Summary
concluding that defendant was individually liable because—among other reasons—defendant was "the person who create[d] orders for produce and the person who review[ed] all invoices for purchases and decide[d] which invoices to pay," and "was [also] the person who ordered the produce at issue in th[e] case, acknowledged receipt of such produce, and accepted it"
Summary of this case from Moza LLC v. Tumi Produce Int'l Corp.Opinion
02 CIV. 6925 (DLC)
September 30, 2003
Ricardo E. Oquendo, Esq., Davidoff Malito, LLP, New York, New York, for the Plaintiff
Paul T. Gentile, Esq., Robert J. Mastrogiacomo, Esq., Gentile Dickler, New York, NY, for the Defendants
OPINION AND ORDER
On July 28, 2003, a bench trial was held in this action filed pursuant to the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. § 499c(5). PACA provides suppliers of agricultural commodities with a statutory trust to enforce the payment obligations of merchants, dealers and brokers. Specifically, PACA's trust provision gives the unpaid supplier an interest in the trust superior to the interest of any other lien or secured creditor. A dealer must hold all assets in trust * until full payment of the sums owed in connection with transactions in perishable agricultural commodities has been received by the unpaid suppliers, sellers or agents. See C.H. Robinson Co. v. Alanco Corp., 239 F.3d 483, 486 (2d Cir. 2001).
The supplier in this case — plaintiff "R" Best Produce Inc. (""R" Best") — sought monies owed for the sale and delivery of produce to defendants Eastside Food Plaza Inc. and Angelo Tomao (collectively, "Eastside"). At trial, the defendants offered no factual defense to the claim that these funds are due and owing. A bench opinion delivered on July 28 made findings in the plaintiff's favor. There were several issues that remained open at the conclusion of the trial, however, and the parties were permitted to submit post-trial briefs. This Opinion addresses those outstanding issues and orders that judgment be entered in favor of plaintiff.
Background
"R" Best is a wholesale seller of perishable agricultural commodities. Defendant Eastside operates a gourmet store; defendant Angelo Tomao ("Tomao") is its president and sole owner, "R" Best seeks payment in the amount of $71,213.65 plus interest for produce delivered to defendants between January and March 2002. In their pretrial submissions, defendants disputed the existence of subject matter jurisdiction on the ground that the produce was not sold in interstate commerce. They also argued that monies owed by plaintiff for other, unrelated transactions should offset the amount defendants owe in this lawsuit. At trial, the Court ruled that the sale at issue was covered by PACA, and that defendants had not asserted a set off defense in a timely fashion and therefore could not litigate it in this action. The defendants have been and are litigating their claims to those separate monies in a separate action.
At trial, the Court found in plaintiff's favor on both its PACA and breach of contract claims. It awarded damages in the amount of $71,213.65, as well as contractually stipulated late fees of 1.5% per month. The Court awarded attorney's fees pursuant to the terms of the contract in the amount of 25% of $71,213.65. The parties were given an opportunity to submit post-trial briefing on three outstanding issues: Whether the plaintiff was entitled to a judgment on its claim of an account stated, whether Tomao was personally liable, and whether plaintiff's initial resort to administrative procedures deprives the Court of subject matter jurisdiction.
The right to attorney's fees was "unmistakably clear" in the contract. See Oscar Gruss Son, Inc. v. Hollander, 337 F.3d 186, 199 (2d Cir. 2003). Each invoice states that "it is mutually agreed that should the seller refer the customer's past due account to an attorney for collection the customer shall pay reasonable attorney's fees of 25% of the amount due."
A fourth issue, whether the plaintiff is entitled to prejudgment interest in addition to late fees, is moot. The plaintiff has withdrawn its claim for prejudgment interest.
Subject Matter Jurisdiction
At trial, defendants argued for the first time that there is no subject matter jurisdiction over this action because plaintiff elected an administrative remedy under PACA that bars pursuit of this claim in court. The defendants have not presented any legal authority or analysis for their argument, despite being given an opportunity to do so in post-trial submissions.
Based on the post-trial submissions of the plaintiff, the following describes the efforts "R" Best made to submit a claim to the USDA in connection with this matter. On approximately April 8, 2002, "R" Best submitted an informal letter claim to the USDA in connection with several truckloads of mixed fruit and vegetables shipped between January 29 and March 22, 2002. The USDA responded on April 11, stating that it would contact Eastside, gather relevant information, and attempt to assist in settling the dispute. The letter indicated that Eastside was not currently licensed under the Act, an issue it promised to address with Eastside. In a second letter of that same day, the USDA advised Eastside of plaintiff's claim. In order to assist it in resolving the dispute, the USDA requested a statement concerning the events surrounding the transaction that would justify Eastside's non-payment. It also enclosed an application to be completed by Eastside should its activities in the produce industry require it to operate under a license. In the event a license was required, Eastside was advised to complete the application and return it with the annual and all accrued fees. The letter requested a reply by April 25. Eastside did not respond.
Approximately three months later, on July 8, "R" Best executed a formal complaint with the USDA, seeking recovery of $70,061.15. On July 8, the USDA returned the complaint to "R" Best seeking additional information and revisions to the complaint. It advised "R" Best that the revised formal complaint would be processed without further review and that the file would be set aside for fifteen days pending receipt of the revised complaint. Instead of submitting a revised formal complaint, however, "R" Best commenced this action on August 30, 2002. On September 5, 2002, the USDA closed its file for lack of the necessary information to continue with the formal complaint process.
Several statutory provisions and regulations are relevant to determine whether this lawsuit is barred because of "R" Best's pursuit of administrative remedies. PACA's election of remedies provision states: "Such liability [for a violation] may be enforced either (1) by complaint to the Secretary as hereinafter provided, or (2) by suit in any court of competent jurisdiction. . . ." 7 U.S.C. § 499e(b) (emphasis supplied). See Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 285 (9th Cir. 1997).
The statute also describes the complaint process. It provides that:
[a]ny person complaining of any violation . . . may, at any time within nine months after the cause of action accrues, apply to the Secretary by petition . . ., whereupon, if, in the opinion of the Secretary, the facts therein contained warrant such action, a copy of the complaint thus made shall be forwarded by the Secretary to the . . . merchant . . . who shall be called upon to satisfy the complaint, or to answer it in writing, within a reasonable time to be prescribed by the Secretary.7 U.S.C. § 499f (emphasis supplied).
The regulations implementing PACA's complaint process describe both informal and formal complaint procedures. Informal complaints are made in writing and filed with the Deputy Administrator. 7 C.F.R. § 47.3 (a). The relevant regulation lists the information that should be contained in an informal complaint and recommends that it be accompanied by papers relating to the transaction, such as invoices.Id. As explained in the regulation, where the statements in the informal complaint "warrant such action," the Deputy Administrator will attempt "to effect an amicable or informal adjustment of the matter" by giving written notice to the "person complained against" and affording "such person an opportunity . . . to demonstrate or achieve compliance" with the law. Id. at § 47.3(b)(2) (emphasis supplied).
The formal complaint process is described in Sections 47.6 through 47.25 of the regulations. Those sections govern "the filing and disposition of formal complaints in reparation proceedings." 7 C.F.R. § 47.5. If the informal process "fails to effect an amicable or informal settlement," the person who brought the informal complaint "may" file a "formal complaint with the Fruit and Vegetable Programs."Id. at § 47.6(a)(1). It must be filed within ninety days of being notified of the opportunity to proceed formally. Id. "Failure to file a formal reparation complaint within the time prescribed shall result in the waiver of further proceedings on the claim alleged in the informal complaint." Id.
The regulations describe the information and papers that must accompany the formal complaint. Id. at (a)(2). If the complaint "is not in the proper form," the regulations provide that the "Fruit and Vegetable Programs shall return it and inform the complainant of the deficiencies." Id. at § 47.6(c). After receipt of the complaint, the Fruit and Vegetable Programs serves a copy of the complaint on the respondent. Id. The respondent has twenty days after service of the formal complaint to answer. Id. at § 47.8(a). A failure to answer "shall constitute a waiver of hearing and an admission of the facts alleged in the complaint." Id. at § 47.8(c).
The election of remedies provision provided by statute appears to refer to the option to pursue either a lawsuit or the formal complaint process. It does not preclude the filing of a lawsuit should a complainant pursue the informal complaint process. The United States Department of Agriculture ("USDA"), which has principal responsibility for construing the statute, has held that an informal complaint does not commence an "action" for PACA purposes. See Lake Erie Greenhouse Mgmt. Leasing Corp. Operating as Clifton Produce v. Agristar Produce LLC, 59 Agric. Dec. 878, 882 n. 5 (U.S.D.A. 2000); Trans West Fruit Co., Inc. v. Ameri-Cal Produce. Inc., 42 Agric. Dec. 1955, 1957 n. 2 (U.S.D.A. 1983). Apart from the agency's own interpretation of the statute, which is entitled to deference, see Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984), there are several reasons to read the statute and the accompanying regulations in this way.
The statutory election of remedies provision refers to only one kind of administrative complaint: a "complaint to the Secretary." 7 U.S.C. § 499e(b). If this were intended to be a reference to the informal complaint process as well as the formal complaint process described in the regulations, then it is likely that the statute would have been more explicit in that regard. Section 47.2, which defines the terms used in the statute and regulations, specifically refers to a formal complaint as the document that initiates an action under the statute. It defines "moving paper" as "any formal complaint, petition, or order to show cause, by virtue of which a proceeding under the Act is instituted." 7 C.F.R. § 47.2(r) (emphasis supplied).
Section 499f erases any potential ambiguity in this regard. If the Secretary serves the complaint, the merchant is required to satisfy the complaint or to answer it in writing. 7 U.S.C. § 499f. This describes the formal complaint process described in more detail in the regulations, beginning at 7 C.F.R. § 47.6. There is no requirement that a merchant answer an informal complaint or participate in the settlement process begun by the informal complaint. The informal complaint process simply provides an opportunity for the amicable resolution of a dispute without resort to the formal complaint process. A respondent is required, however, to answer the formal complaint and to participate in the hearing process or the facts alleged in the complaint will be deemed admitted. Since the formal complaint process is the only mandatory process, it must be the complaint to which the statute refers in the Section 499e(b) description of the election of remedies. Thus, "R" Best's informal letter claim against Eastside did not constitute an election of remedies.
A closer question is whether "R" Best's formal July 8 complaint served as an election of remedies. For the following reasons, "R" Best did not take sufficient steps to pursue the formal complaint process to make an effective election of remedies. Because "R" Best never filed a revised formal complaint, the Secretary never began the formal complaint process. The Secretary never served Eastside, and closed its file without further action. Thus, the Secretary's return of "R" Best's complaint effectively terminated any proceeding before the USDA, and put the onus on the petitioner to reinstate the action by filing a revised formal complaint.
Nothing in the statutory or regulatory language proscribes a petitioner from bringing an action in the court instead of re-submitting the formal complaint. In fact, the USDA interprets the "election of remedies" provision in the statute as simply barring two suits arising from the same transaction from proceeding simultaneously before the agency and a court. In several instances, petitioners seeking recovery on the same transaction in proceedings before both the agency and a court were merely directed to withdraw or voluntarily dismiss one of the actions. No case has been found in which the filing of a formal complaint precluded a later election to file the same case in a court of competent jurisdiction. Ruling on one such case, the agency stated, "the [party] has been given the option of either pursuing its counterclaim pursuant to the PACA proceeding or pursuing its action in state district court. . . . We are not forcing respondent to remain in state court."Navano Agricultural Products Industry v. Bob's Texas Style Potato Chips Inc., 52 Agric. Dec. 674, 678 (U.S.D.A 1992). See also McCracken v. Finest Fruits, Inc., No. 89-C 819 (SWK), 1990 WL 144140, at *3 (S.D.N.Y. Sept. 27, 1990) (lawsuit barred when plaintiff filed an administrative action and received compensation under PACA); Clifton Produce, 59 Agric. Dec. at 882 (formal administrative complaint dismissed because complainant made an election of remedies when it filed a non-compulsory counter-claim in lawsuit). Spring Acres Sales Co., Inc. v. Freshville Produce Distributors, Inc., 45 Agric. Dec. 2181, 2181 (U.S.D.A. 1986) (dismissing a formal complaint filed with the agency because the subsequent filing of a state court action was deemed an election of remedies).
Although the Second Circuit has not reviewed the election of remedies provision within the context of the PACA statute, it has reviewed an election of remedies provision in the context of the telecommunications industry. The regulatory scheme there also contains both an informal and formal complaint mechanism. The court concluded that the filing of an informal complaint in that context is an election of the administrative remedy and bars a subsequent lawsuit. See Digital, Inc. v. MCI Worldcom, Inc., 239 F.3d 187, 190 (2d Cir. 2001) (per curiam) (enraged letter by the complainant to the FCC constituted an election of remedies). There are enough differences between the two legislative schemes, however, to conclude that the election of remedies provision in the PACA context must be analyzed differently.
Section 207 of the Telecommunications Act of 1934 provides that:
Any person claiming to be damaged by any common carrier subject to the provisions of this chapter may either make complaint to the [FCC] as hereinafter provided for, or may bring suit for the recovery of the damages for which such common carrier may be liable under the provisions of this chapter, . . . but such person shall not have the right to pursue both such remedies.47 U.S.C. § 207 (emphasis supplied). Section 208 of that same statute requires the common carrier to respond to the complaint. It provides:
Any person . . . may apply to said Commission by petition which shall briefly state the facts, whereupon a statement of the complaint thus made shall be forwarded by the Commission to such common carrier, who shall be called upon to satisfy the complaint or to answer the same in writing. . . . If such carrier . . . shall not satisfy the complaint within the time specified or there shall appear to be any reasonable ground for investigating said complaint, it shall be the duty of the Commission to investigate. . . . No complaint shall at any time be dismissed because of the absence of direct damage to the complainant.47 U.S.C. § 208 (emphasis supplied).
The implementing regulations describe both an informal and formal complaint process. Unlike the implementing regulations for the PACA statute, however, the agency is required to forward both informal and formal complaints to the respondent and the respondent is required to respond to the informal complaint as well as the formal complaint. See 47 C.F.R. § 1.717 ("The Commission will forward informal complaints to the appropriate carrier for investigation"). After service, the"carrier will, within such time as may be prescribed, advise the Commission in writing, with a copy to the complainant, of its satisfaction of the complaint or of its refusal or inability to do so." Id. (emphasis supplied). Where the complainant remains unsatisfied by the carrier's response, "it may file a formal complaint. . . . Such filing will be deemed to relate back to the filing date of the informal complaint." Id. at § 1.718.
Clearly, the telecommunications law implements a stricter regulatory regime, with little agency discretion in deciding which complaints to pursue. Given this statutory purpose, it is not surprising that its election of remedies language evinces a more rigid procedure with respect to complaints than does PACA. The "but such person shall not have the right to pursue both such remedies" language is not found in the PACA statute. Compare 47 U.S.C. § 207 with 7 U.S.C. § 499e(b). To the contrary, after describing the election of remedies, the PACA statute provides, "but this section shall not in any way abridge or alter the remedies now existing at common law or by statute, and the provisions of this chapter are in addition to such remedies." 7 U.S.C. § 499e(b). In sum, although both statutes contain an election of remedies provision, and an informal as well as formal complaint process, the analysis in Digital, supra, that even an informal complaint is a complete bar to the initiation of a court action does not extend to an election of remedies under PACA. There is subject matter jurisdiction over the instant action.
Account Stated
Neither party presented any law to guide the analysis of the account stated claim either before trial, or in the post-trial briefing. At trial the Court sua sponte raised the issue of whether the plaintiff's had submitted sufficient evidence to prevail on this claim since they had not submitted the weekly statements of account that the trial evidence indicated had been sent to the defendants. A claim of account stated under New York law requires an agreement between the parties to an account based upon prior transactions between them, which may be implied if a party receiving the statement of account keeps it without objecting to it within a reasonable time. LeBoeuf, Lamb, Greene MacRae, L.L.P. v. Worsham, 185 F.3d 61, 64 (2d Cir. 1999). Since the defendants do not dispute that this debt exists, and have not taken the additional opportunity to present argument as to why the plaintiff is not entitled to judgment on this claim as well, judgment in the plaintiff's favor is awarded on its account stated claim as well.
Personal Liability of Tomao
Defendants oppose the imposition of personal liability on Tomao, but have not presented any legal authority or analysis with regard to this issue. They argue only that "R" Best failed to present evidence at trial that the defendants used the proceeds of the sales of commodities received from plaintiff for any purpose other than paying an outstanding PACA trust debt or offsetting a debt that the plaintiff owed the defendants.
An individual who is in a position to control assets of the statutory trust established under PACA, and who breaches his fiduciary duty to preserve those assets, may be held personally liable to the trust beneficiaries.
PACA establishes a statutory trust for the benefit of sellers and suppliers. This trust arises from the moment perishable goods are delivered by the seller. An individual who is in the position to control the trust assets and who does not preserve them for the beneficiaries has breached a fiduciary duty, and is personally liable for that tortious act.Morris Okun, Inc. v. Harry Zimmerman, Inc., 814 F. Supp. 346, 348 (S.D.N.Y. 1993). The Morris Okun court further noted that, under PACA, personal liability attached to the trustee, "whether a corporation or a controlling person of that corporation," who used trust assets for any purpose other than repayment of the supplier," including use of the proceeds "for legitimate business expenditures," such as rent and payroll. Id. See also Go1man-Hayden Co., Inc. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir. 2000); "R" Best Product, Inc. v. 646 Corp., No. 00 Civ. 8536 (HB), 2002 WL 31453909, at *6 (S.D.N.Y. Oct. 31, 2002); In Re Lloyd Myers Co., Inc., 51 Agric. Dec. 747, 755 (U.S.D.A. 1992) (sole owner of corporation found to be jointly and severally liable for money owed to a supplier).
The evidence at trial, including the stipulated facts, establish that Tomao is the president and sole shareholder of Eastside. He is the only person in charge of the day-to-day business operations and finances of the company. Tomao is the sole signatory to Eastside's operating and payroll bank accounts, as well as the only individual authorized to write checks on behalf of Eastside to pay its operating expenses and accounts payable. Tomao is also the person who creates orders for produce and the person who reviews all invoices for purchases and decides which invoices to pay. Moreover, Tomao was the person who ordered the produce at issue in this case, acknowledged receipt of such produce, and accepted it on behalf of Eastside.
Tomao clearly exercises the level of control over Eastside's business necessary to hold him personally liable under Section 499e(c)(2) of PACA. Tomao breached his fiduciary duty to the PACA trust by allowing it to be dissipated, and thus is personally liable to "R" Best for any PACA damages.
Motion for reconsideration
Defendants request reconsideration of the ruling that produce sold by the plaintiff traveled in interstate commerce. The defendants do not address the legal authority on which the Court relied in issuing its ruling or point to any legal authority that it overlooked. The request is denied. Conclusion
The Court has subject matter jurisdiction over this action. Tomao is personally liable for any PACA damages. Plaintiff is entitled to a judgment on its claim of an account stated. The plaintiff shall submit a proposed judgment by October 3. Defendants shall submit any objections to the calculations and form of the judgment by October 8.
SO ORDERED: