WILLIAM D. QUARLES, JR., District Judge.
P.L.U.S. Brokerage, Inc. ("PLUS"), Ryeco LLC ("Ryeco"), Lancaster Foods, LLC ("Lancaster Foods"), and Fred S. Chesser & Co., Inc. ("Chesser") (collectively "plaintiffs") sued Jong Eun Kim under the Perishable Agricultural Commodities Act of 1930 ("PACA" or).
The facts are not in dispute.
Between January 26, 2011, and March 10, 2011, PLUS sold produce to Kimberly's Farm for $87,673.60. ECF No. 18-4 ¶ 9; see ECF Nos. 18-5, 18-6. The invoices list a payment term of "Net 30 Days" and state that the commodities are subject to the trust provisions of PACA. ECF No.
Between February 10, 2011, and March 11, 2011, Ryeco sold produce to Kimberly's Farm for $58,753.50. ECF No. 19-4 ¶ 9; see ECF Nos. 19-5, 19-6. The invoices list a payment term of "PACA Payment terms — Net 10 days acceptance" and state that the commodities are subject to the trust provisions of PACA. ECF No. 19-5. Ryeco mailed the invoices to Kimberly's Farm within three days of the shipment date of each quantity of produce. ECF No. 19-4 ¶ 14. None of the invoices was returned undeliverable, and Ryeco had no indication that the invoices were not received. Id. ¶ 15. Kimberly's Farm did not pay the invoices. Id. ¶ 16.
From February 24, 2011, to March 26, 2011, Lancaster Foods sold produce to Kimberly's Farm for $147,056.20. ECF No. 20-4 ¶ 9; see ECF Nos. 20-5, 20-6. The invoices list a payment term of "21-DAYS" and state that the commodities are subject to the trust provisions of PACA. ECF No. 20-5. Each invoice was given to Kimberly's Farm at the time of delivery. ECF No. 20-4 ¶ 14. Kimberly's Farm did not pay the invoices. Id. ¶ 15.
From January 31, 2011, to March 23, 2011, Chesser sold produce to Kimberly's Farm for $22,501.50. ECF No. 21-4 ¶ 9; see ECF Nos. 21-5, 21-6. The invoices list no payment term but state that the commodities are subject to the trust provisions of PACA. ECF No. 21-5. Chesser mailed the invoices to Kimberly's Farm within three days of the shipment date of each quantity of produce. ECF No. 21-4 ¶ 13. None of the invoices was returned undeliverable, and Chesser had no indication that the invoices were not received. Id. ¶ 14. Kimberly's Farm did not pay the invoices. Id. ¶ 15. Kimberly's Farm owed the plaintiffs $315,984.80. See ECF No. ECF No. 1 ¶ 26.
Kim explains that Kimberly's Farm did not pay the invoices because Kimberly's Farm could not collect nearly $250,000.00 in receivables from EE Mart and Fresh World VA-A, Inc. ("Fresh World").
On November 7, 2011, the plaintiffs sued Kim under PACA for (1) breach of fiduciary duty and (2) conversion and unlawful retention of PACA trust assets.
The Court "shall grant 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 Court must "view the evidence in the light most favorable to ... the nonmovant and draw all reasonable inferences in [its] favor," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir.2002), but the Court must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial," Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir.2003) (citation and internal quotation marks omitted).
When cross motions for summary judgment are filed, "each motion must be considered individually, and the facts relevant to each must be reviewed in the light most favorable to the nonmovant." Mellen, 327 F.3d at 363 (citing Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.2003)).
The plaintiffs assert that they are entitled to summary judgment because there is no genuine dispute of material fact, and Kim is personally liable for Kimberly Farm's failure to preserve trust assets. ECF No. 18-2 at 14.
Congress enacted PACA in 1930 "to suppress unfair and fraudulent business practices in the marketing of perishing commodities." Nickey Gregory Co., LLC v. AgriCap LLC, 597 F.3d 591, 594 (4th Cir.2010). PACA was amended in 1984 "to provide unique credit protection to sellers of perishable agricultural commodities." Id.
Under the 1984 amendments, sale of perishable commodities may create a trust for the benefit of the sellers of (1) the commodities, (2) the inventory or products derived from the commodities, and (3) any receivables or proceeds from further sale. 7 U.S.C. § 499e(c)(2); see Nickey Gregory, 597 F.3d at 595. The purchasers must "maintain the trust by retaining the commodities or their proceeds" until the sellers
"General trust principles govern PACA trusts unless the principle conflicts with PACA." Nickey Gregory, 597 F.3d at 595. The trust must be maintained "in a manner that such assets are freely available to satisfy outstanding obligations to sellers." 7 C.F.R. § 46.46(d)(1). Failure to maintain the trust, including dissipation of assets, is unlawful. See 7 U.S.C. § 499b(4); 7 C.F.R. § 46.46(d)(1).
Sellers must meet certain conditions to be eligible for the protection of a PACA trust. Under PACA, buyers must make "full payment promptly." 7 U.S.C. § 499b(4). The general deadline is ten days after receipt of the produce. 7 C.F.R. § 46.2(aa). Buyers and sellers can agree to more time in writing. Id. § 46.2(aa)(11). The maximum time is 30 days. Id. § 46.46(e)(2).
To preserve the trust benefits, the seller may file a notice of intent including, (1) the name and address of the beneficiary and debtor, (2) the date of transaction, commodity, invoice price, and terms of payment (if appropriate), (3) the date of receipt of notice that payment has been dishonored (if appropriate), and (4) the amount past due and unpaid. Id. § 46.46(f)(1). Notice of the intent to preserve the trust must generally be given within 30 days. Id. § 46.46(f)(2). Alternatively, the seller may use an invoice to preserve the trust benefits if it includes (1) the terms of payment, if they differ from the standard, and (2) the statement:
7 C.F.R. § 46.46(f)(3).
Fed.R.Civ.P. 36 permits parties to serve on any other party a request to admit the truth of matters relevant to the case including "facts, the application of law to fact, or opinions about either" and the genuineness of documents. Fed.R.Civ.P. 36(a)(1). Purely legal matters, not connected to the facts of the case, are not proper subjects for admission. Id. advisory committee's note.
In response to the plaintiffs' requests, Kim has admitted many applications of law to fact. He has admitted that the plaintiffs' invoices contained language sufficient to preserve trust benefits under PACA. ECF No. 23-3 at 6 ¶ 10. He also has admitted that "as an officer, director, shareholder, or employee of Kimberly's Farm," he had a duty to ensure that Kimberly's
Kim's admissions are attached to the plaintiffs' opposition to Kim's cross-motion for summary judgment and reply to their motions for summary judgment. ECF No. 23. The admissions were not served on the plaintiffs until June 4, 2012, well into summary judgment briefing. See ECF No. 23-3 at 9. Although materials attached to reply briefs are generally not considered by courts, see Mathewson v. Lincoln Nat'l Life Ins. Co., 518 F.Supp.2d 657, 661 n. 4 (D.S.C.2007), the relevant brief in this case is an opposition and a reply. The briefing schedule allowed Kim the last word, which he did not take. See ECF No. 17. Because he did not object to the requests for admission, as required by Fed.R.Civ.P. 36(3), (5), he waived any potential objection. As Kim is the originator of the admissions and had the opportunity to explain them, the Court will consider the admissions against Kim. See Fed. R.Civ.P. 36(b).
Kim asserts that summary judgment may not be granted on the plaintiffs' claims because there is a genuine dispute whether the invoices were sent to Kim within the time authorized under PACA. ECF No. 22 at 5. The plaintiffs argue that the record shows that there is no dispute, and they complied with the notice requirements. See ECF No. 23-2 at 3-5.
Each of the plaintiffs has submitted an affidavit stating that it sent Kim the invoices. Kevin Baek, President of PLUS, affirmed that PLUS sent invoices to Kimberly's Farm on the shipment date, and there was no indication that any invoice was not received. ECF No. 18-4 ¶ 1, 14-15. John DiFeliciantonio, a partner in Ryeco, affirmed that each invoice was sent to Kimberly's Farm on or within three days of the sale of the produce, and there was no indication that any invoice was not received. ECF No. 19-4 ¶ 1, 14-15. Douglas Verner, general counsel of Guest Services, Inc., the sole member of Lancaster Foods, affirmed that each invoice was given to Kimberly's Farm at the time of delivery. ECF No. 20-4 ¶ 1, 14. Patricia Morris, bookkeeper for Chesser, affirmed that each invoice was mailed on or within three days of shipment, and there was no indication that any invoice was not received. ECF No. 21-4 ¶ 1, 13-14. Kim has produced no evidence to the contrary, but asserts that the plaintiffs have not shown that the invoices were sent to Kim or to Kimberly's Farm or that the invoices were sent with the produce. ECF No. 22 at 6-7; see ECF No. 18-7 ¶ 11.
The evidence shows that the invoices were mailed or given to Kimberly's Farm. See ECF Nos. 18-4 ¶ 14-15, 19-4 ¶ 14-15, 20-4 ¶ 14, 21-4 ¶ 13-14. Mail sent is presumed delivered absent strong evidence to the contrary. Bosiger v. U.S. Airways, Inc., 510 F.3d 442, 452 (4th Cir. 2007). Kim has provided no evidence to the contrary. Accordingly, there is no genuine dispute of material fact, and the Court may determine whether the plaintiffs' notices complied with PACA.
Kim has admitted that the invoices properly invoked the PACA trust protections. ECF No. 23-3 at 6 ¶ 10. The invoices support this admission. PLUS, Ryeco, and Lancaster Foods all specified terms of 30 days or less. See 7 C.F.R. § 46.46(e)(2); ECF Nos. 18-5, 19-5, 20-5. Chesser's invoices do not state payment
The plaintiffs assert that Kim is personally liable for the trust assets held by Kimberly's Farm. See ECF No. 18-2 at 11. Kim argues that his personal liability "would make corporations useless."
Under PACA, purchasers are primarily liable for the trust. Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir.2000). Although the Fourth Circuit has yet to address the issue, some courts of appeal have held that "individual shareholders, officers, or directors of a corporation who are in a position to control trust assets, and who breach their fiduciary duty to preserve those assets, may be held personally liable under PACA."
Kim has admitted that he and Kimberly's Farm breached their fiduciary duties by not preserving the PACA trust assets. ECF No. 23-3 at 7 ¶ 18. Kim was the sole shareholder, director, officer, and individual responsible for management of Kimberly's Farm. ECF No. 18-7 ¶¶ 15-18. As such, he was in a position "to control the company's PACA trust assets." Golman-Hayden, 217 F.3d at 351. As he did not direct the company to preserve the trust assets, he is, as a matter of law, personally liable under PACA. Id.
The plaintiffs assert that they are entitled to
Uncollected accounts receivable "are insufficient to satisfy the PACA liability because they are not `freely available' for `prompt payment' to trust beneficiaries as the PACA regulations require." Coosemans, 485 F.3d at 707 (citing 7 C.F.R. § 46.46(d)(1), (e)). The receivables from EE Mart and Fresh World have not been collected. ECF No. 18-7 ¶ 20. As they are not freely available, Kim is liable to the plaintiffs for the full amount owed. Coosemans, 485 F.3d at 707.
The plaintiffs seek the Maryland legal rate of prejudgment interest — six percent per annum simple interest calculated from the date due date of the last invoice.
Date from which interest is Plaintiff Amount calculated 15 PLUS $ 87,673.60 April 9, 2011 Ryeco $ 58,753.50 March 21, 2011 Lancaster Foods $147,056.20 April 16, 2011 Chesser $ 22,501.50 April 2, 2011
Kim asserts that as a matter of law (1) he cannot be held personally liable under PACA and (2) even if he is ultimately liable, his liability should be reduced by Kimberly Farm's accounts receivable. ECF No. 22 at 8-9. The plaintiffs assert that (1) PACA extends liability to individuals who control the trust assets and (2) Kim's accounts receivable argument is without authority. ECF No. 23-2 at 8-9.
Kim relies solely on Farm-Wey Produce, Inc. v. Wayne L. Bowman Co., 973 F.Supp. 778 (E.D.Tenn.1997), for the proposition that an individual is not liable for PACA trust assets held by a corporation, arguing that such a rule would defeat the purpose of the corporate form. See ECF No. 22 at 7. Farm-Wey acknowledges, however, that nearly every case that had previously addressed the issue allowed recovery in certain situations from "individuals who were officers, shareholders, or other persons perceived by the courts to be in a `fiduciary' position with respect to the PACA trust." Farm-Wey, 973 F.Supp. at 781. As the plaintiffs note, the Farm-Wey court determined that, regardless of the standard for determining a fiduciary, the Farm-Wey defendant had not breached any duty, as the produce was sold for a total loss. See id. at 785; ECF No. 23-2 at 7 n. 3.
Although the Fourth Circuit has not addressed personal liability under PACA, other courts of appeal have held that "individual shareholders, officers, or directors of a corporation who are in a position to control trust assets, and who breach their fiduciary duty to preserve those assets, may be held personally liable under PACA."
Kim relies on Golman-Hayden for the proposition that his secondary liability should be reduced by the amount of the accounts receivable due to Kimberly's Farm. ECF No. 22 at 8-9. The plaintiffs contend that Golman-Hayden refers to the funds collected from the accounts receivable. ECF No. 23-2 at 8-9.
In Golman-Hayden, the bankrupt company held funds in trust for the plaintiffs derived from the accounts receivable.
Kim requests that the amount of damages owed to the plaintiffs be reduced by the $222,122.00 in receivables that he is owed by EE Mart and Fresh World. ECF No. 22 at 8-9. Under PACA, the receivables from the sale of the produce are part of the trust corpus for the benefit of the sellers. See 7 U.S.C. § 499e(c)(1); Nickey Gregory, 597 F.3d at 607. However, uncollected accounts receivable "are insufficient to satisfy the PACA liability because they are not `freely available' for `prompt payment' to trust beneficiaries as the PACA regulations require." Coosemans, 485 F.3d at 707. The receivables from EE Mart and Fresh World have not been collected. ECF No. 18-7 ¶ 20. As they are not freely available, Kim is liable to the plaintiffs for the full amount owed. Coosemans, 485 F.3d at 707. Kim is not entitled to summary judgment.
For the reasons stated above, the plaintiffs' motions for summary judgment will be granted. Kim's cross motion for summary judgment will be denied.
For the reasons discussed in the accompanying Memorandum Opinion, it is, this 13th day of December, 2012, ORDERED that:
1. The Plaintiffs' motions for summary judgment (ECF Nos. 18, 19, 20, & 21), BE, and HEREBY ARE, GRANTED;
2. Kim's cross motion for summary judgment (ECF No. 22), BE and HEREBY IS, DENIED;
3. Judgment is entered against Kim in the amounts of:
4. The judgment is subject to postjudgment interest at the federal statutory rate under 28 U.S.C. § 1961; and
5. The Clerk of the Court shall send copies of this Memorandum Opinion and Order to counsel for the parties.
