Spada Props., Inc. v. Unified Grocers, Inc.

• Decision Date: 06 August 2015
• Docket Number: Case No. 3:13–cv–01760–SI.
• Citation: 121 F.Supp.3d 1070
• Parties: SPADA PROPERTIES, INC., an Oregon corporation dba United Salad Co., Plaintiff, v. UNIFIED GROCERS, INC., a California corporation, Defendant.
• Court: U.S. District Court — District of Oregon

121 F.Supp.3d 1070

SPADA PROPERTIES, INC., an Oregon corporation dba United Salad Co., Plaintiff,

v.UNIFIED GROCERS, INC., a California corporation, Defendant.

Case No. 3:13–cv–01760–SI.

United States District Court, D. Oregon.

Signed Aug. 6, 2015.

David P. Weiner and Sanford R. Landress, Greene & Markley, P.C., Portland, OR, for Plaintiff.

Jeremy D. Sacks, Brandy A. Sargent, and Stephen H. Galloway, Stoel Rives LLP, Portland, OR, for Defendant.

OPINION AND ORDER

MICHAEL H. SIMON, District Judge.

Spada Properties, Inc., doing business as United Salad Co. ("USC" or "Plaintiff"), brings this action against Unified Grocers, Inc. ("Unified" or "Defendant"), alleging claims regarding the bankruptcy of a "Food 4 Less" grocery store to which both USC and Unified supplied groceries. Plaintiff asserts four claims: (1) violation of the Perishable Agricultural Commodities Act, 7 U.S.C. §§ 499b, 499e ; (2) conversion of trust funds; (3) money had and received; and (4) breach of fiduciary duty. Before the Court is Defendant's Motion for Summary Judgment on all claims. Dkt. 59. For the reasons that follow, Unified's motion is granted and this case is dismissed.

STANDARDS

A party is entitled to summary judgment if the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party has the burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir.2001). Although "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge ... ruling on a motion for summary judgment," the "mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient...." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation and quotation marks omitted).

BACKGROUND

The Perishable Agricultural Commodities Act ("PACA") comprehensively regulates the nation's produce industry. Congress enacted PACA in 1930 "in order to provide growers and sellers of agricultural commodities with ‘a self-help tool ... enabl[ing] them to protect themselves against the abnormal risk of losses resulting from slow-pay and no-pay practices by buyers or receivers of fruits and vegetables.’ " D.M. Rothman & Co. v. Korea Commercial Bank of New York, 411 F.3d 90, 93 (2d Cir.2005) (alterations in original) (citing Regulations Under the Perishable Agricultural Commodities Act; Addition of Provisions to Effect a Statutory Trust, Final Rule, 49 Fed.Reg. 45735, 45737 (USDA Nov. 20, 1984) ). PACA requires purchasers of perishable produce to provide full and prompt payment to produce sellers. 7 U.S.C. § 499b(4). As described more fully below, § 499e(c)(2) of PACA creates a non-segregated, floating trust for the benefit of a seller of perishable commodities. The trust comes into existence when produce is delivered, and remains in effect until payment is received. See Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 281 (9th Cir.1997). PACA trust rights are superior to the rights of secured creditors, who can in certain circumstances be required to disgorge any PACA trust proceeds received. See Endico Potatoes, Inc. v. CIT Grp./Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir.1995) ; Consumers Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1381 (3d Cir.1994).

USC is an Oregon corporation that sells and distributes fresh fruit and produce and is licensed by the Secretary of Agriculture under PACA. For almost 20 years, USC was the primary wholesale produce supplier for Food Ventures 87, Inc., doing business as "Food 4 Less" ("Food 4 Less"). The allegations in USC's Amended Complaint, however, deal only with produce shipments made by USC to Food 4 Less between July 21, 2011 and April 24, 2012.

Unified is a secured seller of non-PACA qualified food and also supplies groceries to Food 4 Less. In 2007, Food 4 Less became a member of Unified, which operates as a retailer-owned grocery cooperative. As part of the initial purchase agreement between Food 4 Less and Unified, Food 4 Less authorized Unified to withdraw automatic payments from Food 4 Less' bank accounts. During the period at issue, Unified received payments from Food 4 Less totaling $8,099,459.16. These payments to Unified were made through automatic withdrawals authorized by Food 4 Less.

Between July 21, 2011 and April 24, 2012, among other times, USC sold fresh fruit and produce to Food 4 Less on stated terms requiring payment within ten days after invoice. The invoice date was also the date of delivery. Each invoice sent by USC to Food 4 Less included the following statement:

The perishable agricultural commodities listed on this statement are sold subject to the statutory trust authorized by Section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c) ). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities and any receivables or proceeds from the sale of these commodities until full payment is received.

Spada Decl. ¶ 8, Dkt. 16.¹

Although the formal stated terms included in USC's invoices to Food 4 Less required payment in full within ten days of delivery, in the course of practice, USC often allowed Food 4 Less to pay within 30 days of delivery from some period. In fact, at some point in time, Food 4 Less began to pay even later than 30 days after delivery. USC chose not to commence collection actions against Food 4 Less based on USC's long relationship with Food 4 Less and the reassurances made to USC by the owners of Food 4 Less. This practice continued for some time.

After Food 4 Less began to experience financial difficulties, it got further and further behind on payments owed to USC. By January of 2009, Food 4 Less was at least five months behind on its payments. Ernest Spada, the owner of USC, and Michael Leech, the owner of Food 4 Less, talked frequently about Food 4 Less' growing inability timely to pay USC. In July of 2009, USC asked for and received from Food 4 Less a promissory note in the amount of $500,000. USC used the payments received on the $500,000 promissory note to reduce a portion of Food 4 Less' past due account. The note required Food 4 Less to pay $22,000 a month to USC for two years. This covered both principal and interest due on the $500,000 note. The note was paid off by August 2011, at which time Food 4 Less was eight months behind on its produce payments to USC. Around this time, Mr. Leech offered USC a security agreement on his personal boathouse, worth approximately $180,000, which USC accepted. In April 2012, USC began selling produce to Food 4 Less only on a cash-on-delivery basis.

On or about April 30, 2013, Food 4 Less filed a voluntary petition under Chapter 7 of the Bankruptcy Code. The bankruptcy matter was closed as a "no asset" case without any distribution to creditors on or about August 21, 2013. USC alleges that as of January 28, 2013, Food 4 Less still owed USC the total principal amount of $830,711.13.

DISCUSSION

Plaintiff filed an Amended Complaint (Dkt. 55) on September 23, 2014, asserting four claims: (1) violation of the Perishable Agricultural Commodities Act, 7 U.S.C. §§ 499b, 499e ; (2) conversion of trust funds; (3) money had and received; and (4) breach of fiduciary duty. Defendant moves for summary judgment on all of Plaintiff's claims.

A. PACA Claims Under 7 U.S.C. §§ 499b and 499e

Plaintiff's first claim for relief asserts PACA trust rights in the proceeds of Food 4 Less' sales of PACA-qualified goods, and thus asserts its PACA claim against Defendant as a third-party transferee of PACA trust assets, or proceeds. Defendant moves for summary judgment on this claim on three alternative grounds: (1) Plaintiff's PACA claim is barred by the two-year statute of limitations; (2) Plaintiff's PACA claim is barred by the doctrine of laches; and (3) Plaintiff's course of dealing with Food 4 Less waived, or voided, Plaintiff's PACA trust rights. The Court first reviews the relevant portions of PACA applicable to this claim and then addresses each of Defendant's three arguments in turn.

1. The Perishable Agricultural Commodities Act

Congress enacted PACA in 1930 "to regulate the sale of perishable agricultural commodities." Endico Potatoes, Inc. v. CIT Grp./ Factoring, Inc., 67 F.3d 1063, 1066 (2d Cir.1995). PACA was intended to encourage fair trading practices, suppress unfair and fraudulent business practices in the marketing of perishable commodities and provide remedies for breach of contractual obligations. See id. To this end, produce dealers violate PACA if they do not promptly pay in full for any perishable commodity purchased in interstate commerce. 7 U.S.C. § 499b(4) ; see also Sunkist Growers, Inc., 104 F.3d at 282. Failure promptly to pay in full exposes the violating buyer to civil liability in favor of the seller.² 7 U.S.C. § 499e.

In the early 1980s, Congress reexamined PACA in the wake of a sharp increase in payment defaults by produce buyers. Although it found that PACA generally worked well in making the marketing of perishable agricultural commodities more orderly and efficient, Congress determined that sellers still needed greater protection.See American Banana Co. v. Republic Nat. Bank of New York, N.A., 362 F.3d 33, 37 (2d...