Opinion
Civil Action No. 99 CV 5088.
July 27, 2004
MEMORANDUM AND ORDER
Presently before the Court is Plaintiff's Renewed Motion for Partial Summary Judgment. (Doc. No. 53.) For the reasons that follow, Plaintiff's Motion will be granted in part and denied in part.
1. Factual Background
The following facts are based on documents submitted by the parties. Where the parties dispute certain facts, we construe the record in the light most favorable to the defendants.
Over the course of nearly two years, Plaintiff Botman International, B.V. ("Botman International"), a corporation engaged as a supplier of perishable agricultural commodities with its principal place of business in the Netherlands, sold and shipped over 460 individual shipments of produce to Defendant International Produce Imports, Inc. ("IPI"). Initially, IPI was a Pennsylvania corporation with its sole shareholders consisting of Defendants Dirk J. Keijer ("Mr. Keijer") and Clare A. Keijer ("Ms. Keijer"), individuals who are husband and wife. However, in early May, 1999, Ms. Keijer resigned as an officer and director and transferred her shares to Mr. Keijer. Thereafter, Ms. Keijer worked as general counsel to IPI which, on July 1, 1999, was reincorporated in Delaware for the purpose of facilitating a possible bankruptcy filing. (Tr. of Oct. 29, 1999 hearing, at 75-76.)
IPI initially developed a business relationship with Botman International in the fall of 1997, when Mr. Keijer met Adri Botman, president of Botman International, at a produce convention. Shortly after that meeting it was decided that IPI and Botman International would undertake a limited number of produce transactions to determine whether it was worthwhile to continue. After a number of trades were completed Mr. Botman traveled to the Keijers' home in Oxford, Pennsylvania in January, 1998, to discuss whether to continue their trading relationship. At this meeting Mr. Botman gave Mr. Keijer a document entitled "Conditions of Sale Governing Export Transactions" which they discussed in detail, including provisions stating that goods would be paid for within twenty-one days of the date of the invoice relating to the delivery of those goods. Mr. Keijer agreed that IPI would adhere to the terms contained therein.
Clause 11 of the Conditions of Sale states: "Payment of the goods delivered shall be made within 3 weeks of the date of the invoice relating to the delivery, unless agreement has been reached in writing on a departure from this rule." (Def.s' Ex. A.)
From January, 1998 until August, 1999, IPI repeatedly purchased produce from Botman International. Each of these purchases is reflected by an invoice prepared by Botman International detailing the date of purchase, the type and quantity of produce being purchased, and the unit price of the produce. In addition, the invoices contain figures apparently stating the amount of freight and packing costs and include language relating to the manner in which the produce was shipped. Examination of the invoices reveals that produce shipped to IPI was destined for a variety of locations, with many of these locations being several hours distant from the Philadelphia area.
Sometimes produce was shipped to the following locations: New York City, New York; Newark, New Jersey; Washington, D.C.; and Philadelphia, Pennsylvania.
When each shipment arrived at its destination, it was trucked to a warehouse and inspected. After inspection, adjustments to the invoices were made through negotiations between IPI and Botman International to account for any irregularities in the shipped produce. The produce was then stored at a warehouse until sold by IPI to another party. Virtually all of IPI's business revolved around purchasing produce from Botman International and re-selling that produce in the Philadelphia area, with IPI's largest single account being Giant Foods. In 1999, approximately ninety percent of IPI's supply of produce came from Botman International. (Tr. of Oct. 25, 1999 hearing, at 30.) Thus, at all times relevant to this case, Botman International was a component of Giant Foods's produce supply chain.
Giant Foods accounted for approximately twenty percent of IPI's sales. (Tr. of Oct. 25, 1999 hearing, at 27-28.)
As IPI continued to do business with Botman International, IPI began to incur substantial debt. In April, 1999, IPI's debt to Botman International had increased to such a level that Botman International requested financial information from IPI in order to re-evaluate its creditworthiness. In reponse, IPI delivered to Botman International a Profit and Loss Statement covering the period January, 1999, through March, 1999, informing Botman International of IPI's exact financial condition.
In May, 1999, IPI's financial situation took a turn for the worse when another firm displaced IPI as a produce dealer for Giant Foods. Prior to May, 1999, when IPI received a shipment of produce from Botman International, that shipment would be warehoused by Colace, one of Giant Foods' main produce suppliers. Although Colace sold the same type of produce to Giant Foods, it was not, strictly speaking, IPI's competitor at the time that IPI was trading with Botman International because IPI dealt only with produce imports from Holland whereas Colace dealt in more locally grown produce. This changed, however, in May, 1999, when Botman International began selling produce to Colace. Because Giant Foods was now able to buy Holland produce from Colace, IPI lost the Giant Foods account. This had a devastating impact on IPI's already shaky finances and led Mr. Keijer to travel to Holland on or about May 10, 1999, to discuss the matter with Mr. Botman.
When the Keijers flew to Holland to meet with Mr. Botman in May, 1999, IPI was approximately $1.6 million in arrears and approximately sixty to ninety days overdue in its payments to Botman International. Although there is some dispute over exactly what information was communicated to Mr. Botman at this meeting, Defendants contend that Mr. Botman was informed that for IPI to remain viable, it was imperative that it be able to maintain the Giant Foods account. At this meeting, according to Defendants, it was proposed by Botman International that IPI would receive a twenty-five cent per carton commission for logistical support. Also, according to Defendants, there was an agreement by Mr. Botman and Botman International to extend IPI's payment schedule to sixty days. In support of their contention that Botman International agreed to extend IPI's payment schedule to sixty days, Defendants cite to a May 12, 1999, Memorandum signed by Mr. Keijer and Mr. Botman stating, in pertinent part, "For its part, Botman has expressed its concern that an aging analysis of IPI's account shows that some of IPI's invoices are outstanding for more than 60 days. Botman International and IPI agree that it [sic] their mutual goal to find solutions to IPI's financial concerns so as to enable it to bring its account within the 60 day range which is acceptable to Botman." (Apr. 10, 2000, Aff. of Dirk Keijer, Ex. C.) The Memorandum also states that "IPI agrees to provide Botman with monthly and cumulative profit and loss statements" and that the parties discussed various measures proposed by Botman to facilitate IPI's financial recovery. According to the Memorandum, one of the measures discussed was an "incentive bonus." However, it is clear from the Memorandum that no agreement as to any bonus had been reached at that time. Rather, the document itself states that "the specific amount, timing, duration and method of payment [had] yet to be discussed." (Id.)
One of the most intensely disputed facts in this case is whether this document represents an agreement between IPI and Botman International. Defendants contend that it does; Botman International contends that it does not. In Judge Buckwalter's November 4, 1999, Memorandum regarding Botman's Motion for Preliminary Injunction, Judge Buckwalter found that the document clearly was not an agreement and that Botman refused any effort by IPI to characterize it as such. (Doc. No. 10.) We agree with Judge Buckwalter's conclusion in this respect.
After the May, 1999 meeting, IPI continued to purchase numerous lots of produce from Botman International until August 30, 1999. During this time, IPI's debt to Botman International remained substantial. To protect itself, on September 9, 1999, Botman International sent IPI Notices of Intent to Preserve Trust Benefits covering invoices between July 20, 1999, up to and including August 25, 1999 and covering a total of $433,079.54 in unpaid invoices. Ultimately, by September 29, 1999, IPI owed Botman International a then-undisputed balance of $1,464,233.75 for produce that it had purchased.
Under the Perishable Agricultural Commodities Act, 7 U.S.C. § 499e(c)(3), an unpaid produce supplier loses the benefits of the PACA trust "unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary, (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored."
As IPI's debt was mounting higher and higher, IPI's principals sought to limit whatever potential liability they might incur for the unpaid produce under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. § 499a, et seq. For this reason, Ms. Keijer resigned her position as an officer of IPI and transferred all of her shares of IPI to her husband After resigning as an officer of IPI, Ms. Keijer undertook the representation of IPI as its general counsel. In another effort to limit PACA liability, IPI sought to have the payment schedule extended to sixty days during the May 12, 1999, meeting with Mr. Botman. Because PACA regulations provide that "[t]he maximum time for payment for a shipment to which a seller, supplier, or agent can agree and still qualify for coverage under the trust is 30 days after receipt and acceptance of the commodities," 7 C.F.R. § 46.46(e)(2), had Botman International been agreeable to extending the payment schedule to sixty days, this would have prevented the creation of the PACA trust.
Broadly speaking, this case concerns IPI's alleged failure to pay Botman International for various shipments of produce that IPI ordered and received from Botman totaling $1,464,233.75. However, it is clear from the submissions of the parties that this case more closely revolves around the alleged failure of Defendants to maintain a statutorily mandated trust pursuant to PACA. With respect to these particular allegations, Botman International claims that between July 20, 1999 and August 25, 1999, Botman International sold produce to IPI totaling $433,079.54 and that Botman International took appropriate measures under PACA to preserve its trust benefits as to this amount.
Botman International initiated this action by filing suit in this court on October 15, 1999. On that same day, Botman International requested that the court issue a preliminary injunction to enforce the statutory trust under PACA and to establish a constructive trust until Defendants paid $1,464,233.75 plus interest, costs, and attorneys' fees to Botman International. On October 25, 27, and 29, 1999, Judge Buckwalter held a hearing on the issuance of a preliminary injunction and, after making several findings of fact, entered a Preliminary Injunction on November 4, 1999. After the preliminary injunction was issued Botman International amended its complaint on November 18, 1999 to assert additional causes of action against Defendants. Defendants answered the complaint on December 8, 1999. The initial pleadings in this matter were then followed by a litany of motions to dismiss and for summary judgment, as well as two motions by Defendants to amend their answer to the complaint. Judge Buckwalter denied the motions to dismiss and for summary judgment on June 28, 2000 and permitted Defendants to amend their answer. Defendants' Amended Answer to Amended Complaint with Affirmative Defenses and Counterclaims consists of 1,510 paragraphs contained within its extraordinarily bulky 552 pages. The Amended Answer also contains sixteen affirmative defenses and six counterclaims. Much of Defendants' Amended Answer consists of an exceptionally detailed pleading of the facts underlying their six counterclaims wherein Defendants describe documents that were simultaneously filed as exhibits. On June 27, 2001, Botman International filed the Instant Motion.
II. Legal Standard
Summary judgment may be granted pursuant to Federal Rule of Civil Procedure 56 "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment . . . may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages." FED. R. CIV. P. 56(c). The moving party has the initial burden of demonstrating the absence of genuine issues of material fact.See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Following such a showing by the moving party, the nonmoving party must make a sufficient showing to establish the existence of an essential element of his case with respect to which he has the burden of proof. Celotex, 477 U.S. at 322-23. "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249.
III. Discussion
Judge Buckwalter made numerous findings of fact and conclusions of law with respect to this matter in his Memorandum accompanying the Order of Preliminary Injunction entered on November 4, 1999.
The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held. Given this limited purpose, and given the haste that is often necessary if those positions are to be preserved, a preliminary injunction is customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits. A party thus is not required to prove his case in full at a preliminary-injunction hearing, and the findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits.Council of Alternative Political Parties v. Hooks, 179 F.3d 64, 69 (3d Cir. 1999). In light of the preliminary nature of the earlier proceedings in this matter, we will exercise our independent judgment with respect to Judge Buckwalter's earlier findings of fact and conclusions of law.
A. Defendants' Counterclaims Against Botman International
Defendants have raised six counterclaims that Botman International argues are without merit and should be dismissed. Because Defendants have raised issues in their Counterclaims that are relevant to our analysis of Botman International's claims, we will address Defendants' Counterclaims before considering the merits of Plaintiff's claims.
Defendants have also raised sixteen affirmative defenses in their Amended Answer. Plaintiff argues that these affirmative defenses "are essentially the same issues argued before the Court during the three days of hearings on the preliminary injunction, and/or already decided by Judge Buckwalter in motion practice" and that they should be "summarily dismissed." (Renewed Motion, at 17.) Plaintiff does not, however, offer any argument directed to any particular affirmative defense. To the extent that Defendants have raised these affirmative defenses in their response to Botman's Renewed Motion for Partial Summary Judgment, we will address them.
1. Counterclaims Alleging that Botman International's Invoices Contained Overcharges
Defendants' First through Fifth Counterclaims essentially allege that Botman International sold various shipments of produce to IPI at inflated amounts for which Defendants now seek to recover. In their First Counterclaim, Defendants allege that Botman International, in breach of its fiduciary and contractual obligations, illegally overcharged IPI for transportation services and that it was also enriched through the receipt of transportation rebates or other promotional payments from its transportation providers. Defendants also allege that these overcharges and rebates were used to obtain further profits "through manipulation of currency and exchange rates between Dutch Guilders . . . and U.S. Dollars." (Amended Answer ¶ 1481.) Defendants demand that Plaintiff disgorge any illegal profits and that the illegal profits be held in a constructive trust for IPI's benefit.
In their Second Counterclaim, Defendants raise substantially the same allegations as in their First Counterclaim, i.e., that Botman International made false, misleading, and fraudulent statements that formed the basis of at least eighty-five, if not all, of Plaintiff's invoices, and request that "any and all overcharges found to be involved in Plaintiff's affirmative claims for unpaid shipments must be reduced by the sum of the actual and true charges, which Defendants believe to total more than $510,000.00. . . ." (Answer ¶ 1487.)
In their Third Counterclaim Defendants allege that Botman International's agents made materially false and misleading statements as to transportation charges in a scheme to defraud IPI of an amount estimated to exceed $2,000,000.00.
Defendants' Fourth Counterclaim alleges no additional facts, but merely states a claim for unjust enrichment based upon the alleged illegal profits.
Defendants' Fifth Counterclaim alleges a claim under the Rackateer Influenced Corrupt Organization Act ("RICO"), 18 U.S.C. § 1962 et seq. Like Defendants' first four Counterclaims, Defendants' RICO claim is rooted in the allegation that Botman International was transmitting fraudulent invoices and statements to IPI by wire and mail "for the purpose of obtaining illegal and secret profits for IPI." (Amended Answer ¶ 1500.)
Whether Defendants' allegation that Botman International overcharged IPI for certain produce shipments has merit necessarily hinges upon the language in Botman International's invoices relating to freight charges. This language seemingly indicates that many of the shipments from Botman International to IPI were negotiated on a cost plus freight basis. Such an agreement, Defendants contend, is reflected in certain invoices containing phrases such as "Shipment is landed, customs cleared" or "Shipment is C/F."
The first step in determining whether Botman International overcharged IPI for produce shipments is to determine the meaning of the terminology used in the invoices. In interpreting the meaning of these terms, we note that the transactions between IPI and Botman International concerned the sale of perishable produce in the course of foreign commerce and therefore the transactions are governed by the terms of PACA. We will assume that the terminology used in the invoices has a meaning consistent with similar language used in PACA and its regulations.
We note that the parties do not appear to disagree as to the meaning of the phrases at issue. The phrases "Shipment is landed, customs cleared" or "Shipment is C/F" have meanings that concern the manner in which a particular shipment of produce is to be shipped to the purchaser. IPI argues that "`C/F' means that the seller is to pay for cargo and freight and, if PACA governs, is the same as `C.a.f.', `cost and freight.'" (Def.s' response, at 4.) PACA regulations specify that the term "C.a.f." means "cost and freight" and "shall be deemed to be the same as f.o.b. sales, except that the selling price shall include the correct freight charges to destination." 7 C.F.R. § 46.43(v). Although Botman International does not contest Defendants' interpretation of the terms stated on the invoice, it argues that the terminology used in the invoices did not accurately reflect the contract between Botman International and IPI. Indeed, Botman International contends that "[n]otwithstanding anyhing [sic] to the contrary on the Botman invoices, all shipments to IPI were on a `delivered' basis." (Pl.'s Reply, at 3.)
Regulations provide that "f.o.b." means "that the produce quoted or sold is to be placed free on board the boat, car, or other agency of the through land transportation at shipping point . . . and that the buyer assumes all risk of damage and delay in transit not caused by the seller irrespective of how the shipment is billed." 7 C.F.R. § 46.43(i). In an f.o.b. sale, the buyer is liable for paying freight charges. Tom Lange Co., Inc. v. ANIC, Inc., U.S. Dept. of Agric., PACA Docket R-93-81, slip op. (Sept. 22, 1993) (attached to Defendants' response as Exhibit A).
Looking to PACA regulations, "`Delivered' or `delivered sale' means that the produce is to be delivered by the seller on board car, or truck, or on dock if delivered by boat, at the market at which the buyer is located, or at such other market as is agreed upon, free of any and all charges for transportation or protective service. 7 C.F.R. § 46.43(p). The seller assumes the risk of loss and damage in transit not caused by the buyer."Id. Having sold the produce on a "delivered" basis, Botman International argues that "it doesn't matter to the buyer whether the shipping charges are listed as $50.00 or $50,000.00, because the price of the goods including such charges was set before shipping, and the shipping charges are paid by the seller." (Pl.'s Reply Memo., at 4.) In response, Defendants argue that even if Botman International did ship all produce to IPI on a "delivered" basis, Botman International's claim must be reduced by any transportation costs to market paid by IPI for all of the shipments in an amount to be determined at trial.
After careful examination of the invoices in question, we find that they clearly demonstrate that the listed shipping costs were irrelevant to the amount paid by IPI for produce it purchased from Botman International. Indeed, in many instances it is impossible to attribute any meaning at all to the listed freight charges. Instead it is apparent that when IPI negotiated to purchase produce from Botman International, the shipping price was implicitly included in the per unit cost and the listed freight charge was irrelevant. For example, on or about July 20, 1999, IPI ordered 2,240 units of tomatoes from Botman International at a price of $7.00 per unit. The total dollar amount of tomatoes purchased was $15,680.00. For this shipment of tomatoes, Botman International invoiced IPI for $15,680.00 and indicated that the "shipment is landed, customs cleared[,] duties paid." However, Botman International's invoice also indicates "freight included" for $16,000.00 and "packing included" for $2,240.00. Thus the sum of freight and packing charges listed on the invoice is alone $2,560.00 more than the actual invoiced amount. This example is not anomalous and it is significant for two reasons. First, it shows that when IPI ordered produce it did so on a unit price basis that was agreed to beforehand There were no unknown charges levied against IPI. When IPI ordered tomatoes for $7.00 per unit, it received tomatoes at $7.00 per unit. Second, the example demonstrates the flaw in Defendants' argument that it only recently discovered that it was being charged for inflated shipping costs. In the above example the sum of the listed shipping charges totaled $18,240.00 whereas IPI was only invoiced for $15,680.00 — the cost of the produce alone. In other words, the listed shipping charges sometimes exceed the amount that Botman International actually charged IPI by very substantial amounts. Certainly it cannot be said that IPI only recently became aware that the listed shipping charges were inaccurate. That the shipping charges were inconsistent with the billed amount is clear from even a casual examination of the invoices. It is clear that IPI was not paying inflated shipping charges when the listed shipping charges were not a component of the total price paid by IPI.
In a sworn statement before the District Court of Alkmaar in the Netherlands, Adri Botman characterized the transportation and packing costs as "fictitious amounts," stating, "Once the unit prices and the quantities had been agreed upon, the prices for freight and packing were entered by hand before such an invoice was printed. These prices do not correspond to the transportation and packaging costs actually charged to IPI. The reasons why we do not enter the actual amounts here is that we do not want to let our competitors know what our actual transportation costs are. As a matter of fact, these transportation costs are aggressively negotiated by us and they constitute a part of our profit margin. The amounts listed for freight and packing on the invoices have no influence whatsoever on the import duties which Botman must pay." (Def.'s Opp., Ex. 10.)
Defendants' argument that Plaintiff was under a fiduciary duty to obtain the lowest possible freight, transportation, and port clearing charges and to include only the actual and true charges for such services in its pricing and invoices to IPI is unavailing. In support of this argument, Defendants have citedTom Lange Co., Inc. v. ANIC, Inc., U.S. Dept. of Agric., PACA Docket R-93-81, slip op. (Sept. 22, 1993) (attached to Defendants' response as Exhibit A), a case argued by Defendants' present counsel. In ANIC, a purchaser of perishable agricultural produce argued that the seller of the produce had improperly inflated freight charges so as to make improper profits in violation of PACA. In response, the seller of the produce argued that it was not required by PACA to disclose what it was billed by the trucking companies that it utilized to ship the produce to the buyer. The Secretary of Agriculture disagreed. The Secretary held that because the subject sales were f.o.b., the buyer is responsible for the freight. In such a case, a seller acts in a fiduciary capacity if the seller initially finds a trucker, pays the freight, and invoices the buyer. BecauseANIC involved an f.o.b. sale, it is inapposite. In the instant case IPI was not separately billed for the shipping costs incurred by Botman International. By including the shipping cost as a component of the price of the produce that Botman International sold to IPI, Botman International made IPI fully aware of all costs inherent in the sale and IPI then had the opportunity to refuse to purchase the produce at the price offered. IPI cannot now come to court declaring that Botman International had a fiduciary duty to prevent IPI from making imprudent business decisions regarding its purchases of produce.
Defendants also argue that if Botman International had shipped all of the produce on "delivered" terms, as Botman International itself suggests, the claim must be reduced by transportation costs to market paid by IPI. Once again we have undertaken a careful review of the invoices in question and have discovered that not all of the invoices state the destination to which the shipments were delivered and that many of the invoices indicate that shipments were made to locations far from Philadelphia. Significantly, Defendants have not submitted receipts or other records that show that IPI ever paid for shipping costs for goods it received from Botman International. In other words, the record wholly lacks any evidence relating to transportation costs actually paid by IPI.
The shipments were mostly sent to airports in New York City, Newark, and Philadelphia. However, at least one shipment was sent via air to Chicago, and numerous other shipments were sent via air to Washington, D.C.
Defendants have failed to provide any evidence from which we could conclude that the location of these shipments was not previously agreed upon by the parties. As defined in the PACA regulations, a "delivered sale" is shipped by the seller to the buyer's market, "or at such other market as is agreed upon." 7 C.F.R. § 46.43(p) (emphasis added). Defendants have not suggested, and the voluminous record in this case also does not disclose, any instance in which IPI rejected a shipment of produce for failure to ship to the agreed-upon market. The mere fact that the produce may have been delivered to New York City or some other location besides Philadelphia does not lead to the conclusion that Botman International's claims must be reduced by the cost of IPI's transportation costs to Philadelphia. Botman International cannot be held liable where there has been no showing that IPI paid any freight charges for the produce it received from Botman International and where there is no indication that the produce was delivered to a location different from that agreed upon by the parties. Accordingly, we are compelled to conclude that Botman International did not fraudulently overcharge Plaintiff for any shipments of produce. We will therefore grant Plaintiff's motion for summary judgment with respect to Defendants' First through Fifth Counterclaims.
2. Sixth Counterclaim: Breach of Contract
Defendants' Sixth Counterclaim alleges that Botman International and IPI entered into an oral agreement in which Botman was to compensate IPI for its loss of the Colace/Giant Foods account by paying IPI the sum of twenty-five cents per box/carton for all produce sold to Colace and/or Giant Foods by or for Botman International. Defendants further allege that this sum "would be paid to IPI by issuance of credit memo invoices by Botman International for `logistical services' and credited to IPI's account with Botman for a period of five (5) years commencing on May 12, 1999." (Def.s' Answer ¶ 1506.) Defendants contend that Botman International issued the required credits to IPI from May through August, 1999, but stopped the payments in September, 1999 despite the fact that Botman International continues to sell substantial amounts of produce to Colace/Giant Foods.
Botman International has moved for summary judgment with respect to this breach of contract claim arguing that there was no agreement to pay the twenty-five cent fee. First, Botman International disputes that IPI ever had a direct relationship with Giant Foods. Rather, Botman International contends that IPI bought produce from Botman International, sold the produce to a third party, and that third party then sold the produce to Giant Foods. Botman International also disputes Defendants' assertions that the loss of the Giant Foods account negatively affected IPI's profitability and that Botman International used confidential information it obtained from IPI to negotiate sales directly with the Colace firm for the Giant Foods account. While Botman International does not dispute the fact that IPI is no longer a supplier of produce to Giant Foods, Botman International contends that this is due to the fact that Giant Foods decided to eliminate the middlemen and deal directly with Botman International. Finally, Botman International disputes that there was ever an agreement to compensate IPI for the loss of the Giant Foods account.
Botman International certainly has met its initial burden in demonstrating the absence of a genuine issue of material fact concerning the existence of any oral agreement on May 12, 1999, for Botman International to compensate IPI. Of particular significance is a document signed by both Mr. Keijer and Mr. Botman stating, "Botman has proposed a substantial `incentive bonus' plan as a means of motivating IPI to continue its business relationship with Botman in a positive manner, however, the specific amount, timing, duration and method of payment have yet to be discussed." (Botman Certification, Doc. 55, Ex. 13.) This document was signed on the same day that Defendants allege that a different oral agreement was reached, yet this document expressly disclaims any agreement as to an "incentive bonus."
In his November 4, 1999 Memoradum addressing Botman International's Motion for Preliminary Injunction, Judge Buckwalter found that the document signed on May 12, 1999, "is clearly not an agreement and Botman clearly refused any effort by IPI to so characterize it." (Doc No. 10 ¶ 7.)
Because Botman International has met its initial burden of demonstrating the absence of a genuine issue of material fact with respect to this claim, it is incumbent upon Defendants to come forward with a showing that a genuine issue of material fact exists. However, Defendants have failed to respond to Plaintiff's motion for summary judgment with respect to their Sixth Counterclaim. In failing to respond Defendants have quite obviously failed to meet their burden. Moreover, we deem Defendants' Sixth Counterclaim to be abandoned. Estate of Henderson v. City of Philadelphia, No. 98-3861, 1999 U.S. Dist. LEXIS 10367, at *48-49 (E.D. Pa. July 12, 1999) (granting the defendant's motion for summary judgment where the plaintiff abandoned its claim by failing to mention a claim as a basis for denying the defendant's motion for summary judgment); Wright v. Montgomery County, No. 96-CV-4597, 1998 U.S. Dist. LEXIS 20414, at *11-12 (E.D. Pa. Dec. 22, 1998) ("In the instant matter, Plaintiff failed to respond to Defendants' Motion for Summary Judgment concerning all of Plaintiff's State Law Tort Claims pleaded in Counts Two through Eight of the Complaint. The Plaintiff, however, responded to Defendant's Motion for Summary Judgment regarding his constitutional claim. By choosing to defend his constitutional claim, and not his state law claims, it is apparent that the Plaintiff has elected to abandon his state law tort claims.") Accordingly, we will grant summary judgment on Defendants' Sixth Counterclaim in favor of Botman International and against Defendants.
B. Plaintiff's Claims against IPI
1. Count I: Breach of Contract
In Count I of its Amended Complaint, Botman International alleges that from May 12, 1999 through August 30, 1999, IPI contracted to purchase perishable agricultural commodities on account and that IPI has failed to pay Botman International the balance of $1,464,233.75, thereby breaching its contract with Botman International. When this case was filed, Defendants did not dispute the fact that IPI owed $1,464,233.75 to Botman International for produce that IPI had purchased but never paid for. In fact, on or about September 29, 1999, Mr. Keijer faxed a letter to Botman International stating, "As agreed on September 28th, 1999, International Produce Imports, Inc. ("IPI") confirms that the undisputed balance of outstanding and unpaid invoices due and payable to Botman International B.V. ("Botman") is $1,464,233.75." (Certification of Adri Botman, Exhibit 4.) This fact was confirmed by Mr. Keijer at the October 25, 1999 hearing for the preliminary injunction. Mr. Keijer now states, "I believed at that time that IPI owed Botman $1.4 million on account of the invoices in the Complaint. That was, however, prior to my discovery the following April of the facts which indicate to me that Botman had been defrauding IPI of many thousands of dollars in secret profits and freight overcharges." (Declaration of Dirk J. Keijer, at 5.) However, for the reasons stated above, there has been no showing that Botman International defrauded IPI or that the invoices inaccurately reflect the true value of goods purchased and received by IPI. It cannot be said that Defendants have only just now discovered the shipping charges listed on the invoices were false. That these charges were fictitious is apparent from a casual examination of the invoices that were in Mr. Keijer's possession. Accordingly, we will grant Plaintiff's motion for summary judgment with respect to its breach of contract claim against IPI.
During the cross-examination of Mr. Keijer by Mr. Gentile the following exchange took place:
Q: Do you acknowledge that IPI, your company, owes Botman more than $1.4 million?
A: Yes, sir.
(Tr. of Oct. 25, 1999 hearing, at 18.)
2. Counts II, III and IV: Failure to Maintain Trust Under PACA, Breach of Fiduciary Duty, and Dissipation of Trust Assets
In Count II of its Amended Complaint, Botman International alleges that a statutory trust arose in favor of Botman International upon IPI's receipt of perishable agricultural commodities purchased from Botman International, and that IPI has failed to maintain this trust in violation of PACA and its regulations. Botman International further alleges that the statutory trust consists of all inventories of food or other products derived from the commodities and the proceeds from the sale of the commodities, amounting to $433,079.54. Botman International alleges that IPI failed to hold perishable agricultural commodities subject to the PACA trust in trust for the benefit of Botman International. This, according to Botman International, constituted a breach of trust. In Count III, Botman International alleges that IPI dissipated trust assets by improperly spending proceeds obtained from the resale of perishable agricultural commodities for purposes other than promptly paying Botman International as required by 7 U.S.C. § 499b. Similarly, in Count IV Botman International alleges that IPI failed to pay for perishable agricultural commodities that IPI received from Botman International in violation of PACA and its regulations.
PACA was enacted by Congress in 1930 for the purpose of regulating the interstate trade in perishable agricultural commodities such as fresh fruits and vegetables. George Steinberg Son, Inc. v. Butz, 491 F.2d 988, 990 (2d Cir. 1974). In 1984, PACA was amended to provide for a statutory trust on the behalf of unpaid suppliers or sellers.
Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents.7 U.S.C. § 499e(c)(2). Federal regulations implementing the PACA state that the PACA trust is a "nonsegregated `floating' trust." 7 C.F.R. § 46.46(b). See also Consumers Produce Co. v. Volante Wholesale Produce, 16 F.3d 1374, 1378 (3d Cir. 1994); In re United Fruit Produce Co. Inc., 242 B.R. 295, 301-02 (Bankr. W.D. Pa. 1999). "Commingling of trust assets is contemplated." 7 C.F.R. § 46.46(b). Thus, a seller need not trace specific trust assets in order to recover assets subject to the trust. See In re W.L. Bradley Co., 75 B.R. 505, 509 (Bankr. E.D. Pa. 1987). "The PACA trust provisions were modeled after the PSA [Packers and Stockyards Act, 7 U.S.C. § 181]-229 trust provisions and authority developed under that statute is persuasive in the interpretation of the PACA trust." Consumers Produce, 16 F.3d at 1382 n. 5 (citing In re Fresh Approach, Inc., 48 B.R. 926, 931 (Bankr. N.D. Tex. 1985)).
PACA regulations provide that when a statutory trust arises under PACA, the dealer to whom the goods were sold is "required to maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities. Any act or omission which is inconsistent with this responsibility, including dissipation of trust assets, is unlawful and in violation of section 2 of the Act, ( 7 U.S.C. § 499b)." 7 C.F.R. § 46.46(d)(1). Thus, even if there is no dissipation of trust assets there may still be a breach of trust if the trustee does not "maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities." Id. It is clear from the record that Botman International is a PACA trust creditor. On September 9, 1999, Botman International sent IPI a Notice of Intent to Preserve Trust Benefits covering invoices between July 20, 1999 and August 25, 1999. The total of the invoices subject to the PACA trust is $433,079.54. Furthermore, Defendants admit that Botman International has not been paid for the shipments sent to IPI during July and August of 1999. (Def.s' Response, at 3.) Defendants argue that Botman International misrepresented freight charges on its invoices and is therefore barred from recovery because of "unclean hands."
Defendants have, in fact, raised other arguments as to why there can be no PACA liability in this case, but these arguments are raised only with respect to the claims of dissipation against the individual defendants.
In order to prevail on an "unclean hands" defense, a defendant must show fraud, unconscionability, or bad faith on the part of the defendant. S R Corp. v. Jiffy Lube, Int'l, 968 F.2d 371, 377 n. 7 (3d Cir. 1992). Defendants have not adequately shown any of these elements. Although the freight charges listed on Botman International's invoices appear to be incorrect, there has been no showing by Defendants that they have relied upon these representations. Furthermore, Defendants have not come forward with any invoices or receipts indicating that it was IPI, not Botman International, who paid for shipping of produce from Botman International to IPI. This, together with the fact that many of the invoices so clearly demonstrate that the indicated shipping charges were meaningless, convinces us that Defendants cannot show unclean hands in this case.
It is also clear that Defendants do not have sufficient liquid assets to pay Botman International $433,079.54. However, Defendants argue that there has been no dissipation of trust assets because the combination of IPI's cash and accounts receivable far exceeds the value of the PACA trust. Although Defendants have not attached any documents to their response to Botman International's Renewed Motion for Summary Judgment, certain documents do inform our opinion in this respect. For instance, in Defendants' Compliance With Temporary Restraining Order, it is indicated that as of October 11, 1999, IPI had outstanding accounts receivable of $581,774.
We note this is consistent with Judge Buckwalter's finding that IPI's accounts receivable are substantially less than the amount owed to Botman International. The total amount of money owed to Botman International is much greater than the value of the PACA trust. This is because the PACA trust covers only shipments delivered to IPI between approximately July 20, 1999 and August 25, 1999.
Under 7 U.S.C. § 499e(c)(2), accounts receivable are part of the PACA trust and must be preserved for the benefit of all unpaid suppliers. There is evidence here that accounts receivable have been preserved for the benefit of Botman International. At any rate, there is certainly no showing that the accounts receivable are fictitious or otherwise uncollectible. In other words, Botman International has not shown that there has been a dissipation of trust assets by IPI. Although Botman International is free to show that these accounts receivable are non-existent or illusory, at this time there is a material issue of fact as to whether IPI dissipated trust assets. Therefore, we will deny Plaintiff's Renewed Motion for Summary Judgment on Count III, Dissipation of Trust Assets.
Because it has not been shown that the trust res is insufficient to pay the beneficiaries of the trust, we need not address whether the payment of business expenditures out of the floating trust constitutes a dissipation of trust assets. Morris Okun, Inc. v. Harry Zimmerman, Inc., 814 F. Supp. 346 (S.D.N.Y. 1993) and its progeny are distinguishable in this respect. There the courts held that the use of proceeds from the sale of perishable agricultural produce for legitimate business expenditures is a breach of trust. See id. at 348. However, in neither Morris Okun or any other similar case was there a dispute over the value of the trust res.
Regardless of whether IPI dissipated trust assets, it is clear that IPI has breached a duty owed to Botman International with respect to the manner in which it has kept the PACA trust. PACA regulations require that trust assets be "freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities." 7 C.F.R. § 46.46(d)(1). Defendants concede that IPI's liquid assets are insufficient to satisfy IPI's obligations to Botman International subject to the PACA trust. In failing to make assets "freely available to satisfy [its] outstanding obligations" to Botman International, IPI has breached its duty as trustee. Because there is no issue of material fact as to whether IPI has maintained trust assets in a manner such that the assets are available to satisfy its debts to Botman International, we conclude that IPI has breached the PACA trust and its corresponding fiduciary duty to Botman International. Accordingly, summary judgment will be entered in favor of Botman International and against IPI with respect to Counts II (Failure to Maintain Trust Under PACA) and IV (Breach of Fiduciary Duty) of Plaintiff's Amended Complaint.
C. Plaintiff's Claims Against the Individual Defendants
Botman International argues that the Keijers are responsibly connected persons to IPI and, as such, are liable to PACA trust creditors for any breach of trust or dissipation of trust assets that has occurred. In response, Defendants argue that there has been no dissipation of PACA trust assets and that there is no basis for holding the individual defendants personally liable. In particular, Defendants argue that the payment of officers salaries and supplies are not properly considered a dissipation of PACA trust assets and that IPI's cash and accounts receivable exceed any amount that may arguably be subject to a PACA trust. Moreover, since the IPI's assets exceed the trust amount, Defendants argue, there is a material issue of fact as to whether there has been any dissipation of assets and therefore judgment should not be entered against the individual defendants.
"The term `responsibly connected' means affiliated or connected with a commission merchant, dealer, or broker as (A) partner in a partnership, or (B) officer, director, or holder of more than 10 per centum of the outstanding stock of a corporation or association. A person shall not be deemed to be responsibly connected if the person demonstrates by a preponderance of the evidence that the person was not actively involved in the activities resulting in a violation of this chapter and that the person either was only nominally a partner, officer, director, or shareholder of a violating licensee or entity subject to license or was not an owner of a violating licensee or entity subject to license which was the alter ego of its owners." 7 U.S.C. § 499a(b)(9). Notably, the statute does not declare that "responsibly connected" persons may be held secondarily liable for breach of fiduciary duty.
PACA itself does not specify that a "responsibly connected" person will have personal liability for corporate debts. See 7 U.S.C. § 499a(b)(9). Under the statute, the only significance that attaches to being a "responsibly connected" person is that such a person is subject to certain restrictions regarding future employment with a PACA licensee. See 7 U.S.C. § 499h(b). Nevertheless, a growing number of courts have imposed personal liability on persons who are actively involved in the day-to-day operations of the corporation. See, e.g., Shepard v. K.B. Fruit Vegetable, Inc., 868 F. Supp. 703, 705-06 (E.D. Pa. 1994). These courts have generally concluded that "the crucial factor in imposing such liability is the existence of fiduciary duties under the Act and a breach of those duties when the PACA trust is not preserved." Bartholomew M. Botta, Personal Liability for Corporate Debts: The Reach of the Perishable Agricultural Commodities Act Continues to Expand, 2 Drake J. Agric. L. 339, 345 (1997). When considering whether to impose personal liability on an individual, courts have generally held that "PACA liability attaches first to the licensed seller of perishable agricultural commodities. If the seller's assets are insufficient to satisfy the liability, others may be found secondarily liable if they had some role in causing the corporate trustee to commit the breach of trust." Shepard, 868 F. Supp. at 706. One is not secondarily liable under PACA simply because the person is an officer or shareholder of a corporation. Id. Rather, the court must first consider whether the person was actively involved in the corporation and if such involvement is sufficient to establish legal responsibility. Id. If a sufficient basis for legal responsibility exists, it then must be determined whether the person breached a fiduciary duty owed to the PACA creditor. Id. "Being a statutory trust, PACA incorporates common law breach of trust principles." Id.
Although most of the cases that hold individuals to be secondarily liable purport to do so because the person was actively involved in the operation of the corporation, we note that in each case the person held secondarily liable would also be considered a "responsibly connected" person. However, the converse is not true. A person who would be considered "responsibly connected" under the statute may not be held secondarily liable if they did not exercise day-today control over the corporation. See Shepard, 868 F. Supp. at 706;Mid-Valley Produce, 819 F. Supp. at 212-13.
1. Plaintiff's Claims Against Mr. Keijer for Breach of Fiduciary Duty/Conversion and Dissipation of Trust Assets
It is undisputed that Mr. Keijer was actively involved in the operation of IPI throughout the history of IPI's dealings with Botman International. (Def.s' Amended Answer ¶ 6, Dec. of Dirk J. Keijer ¶ 12.) At all times while the PACA trust has been in existence, Mr. Keijer has been an officer of IPI and holder of 100 percent of the outstanding stock of IPI. There has never been any suggestion that he is merely a nominal officer. Indeed, by Mr. Keijer's own admissions, he was solely responsible for IPI's activities during the time period in which the PACA violations occurred. (Declaration of Dirk Keijer ¶ 17.) These facts are sufficient to establish that Mr. Keijer had "active involvement" in the operation of the business such that he may be held secondarily liable if IPI breached its fiduciary duty owed to Botman International under PACA. See Shepard, 868 F. Supp. at 706.
In determining whether Mr. Keijer may be held liable for dissipation of PACA trust assets, we note that there is a material question of fact as to whether IPI has dissipated any trust assets. Therefore, we must also necessarily reach the same conclusion with respect to Mr. Keijer, for his liability for dissipation of trust assets is dependent upon a finding that IPI is liable for dissipation of trust assets. Accordingly, we will deny Plaintiff's Renewed Motion for Summary Judgment on Count X (Dissipation of Trust Assets) with respect to Mr. Keijer.
However, a PACA trustee has a duty to preserve trust assets in a manner in which the assets are freely available to satisfy the trustees' obligations. 7 C.F.R. § 46.46(d)(1). Thus, a breach of fiduciary duty may occur even without dissipation of trust assets if the trust assets are not preserved in a manner such that they are freely available to satisfy IPI's obligations to Botman International. It has already been established that IPI has breached the statutory trust and its corresponding fiduciary duty to Botman International by failing to preserve the PACA trust assets in a manner such that they are freely available to satisfy IPI's debts to Botman International. Because Mr. Keijer was admittedly responsible for all of IPI's activities at all relevant times, Mr. Keijer is secondarily liable for that breach of trust. See Mid-Valley Produce, 819 F. Supp. at 212. Accordingly, we will grant summary judgment in favor of Botman International and against Mr. Keijer with respect to Counts IX (Breach of Fiduciary Duty — Constructive Trust) and XI (Breach of Fiduciary Duty — PACA) of Plaintiff's Amended Complaint.
2. Plaintiff's Claims Against Ms. Keijer for Breach of Fiduciary Duty/Conversion Dissipation of Trust Assets
Botman International argues that Ms. Keijer is a responsibly connected person in this matter and that she, like Mr. Keijer, may be held secondarily liable for a breach of fiduciary duty and dissipation of trust assets. In support of this argument, Botman International argues that in order to avoid personal liability under PACA, Ms. Keijer began taking steps in May, 1999, to dissociate herself from IPI by resigning as an officer and transferring her stock in the corporation to Mr. Keijer. After dissociating herself from IPI, Plaintiff contends that Ms. Keijer "caused IPI to be re-incorporated in Delaware, in anticipation of taking it into bankruptcy" (Pl.'s Reply, at 24) and prepared "the `so called' agreement to change the terms of payment to `60 days,' which would take the transactions outside of the PACA, . . . flew to Hoofddorp to have it executed by Mr. Botman . . ., and began putting a PACA disclaimer on IPI invoices." (Pl.'s Reply, at 25.) In support of its argument that Ms. Keijer should be held secondarily liable, Botman International also sets forth Judge Buckwalter's finding that "[u]ntil May 5, 1999, Clare C. Keijer was a shareholder and officer of IPI. Thereafter, she remained as general counsel to IPI and had sufficient managerial functions with respect to financial matters as to be in a position of control, together with Dirk Keijer, over the corporate entity, IPI, now through her legal services, a Delaware Corporation." (Memo. of November 4, 1999, Findings of Fact ¶ 4.)
We find that a genuine issue of fact exists as to whether Ms. Keijer was actively involved in the operation of IPI subsequent to May 5, 1999. It is uncontested that Ms. Keijer was acting as IPI's general counsel, for which she received a salary, even though she was not an officer or shareholder at any time in which the PACA trust was in existence. (Pl.'s Reply, at 24.) We are not persuaded that it is appropriate at this stage to infer that because Ms. Keijer was involved in some business decisions she was actively involved in the decisions leading to IPI's failure to perform its PACA obligations. The record reflects that Ms. Keijer would, on occasion, assist in IPI's bookkeeping, that she was knowledgeable about IPI's operations, and that she performed legal services for IPI. However, it does not necessarily follow from these facts that Ms. Keijer was involved in the day-to-day control over IPI's affairs such that she can be held legally responsible for any PACA trust violations that may have occurred.
We also note that Botman International has failed to set forth any cases demonstrating that persons not formally associated with a dealer may be held personally liable for the acts of the corporation. We are not aware of any case in which a person has been held secondarily liable who was not either a shareholder or officer of the corporation. Cf. Scone Connors Produce v. Panattoni, No. 91-36358, 1994 U.S. App. LEXIS 27368 (9th Cir. Sept. 14, 1994) (finding personal liability for a husband and wife who were the sole shareholders of a PACA dealer); Morris Okun 814 F. Supp. 346 (holding shareholder and officer personally liable); Mid-Valley Produce, 819 F. Supp. 209 (holding president of corporation personally liable);Sunkist Growers, Inc. v. Fisher, 104 F.3d 280 (9th Cir. 1997) (holding that individual shareholders, officers, or directors of a corporation may be held personally liable under PACA); Bronia, Inc. v. Ho, 873 F. Supp. 854 (S.D.N.Y. 1995) (finding liability on the part of a person who was sole shareholder, director, and president of the corporation).
Although we have not discovered any case in which a person who is neither shareholder nor officer has been held secondarily liable for breach of fiduciary duty, we do not presently hold that such formal contacts are necessary to secondary liability. Our decision to deny summary judgment as to claims against Ms. Keijer is sufficiently grounded in the fact that there has not been an adequate showing of her active involvement, regardless of whether formal contacts are necessary or not.
For the foregoing reasons, we will deny Plaintiff's Renewed Motion for Partial Summary Judgment with respect to all claims against Ms. Keijer.
An appropriate Order follows.
ORDER
AND NOW, this day of July, 2004, upon consideration of Plaintiff's Renewed Motion for Partial Summary Judgment (Doc. No. 53), Defendants' response (Doc. No. 57), Plaintiff's Reply Memorandum of Law in Support of Motion for Partial Summary Judgment (Doc. No. 64), and all documents contained in the record, it is ORDERED that:1. Summary Judgment is GRANTED in favor of Plaintiff and against Defendants on Defendants' First through Sixth Counterclaims;
2. Summary Judgment is GRANTED in favor of Plaintiff and against IPI on Counts I (Breach of Contract), II (Failure to Maintain Trust Under PACA), and IV (Breach of Fiduciary Duty);
3. Summary Judgment against IPI on Count III (Dissipation of Trust Assets) is DENIED;
4. Summary Judgment is GRANTED in favor of Plaintiff and against Dirk J. Keijer on Counts IX (Breach of Fiduciary Duty — Constructive Trust) and XI (Breach of Fiduciary Duty — PACA);
5. Summary Judgment against Dirk J. Keijer on Count X (Dissipation of Trust Assets) is DENIED; and
6. Summary Judgment against Clare A. Keijer is DENIED on all Counts.
IT IS SO ORDERED.