ROBERT J. SHELBY, District Judge.
This case involves a dispute over the sale of produce. Plaintiff Sutherland Produce Sales is a seller of fresh fruits and vegetables, and Defendant High Country Distribution is a buyer. Sutherland contends that over a several-month period in 2014, it sold produce to High Country, but was never paid for it. Sutherland brought various claims against High Country, and now moves for summary judgment on its claims for breach of the Perishable Agricultural Commodities Act (PACA), breach of contract, and breach of fiduciary duty. High Country also seeks summary judgment on Sutherland's PACA claims and its breach of contract claim. For the reasons below, the court grants in part and denies in part Sutherland's Motion for Summary Judgment and denies High Country's Motion for Summary Judgment.
Sutherland is a California-based wholesale seller of produce. It sells various fruits and vegetables, including tomatoes, avocados, limes, cabbage, jalapenos, and tomatillos. High Country is a Utah-based buyer and dealer of wholesale produce. It buys produce from suppliers like Sutherland and then sells the produce to retailers.
Beginning around April 2014, High Country entered into several contracts with Sutherland to buy produce. Typically, Roy Cook, the owner of High Country and a defendant in this case, would initiate the transactions by calling, texting, or emailing an order to Brent Batali, a Sutherland employee. Batali would procure the requested produce, and a third party would deliver it to High Country or to some other agreed-upon location. Daniel Webster, a High Country employee and defendant in this case, would generally receive the shipments to High Country at one of High Country's loading docks. If Webster was unavailable, one of two delivery drivers would sign for the shipments. According to the invoices provided by Sutherland, High Country then had ten days from delivery to pay for the produce.
Seemingly, all went smoothly for several months. According to High Country, Sutherland delivered and High Country paid for nearly 50 produce orders between April and July 2014. But beginning in July, High Country stopped paying for its orders. Sutherland contends that for two months between July 9, 2014, and September 9, 2014, High Country placed 48 orders that Sutherland fulfilled and High Country received, but for which High Country never paid Sutherland.
In November 2014, having received no payment, Sutherland filed the Complaint in this case. In it, Sutherland asserts claims for breach of PACA, breach of contract, breach of fiduciary duty, and interference with trust assets. It also seeks an order piercing the corporate veil of D&R Foods, a company owned in part by Cook. After discovery, both parties filed motions for partial summary judgment.
Summary judgment is used to decide pure issues of law and "to isolate and dispose of factually unsupported claims or defenses."
Materiality is governed by the legal elements of the parties' claims; a factual dispute is "material" if its resolution is necessary to decide an element of a legal claim.
The moving party carries the initial burden of demonstrating the absence of any genuine dispute of material fact and its entitlement to judgment as a matter of law.
If the moving party makes its initial showing, the burden shifts to the nonmovant, who must set forth specific, admissible evidence from which a rational jury could find for the nonmovant.
Sutherland moves for summary judgment on its PACA claims, its breach of contract claim, and its breach of fiduciary duty claim. High Country moves for summary judgment on Sutherland's PACA claims and its breach of contract claim. The court will first address the PACA claims, followed by the breach of contract and breach of fiduciary duty claims. The court will then address Sutherland's contention that it is entitled to attorney's fees, costs, and interest.
PACA was enacted in 1930 to regulate the sale of produce in interstate commerce.
In the early 1980's, after a rising incidence of default among produce buyers, Congress amended PACA to provide even stronger protection for sellers.
To remedy this situation, Congress provided sellers with a powerful tool: a first-in-line security interest in their produce, superior to claims of buyers' other secured creditors.
It is this highly unusual status as trust beneficiary that Sutherland seeks here. Sutherland contends that High Country failed to "make full payment promptly" on 48 orders, and argues that it has met the eligibility criteria necessary to recover under PACA's trust provisions. These provisions require that Sutherland prove: (1) Sutherland is a PACA licensee; (2) Sutherland sold perishable agricultural commodities; (3) High Country was subject to the PACA trust provisions; (4) the commodities traveled in interstate commerce; (5) Sutherland properly preserved its PACA trust rights by providing requisite notice to High Country; and (6) High Country failed to make full payment on at least some of the produce provided by plaintiff.
Sutherland has carried its initial burden of providing evidence to support its entitlement to recover under PACA. Namely, it has provided the court with the PACA registrations of both parties, copies of invoices, purchase orders, and bills of lading for every order it contends remains unpaid, and copies of correspondence between the parties demonstrating that High Country was receiving produce during the relevant period but was not paying Sutherland. Thus, the burden shifts to High Country to provide evidence to dispute one or more elements of Sutherland's claims.
High Country argues that Sutherland cannot recover under PACA for two reasons: (1) some or all of the produce from the 48 disputed invoices was never delivered or was listed at a higher price than agreed upon; and (2) even if the produce was delivered, Sutherland is not eligible for PACA trust protection because it extended payment terms beyond the 30-day regulatory limit.
High Country first argues that Sutherland hasn't established that all 48 disputed orders were actually delivered, and it contends that the invoices for orders that were delivered improperly state the price terms agreed upon by the parties. As to delivery, this element is certainly material, as PACA protection applies only to "[p]erishable agricultural commodities received by a . . . dealer."
It is conceivable that in some cases, the lack of a signed bill of lading for every invoice could create a genuine dispute on the element of delivery. But given the dearth of evidence High Country has provided to defeat summary judgment, the court concludes that in this case, the 48 invoices, combined with the lack of any contemporaneous objection to the invoices by High Country, satisfy Sutherland's burden to demonstrate delivery of the disputed goods. High Country's evidence disputing delivery consists primarily of the affidavits of Roy Cook (the owner of High Country) and Daniel Webster (an employee of High Country). The two affidavits are nearly identical, and in relevant part, state only that:
High Country makes no effort in its affidavits or in its briefing to point to any one of the 48 orders it contends were not delivered. Indeed, the most specific of High Country's representations is a general reference to one instance when it contends goods weren't delivered and one instance where goods were delivered but improperly billed:
It's unclear what orders High Country is referring to because nowhere in its briefing does it cite an invoice number, or even a date for that matter.
By contrast, in support of its argument that the goods were delivered, Sutherland provided a chart listing the invoice number and date of all 48 invoices it contends remain unpaid.
But that's not all Sutherland provided. For every invoice, it also provided a bill of lading showing the date of delivery and what goods were delivered.
Additionally, for each invoice Sutherland has provided corresponding purchase orders that were drafted by High Country after delivery of the goods, which suggests that the purchase orders accurately reflect what was actually delivered. High Country now contends that the purchase orders it drafted "are erroneous and do not reflect actual contract terms." It argues that Cook's daughter, Mary Ruiz, prepared the purchase orders at Batali's direction based on the invoices High Country received from Sutherland, and that Ruiz never verified with Cook that the items were actually delivered. Perhaps if the purchase orders were Sutherland's only evidence of delivery, that allegation would be sufficient to create a genuine issue of material fact. But the trifecta of the invoices (drafted by Sutherland), the purchase orders (drafted by High Country), and the bills of lading (drafted by third parties), the terms and dates of which all match up, provides such compelling evidence that High Country's bare assertion that the purchase orders "are erroneous and do not reflect actual contract terms," without any explanation or supporting evidence, is insufficient to create a genuine issue of fact for trial. No reasonable jury could rely on High Country's unsupported, general statements to find against Sutherland on the delivery element of Sutherland's claim.
This conclusion is further bolstered by the running record of the parties' dealings, as memorialized in several months of text messages between Cook and Batali. That record provides evidence of High Country's continuous placement of orders, its repeated promises that payment was forthcoming, and an utter lack of any mention that the invoices Sutherland was regularly sending to High Country reflected goods that weren't actually delivered. High Country's "failure promptly to complain as to the terms set forth in [the] invoice[s] is considered strong evidence that they were correctly stated," and similarly, that the goods were actually delivered.
High Country's second argument—that Sutherland has not established that the invoice price terms were correct—fails to raise a genuine issue of fact for the same reason. The purchase orders that High Country itself drafted match the pricing on the invoices provided by Sutherland. High Country again argues, in essence, that the purchase orders were being drafted by Ruiz without Cook's oversight, so they don't reflect the actual terms Cook agreed to. But as discussed, the months of text messages between Cook and Batali demonstrate that Cook was well aware of the debt that was accruing, and at no point did he question the prices or quantities of produce Sutherland was delivering, which "is considered strong evidence that they were correctly stated" on the invoices.
High Country also contends that even if the goods were delivered and the price terms properly stated on the invoices, Sutherland has not met PACA's requirement that a seller must sell goods only on a cash or short-term credit basis.
In response, Sutherland points to another provision in the regulations: the requirement that any extension of the default payment term be put in "writing before entering into the transaction."
Sutherland argues that even if this is true, it is of no import because extensions to the default payment term must be in writing. Because any alleged extension between the parties was not in writing, Sutherland contends, the default 10-day term appearing on the face of the invoices governs. High Country responds by arguing that the writing requirement does not apply in this instance. According to High Country, it would be contrary to the intent of the statute to invoke the writing requirement here to save a seller who has otherwise disqualified itself from PACA protection by extending payment terms (albeit orally or impliedly) beyond the 30-day deadline.
The resolution of this issue comes down to determining the reach of the writing requirement. It's fairly clear that the requirement can be invoked by a buyer as a defense against a charge of late payment.
Less clear is whether a seller may invoke the writing requirement as a defense against a charge that it disqualified itself from PACA protection by orally (or impliedly) agreeing to a payment term of greater than 30 days. On the one hand, as discussed, the regulations state that any departure from the default 10-day term must be put "in writing before entering into the transaction," suggesting that an oral agreement to accept payment more than 30 days after delivery would have no effect under PACA and would not disqualify a seller from PACA protection. But on the other hand, this interpretation would be in tension with Congress's goal of extending PACA protection only to sellers issuing short term credit: a seller could orally agree to issue credit well beyond the thirty-day limit but retain PACA protection so long as it never reduced the agreement to writing.
The question of how to resolve this tension has been a matter of some dispute in the courts. The Tenth Circuit has not addressed the issue, and the circuits that have are split. The majority of courts have adopted a broad view of the writing requirement, holding that a nonwritten extension of the default payment term has no effect under PACA. Under this interpretation, a buyer who is in default of an orally-agreed-upon term can use the writing requirement as a shield against a charge that the buyer did not promptly pay, as explained above, but so can a seller use the requirement as a shield against PACA disqualification when it orally extends the payment term beyond the 30-day maximum.
The Eighth Circuit endorsed this interpretation in the early `90s in Hauser's Foods, reasoning that "[t]he statute and regulations clearly contemplate that the parties must set forth such agreements [extending the default payment term] in writing to be effective."
A minority of courts have adopted a narrower view of the writing requirement, holding that the requirement exists as a shield for defaulting buyers but not for disqualified sellers. In other words, to return to the example previously discussed, under this interpretation, a seller who enters into an oral agreement to a 7-day payment term still cannot sue a buyer for failure to promptly pay on day eight because any agreement to alter the 10-day default must be in writing. But the writing requirement would not save a seller from PACA disqualification if the seller orally agreed to extend the payment term, for example, to 40 days, beyond the 30-day regulatory maximum.
This was the interpretation adopted by the Second Circuit in 2004 in American Banana.
At least two recent district court decisions have taken this a step further, concluding that a party's course of dealings—even absent evidence of a written or oral agreement—could constitute evidence of an implied agreement to extend payment terms beyond thirty days that results in trust protection forfeiture. In 2011, the Southern District of New York found a triable issue of fact about whether a seller had forfeited PACA protection by improperly extending payment terms based on evidence showing that over the course of 1,139 orders between the parties, the seller paid the buyer within 30 days less than 3% of the time.
A few years later the District of Oregon came to a similar conclusion.
Thus, the circuits are split on whether an oral agreement to extend payment terms beyond thirty days forfeits PACA protection for sellers; the Second Circuit says it does, the Fifth, Seventh and Eighth Circuits say it does not. And some district courts have taken the Second Circuit's holding even further by concluding that course of dealing alone can forfeit PACA protection. High Country argues both that the parties orally agreed to extend the payment terms beyond 30 days, and, alternatively, that they implicitly agreed to extend the terms because their course of dealing demonstrates that early in the engagement High Country routinely paid Sutherland beyond 30 days and Sutherland nonetheless continued doing business with High Country. These agreements, if proven, would likely forfeit PACA protection under recent New York and Oregon district court decisions (because under these decisions, course of dealing alone is sufficient) and under existing Second Circuit Precedent (as American Banana held that oral agreements may forfeit PACA protection). But under the Fifth, Seventh, and Eighth Circuits' precedents, they would not (because those circuits require a written payment extension before the trust protection is forfeited).
In the court's view, the Fifth, Seventh, and Eighth Circuits have the better interpretation. Both the statute and the applicable regulations go out of their way to make clear that a seller will be eligible for trust protection only if it uses the 10-day default term or modifies that term in writing to some other term of 30 days or fewer.
The court concedes that PACA's legislative history reveals a reluctance to provide trust protection to "any credit transaction that extends beyond a reasonable period," and that a decision to recognize only written agreements to extend the payment term could run contrary to this intent by granting trust protection to a seller who has agreed orally or impliedly to extend credit beyond the 30-day maximum.
Sutherland also moves for summary judgment on its breach of contract claim. In Utah, a breach of contract claim requires a plaintiff to show: (1) the existence of a contract; (2) performance by the party seeking recovery; (3) breach of the contract by the other party; and (4) damages.
Thus, the burden shifts to High Country to demonstrate the existence of a genuine issue of a material fact on this claim, or if no such issue exists, to show that Sutherland is not entitled to judgment as a matter of law based on the undisputed facts. High Country contends that summary judgment in Sutherland's favor is inappropriate for three reasons: (1) Sutherland cannot show delivery and acceptance of all the goods; (2) the prices and quantities on Sutherland's invoices are incorrect; and (3) prior breaches by Sutherland excuse High Country's obligation to pay. The court will address each in turn.
High Country's first and second arguments—that Sutherland did not prove delivery of the goods or accuracy of the invoices—were addressed in the previous section related to Sutherland's PACA claim and will not be rehashed here. In short, the invoices, as well as the bills of lading and purchase orders, satisfy Sutherland's initial burden. And High Country's vague and conclusory allegations, coupled with its failure to cite any instance where it objected to nondelivery or improper price terms, do not raise a triable fact issue on these elements.
High Country's third argument is that prior breaches by Sutherland excuse performance of the contract by High Country. The notion that prior breach can excuse performance is correct as a matter of law. But High Country's briefing on this point is altogether lacking in detail. The entirety of High Country's argument is:
Notably, this argument is unsupported by any citation to record evidence, which is expressly required in order to create a genuine issue of material fact.
Sutherland also seeks summary judgment on its claim for breach of fiduciary duty. It contends not only that High Country is liable to Sutherland for the entire outstanding balance, but that Cook and Webster are personally liable as well. According to Sutherland, PACA imposed on Cook and Webster a fiduciary duty over any money High Country received from resale of Sutherland goods, and they breached their duty by not using that money to pay the amounts owed to Sutherland.
PACA does not explicitly impose a fiduciary duty on a buyer's employees, but because it creates a "trust," courts have routinely turned to general trust principles to conclude that certain employees of a buyer can become trustees with fiduciary duties.
The court need not address the first question because the second is dispositive of this claim. Even assuming Cook and Webster were in a position to control trust assets, to show they breached a fiduciary duty to preserve those assets Sutherland must demonstrate that "the assets of the licensed . . . dealer . . . are insufficient to satisfy the PACA liability."
Sutherland asserts in its complaint and briefly in its summary judgment papers that it is entitled to attorney's fees, interest, and costs. PACA itself does not provide for fees, interest, or costs, but it does provide for recovery of "sums owing in connection with" the sale of produce, which courts have construed to include fees, interest, and costs if the underlying contract provides for such relief.
It is undisputed that Sutherland's invoices were sent after delivery, and High Country seizes on this fact to argue that the aforementioned language never became part of the parties' contracts. Before Utah's adoption of the Uniform Commercial Code (UCC), courts facing this situation applied common law to determine whether there had been a meeting of the minds on provisions included only in invoices delivered after the fact.
Concerning interest provisions, the UCC commentary expressly indicates that "a clause providing for interest on overdue invoices" is an example of a term that does not materially alter a contract and is therefore incorporated absent timely objection.
The same cannot be said of attorney fees. In Johnson Tire Service, the Utah Supreme Court concluded that "the addition of a provision for attorneys' fees alters the offer materially and thus does not fall within the `additional or different terms' which the statute renders acceptable by mere silence on the part of the offeror."
As to the cost provision, there does not appear to be Tenth Circuit or Utah state court authority on point, nor does the UCC commentary address such a provision. Thus, the court relies solely on the parties' arguments about why the provision does or does not constitute a surprising or hardship-inducing material alteration. High Country has not expressly argued why this provision should not be included in the contracts, and because High Country bears the burden of proving a new term constitutes a material change, the court construes the cost provision as a nonmaterial change that was incorporated into the contracts.
In conclusion, the court finds that the interest and cost provisions in Sutherland's invoices did not materially alter the parties' agreement, and were therefore adopted when High Country failed to object, but it determines that the attorney fee provision did materially alter the agreement and thus is not enforceable.
High Country's Motion for Summary Judgment
SO ORDERED.
7 C.F.R. § 46.46(e) (noting that to be "eligibl[e] for trust benefits," parties must use default 10day term or "must reduce their agreement [to another payment term] to writing before entering into the transaction"). The regulations do recognize oral or implied agreements in the context of post-default agreements. 7 C.F.R. § 46.46(e)(3) (allowing a seller to "agree[] in any manner to a schedule for payment of the past due amount" (emphasis added)). But this demonstrates only that the Secretary of Agriculture knows how to allow oral or implied agreements when it pleases, and it has made clear that agreements made "before entering into the transaction" must be "reduce[d] . . . to writing." Id. § 46.46(e)(1) (emphasis added).
