Opinion
98 Civ. 5593 (RWS).
December 27, 2000.
McCARRON ASSOCIATES, Washington, DC., LOUIS W. DIESS, III, ESQ.Of Counsel, for Plaintiff.
SALON, MARROW, DYCKMAN NEWMAN, SHERYLEE F. BAUER, ESQ. Of Counsel, for Plaintiff.
BRIAN R. SUFFREDINI, ESQ., Attorney for Defendant RS Distributors New York, NY., for Defendant.
GENTILE DICKLER, New York, NY., By: PAUL GENTILE, ESQ., Of Counsel, for Defendant.
O P I N I O N
RS Distributors LLC ("RS") has moved under Federal Rule of Civil Procedure 56 to strike the objections made by plaintiff Lincoln Diversified Systems, Inc. ("Lincoln") to its claim against defendants Mangos Plus, Inc. ("Mangos") and Stephen Hitchings ("Hitchings") in this action brought under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. § 499a-499t. For the reasons set forth below, the motion is granted.
The Parties
Lincoln Diversified is a produce brokerage company engaged in interstate commerce and a creditor of the defendants under PACA.
Mangos was at all relevant times a dealer and/or commission merchant under PACA.
Hitchings was at all relevant times the owner, officer, and director of Mangos, and the owner of RS.
RS is a produce brokerage company engaged in interstate commerce and a creditor of the defendants under PACA.
Prior Proceedings
This proceeding was commenced by Lincoln to enforce its PACA trust rights against Mangos and Hitchings on August 6, 1998, a preliminary injunction was entered, assets were marshalled, discovery was conducted, and certain other claimants including RS joined the proceeding by filing PACA trust claims in accordance with this Court's September 28, 1998 order. Twenty-four claims were filed totaling $1,102,022.47. Lincoln objected to thirteen of the twenty-four claims. The two largest claims are the Lincoln claim for $141,144.46 and the RS claim for $274,405.40. All objections have been resolved, see Lincoln Diversified, Inc. v. Mangos Plus, Inc., 98 Civ. 5593, 2000 WL 890198 (S.D.N.Y. July 5, 2000) (discussing settlement of certain objections by stipulation and resolving other objections on the pleadings), except for the objection against the RS claim, resulting in valid claims totaling $698,914.44.
The instant motion to dismiss Lincoln's objections to the RS claim was filed on September 11, 2000, submissions were received, and oral argument was heard on October 5, 2000, at which time the matter was deemed fully submitted.
The Facts
The facts set forth below are gleaned from the parties' Rule 56.1 statements, affidavits and exhibits, with any factual inferences drawn in the non-movant's favor. They do not constitute findings of fact by the Court.
Lincoln, RS, and the other claimants sold approximately $1 million of produce to Mangos. Mangos became insolvent and failed to make payments for the produce.
Each of RS's invoices to Mangos state 21-day payment terms. There was no written agreement between RS and Mangos regarding the payment terms. The RS claim filed in this action states that the transactions at issue were based on 10-day payment terms.
During the period of these transactions, RS was a New York limited liability company conducting business at 10 Hemlock Hollow Road, Armonk, New York. Joan B. Corn ("Corn") and Hitchings were co-owners and members of RS. Hitchings was also at all such times the sole owner, officer and shareholder of Mangos.
According to Corn, RS and Mangos were operated as separate entities with completely separate bank accounts, credit facilities, corporate records, books, assets, employees, payrolls, customer accounts, office space, addresses, letterheads, phone numbers, fax numbers, invoices, tax and debt obligations, and property, and she exercised day-to-day control over RS's bank accounts and finances.
No documents have been located with respect to the proceeds of any sales by Mangos. According to the president of Lincoln, Charles J. Fiorenzi ("Fiorenzi"), Hitchings stated to him that the RS claim should be denied because he, Hitchings, was in control of RS at the time of the transaction. Hitchings has now submitted a statement of September 26, 2000, to the contrary.
After withdrawing as a member of RS, Hitchings also brought a non-PACA claim against that entity. This claim was settled by an agreement in which Hitching released his claim against RS and RS agreed to pay Hitchings, at his sole option, either a sum of $1,000 immediately upon settlement or an amount equal to 3% of any recovery by RS in this action.
In June 1999, Corn became the sole member and owner of RS. Thereafter, Hitchings submitted his September 26, 2000 statement in lieu of the deposition which RS had sought. Although Hitchings is the chief villain in the cast, no documents or testimony have been presented to contradict his statement other than his prior admission to Lincoln's president.
Discussion I. The Objections
Lincoln lodged two objections to RS's PACA trust claims in a document served upon RS on January 15, 1999 (the "Objections").
Lincoln's first objection to RS's PACA claim (the "Alter Ego Objection"), set forth in the Objections, is that:
At the time RS Distributors allegedly sold produce to Mangos, the principal of RS [sic] was also an officer of RS Distributing [sic]. As a result, RS and Mangos were so interconnected as to void their alleged separate corporate existence. Furthermore, RS is liable for the debts of Mangos.
Lincoln's second objection to RS's PACA trust claim (the "Payment Terms Objection") is that:
In addition, RS is disqualified from PACA trust protection because the payment terms on its invoices to Mangos are different from the actual payment terms and there is no written agreement altering payment terms.II. The Standard for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that a motion for summary judgment may be granted when "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." The Second Circuit has repeatedly noted that "as a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 330 n. 2 (1986) (Brennan, J., dissenting)); see Tomka v. Seiler Corp., 66 F.3d 1295, 1304 (2d Cir. 1995); Burrell v. City Univ., 894 F. Supp. 750, 757 (S.D.N.Y. 1995). If, when viewing the evidence produced in the light most favorable to the nonmovant, there is no genuine issue of material fact, then the entry of summary judgment is appropriate. See Burrell, 894 F. Supp. at 758 (citing Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991)).
Materiality is defined by the governing substantive law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "[T]he mere existence of factual issues — where those issues are not material to the claims before the court — will not suffice to defeat a motion for summary judgment." Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985).
For a dispute to be genuine, there must be more than "metaphysical doubt." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (citations omitted).
III. RS Is Entitled To Summary Judgment As To The Alter Ego Objection
Under New York law, a party seeking to pierce a corporate veil must show "that the owner exercised complete domination over the corporation with respect to the transaction at issue; and . . . that such domination was used to commit a fraud or wrong that injured the party seeking to pierce the veil." American Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997) (citations omitted). The factors relevant to this determination include: (1) an absence of corporate formalities, (2) inadequate capitalization, (3) use of corporate funds for personal purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether related entities deal with the dominated corporations at arms length, (8) intermingling of profits, (9) payment or guarantee of debts, and (10) use of property. Kanter v. Feature Enters., Inc., 90 Civ. 0332, 1993 WL 267373, at *3 (S.D.N.Y. July 13, 1993).
Drawing all inferences in favor of the non-movant Lincoln, as required on this motion for summary judgment, the evidence is that during the period of the relevant transactions Hitchings was a co-owner of RS while also the sole shareholder and officer of Mangos. However, although these circumstances may well have permitted him to act to the detriment of one or both of the entities for his own benefit, they do not permit dissolution of the corporate veils. See American Fuel, 122 F.3d at 134-35 (refusing to pierce corporate veil even though corporation had no contracts, employees, capital or assets, was run out of its president's home, president shifted personal funds to company, and interest on company loan paid in party by president personally); Kanter, 1993 WL 267373, at *3-*4 (dismissing alter ego claim as insufficient as matter of law, even taking as true allegations that same person was officer of one company and chairman of the board of related company, and an employee of first company was compensated by related company); Canario v. Lidelco, Inc., 782 F. Supp. 749, 759- 60 (E.D.N.Y. 1992) (dismissing alter ego claim on summary judgment even assuming truth of allegations that principle shareholder purchased plan using corporate funds, took personal tax deductions for plane's depreciation while corporation paid for plane's upkeep, and corporation received no proceeds when plane sold, and that principle shareholders personally guaranteed loans to corporation);Port Chester Elec. Constr. Corp. v. Atlas, 357 N.E.2d 983, 986-87 (N.Y. 1976) (refusing to pierce corporate veil even though individual was sole shareholder and officer of related entities).
There is insufficient evidence as to the factors relevant to the alter ego determination including, for example, the use of funds for personal rather than corporate purposes, common office space, address, and telephone number, the use of property, payment or guarantees of debts, and intermingling of profits, to give rise to a genuine dispute of material fact as to this issue. See Kanter, 1993 WL 267373, at *3.
IV. RS Is Entitled To Summary Judgment As To The Payment Terms Objection
Lincoln contends in its Payment Terms Objection that RS's PACA claim must be disallowed because the payment terms on the RS invoices to Mangos were different from the actual payment terms, and there was no written agreement altering the payment terms.
PACA and the relevant regulations establish a prompt payment period for transactions with brokers such as RS of ten days from the receipt of the broker's invoice. 7 C.F.R. § 46.2(aa)(4). An agreement between the parties for different payment terms is enforceable provided that the parties reduce such agreement to writing prior to entering into the transaction. 7 U.S.C. § 499e (c)(3); 7 C.F.R. § 46.2(aa)(11). However, in the absence of such a writing any attempt to extend payment terms will be ineffective and the statutory 10-day term will govern.Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 204 (3d Cir. 1998); Hull Co. v. Hauser's Foods, Inc., 924 F.2d 777, 781 (8th Cir. 1991); AJ Produce Corp. v. CIT Group/Factoring, Inc., 829 F. Supp. 651, 655 (S.D.N.Y. 1993). "A produce seller does not lose PACA rights as a beneficiary of the trust, assuming the seller has complied with the procedures to perfect those rights . . . by oral agreement or by a course of dealing. The only waiver of rights which the statute allows is a written agreement to extend [payment] terms beyond thirty days." AJ Produce, 829 F. Supp. at 655. The fact that invoices of a PACA claimant stated terms in excess of ten days, as in the case of the RS invoices, does not satisfy this requirement. See id. at 654-55.
There is no evidence of a written agreement purporting to extend the time for payment beyond the statutory limits. Therefore, the Payment Terms Objection is insufficient as a matter of law. Indeed, this objection has in effect been withdrawn by the absence of any contention to the contrary in Lincoln's opposition to the instant motion. See Celotex, 477 U.S. at 324 (party opposing summary judgment must go beyond pleadings and designate "specific facts that there is a genuine issue for trial").
V. A Breach of Fiduciary Duty By Hitchings Does Not Bar the RS Claim
In its opposition to the RS motion Lincoln alleges that Hitchings, by virtue of his position at Mangos, had a fiduciary duty to preserve the assets and records of the Mangos PACA trust, and that Hitchings failed to perform that duty. On this basis Lincoln seeks to bar any payment to RS in order to prevent a benefit to Hitchings.
RS does not contest Hitchings' fiduciary duty or its breach. However, RS notes the absence of any authority for the proposition that such a breach would bar the claim of RS since as of June 1999 Corn became the sole owner of RS and, in addition, there is no evidence that any payment to RS would benefit Hitchings except as a result of his non-PACA settlement with RS. Therefore, whatever claims may lie against Hitchings for his alleged breach of fiduciary duty, there is no bar to the RS claim against Mangos on this basis.
Conclusion
Therefore, for the reasons set forth above, the motion for summary judgment will be granted and Lincoln's objections to the RS PACA trust claim will be stricken. Furthermore, as these were the only unresolved objections remaining in this case, distribution of the marshaled funds to the approved PACA creditors may now proceed. Settle order on notice.
It is so ordered.