ¶ 6, at 6 (setting forth this fact); Response to Hi–Land Potato MSJ at 4 (not disputing this fact). In 2006, Anderson and his wife, Tan–O–On Marketing's sole shareholders, sold the company to Shannon Casey, one of Tan–O–On Marketing's salesmen. See Anderson Depo. at 50:4–24; 52:17–53:13; Hi–Land Potato's MSJ ¶ 7, at 6 (setting forth this fact); Response to Hi–Land Potato's MSJ at 4 (not disputing this fact). After Anderson sold Tan–O–On Marketing to Shannon Casey, he had no intention at any point to resume his involvement with Tan–O–On marketing at any time. See Anderson Depo. at 87:9–24; Hi–Land Potato's MSJ ¶ 8, at 6 (setting forth this fact); Response to Hi–Land Potato's MSJ at 6 (not disputing this fact).

Between 2006 and 2010, Tan–O–On Marketing's President Shannon Casey managed and controlled Tan–O–On Marketing's accounts payable and receivable, including payments from its checking accounts. See In re: Shannon P. Casey, Petitioner, No. 11–0131, 2011 WL 3645678, at **5–6 (USDA Jul. 6 2011) (findings of fact 4–7); Deposition of Shannon Casey 66:10–18 (taken May 15, 2012), filed August 8, 2012 (Doc. 253–13)(“2012 Shannon Casey Depo.”...