MICHAEL H. SIMON, District Judge.
Spada Properties, Inc., doing business as United Salad Co. ("USC" or "Plaintiff"),
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).
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
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:
Spada Decl. ¶ 8, Dkt. 16.
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
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.
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.
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.
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 Cir.2004) (discussing history and purpose of PACA); Patterson Frozen Foods, Inc. v. Crown Foods Int'l, Inc., 307 F.3d 666, 670 (7th Cir.2002) (same). Congress noted that, as a result of the exigencies of the perishable commodities business, sellers were typically required to sell their produce quickly and often found themselves in the position of unsecured creditors of buyers whose creditworthiness could not be verified. If buyers defaulted, sellers could look only to the commodities
In 1984, Congress amended PACA to add an additional protection for produce suppliers — a non-segregated, floating trust that gives sellers a security interest in the produce and its proceeds and makes the security interest superior to the claims of the buyer's other secured creditors. See An Act to Amend the Perishable Agricultural Commodities Act, 1930, Pub.L. No. 98-273, 98 Stat. 165 (codified as amended 7 U.S.C. § 499e(c) (1984)); 7 C.F.R. § 46.46(b) (2011). As the Ninth Circuit explained:
In re Milton Poulos, Inc., 947 F.2d 1351, 1352 (9th Cir.1991) (citations omitted). In return for these "extraordinary protections," however, PACA establishes certain "strict eligibility requirements." Patterson, 307 F.3d at 669 (discussing PACA's history and statutory text).
One requirement involves notice given to buyers of PACA goods. In order to preserve its PACA trust rights, a seller must comply with the notice provisions of 7 U.S.C. §§ 499e(c)(3) or (4). Subsection (4) provides in relevant part:
7 U.S.C. § 499e(c)(4).
Another requirement for PACA eligibility is that PACA applies only to those selling produce on a short-term credit basis. Patterson, 307 F.3d at 669 (7th Cir.2002); 7 C.F.R. § 46.46(e)(1) and (2). Thus, to preserve PACA trust rights, sellers are required to have a "prompt payment" agreement with buyers. The relevant regulations are found in 7 C.F.R. § 46.46. Specifically, paragraph (e)(1) of
Despite the strict time limitations for payment schedules, the regulations also provide that a seller's acceptance of partial payments or agreement to payment schedules after a buyer's default will not disqualify a seller from being able to exercise its PACA trust rights:
7 C.F.R. § 46.46(e)(3). Therefore, the regulations distinguish between pre-default payment agreements and post-default arrangements.
This regulation is discussed in more detail below in relation to Defendant's argument that Plaintiff waived its PACA rights. Before addressing that claim, however, the Court addresses Defendant's statute of limitations and laches arguments. An explanation of why those two arguments fail will help clarify how and why Defendant's waiver argument succeeds.
In an earlier opinion in this matter, denying Plaintiff's motion for summary judgment, the Court held that a two-year statute of limitations applies to Plaintiff's PACA claim. Spada Properties, Inc. v. Unified Grocers, Inc., 38 F.Supp.3d 1223 (D.Or.2014), as amended (Sept. 22, 2014). The Court further held that:
Id. at 1237. Defendant now moves for summary judgment on its statute of limitations defense, contending that Plaintiff's PACA claim accrued more than a decade ago, when Plaintiff first became aware that Food 4 Less was breaching the PACA trust provisions.
Defendant's argument in support of its statute of limitations defense is based upon Plaintiff's long history of accepting or tolerating
Defendant also relies on the Court's earlier opinion in this case, stating that "the statute of limitations began to run when USC knew that Food 4 Less was violating PACA." Spada, 38 F.Supp.3d at 1237. Based upon this conclusion and the payment data discussed above, Defendant reasons that, because Plaintiff was "aware" that Food 4 Less was violating PACA as early as 1998, Plaintiff's PACA claim is barred by the two-year statute of limitations. Plaintiff, however, responds that it only seeks to recover for specific invoices dated between July 21, 2011 and April 24, 2012, and that the statute of limitations should therefore begin to run no earlier than the date designated in Plaintiff's Amended Complaint, July 21, 2011, the date of the earliest invoice that Plaintiff contends is at issue.
Consistent with the Court's earlier ruling in this case, the statute of
In addition to the plain meaning of the statutory text, this interpretation is logical. Consider the following: A hypothetical seller of PACA goods sells a shipment of green apples to a buyer on 10-day payment terms and a shipment of red apples on 90-day terms. The seller would maintain PACA rights over the shipment of green apples, but not the red apples, assuming that the seller met all other PACA requirements. The shipment of green apples complies with 7 C.F.R. § 46.46(e)(1)'s default ten-day terms; the shipment of red apples, however, violates 7 C.F.R. § 46.46(e)(2)'s 30-day statutory maximum time for payment to which a buyer and seller may agree and still be eligible for PACA benefits. PACA does not prohibit sellers from selling some goods under PACA's terms and other goods outside of them. Each shipment logically stands as a separate unit or transaction for the purpose of determining whether that shipment qualifies for PACA protection. Accordingly, the statute of limitations as to a particular shipment of goods from Plaintiff (sold on 10-day terms) could not have run out before Food 4 Less ever agreed to purchase that shipment from Plaintiff.
This distinction is important given the factual circumstances of this case. Specifically, Defendant objects to the Court's previously-expressed reasoning on the grounds that between July 21, 2012 and April 24, 2012 (the end dates of Plaintiff's claims), Plaintiff received $882,606.99 from Food 4 Less, which is an amount greater than the combined total for all invoices at issue in this action. Plaintiff, however, applied these payments to older invoices that were dated months before July 21, 2012. In the Court's view, this fact is relevant to Defendant's argument that Plaintiff's agreements with Food 4 Less waived Plaintiff's PACA rights (as discussed below). It is not, however, relevant to the statute of limitations analysis because it goes only to the merits of Plaintiff's
Thus, as to each shipment invoice for which Plaintiff seeks restitution from Defendant, the statute of limitations began to run the moment Plaintiff knew Food 4 Less had violated the terms of PACA with respect to that shipment. Because it is undisputed that the formal terms of Plaintiff's contracts with Food 4 Less included ten-day terms, the statutory default under 7 C.F.R. § 46.46(e)(1), Plaintiff's claims accrued ten days after the date of delivery of each shipment of produce. Because the earliest invoice for which Plaintiff seeks restitution was dated July 21, 2011, and the parties entered a tolling agreement commencing July 1, 2013, Plaintiff's claims are not barred by the two-year statute of limitations.
The Court previously denied Plaintiff's motion for summary judgment against Defendant's laches defense. See Spada, 38 F.Supp.3d at 1237. As the Court explained,
Id. Defendant now moves for summary judgment on this defense. To prevail on a laches defense, a defendant must prove:
Mattson v. Commercial Credit Bus. Loans, Inc., 301 Or. 407, 419, 723 P.2d 996 (1986).
Here, Defendant's laches defense fails for the same reasons that its statute of limitations defense fails. As explained above, each shipment of PACA goods stands as a separate transaction for the purpose of determining that shipment's eligibility for PACA protection. Accordingly, only shipments made by Plaintiff to Food 4 Less between July 21, 2011 and April 24, 2012 are at issue here. As to those specific shipments, Defendant fails to demonstrate
Indeed, Defendant's statute of limitations and laches defenses both rest upon alleged prejudice resulting from Plaintiff's longstanding practice of routinely accepting late payments from Food 4 Less and then applying all payments to the oldest then-outstanding invoices. As explained above, Defendant claims it was prejudiced by this behavior because, between July 21, 2012 and April 24, 2012 (the end dates of Plaintiff's claims in this case), Plaintiff received $882,606.99 from Food 4 Less, an amount greater than the combined total for all invoices at issue in this action, and Plaintiff chose to apply this entire amount to older invoices dated months before July 21, 2012. These facts, however, go to the underlying merits of Plaintiff's claim — namely, whether Plaintiff's actions waived or voided Plaintiff's PACA rights; they do not establish unreasonable delay in bringing the claim itself. Accordingly, Defendant's motion for summary judgment on its laches defense is denied.
Defendant also moves for summary judgment on Plaintiff's PACA claim on the grounds that Plaintiff's agreements with Food 4 Less waived Plaintiff's PACA trust rights. Plaintiff contends that no such waiver has occurred because the formal stated terms of Plaintiff's contracts with Food 4 Less never varied from PACA-compliant 10-day payment terms.
Central to the Court's inquiry is the proper interpretation of 7 C.F.R. §§ 46.46(e)(1), (2), and (3), which are a portion of the Secretary of Agriculture's regulations implementing PACA. As discussed above, paragraph (e)(1) of § 46.46 provides for a ten-day statutory default for prompt accounting and prompt payment and explains that parties that agree to other payment schedules must reduce their agreements to writing. 7 C.F.R. § 46.46(e)(1) (defining prompt payment as within ten days after delivery, in most instances). Paragraph (e)(2) of § 46.46 states that the maximum time for payment after shipment to which the seller and buyer may agree "prior to the transaction, and still be eligible for benefits under the trust is 30 days after receipt and acceptance of the commodities." 7 C.F.R. § 46.46(e)(2) (emphasis added). Accordingly, parties who agree in advance to payment terms later than 30 days after delivery are not entitled to PACA trust protections.
Despite these strict time limitations for payment schedules, the regulations also provide that a seller's acceptance of partial payments or agreement to payment schedules after a buyer's default will not disqualify a seller from being able to exercise its PACA trust rights:
7 C.F.R. § 46.46(e)(3). Therefore, the regulations expressly distinguish between pre-default agreements and post-default agreements.
The precise legal effect of post-default agreements on a seller's PACA trust rights has long been a disputed issue. See, e.g., American Banana Co. v. Republic National Bank of New York, N.A., 362 F.3d 33,
Id. at 20217.
Further, citing American Banana, Patterson Foods, and other cases, the USDA explained that in recent years "several federal courts have invalidated the trust rights of unpaid creditors because these creditors agreed ... after default on payment, to accept payments over time from financially troubled buyers," based on interpretations of 7 C.F.R. § 46.46(e)(2). Id. USDA disagreed with these judicial interpretations of the statute and regulations, stating, "[i]t is our interpretation that § 46.46(e)(2), like paragraph (e)(1) of the regulations ... addresses pretransaction agreements only." Id. (citations omitted). In explaining the amendment, the USDA emphasized the broad trust rights that PACA provides:
Id. at 20217-18.
Based upon disparate interpretations of the above regulatory structure, Plaintiff and Defendant disagree over whether Plaintiff's agreements with Food 4 Less resulted in a waiver of Plaintiff's PACA trust rights. Defendant argues that, despite Plaintiff's argument that the formal terms between Plaintiff and Food 4 Less stated that payment was due within ten days of delivery, Plaintiff's longstanding practice of accepting late payments constitutes a continuing series of pre-default agreements in violation of 7 C.F.R. § 46.46(e)(2). Plaintiff responds that, consistent with the 2011 amendments to 7 C.F.R. § 46.46, because the written agreements between Plaintiff and Food 4 Less expressly stated that payment was due within ten days of delivery, any post-default acceptance of late payments "in any manner" does not waive Plaintiff's PACA trust protections. The factual underpinnings of each party's argument are not disputed. The relevant question is whether Plaintiff and Food 4 Less "agreed," pre-default, through their course of dealing or otherwise, that payments could be made after the 30-day statutory maximum under 7 C.F.R. § 46.46(e).
A district court in the Southern District of New York provided reasoning that is consistent with Defendant's interpretation of the PACA regulations here. In A & J Produce Corp. v. City Produce Operating Corp., the district court denied the plaintiff's motion for summary judgment on its PACA claim, holding that the parties' course of dealings created a question of fact as to whether the plaintiff had "agreed" to payment terms in violation of PACA. The court noted that if the factfinder concluded that there was a course of dealing or oral agreement "between the parties by which plaintiff agreed to accept payment more than 30 days after receipt of the produce," then that agreement "would appear to remove plaintiff from the protections afforded by a PACA trust." 2011 WL 6780614, at *5 (S.D.N.Y. Dec. 23, 2011). The court interpreted the 2011 amendments to 7 C.F.R. § 46.46(e) as merely clarifying that PACA trust protection may be lost by pre-transaction agreements to extend payment beyond 30 days, but not by scheduled post-default accommodations. Id. at *4. The Court finds this reasoning persuasive. A course of dealing between Plaintiff and Food 4 Less reflecting an implicit agreement to accept payment more than 30 days after receipt of produce waives Plaintiff's PACA protections because it would result in a pre-default "agreement" to longer payment terms that are in violation of 7 C.F.R. § 46.46(e).
Plaintiff, however, objects to any reference to A & J Produce, arguing that this case was "expressly based" on American Banana, a 2004 Second Circuit opinion that, as discussed above, the USDA declined to follow in its 2011 amendments to 7 C.F.R. § 46.46(e). Thus, according to Plaintiff, American Banana and any case premised upon its reasoning represents "an outlier, a contagion of error" spreading through PACA jurisprudence. The Court disagrees. A & J Produce expressly grounded its holding in an analysis of the statutory text of PACA and the USDA's 2011 amendments to 7 C.F.R. § 46.46(e). In fact, the court in A & J Produce carefully discussed the American Banana opinion in order to explain the effect of the 2011 amendments. Moreover, contrary to Plaintiff's suggestion, a careful reading of American Banana contributes much to a proper understanding of PACA.
Id. (emphasis added). The court further emphasized that allowing post-default agreements would permit financially unsound produce buyers to remain in business, increasing systemic risk in the produce industry by exposing other unsuspecting persons to risk of nonpayment. Id. at 44-45 (citation omitted). Thus, the court found, consistent with its understanding of congressional intent, that a PACA seller waived its PACA rights if it agreed to a post-default payment plan with a buyer.
The Department of Agriculture, disagreeing with American Banana and other circuit courts opinions addressing this point, clarified this issue by amending 7 C.F.R. § 46.46 in 2011. These specific amendments, and the USDA's explanation for them, have been discussed in detail above. Critical to understanding the correct interpretation of 7 C.F.R. § 46.46 is USDA's reasoning for those amendments. USDA explained that, "[i]t is our interpretation that § 46.46(e)(2), like paragraph (e)(1) of the regulations ... addresses pre-transaction agreements only." 76 F.R. 20217-01 (citation omitted). In explaining the amendments, the USDA emphasized the broad trust rights that PACA provides:
Id. at 20217-18 (emphasis added). Thus, USDA disagreed with the holding in American Banana that any post-default payment agreement waived PACA trust rights, because the PACA seller had not been "paid in full" within the meaning of the statute. As the emphasized text above indicates, however, the 2011 amendments limited post-default PACA protection to those PACA sellers with previously protected trust rights who had met the eligibility requirements under § 46.46. This is
In effect, Plaintiff's argument in this case amounts to a claim that, as long as PACA buyers and sellers include PACA-compliant language in their invoices, any de facto agreements to other than short-term credit arrangements based on a longstanding course of conduct, are still protected by PACA. This is not so, and in fact violates the core purposes of PACA. The relevant distinction and the one that makes all the difference in this case, involves what PACA sellers do after they agree to a post-default agreement with a buyer. By entering into a post-default agreement with a buyer, a PACA seller maintains any previously perfected trust rights in that particular shipment. This is because each shipment of PACA good stands as a separate unit or transaction for the purposes of PACA protection. If a PACA seller, like Plaintiff, however, agrees with a buyer to only apply future payments to the oldest then-outstanding invoice, the PACA seller has virtually guaranteed that the buyer cannot meet PACA compliant net-10 or net-30 payment terms as to subsequent shipments. The formal stated invoice terms for subsequent shipments then would directly contradict the parties' other agreement to apply future payments to old invoices. The parties have thus effectively turned a series of shipments, which should function as separate individual transactions for PACA purposes, into a revolving line of credit. Such arrangements, however, amount to pre-default agreements to extend payment terms beyond PACA-compliant terms in violation of 7 C.F.R. § 46.46(e)(2). This is contrary to the express text and congressional intent of PACA, as articulated in American Banana and other cases, because "it constitutes a credit arrangement permitting a buyer to make payments that are not considered prompt by Congress and the USDA." American Banana, 362 F.3d at 44.
Thus, with the proper interpretation of 7 C.F.R. § 46.46 clarified, the final relevant question is whether, drawing all inferences in favor of Plaintiff, there is any genuine dispute of material fact that the Plaintiff and Food 4 Less agreed to pre-default payment terms that are in violation of PACA eligibility requirements. Based upon all the evidence in the record, viewed in the light most favorable to Plaintiff as the non-moving party, there is no genuine dispute of material fact that Plaintiff and Food 4 Less agreed to allow payments to be made outside the requirements of PACA. The record before the Court shows that Food 4 Less made no payments within ten days for at least 13 years and made no payments within 30 days for eight years. During this time, the amounts owed by Food 4 Less on overdue invoices continued to grow ever larger, at one point reaching almost nine months overdue.
Further, Plaintiff concedes that it agreed with Food 4 Less to apply all payments to the oldest outstanding invoices. Thus, every time Plaintiff entered into a new transaction with Food 4 Less, it knew exactly how much money it was still owed, and as a result, was fully aware that Food 4 Less would be unable to pay within the PACA compliant terms, notwithstanding what was stated on the invoice. Plaintiff's agreement with Food 4 Less to apply all payments to old invoices, despite the ever-growing debt owed by Food 4 Less, made strict compliance with PACA highly unlikely, and, as a practical matter, impossible for the foreseeable future. This arrangement amounts to a de
Plaintiff objects to this conclusion on multiple grounds, arguing that: (1) Oregon law required Plaintiff to apply payments to the oldest outstanding invoices; (2) Plaintiff and Food 4 Less genuinely believed that Food 4 Less would eventually bring its accounts current and then move forward strictly within PACA-compliant terms; and (3) Plaintiff had no choice but to forego filing a PACA claim and continue selling goods to Food 4 Less lest its customer go bankrupt, foreclosing any possibility of Plaintiff ever being paid in full. Plaintiff contends that these points disprove that there was any agreement to accept payments outside of PACA terms.
Plaintiff's first argument is not only irrelevant, it is also wrong as a matter of Oregon law. Plaintiff first concedes that it agreed, at Food 4 Less' request, to apply all payments to the oldest of the outstanding invoices. As the Court explained above, this agreement resulted in the loss of Plaintiff's PACA rights as to future shipments of PACA goods because it made it essentially impossible for Food 4 Less to comply with PACA-compliant short-term payment terms, at least for the foreseeable future. This ends the relevant analysis. Despite this, Plaintiff argues that it should somehow be excused from these PACA requirements because Oregon law required it to apply payments to outstanding invoices in this way. The Court, however, can find no such Oregon law, and Defendant presents none,
As to Plaintiff's second argument, that the parties genuinely believed that Food 4 Less would eventually bring its accounts current and then move forward in accordance with PACA-compliant terms, Plaintiff has provided the declaration of Michael Leech, the owner of Food 4 Less. Mr. Leech states:
Leech Supp. Decl. ¶ 3, Dkt. 60 (emphasis added). Mr. Leech's statement, however, explicitly acknowledges that Food 4 Less would be unable to comply with PACA until it brought its overdue bills current. Moreover, the undisputed record shows that Mr. Leech and Food 4 Less did not pay Plaintiff on time for at least eight years. Mr. Leech's own declaration, combined with the undisputed payment history, is undisputed evidence that both Plaintiff and Food 4 Less knew in advance of each transaction at issue this lawsuit that Food 4 Less would not comply with PACA's prompt payment requirements, at least until its overdue invoices were first paid in full, which never occurred. This is exactly the sort of revolving line of credit arrangement that is prohibited by PACA's strict "prompt payment" eligibility requirements.
Finally, Plaintiff's third contention — that it had no practical choice but to continue doing business with Food 4 Less lest Food 4 Less go bankrupt — ignores the relevant legal analysis at this stage. Each separate shipment of produce by a PACA beneficiary exists as a separate transaction for the purposes of PACA protection. If Plaintiff wished to arrange alternate payments terms to assist Food 4 Less overcome its financial difficulties, it could have continued doing business on non-PACA terms, such as cash-on-delivery, until Food 4 Less would be able to continue on PACA-compliant 10-day terms. Instead, Plaintiff agreed to apply all new payments for Food 4 Less to long overdue invoices, while simultaneously claiming that each subsequent transaction would be made under PACA-compliant terms. As Defendant notes, between July 21, 2012 and April 24, 2012, Plaintiff received $882,606.99 from Food 4 Less, an amount greater than the combined total for all invoices at issue in this action, but Plaintiff applied this entire amount to older invoices dated months before July 21, 2012. The effect of this practice is to circumvent the strict prompt payment requirements of PACA.
The large debt still owed Plaintiff at the time of Food 4 Less' bankruptcy is the consequence of Plaintiff's own repeated agreements to extend credit to Food 4 Less outside of PACA's express eligibility requirements. The Court does not question the sincerity of Plaintiff's belief, as articulated by Mr. Leech in his declaration, that Food 4 Less might, or even would, eventually, someday bring its accounts current and then move forward with PACA-compliant terms. This was a business decision that Plaintiff was free to make. Plaintiff, however, cannot agree to payment terms outside of PACA's strict eligibility requirements for its own business reasons and simultaneously avail itself of PACA's extraordinary protections. Such agreements are contrary to USDA's regulations and the congressional directive that PACA protect only short-term credit arrangements between buyers and sellers of PACA goods.
There is no genuine dispute of material fact that Plaintiff's agreements with Food 4 Less violated 7 C.F.R. § 46.46. Accordingly, Defendant is entitled to summary judgment on Plaintiff's PACA claim.
In addition to its PACA claim brought under 7 U.S.C. §§ 499b and 499e, Plaintiff also asserts common law claims for conversion of trust funds and money had and received. The parties agree, however, that both claims are dependent upon the existence of Plaintiff's PACA-created trust
Under Oregon law, to recover for breach of fiduciary duty, the plaintiff must prove: (1) the existence of a fiduciary relationship between the parties; (2) a breach of one or more of the fiduciary duties arising out of that relationship; and (3) damage to the plaintiff resulting from a breach of one or more of those duties. Evergreen West Bus. Ctr., LLC v. Emmert, 254 Or.App. 361, 367, 296 P.3d 545 (2012).
Plaintiff's fourth claim for relief alleges that a fiduciary relationship existed between Defendant and either Food 4 Less or Plaintiff and that Defendant breached its fiduciary duties by failing to "fairly allocate the limited funds available to Food 4 Less between itself and Plaintiff." According to Plaintiff, the combination of Defendant's status as the supplier of the vast majority of Food 4 Less' non-PACA groceries and Defendant's contractual right to access Food 4 Less' bank account by automatic debit "created a relationship of control and dependency between [Defendant] and Food 4 Less such that Defendant should be held accountable as a fiduciary to both Food 4 Less and Plaintiff." Defendant responds that Plaintiff's fiduciary duty claim fails as a matter of law because no fiduciary or other special relationship existed between Defendant and either Food 4 Less or Plaintiff that would have conferred upon Defendant any duty to monitor Food 4 Less' payment of its creditors. According to Defendant, the relationship between Defendant and Food 4 Less was strictly arm's-length as seller and buyer and there was no relationship between Defendant and Plaintiff.
Under Oregon law, a fiduciary duty exists only where the parties are in a "special relationship" in which one party is obliged to pursue the other party's best interests. Conway v. Pacific University, 324 Or. 231, 237, 924 P.2d 818 (1996). In determining whether such a relationship exists:
Bennett v. Farmers Ins. Co., 332 Or. 138, 161-162, 26 P.3d 785 (2001) (emphasis in original) (citing Conway, 324 Or. at 241, 924 P.2d 818).
The Oregon Supreme Court's opinions in both Conway and Bennett establish that a special relationship giving
Plaintiff, however, urges the Court to ignore the Oregon Supreme Court's decisions in Bennett and Conway, arguing that neither decision is on point because those cases did not involve "commercial debtor/creditor" relationships. Instead, Plaintiff directs the Court to Hampton Tree Farms, Inc. v. Jewett, 125 Or.App. 178, 865 P.2d 420 (1993), a decision by the Oregon Court of Appeals that pre-dates both Conway and Bennett. Plaintiff contends that the Court of Appeals' decision in Hampton Tree Farms supports the proposition that "when a creditor exercises too much control over its debtor, that overly zealous creditor subjects itself to the same fiduciary duties imposed on the debtor's own officers and directors."
Plaintiff's argument rests entirely on the following paragraph from the Oregon Court of Appeals' opinion in Hampton Tree Farms:
Id. at 191-92, 865 P.2d 420. The Oregon Supreme Court, however, in this same case, affirmed the Oregon Court of Appeals' decision on much narrower grounds. In Hampton Tree Farms, Inc. v. Jewett, 320 Or. 599, 892 P.2d 683 (1995), the Oregon Supreme Court held only that a jury could find that a creditor who agreed to represent a log seller in a business transaction, for the purpose of selling the log seller's business, acted as the log seller's agent and thus owed the log seller fiduciary
Further, at oral argument, Plaintiff urged the Court to consider In re Horton, 152 B.R. 912 (Bankr.S.D.Tex.1993), which Plaintiff contends stands for the proposition that grocery cooperatives owe fiduciary duties to their members.
Id. at 916 (citation omitted). This brief analysis does not support Plaintiff's argument. Horton holds only that, under certain circumstances, cooperative members may owe fiduciary duties to each other and to their cooperative association. Horton does not hold — and indeed, does not even address — when a cooperative association owes fiduciary duties to its individual members.
With the appropriate legal standard clarified, the Court turns to the facts underlying Plaintiff's claim. Plaintiff's breach of fiduciary duty claim is based entirely on facts related to two characteristics of Defendant's business relationship with Food 4 Less: (1) Defendant's status as the supplier of substantially all of Food 4 Less' non-PACA groceries and (2) Defendant's contractual right to obtain payment of its invoices from Food 4 Less' bank account by automatic withdrawal. As to the first characteristic, Plaintiff presents the opinion of Plaintiff's expert witness Patrick A. Davidson, who asserts that, because Unified had supplied the majority of Food 4 Less' non-PACA goods, "the key management powers belonged to Unified." As to the second characteristic, Plaintiff presents the declaration of Michael Leech, the owner of Food 4 Less, who asserts that Unified's "control over both Food 4 Less' inventory and cash, in practical effect, gave Unified control over the key operations of Food 4 Less."
Neither of these characteristics, however, addresses the actual legal question before the Court: whether the parties' relationship "by its nature, allows one party to exercise judgment on the other party's behalf." Bennett, 332 Or. at 161-162, 26 P.3d 785 (emphasis added). The declarations of Mr. Davidson and Mr. Leech, on their face, fail to show that the relationship between Defendant and Food 4 Less was such that Defendant agreed to act "for the benefit" of Food 4 Less. Even taken in the light most favorable to Plaintiff, these declarations show, at most, that Defendant engaged in hard bargaining solely for its own benefit. At its core, Plaintiff's fiduciary duty claim reduces to a contention that business agreements entered into at arm's-length solely out of business necessity may, without more, create special relationships with concomitant fiduciary duties. This position is contrary to Oregon law, which, as discussed above, emphasizes that a putative agent or fiduciary must agree to exercise its judgment for the benefit of the putative principal rather than for itself before being subject to the duties of a fiduciary.
Further, Plaintiff's argument that Defendant maintained complete domination and control over Food 4 Less is undermined by the undisputed fact that Defendant's contract with Food 4 Less regarding both automatic debit payments and membership in Unified's grocery wholesale cooperative was revocable at will by either party. It may be the case that Food 4 Less had no economically viable alternative to its contractual arrangement with Defendant. The absence of an economically viable alternative, however, does not create a fiduciary relationship between mere buyers and sellers of goods. Thus, the Court finds as a matter of law that Defendant did not have a fiduciary or special relationship with Food 4 Less, and Defendant is entitled to summary judgment on Plaintiff's claim for breach of fiduciary duty.
Defendant's Motion for Summary Judgment (Dkt. 59) is GRANTED. This case is dismissed.
Id. at 443, 952 P.2d 1030 (citing Fowler, 202 Or. at 426, 274 P.2d 258) (emphasis added). The emphasized language makes all the difference: the parties may agree, absent a specific statute directing otherwise, to apply future payments to outstanding debts as they wish.
