Classic Harvest Llc v. Freshworks Llc et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM with Brief In Support

N.D. Ga.October 14, 2016

6614073 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION CLASSIC HARVEST LLC, Plaintiff, v. CRISP HOLDINGS, LLC d/b/a FRESH ROOTS, ET AL., Defendants. Case No. 1:15-cv-02988-WSD CRISP HOLDINGS, LLC d/b/a FRESH ROOTS, Third-Party Plaintiff, v. US FOODS, INC., Third-Party Defendant. MOTION TO DISMISS COUNTS IV THROUGH VII OF DEFENDANT/THIRD PARTY PLAINTIFF CRISP HOLDINGS, LLC d/b/a FRESH ROOTS’ ORIGINAL THIRD PARTY COMPLAINT AGAINST US FOODS, INC. Third-Party Defendant US Foods, Inc. (“US Foods”) files this Motion to Dismiss Counts IV through VII of Defendant/Third Party Plaintiff Crisp Holdings, LLC d/b/a/ Fresh Roots’ Original Third Party Complaint Against US Foods (the “Motion”). Specifically, US Foods respectfully request, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, that the Court dismiss the Defendant / Third Party Plaintiff Crisp Holdings, LLC d/b/a/ Fresh Roots’ Original Third Party Case 1:15-cv-02988-WSD Document 383 Filed 10/14/16 Page 1 of 3 - 2 - 6614073 Complaint Against US Foods, Inc. [Doc. 336] because it fails to state a claim upon which relief can be granted. In support of its Motion, US Foods has filed its Memorandum of Law in Support of US Foods Inc.’s Motion to Dismiss Counts IV Through VII of the Complaint contemporaneously herewith. US Foods incorporates herein by reference its Memorandum of Law. Dated: October 14, 2016. Respectfully submitted, /s/ Leah Fiorenza McNeill Mark I. Duedall (Ga. Bar 231770) Leah Fiorenza McNeill (Ga. Bar 940554) BRYAN CAVE LLP One Atlantic Center – Fourteenth Floor 1201 W. Peachtree Street, NW Atlanta, Georgia 30309-3471 Telephone: (404) 572-6600 Facsimile: (404) 572-6999 Email: Mark.Duedall@bryancave.com Leah.Fiorenza@bryancave.com Counsel for Third-Party Defendant US Foods, Inc. Case 1:15-cv-02988-WSD Document 383 Filed 10/14/16 Page 2 of 3 6614073 CERTIFICATE OF SERVICE I hereby certify that on the 14th day of October 2016, I electronically filed the foregoing MOTION TO DISMISS COUNTS IV THROUGH VII OF DEFENDANT/THIRD PARTY PLAINTIFF CRISP HOLDINGS, LLC d/b/a FRESH ROOTS’ ORIGINAL THIRD PARTY COMPLAINT AGAINST US FOODS, INC. with the Clerk of Court using the CM/ECF system which sent email notification of such filing to all counsel of record. Additionally, a true copy of the same was deposited in the U.S. Mail, proper postage prepaid, addressed to the following: Craig A. Stokes Stokes Law Office LLP 3330 Oakwell Court, Suite 225 San Antonio, TX 78218 /s/ Leah Fiorenza McNeill Leah Fiorenza McNeill (Ga. Bar 940554) BRYAN CAVE LLP One Atlantic Center – Fourteenth Floor 1201 W. Peachtree Street, NW Atlanta, Georgia 30309-3471 Telephone: (404) 572-6600 Facsimile: (404) 572-6999 Email: Leah.Fiorenza@bryancave.com Counsel for Third-Party Defendant US Foods, Inc. Case 1:15-cv-02988-WSD Document 383 Filed 10/14/16 Page 3 of 3 6611205 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION CLASSIC HARVEST LLC, Plaintiff, v. CRISP HOLDINGS, LLC d/b/a FRESH ROOTS, ET AL., Defendants. Case No. 1:15-cv-02988-WSD CRISP HOLDINGS, LLC d/b/a FRESH ROOTS, Third-Party Plaintiff, v. US FOODS, INC., Third-Party Defendant. MEMORANDUM OF LAW IN SUPPORT OF US FOODS, INC.’S MOTION TO DISMISS COUNTS IV THROUGH VII OF DEFENDANT/THIRD- PARTY PLAINTIFF CRISP HOLDINGS, LLC d/b/a FRESH ROOTS’ ORIGINAL THIRD-PARTY COMPLAINT AGAINST US FOODS, INC. Third-Party Defendant US Foods, Inc. (“US Foods”) files this memorandum of law in support of its motion to dismiss certain claims in Defendant/Third-Party Plaintiff Crisp Holdings, LLC d/b/a Fresh Roots’ Original Third-Party Complaint (the “Complaint”). Dkt. 336. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 1 of 19 - 2 - 6611205 I. Facts US Foods and Crisp Holdings, LLC d/b/a Fresh Roots (“Crisp Holdings” or “Third-Party Plaintiff”) had an ordinary commercial relationship. Crisp Holdings would buy various items of produce – lettuce, kale, melons, tomatoes, citrus fruits, and the like – and then would sell them to US Foods. Compl. at Ex. A (copies of various invoices). The relationship was wholly unremarkable. The relationship was governed by contract. Compl. at Ex. B. Specifically, in early 2014, Crisp Holdings and US Foods entered into an agreement governing US Foods’ purchases from Crisp Holdings. The agreement was to run for two years, from January 2014 through January 2016. Compl. at Ex B, at Page 2 of 8 of the ECF filing (section entitled “Program Information”). The agreement was slightly amended as of January 24, 2014. Compl. at Ex B, at Page 7 of 8 of the ECF filing. This agreement, as amended, is collectively referred to as the “Vendor Agreement.” Crisp Holdings admits and agrees that the Vendor Agreement had a detailed schedule of rebates, which varied according to the type and amount of produce purchased by US Foods. Compl. ¶ 13, and Ex. B at Pages 4-6 of 8 of the ECF Filing. In short, and as the Third-Party Plaintiff freely admits, “Crisp [Holdings] agreed to pay US Foods a rebate payment back to US Foods of all purchases from Crisp [Holdings] at various rates set out in Exhibit B [to the Complaint].” Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 2 of 19 - 3 - 6611205 Compl. ¶ 13. There is no allegation that this arrangement was anything more than an ordinary course incentive structure to encourage US Foods to do more business with Crisp Holdings. The Vendor Agreement also contained other key terms, glossed over by Crisp Holdings in the Complaint, but which read quite plainly in the Vendor Agreement attached to the Complaint. Specifically, to avoid the absurdity of US Foods sending checks to Crisp Holdings for produce purchases, while Crisp Holdings sends checks back to US Foods for the rebates, Crisp Holdings and US Foods agreed to a simple netting/setting off arrangement: On or about the 25th day following the end of each calendar month, [US Foods] will . . . (iii) process a deduction in that amount [of the various promotional rebates] against any outstanding or future trade payable. Vendor Agreement at Addendum, ¶ 1 (Compl. Ex. B at Page 7 of 8 of the ECF Filing).1 1 Additionally, by executing the Vendor Agreement, Crisp Holdings agreed to each and every one of the provisions in the “USF Vendor Policy,” which the Vendor Agreement states is located on US Foods’ website. See Vendor Agreement p. 2 (Compl. Ex. B at Page 3 of 8 of the ECF Filing) (in the section entitled “USF Vendor Policy,” the Vendor Agreement states “[b]y execution of this Vendor Program Agreement, Vendor [that is, Crisp Holdings] acknowledges that it has reviewed the USF Vendor Policy located on the supplier website, and agrees to be bound by the provisions thereof.”). In turn, the USF Vendor Policy states “[US Foods] may deduct any Vendor monetary obligations from any amounts owed to Vendor by [US Foods], and pay only the net sum due, if any.” USF Vendor Policy § 3(d), attached as Ex. A. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 3 of 19 - 4 - 6611205 Pursuant to this simple contractual arrangement, Crisp Holdings sold produce to US Foods from January 2014 through August 2015. And consistent with the simple terms quoted above, US Foods netted out various rebates owed to Crisp Holdings. Compl. ¶ 15. Also consistent with the contractual terms set forth above, US Foods would regularly report the rebate amounts to Crisp Holdings. Compl. ¶ 15. On August 7, 2015, after some 20 months of bargained-for, mutually beneficial performance under the Vendor Agreement, US Foods was served with a Writ of Attachment in Advanced Transp. Serv., Inc. v Crisp Holdings, LLC dba Fresh Roots, Case Number VCU261646, in the Superior Court of California, County of Tulare.2 Ex. B. Thereafter, on or around September 24, 2015, US Foods received the Consent Injunction and Agreed Order Establishing PACA Claim Procedures. Dkt. 24. The underlying Perishable Agricultural Commodities Act (“PACA”) Complaint in this case [Dkt. 1] (the “PACA Complaint”) filed by Classic Harvest LLC, a PACA beneficiary, alleged that Crisp Holdings lacked the liquidity or free cash flow to pay Classic Harvest, LLC and other PACA 2 This Court can take judicial notice of certain facts without converting a motion to dismiss into a motion for summary judgment. Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278 (11th Cir. 1999). Here, judicial notice of publicly available documents, not subject to reasonable dispute, in a California lawsuit, is proper. See Horne v. Potter, 392 Fed.Appx. 800, 802 (11th Cir. 2010). Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 4 of 19 - 5 - 6611205 beneficiaries for the produce Crisp Holdings purchased between June 15, 2015 and August 14, 2015. PACA Compl. ¶¶ 31-32.3 On August 18, 2016, US Foods was served with this Third-Party Complaint, alleging (1) failure to properly protect the PACA Trust Assets from dissipation, (2) failure to pay promptly under PACA, (3) failure to timely pay for invoices, (4) unlawful contractual rebate and setoff, (5) breach of the PACA trust due to contractual rebate and setoff arrangement, (6) breach of fiduciary duty as a PACA trustee by offsetting the contractual rebate amounts against payables owed Crisp Holdings, and (7) unlawful retention of PACA trust assets (that is, the bargained for rebates). See generally, Compl. Counts IV through VII are a PACA-sponsored attack on the Vendor Agreement, which contained freely-negotiated pricing, rebate, and netting/setoff terms that PACA does not regulate, prohibit, or even speak to. The Complaint seeks to create new federal common law to calculate accounts receivable under PACA, asking this Court to hold that PACA invalidates each and every properly negotiated and lawful rebate and setoff provision between any PACA seller and any PACA buyer. The Vendor Agreement defines the amounts US Foods owed 3 Perplexingly, although the record in this case indicates that Crisp Holdings’ PACA suppliers started to go unpaid in and around June of 2015, the Third-Party Plaintiff seeks to recover all of the rebates taken by US Foods under the parties’ contract going back to January of 2014. PACA does not allow any such reachback, but the Third-Party Plaintiff does not address this at all in the Complaint. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 5 of 19 - 6 - 6611205 Crisp Holdings, which includes consideration of the bargained-for rebates. Plaintiff’s efforts to arbitrarily invalidate these lawful contractual terms should be rejected out of hand. For the reasons set forth below, Counts IV through VII of the Complaint should be dismissed because they fail to state a claim upon which relief can be granted.4 II. Summary of Argument There are at least three independent reasons why Counts IV through VII of the Complaint should be dismissed. First, the Eleventh Circuit has held that the parties’ contract determines what is owed under PACA, and the PACA trust cannot attach to a debt that is not owed under that contract. Here, in light of the clear contractual language allowing US Foods to setoff its rebates against the amounts owed to Crisp Holdings, and there being no allegation that the rebates were invalid, there is nothing for the PACA trust to attach. Second, PACA and its enabling regulations, as well as substantial caselaw, all focus on the net amount owed as garnering the PACA protections. By US Foods applying its rebates against what it owed Crisp Holdings, nothing else was owed by US Foods. Nothing in PACA or its regulations preclude this. 4 Counts I through III are run-of-the-mill claims for some $100,000 in unpaid invoices allegedly owed by US Foods. US Foods does not owe that to Crisp Holdings, but that is not a matter for a motion to dismiss. US Foods reserves all rights as to Counts I through III. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 6 of 19 - 7 - 6611205 Third, the common law of trusts – which the Eleventh Circuit looks to in PACA cases – squarely holds that parties in US Foods’ position can set off amounts owed to them against a beneficiary’s interest in the trust. In short, PACA does not invalidate simple, bargained-for contractual rights among buyers and sellers to apply rebates against monies owed. Counts IV through VII should be dismissed. III. Argument And Citation To Authority A. Standard on Motion to Dismiss. Counts IV through VII of the Complaint should be dismissed under Federal Rule 12(b)(6) for failing to state a basis upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). While the court is constrained to accept any well-pleaded factual allegations in the complaint, the court should not accept the legal conclusions alleged in the complaint. Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do[.]”). When considering a motion to dismiss, courts should examine “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice,” in addition to the complaint. Tellabs, Inc. v. Makor Issues & Rights, Ltd, 551 U.S. 308, 322 (2007). Where, as here, the Complaint is premised Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 7 of 19 - 8 - 6611205 upon a legal contract, the Court may consider that contract within the confines of a Rule 12(b)(6) motion. Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005). Based upon that evidence, a court should dismiss a complaint on a dipositive issue of law. See Marshall County Bd. of Educ. v. Marshall County Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993). B. Counts IV through VII of the Complaint fail because the PACA Trust does not have a legal interest in what US Foods does not owe Crisp Holdings. In Counts IV through VII of the Complaint, Crips Holdings seeks disgorgement of contractual rebate amounts US Foods offset from the monies it owed to Crisp Holdings. Specifically, Crisp Holdings alleges (1) the contractual rebates are an unlawful setoff, (2) the contractual rebates breach the PACA trust, (3) US Foods breached its fiduciary duty as a PACA trustee by offsetting the contractual rebate amounts against any outstanding trade payable amounts it owed Crisp Holdings, and (4) US Foods unlawfully retained PACA trust assets (that is, the bargained for rebates). 1. Counts IV and VII fail because US Foods had the contractual right to offset the amounts it owed Crisp Holdings by the contractual rebate amounts Crisp Holdings owed it pursuant to the Vendor Agreement. In Count IV, Crisp Holdings seeks a judicial determination that US Foods could not set off $1,077,516.95 in rebates owed to US Foods against Crisp Holding’s (allegedly) valid PACA trust claim against US Foods. Compl. ¶ 37. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 8 of 19 - 9 - 6611205 Crisp Holdings further alleges in Count IV that no mutuality exists between the claims of US Foods against Crisp Holdings and Crisp Holdings against US Foods, so US Foods does not have a legal right to setoff. Compl. ¶ 42. Additionally, in Count VII, Crisp Holdings alleges that US Foods unlawfully converted and retained PACA Trust Assets5 from Crisp Holdings by paying itself rebates from sums owed to Crisp Holdings. Compl. ¶¶ 58-62. Crisp Holdings either did not read the Vendor Agreement attached to its Complaint, which clearly delineates US Foods’ right to net amounts it owes against amounts owed to it, or Crisp Holdings seeks a wholesale invalidation of all customary (and contractual) netting of rebate programs. Regardless of the reason, Counts IV and VII fail to state a claim for relief because US Foods has a contractual right to setoff. Additionally, freely-negotiated pricing, rebate, and netting/setoff terms that PACA does not regulate, prohibit, or even speak to, are essential to the wholesale food industry because it reduces the cost of doing business. US Foods has a contractual right to offset the rebate amounts in question from any amounts it owed Crisp Holdings. Under PACA, sellers and buyers remain free to negotiate and enforce contract terms and to enforce those terms within the context of the trust established by PACA. See Fresh America Corp. v. 5 Capitalized but undefined terms shall have the meaning ascribed to them in the Complaint. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 9 of 19 - 10 - 6611205 Wal-Mart Stores, Inc., 393 F.Supp.2d 411, 416 (N.D. Tex. 2005); Country Best v. Christopher Ranch, LLC, 361 F.3d 629, 632-33 (11th Cir. 2004) (noting that “Congress signaled that it had not contemplated PACA would impact ‘the ability of the [seller] . . . to set contract terms[]’ . . . [and] that sellers and buyers remain free to negotiate and enforce contract terms and to enforce those terms within the context of the trust established by PACA.”) (citing H.R. Rep. 98-543, 98th Cong., 2nd Sess. 3 (1983), 1984 U.S.C.C.A.N. 405-07). US Foods and Crisp Holdings freely negotiated the terms of their relationship in the Vendor Agreement. The Vendor Agreement defines the amounts US Foods owed Crisp Holdings, which includes consideration of the bargained-for rebates. Specifically, Paragraph B(1) of the Vendor Agreement, as amended by the Addendum, states, On or about the 25th day following the end of each calendar month, [US Foods] will (i) calculate the NPA, CMA, and LMA and/or LPA (if nationally administered) due; (ii) post the billing amount to the supplier web portal that [Crisp Holdings] will have access to 24 hours a day, 7 days a week, and (iii) process a deduction in that amount against any outstanding or future trade payable. [Crisp Holdings] may raise questions, disputes or concerns through the [US Foods] Vendor Support Center (VSC). Any dispute logged with the VSC must contain the specific nature of the discrepancy to ensure [US Foods] has all information necessary to research and resolve the [Crisp Holdings] dispute. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 10 of 19 - 11 - 6611205 Addendum to Vendor Agreement at B(1) (emphasis added).6 Additionally, Section 3(d) of the USF Vendor Policy, which is incorporated into the Vendor Agreement, further details US Foods’ ability to deduct or setoff amounts Crisp Holdings owed it against amounts it owed to Crisp Holdings. USF Vendor Policy § 3(d). Thus, Crisp Holdings gave US Foods the contractual right to offset any amount US Foods may have owed it by all amounts Crisp Holdings owed US Foods. See, e.g., Fresh America Corp., 393 F.Supp.2d at 416; Produce Alliance v. Let-us Produce, 776 F.Supp.2d 197, 212 (E.D. Va. 2011) (noting that contract terms may have an impact on the actual dollar amount of the PACA claim with respect to defendants’ claim for rebates). Having established its contractual right to setoff, US Foods prays that the Court dismiss Counts IV and VII. 2. Counts V through VII also fail because PACA and its regulations only apply to the net sums actually owed by a produce buyer. A plaintiff alleging a PACA violation must establish that the funds at issue in the lawsuit are PACA trust assets. See 7 U.S.C. § 499e. But as described below, the PACA trust only extends to “net” sums actually owed. Because US Foods’ rebates reduced the amount it owed to Crisp Holdings, there is nothing 6 The USF Vendor Policy requires Crisp Holdings to log any dispute within 90 days of its occurrence. USF Vendor Policy § 3(d). The Complaint is void of any allegation that Crisp Holdings ever logged any timely dispute, or any dispute at all, for that matter. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 11 of 19 - 12 - 6611205 to which the PACA trust may attach. Accordingly, Counts V through VII separately fail to state a claim, and should be dismissed. PACA provides that proceeds from the sale of perishable agricultural commodities shall be held in trust for the benefit of unpaid suppliers “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(b) (emphasis added). See also Gargiulo v. G.M. Sales, Inc., 131 F.3d 995, 999 (11th Cir. 1997); and Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336 F.3d 410, 413 (5th Cir. 2003). In turn, the Code of Federal Regulations addresses specifically how to determine the “sums owing in connection with” a PACA transaction. In re Veg Liquidation, Inc., 516 B.R. 545, 449 (Bankr. W.D. Ark. 2014) (noting “when Congress enacted PACA, it left a number of specific details to the regulatory discretion of the USDA”). Specifically, Section 46.46(e)(5) states, “[t]he amount claimable against the [PACA] trust by a beneficiary or grower will be the net amount due after allowable deductions of contemplated expenses or advances made in connection with the transaction by the commission merchant, dealer, or broker.” 7 C.F.R. § 46.46(e)(5) (April 13, 2011) (emphasis added). See also, Veg Liquidation, 516 B.R. at 550 (“This regulatory language appears to address specifically how to determine what sums are ‘owing in connection with’ a PACA protected transaction.”). Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 12 of 19 - 13 - 6611205 Although the term “contemplated expenses” is not defined in the statute or the regulations, courts have held that it refers to expenses the parties reference in their contract. See, e.g. Country Best, 361 F.3d at 632; Middle Mountain Land & Produce, Inc. v. Sound Commodities, Inc., 307 F.3d 1220, 1222–23 (9th Cir. 2002) (stating that “in connection with” includes the price of the commodities and whatever other expenses for which the parties contracted). In at least one other case, common law rights of setoff would reduce the “sums owing in connection with” a transaction covered by PACA. Eagle Fruit Traders, LLC v. Florida Fresh Fruit Int’l, 2008 WL 4186966 (S.D. Fla. Sept. 8, 2008). For instance, in Country Best, the Eleventh Circuit held that “sums owing in connection with” encompasses the price of commodities and related expenses the parties bargained for in their contracts. Country Best, 361 F.3d at 632. Country Best addressed a supplier’s argument that prejudgment interest and attorneys’ fees are part of the PACA trust res. Id. at 631. When explaining its ruling, the Eleventh Circuit noted that Congress chose the language “sums owing” in describing the scope of the PACA trust, instead of simply the value of the PACA goods, so Congress did not intend PACA to preempt “the ability of the [seller] . . . to set contract terms.” Id. at 632-33. Thus, the Eleventh Circuit reasoned that the statutory language “indicates that sellers and buyers remain free to negotiate and Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 13 of 19 - 14 - 6611205 enforce contract terms and to enforce those terms within the context of the trust established by PACA.” Id. at 633. The rebate amounts US Foods deducted from the sums owed to Crisp Holdings were contemplated expenses pursuant to a contract – the Vendor Agreement. Paragraph B(1) of the Vendor Agreement, as amended by the Addendum, states in relevant part, US Foods may “process a deduction in that amount against any outstanding or future trade payable.” Addendum to Vendor Agreement at B(1) (emphasis added). Additionally, Section 3(d) of the USF Vendor Policy, which is incorporated into the Vendor Agreement, further details US Foods’ contractual right to deduct or setoff amounts Crisp Holdings owed to it against amounts it owed to Crisp Holdings. USF Vendor Policy §3(d). The rebate amounts US Foods deducted from Crisp Holdings’ invoices were contemplated expenses and as such they were not trust assets. See Fresh America Corp., 393 F.Supp.2d at 416 (noting that if Wal-Mart (a produce buyer) was entitled to set off, its obligation under PACA would be satisfied once it paid the net amount, if any, after making the deductions contemplated by the vendor agreement). Alternatively, the rebate amounts US Foods deducted from Crisp Holdings’ invoices were valid rights of setoff and were not trust assets. Eagle Fruit Traders, supra. Since the rebate amounts US Foods offset against the Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 14 of 19 - 15 - 6611205 amounts it owed to Crisp Holdings were not trust assets under any theory, US Foods respectfully prays that the Court dismiss Count V through VII. C. Even if US Foods did receive Trust Assets, Counts V and VI fail because US Foods did not breach the PACA Trust or any fiduciary duty to the PACA Trust Beneficiaries. In Count V, Crisp Holdings, in conclusory terms with no support or factual background, alleges that US Foods breached the PACA trust because at the time US Foods’ claim arose against Crisp Holdings for payment of rebates, US Foods had notice that Crisp Holdings’ claims against US Foods for payment of produce were held subject to the PACA trust. Compl. ¶ 48. This statement is insufficient to state a claim for breach of trust. “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Instead the plaintiff must amplify a claim with factual allegations needed to render the claim plausible. Iqbal, 556 U.S. at 678. General trust principles govern a PACA trust unless they conflict with PACA. Nickey Gregory Co., 597 F.3d at 595 (citing Reaves Brokerage Co. v. Sunbelt Fruit & Veg. Co., 336 F.3d 410, 413 (5th Cir. 2003) and Boulder Fruit Express & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d 1268, 1271 (9th Cir. 2001)). The Restatement (Second) of Trusts, § 323 states: (1) Except as stated in Subsection (2), if a claim against a third person is held in trust, the third person can set off a Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 15 of 19 - 16 - 6611205 claim held by him against the trustee personally, provided that the claims could be set off against each other if held free of trust and that when each of the claims arose he had no notice that the claim against him was held in trust. (2) If the claim of the third person against the trustee is created gratuitously and subsequent to the creation of the claim of the trustee against him, he cannot set off his claim against the trustee although he had no notice that the claim against him was held in trust. Restatement (Second) of Trusts § 323 (1965). Since, as explained supra in Section B.1, US Foods offset the rebate amounts pursuant to the Vendor Agreement, Section 323(1) of the Restatement (Second) applies. Here, Crisp Holdings has failed to demonstrate that US Foods had notice or should have had notice of the breach of trust. See C.H. Robinson Co. v. Trust Co. Bank, 952 F.2d 1311, 1314 (11th Cir. 1992). As explained by the Eleventh Circuit in C.H. Robinson, mere knowledge of the existence of a PACA trust is not enough to establish notice of the breach. Id. (citing Restatement (Second) of Trusts § 296 and Scott & Fratcher, § 296). To argue that because the PACA trust amendments exist, all creditors are charged with constructive knowledge of their presence, would be to read all law of trust out of existence, and would violate the Eleventh Circuit’s teachings in C.H. Robinson. Id. at 1315. At the time US Foods netted the rebate amounts owed to it, it had no reason to know that any PACA creditors were not being paid. Further, the Complaint Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 16 of 19 - 17 - 6611205 does not allege that US Foods took its deductions with such knowledge; it only alleges that US Foods knew of the PACA trust. See Compl. ¶¶ 48-49. Accordingly, US Foods did not breach the PACA trust when it netted the rebate amounts owed to it against the amounts it owed Crisp Holdings. Similarly, in Count VI, Crisp Holdings alleges that US Foods breached its fiduciary duty to Crisp Holdings because Crisp Holdings did not give US Foods the authority to offset its interest in Crisp Holdings’ PACA trust to pay any rebate amounts Crisp Holdings allegedly owed to US Foods. Compl. ¶ 55. But this argument also violates the law of trust. As explained in Restatement (Second) of Trusts, § 250, The trustee is not entitled to a charge on a beneficiary’s interest in the trust estate to secure a liability of the beneficiary to the trustee not connected with the administration of the trust, unless the beneficiary contracts to give him such a charge. Restatement (Second) of Trusts § 250 (1965). Crisp Holdings authorized US Foods to setoff amounts owed to it against amounts it owed. Specifically, paragraph B(1) of the Vendor Agreement, as amended by the Addendum, states in relevant part, US Foods may “process a deduction in that amount against any outstanding or future trade payable.” Addendum to Vendor Agreement at B(1) (emphasis added). Additionally, Section 3(d) of the USF Vendor Policy, which is incorporated into the Vendor Agreement, further details Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 17 of 19 - 18 - 6611205 US Foods’ contractual right to net or setoff amounts Crisp Holdings owes to it against amounts it owed to Crisp Holdings. USF Vendor Policy § 3(d). Accordingly, under fundamental principles of trust law, US Foods did not breach its fiduciary duty to Crisp Holdings when it netted the rebate amounts Crisp Holdings owed to it against the amounts it owed to Crisp Holdings pursuant to the Vendor Agreement. Thus, US Food respectfully prays that the Court dismiss Counts V and VI. IV. Conclusion For the foregoing reasons, this Court should dismiss Counts IV through VII with prejudice because Third-Party Plaintiff has failed to state a claim upon which relief may be granted. Dated: October 14, 2016. Respectfully submitted, /s/ Leah Fiorenza McNeill Mark I. Duedall (Ga. Bar 231770) Leah Fiorenza McNeill (Ga. Bar 940554) BRYAN CAVE LLP One Atlantic Center – Fourteenth Floor 1201 W. Peachtree Street, NW Atlanta, Georgia 30309-3471 Telephone: (404) 572-6600 Facsimile: (404) 572-6999 Email: Mark.Duedall@bryancave.com Leah.Fiorenza@bryancave.com Counsel for Third-Party Defendant US Foods, Inc. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 18 of 19 6611205 CERTIFICATE OF COMPLIANCE I hereby certify that the foregoing complies with the Type and Format requirements set forth in LR 5.1(C), NDGa in that the foregoing pleading utilizes a 14 point New Times Roman font. /s/ Leah Fiorenza McNeill Leah Fiorenza McNeill CERTIFICATE OF SERVICE I hereby certify that on the 14th day of October 2016, I electronically filed the foregoing MEMORANDUM OF LAW IN SUPPORT OF US FOODS, INC.’S MOTION TO DISMISS COUNTS IV THROUGH VII OF DEFENDANT/THIRD-PARTY PLAINTIFF CRISP HOLDINGS, LLC d/b/a FRESH ROOTS’ ORIGINAL THIRD-PARTY COMPLAINT AGAINST US FOODS, INC. with the Clerk of Court using the CM/ECF system which sent email notification of such filing to all counsel of record. Additionally, a true copy of the same was deposited in the U.S. Mail, proper postage prepaid, addressed to the following: Craig A. Stokes Stokes Law Office LLP 3330 Oakwell Court, Suite 225 San Antonio, TX 78218 /s/ Leah Fiorenza McNeill Leah Fiorenza McNeill (Ga. Bar 940554) BRYAN CAVE LLP One Atlantic Center – Fourteenth Floor 1201 W. Peachtree Street, NW Atlanta, Georgia 30309-3471 Telephone: (404) 572-6600 Facsimile: (404) 572-6999 Email: Leah.Fiorenza@bryancave.com Counsel for Third-Party Defendant US Foods, Inc. Case 1:15-cv-02988-WSD Document 383-1 Filed 10/14/16 Page 19 of 19 EXHIBIT Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 1 of 7 28672 Revised 9/15 1 US FOODS VENDOR POLICY 1. Purchase of Products. This Vendor Policy (“Policy”) shall apply to the purchase of products (the “Products”) by US Foods, Inc., together with its subsidiaries and affiliates (collectively “USF”) from Vendor. USF has the absolute right to purchase the Products from manufacturers or suppliers other than Vendor. Nothing in this Policy, or any agreement with Vendor, is a commitment by USF to purchase, or a commitment by Vendor to supply, any quantity of Products. 2. Performance Standards. (a) The Product quantity Vendor delivers must (i) correspond to Products ordered (by SKU) in the applicable PO and (ii) be delivered to the USF “FOB Point” within 24 hours of the delivery date specified in the PO (the “On-Time Requirement”), with respect to at least 99% of such Products contained in such POs; provided that the quantities specified in such POs shall be consistent with the ordinary course of business between Vendor and USF and all lead times shall be consistent with those published by Vendor (collectively, the “Minimum Service Level Requirement”). USF shall receive credit toward any applicable Promotional Allowances (including any growth objectives) for any failure by Vendor to satisfy the Minimum Service Level Requirement. Such credit will be deducted on a monthly basis. Vendor shall also comply with USF’s quality policies provided from time to time in writing to Vendor. The US Foods Supply Chain Collaboration Policy is hereby incorporated into the Vendor Policy. (b) Vendor will grant USF access to Vendor’s data and records and cooperate with USF to enable USF to conduct audits of Vendor’s performance under the VPA. If as a result of any such audit it is determined that Vendor has either overcharged (or underpaid) USF, Vendor will promptly pay to USF the amount of any net overcharge (or underpayment). (c) Vendor Provided Data. As part of the support provided to USF with respect to Product information, Vendor will work directly with USF through a FSENet or another GSI Certified Data Pool, or with another third party designated by USF to maintain and publish accurate product data for all Manufacturer and Exclusive Brand Products to USF, to synchronize the Product data to be imported into USF’s Product Information Management System. This process will ensure that USF sales, marketing, procurement, product innovation, food safety & quality assurance, and operations functions have accurate information related to Vendor’s Products. The Product information provided by Vendor will be maintained by USF on a secure portal site and will follow a USF-designated security process to maintain proper controls and integrity. The Product information to be provided by Vendor includes: (i) Basic information describing the Products for accurate order and sales processing. (ii) Nutritional Information for each Product, in the form required by the FDA’s manufacturer brand requirements. (iii) Additional information as reasonably requested by USF. 3. Product Orders; Pricing; Promotional Allowances. (a) USF will submit purchase orders (“PO”) to Vendor and Vendor will confirm the PO (the “PO Confirmation”) within 48 hours of receipt. The PO Confirmation will include (i) the Product price at the time of the Purchase Order, (ii) the quantity of Products, and (iii) any other costs or charges. If Vendor fails to provide a proper PO Confirmation, USF shall only be responsible for payment of the amount set forth in the PO. Vendor will be allowed no additional charges unless specified in the PO. "Commodity" Products shall be priced weekly and all price changes must be communicated to USF at least 7 days prior to the proposed implementation date. With respect to any non-commodity based price changes, Vendor shall notify USF prior to the proposed date of implementation of any such price changes, which date of implementation shall be the 15th day of the month following a 60-day minimum notice period. (b) For purposes of Products ordered pursuant to the terms of a Vendor Program Agreement (“VPA”), Vendor shall reject any Purchase Order submitted by USF that specifies either a vendor code for any vendor other than Vendor, or a product code for any product other than the Products manufactured and supplied by Vendor and sold to USF (“Invalid Purchase Order”). If Vendor sells, ships or delivers any Products to USF pursuant to an Invalid Purchase Order submitted by a USF division then USF, at it’s option, may either (a) reject such Products, in which case USF shall have the right to treat such Products as Non-Conforming Products pursuant to the terms of Section 8, or (b) accept such Products, in which case USF shall be entitled to receive Promotional Allowances on such Products, determined as follows: (i) if Vendor substitutes a Vendor manufacturer brand Product for the Product specified in the Invalid Purchase Order, the pricing and Promotional Allowances payable on such Product shall be as set forth in the VPA, (ii) if Vendor supplies the Product specified in the Invalid Purchase Order and there is a similar or equivalent Vendor manufacturer brand Product covered by the terms of VPA, the Promotional Allowances payable on such Product shall be in an amount equal to the Promotional Allowances payable on such similar or equivalent Vendor manufacturer brand Product, or (iii) if Vendor supplies the Product specified in the Invalid Purchase Order and there is no similar or equivalent Vendor manufacturer brand Product covered by the terms of the VPA, the Promotional Allowances payable on such Product shall be in an amount equal to the Promotional Allowances payable on Products purchased by USF in Vendor’s primary product category, as determined by USF. (c) Vendor will pay all promotional allowances as set forth in the VPA in full, without set-off and may not (except as may be negotiated by a USF division with respect to the Local PA’s (as hereinafter defined)) exclude any USF division from participation in the promotional allowance program. (d) Vendor will notify USF in writing within 90 days of the occurrence of any alleged payment disputes. USF may deduct any Vendor monetary obligations from any amounts owed to Vendor by USF, and pay only the net sum due, if any. (e) Vendor shall sell Products directly or through redistribution to US Foods at “Vendor direct negotiated pricing” due to Products being invoiced to US Foods at amounts greater than the sale price to the end-user customer (“Vendor Direct Negotiated Pricing”), whether purchased directly or indirectly from Vendor. Vendor or redistributor will pay all amounts owed to USF with respect to Vendor Direct Negotiated Pricing (i.e.. the difference between the invoice price to US Foods less the contract price to the end- user (prior to any distributor mark-up)) including any additional cost of redistribution if sales volume does not warrant direct purchase, in accordance with the automated deduction system and the payment terms set forth on the VPA. Vendor shall obtain USF’s prior written consent before Vendor makes a bid to an end-user customer for a Vendor Direct Negotiated Pricing arrangement with respect to the Exclusive Brand Products. In the case of a Net Exclusive Brand Product pricing structure in which the customer contract price prior to markup is less than the sum of (a) Net Exclusive Brand Product price and (b) USF Retained Amount (as defined below). Vendor shall be responsible to fund (i) the difference between the Net Exclusive Brand Product Price and the customer contract price prior to markup, plus (ii) an amount to be mutually agreed upon to be retained by USF (“USF Retained Amount”). Vendor expressly authorizes redistributor to pay all amounts due to USF from Vendor in the event there are no direct sales to USF. 4. Invoicing and Payment. The invoice payment period and the determination of discount periods will start on the later of the date (i) Vendor’s invoice is received at the USF accounts payable department, or (ii) the Products are received at the applicable USF division. If the invoice receipt by USF is delinquent, or if a pricing discrepancy results when comparing the invoice amount to USF’s PO amount or Products received, processing of the invoice may be delayed and USF shall still be entitled to take the cash discount. USF shall consider Vendor invoices paid on the date the check is postmarked and mailed to Vendor. 5. Shipment; Risk of Loss. (a) Vendor shall ship only those quantities of Products ordered by USF in the PO and shall not make any substitutions without USF’s prior written approval. (b) When (i) Vendor arranges for the transportation of Products from Vendor’s dock to USF via a carrier of Vendor’s choosing, or (ii) Vendor’s bill of lading for the shipment of Products indicates “shipper load and count” or other similar designation, then Products so shipped shall be shipped F.O.B. Destination regardless of whether USF has paid or shall pay for the Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 2 of 7 28672 Revised 9/15 2 transportation charges associated with such shipment. As between USF and Vendor, all risk of loss or damage to Products shipped F.O.B. Destination shall remain with Vendor until such Products have been delivered to and accepted by USF at the USF-designated destination according to the terms and conditions of this Agreement. For all Products shipped F.O.B. Destination, it shall be the responsibility of the carrier’s driver to unload, sort, segregate and palletize the Products to the USF receiver’s satisfaction and Vendor shall ensure that the carrier satisfies this responsibility. In unloading and breaking down loads, Vendor and carrier drivers must utilize, and pay for, either (i) their own employees or agents, or (ii) a USF-approved lumper service. Additionally, Vendor shall ensure that only authorized personnel operate equipment on USF’s premises that have been properly trained in the use of such equipment in accordance with all applicable laws and regulations. (c) When directed by USF, Vendor shall, at USF’s expense, load and ship Products via a carrier of USF’s choosing. Unless Vendor’s bill of lading for such shipment of Products indicates “shipper load and count” or other similar designation, under such circumstances Products so shipped shall be shipped F.O.B. Vendor’s Dock. As between USF and Vendor, all risk of loss or damage to Products shipped F.O.B. Vendor’s Dock shall remain with Vendor until such Products have been delivered to and accepted by the USF-designated carrier in accordance with USF’s instructions and the terms of this Agreement. In all cases, Vendor shall provide to USF a copy of the bill of lading at the time of shipment. 6. Warranties; Continuing Obligations of Vendor. (a) Vendor represents and warrants that all Products shall (i) conform to the applicable specifications, (ii) be merchantable, (iii) be free from defects in workmanship, materials, packaging, construction and design, (iv) be fit and sufficient for the purpose for which it is intended and/or which is stated on any packaging, labeling or advertising, (v) be free of any and all liens and encumbrances of any kind, and (vi) be produced, packaged, labeled, packed, shipped and invoiced in compliance with the applicable requirements of any federal, state or local laws, regulations, ordinances or administrative orders or rules. (b) The Products shipped or delivered by Vendor are guaranteed under all applicable federal, state or local laws, regulations, ordinances or administrative orders or rules, as of the date of such shipment or delivery, to be (a) not adulterated or misbranded; and (b) not articles which may not be introduced into interstate commerce. This guaranty shall continue in effect with respect to all articles ordered by USF from Vendor prior to the receipt of written notice of its revocation. Notice of the acceptance of this guaranty by USF is waived. (c) Vendor agrees that any shipment found to be in violation of the above representations and warranties may be rejected by USF and may, in addition to any other remedies, result in immediate termination of any VPA. 7. Exclusive Brand Products. (a) For exclusive brand Products to be sold exclusively to USF (“Exclusive Brand Products”), Vendor shall manufacture the Exclusive Brand Products in strict compliance with the product specifications (the “Exclusive Brand Product Specifications”) that, at USF’s election, will be either (i) provided to Vendor by USF from time to time, or (ii) developed by Vendor, in which case Vendor shall develop such Exclusive Brand Product Specifications at Vendor’s sole cost and expense, for all scale up and test run requirements.. To the extent that the Exclusive Brand Product Specifications contain any customization for the exclusive use of USF, whether developed by Vendor, USF or jointly, USF shall own all right, title and interest in and to the Exclusive Brand Product Specifications. All Product Specifications shall be approved by USF prior to production. Such approval, however, will not under any circumstances relieve the Vendor from sole responsibility for such Product Specifications. Vendor shall be responsible for the design and development of all packaging and labeling with respect to Exclusive Brand Products (“Exclusive Brand Packaging Specifications”), including compliance with all packaging and labeling laws. At the request of USF, Vendor will work together with such third party design firm or packaging development firm as USF may direct. All such design and development activities (including the use of third parties) shall be done at Vendor’s sole cost and expense, but shall be subject to final approval by USF. In addition, in all cases, USF shall own all right, title and interest in and to any patent, trademark, trade name, trade dress or Exclusive Brand Packaging Specifications related to the Exclusive Brand Products, including without limitation, all designs, labels, printing plates and the like. (b) USF shall supply Vendor with a copy of the USF Food Safety and Quality Expectations Manual, and Vendor shall comply with all information set forth therein in order to assure that the Exclusive Brand Products meet the required Product specifications, including, but not limited to, formulae, recipes, ingredients, attribute ranges, product performance, shelf life and shelf life verification (“Product Specifications”) and the detailed information regarding the size (die lines and dimensional drawings), construction (materials and weight), and decoration (printing) of packaging components used to contain the Exclusive Brand Products (the “Packaging Specifications”). In order to evaluate the compliance with the quality policies and other terms and conditions of this Agreement by Vendor, USF shall have the right to assign one or more of its employees (or, at USF’s election, hire a recognized independent food and drug consultant or inspector) to inspect the Vendor’s manufacturing and warehousing facilities and practices. Upon request and during regular business hours, USF’s representatives shall have unrestricted access to all areas of the plant and warehouse facilities of Vendor relating to the manufacture and storage of the Exclusive Brand Products, and shall have the right to inspect, test, analyze, and sample all raw materials, manufacturing processes, finished products inventory, plant and storage facilities, productions records, storage records and any other materials, reports, processes and facilities related to the manufacture and storage by Vendor of the Exclusive Brand Products. In the event USF elects to use a consultant or other third party, USF shall secure an agreement of confidentiality consistent with Section 12 below prior to requiring access to Vendor’s facilities and records. Upon request, Vendor shall be provided with a copy of any and all inspection reports prepared for USF hereunder at no charge. Vendor shall have every facility that produces Exclusive Brand Product certified in food safety to SQF or any other Global Food Safety Initiative (GFSI) recognized program at Vendor’s sole cost and expense and the Vendor must maintain said certification for as long as it produces any Exclusive Brand Product. In addition, at USF’s request, the Vendor shall have annual food safety/GMP audits conducted by USF-approved third party auditors at Vendor’s sole cost and expense. All copies of the audit results will be sent to USF by Vendor or the auditing firm, which shall be kept confidential by USF. If a Vendor’s audit score is unsatisfactory to USF, in its reasonable discretion, Vendor may be required to have re-audits conducted until a passing score is obtained. All financial obligations of such re-audits shall be the responsibility of Vendor. Finally, Product production and quality assurance records shall be kept on file by Vendor for a minimum of one (1) year for perishable (refrigerated) Exclusive Brand Products, three (3) years for frozen Exclusive Brand Products and five (5) years for dry storage (non- perishable) Exclusive Brand Products. USF shall have the right to inspect such records upon request. 8. Non-Conforming Product. Non-conforming Products may be rejected by USF and disposed of, returned or held at Vendor’s expense and risk. USF may require Vendor to replace any Non-conforming Products or grant USF a full refund or credit. Non-conforming Products are products that (i) are not produced, sold, shipped and/or delivered in accordance with the VPA or applicable PO(s), (ii) allegedly violate any applicable laws, rules or regulations, (iii) allegedly infringe any intellectual property rights, or (iv) allegedly involve any unfair competition. 9. Product Recalls. Vendor shall notify the USF support office directly (by phone, fax or other quick method of notification) of the initiation of, or any facts or circumstances that it becomes aware of relating to the necessity to initiate a Product recall, withdrawal, inventory retrieval, or any other action to prevent or remove from distribution and sale the Products (a “Product Recall”). Vendor shall confirm that any such notice is actually received by a person at the USF support office; Vendor may not initiate a recall directly with a USF division. In the event USF is in disagreement with Vendor as to the type, extent, method of handling or disposition of any particulars involved in such a Product Recall, USF, in its sole discretion, shall be entitled to require Vendor to take such actions as USF deems appropriate under the circumstances to protect USF and its customers; provided that such rights will not under any circumstances relieve Vendor from the sole responsibility for Product Recalls and any related costs or liabilities. Vendor shall reimburse USF for all direct and indirect costs and expenses incurred by USF in the event of a Product Recall, including without limitation, the cost of warehousing, transporting and physically removing such Products from USF’s distribution centers and the marketplace, handling and preparing such Products for reshipment to Vendor or a designee, destroying such Products, and replenishing inventory as a result of such Product Recall. The USF divisions will bill the Vendor directly for reimbursement of Products and for all other direct or indirect costs of such Product Recall. 10. Indemnification. Vendor shall indemnify, defend, save and hold harmless USF and its officers, directors, employees, agents and/or any direct or indirect customers from and against any and all claims, demands, suits, liabilities, damages, injuries, penalties, losses, proceedings, settlements, judgments, costs and expenses (including reasonable attorneys' fees, costs and expenses) incurred or otherwise arising out of or allegedly resulting from: (i) a claim that the Vendor Product specifications or Vendor intellectual property infringes upon or misappropriates any Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 3 of 7 28672 Revised 9/15 3 intellectual property rights in connection with the Products; (ii) death of or injury to any person, damage to any property, or any other damage or loss, by whomsoever suffered, resulting or claimed to result in whole or in part from any actual or alleged quality or other defect in the Products, whether latent or patent, or actual or alleged failure of the Products to comply with any express or implied warranties or any claim of negligence or strict liability in tort relating to the Products; (iii) violation by the Products in their manufacture, possession, storage, use or sale, of any applicable federal, state or local laws, regulations, ordinances or administrative orders or rules; (iv) defect in the packaging, labeling, packing, shipping and/or invoicing of Products; or (v) breach of any VPA, violation of this Policy or any continuing obligation or representation or warranty (a “Claim” or “Claims”), except to the extent any such Claims are the direct result of negligent acts or the willful misconduct of USF. Vendor shall use counsel reasonably satisfactory to USF in the defense of such claims. Vendor shall accept tender of the defense of any such Claims in writing within seven (7) days of receipt of notice of such Claims. 11. Insurance. Vendor shall maintain at its expense commercial/comprehensive general liability insurance (including bodily injury, property damage, product liability, contractual liability and completed operations coverage) from a carrier having an A.M. Best rating of A or better, in a minimum amount of three million dollars ($3,000,000), per occurrence and annual aggregate, except in the case of cleaning/chemical supplies where the amount shall be five million dollars ($5,000,000), per occurrence and annual aggregate, which policy shall use General Commercial Liability Endorsement # CG20261185 (or an appropriate equivalent) to designate USF (including all subsidiaries and affiliates) as a primary additional insured. Limits of liability requirements may be satisfied by a combination of commercial general liability (at least $1 million) and umbrella excess liability policies. A certificate of insurance for such coverage shall be delivered to USF upon execution of the VPA and annually thereafter. USF shall be given at least thirty (30) days’ prior written notice by Vendor in the event of any material modification, cancellation or termination of coverage. If at any time Vendor does not provide USF with evidence of the insurance coverage described herein within fifteen (15) days after USF so requests, USF shall have the right to (i) immediately terminate this Agreement and cancel all outstanding orders for Products, and/or (ii) withhold making any payments to Vendor which may be outstanding until evidence of acceptable coverage is provided. 12. Termination. (a) USF may terminate any VPA on 90 days written notice to Vendor. USF may discontinue the purchase of Products at any time, with or without notice. (b) Upon any termination or expiration of any VPA or if USF discontinues the purchase of Products each party will continue to be obligated to make all payments due that arose under such VPA prior to such termination or expiration. Upon a termination of any VPA (A) USF may (1) return Non- conforming Products to Vendor at Vendor’s expense and (2) sell all other Product under the terms and conditions of such VPA until such Product is depleted, and (B) USF shall have no obligation to Vendor for any of Vendor’s inventory of finished goods, packaging materials or raw materials of any kind, except that in the case of Exclusive Brand Products USF will purchase its normal volume of the affected Exclusive Brand Products from Vendor for up to ninety (90) days from the earlier of the date of notice of termination, discontinuance or expiration of the VPA to deplete Vendor’s inventory of finished goods, packaging and unique raw materials relating to such Exclusive Brand Products. (c) In the event this Agreement is terminated, Vendor will immediately discontinue any and all use of the USF Exclusive Brand Products and return to USF all tangible forms of and all materials bearing any such USF Exclusive Brand Products. Except as may otherwise be permitted in Section 12(b), any excess Exclusive Brand Product held by or returned to Vendor at the termination or expiration of this Agreement shall either be destroyed by Vendor or may be sold by Vendor to third parties or otherwise salvaged so long as no Exclusive Brand Products are sold or otherwise distributed (A) bearing the Packaging Specifications (B) bearing any USF Intellectual Property or (C) in any other manner that may have the effect of causing third parties to associate the products with USF. Within 30 days after the expiration or termination of this Agreement, Vendor shall provide written certification to USF detailing its compliance with the provisions of this Section 12(c). (d) To the extent Vendor continues to sell any Products to USF after the termination or expiration of any VPA then the terms of the VPA, including this Policy, shall apply to all such sales until such time as Vendor enters into another vendor agreement with USF. 13. Price Competitiveness. (a) Vendor shall sell the Products to USF at Vendor’s most favorable net pricing for Products. (b)USF shall have the unconditional and absolute right to market test Vendor pricing on any and all Products supplied by Vendor to USF. If at any time during the Term of this VPA and Vendor Policy, however, USF determines that any Exclusive Brand Product of a like grade or quality, is available to USF at a lower total cost, including any Promotional Allowances, to USF than USF would pay hereunder, or on more favorable terms and conditions than provided for in this VPA and Vendor Policy, then USF may notify Vendor in writing of such superior opportunity. Vendor shall have fourteen (14) days from receipt of such notice to match such lower price or more favorable terms and conditions. In the event Vendor fails to agree to meet such terms, USF may purchase the Exclusive Brand Product from such third party vendor and discontinue the purchase of such Exclusive Brand Product hereunder. If Vendor does agree to meet such terms, USF may elect to continue to purchase the affected Exclusive Brand Products from Vendor, in USF’s sole discretion. Upon request of Vendor, USF shall provide written certification of an authorized officer of USF that such purchase opportunity exists, together with its key terms. 14. Miscellaneous. (a) Vendor shall not assign, delegate or otherwise transfer (by merger, asset sale, contract, operation of law or otherwise) its rights or obligations under any VPA, or grant a security interest in or pledge as collateral any interest in a VPA, without USF’s prior written consent. In the event that Vendor intends to transfer less than all or substantially all of its assets, i.e., a division or a product line, to a third-party, and included among the assets being transferred are Products sold to USF pursuant to the terms of a VPA, then Vendor shall notify USF at least 30 days in advance of such transfer, and Vendor shall cause the third-party buyer to assume Vendor’s obligations under the VPA with respect to the Products being transferred. In the event USF acquires any additional operations (by way of acquisition, asset transaction, merger, or otherwise) during the Term, then, at USF’s option, the acquired operations’ Net Purchases of Products will be included under this Agreement for all purposes hereunder, including without limitation, the calculation of Promotional Allowances and growth incentive payments, effective from the first day of the month following the acquisition and for all acquired product from date of acquisition. Notwithstanding the foregoing, all of the acquired operations’ inventory on hand as of the acquisition (by way of acquisition, asset transaction, merger or otherwise) closing date shall be governed by the terms and conditions of this Agreement. At USF’s option, any Vendor agreements or programs with the acquired operations or businesses will be superseded by this Agreement in all respects. (b) Vendor and USF agree to hold in strict confidence the confidential information of the other party, which shall include all information that is not generally available to others, whether in oral or written form, including, without limitation, information pertaining to methods of operation, processes, strategies and techniques, customer identities, pricing information and Promotional Allowances, proprietary product information, credit terms, marketing information, trademark information, specifications, technical information, business data and the terms and conditions of any VPA and this Policy, except to the extent such confidential information which receiving party can establish by tangible evidence (i) is or becomes publicly known and such public knowledge or disclosure is not the result of any act or failure to act on the part of the recipient of such information hereunder, (ii) is, at the time of disclosure, already known to such party, (iii) is information independently developed by such party without utilizing the confidential information, (iv) is information obtained from a third party, provided such third party is not under a duty to keep such information confidential to the disclosing party, or (v) becomes subject to legal process or applicable law that requires disclosure of any confidential information, in which case the party subject to such legal process shall notify the other party of such required disclosure as promptly as possible (and prior to disclosure, if permissible) and shall take all actions as may be necessary to keep the confidential information confidential, including all actions that such party takes to preserve the confidentiality of its own confidential information. Notwithstanding the foregoing, Vendor acknowledges and agrees that USF may disclose such pricing and Promotional Allowance information, as applicable, as may be necessary or desirable in connection with USF’s internal business needs and with determining the competitiveness of the programs offered by Vendor, provided USF shall not disclose Vendor’s identity or information from which Vendor’s identity may reasonably be determined. (c) (i) Vendor certifies that neither Vendor nor its principals (owners/senior officials) are debarred nor suspended from U.S. Government procurement programs under the rules prescribed at Title 48 of the Code of Federal Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 4 of 7 28672 Revised 9/15 4 Regulations, section 9.4, and Vendor shall, within fifteen (15) calendar days, notify USF of any change in this status, including Vendor’s receipt of any notice proposing Vendor for debarment or suspension from U.S. Government procurement programs. (ii) Vendor recognizes that USF is subject to various statutes, regulations, Executive Orders, and other legal obligations as set forth in Appendix ST-1 attached hereto and incorporated herein by reference and agrees to abide by such provisions, as applicable. (d) Neither party will be in default in the performance of its obligations under any VPA or this Policy if such performance is prevented or delayed because of war, hostilities, revolution, civil commotion or unrest, strike, labor dispute, epidemic, fire, wind, earthquake or flood, any law, order, proclamation, regulation or ordinance of any government, or of any subdivision thereof, Acts of God or for any other cause, whether similar or dissimilar to those enumerated, that is beyond the reasonable control and without fault or negligence of the party whose performance is affected; provided that Vendor shall use good faith and diligent efforts to perform its obligations despite the occurrence of such event and provide USF priority in returning to normalized operations as promptly as practicable following the conclusion of such force majeure event. In the event any party intends to rely on an event of force majeure to suspend its obligations to perform, such party shall provide written notice to the other party of its intent to rely on such an event and specifically identify the event. In the event that Vendor is not able to satisfy fully the supply of Products to one or more customers as a result of such event, Vendor shall provide USF at least that percentage of Products in the same proportion as USF's historic purchases of such Products bears to the historic purchases of all products by other customers of Vendor to whom Vendor has a contractual commitment to supply such products. (e) (i) Any VPA and this Policy constitute the entire agreement and supersede all other agreements, communications and understandings, with respect to the purchase and sale of Products between USF and Vendor and all other subject matter covered herein. The VPA shall not be modified, changed or amended except in a writing signed by both parties. No writing or consent with respect to the VPA (other than Local Agreements) shall be binding upon USF unless executed by the Category Director and an authorized officer of USF. This Agreement shall form a part of and be deemed attached to all procurement contracts and Purchase Orders relating to the purchase of Products between Vendor and USF and, in the event of any inconsistent terms in such Purchase Orders, the terms of this Agreement shall control. (ii) Vendor may enter into agreements (the “Local Agreements”) with USF divisions solely for the purpose of providing for local marketing allowances, local discretionary allowances, local growth programs or other local rebates or incentives (collectively “Local PA’s”) that represent an economic enhancement to the promotional allowance programs set forth in any VPA. Local Agreements shall not modify any other terms or conditions of the relationship between USF and Vendor. Local Agreements shall be subject to the terms and conditions of any VPA and this Policy and to the extent there are conflicts or inconsistencies between such VPA and this Policy, this Policy will control. (f) This Policy and any VPA shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions thereof. (g) The obligations and provisions contained in Sections 6 (Warranties; Continuing Obligations of Vendor), 7 (Exclusive Brand Products), 10 (Indemnification) and 14 (Miscellaneous) of this Policy shall survive the expiration or termination of any vendor agreement, including a VPA. (h) Vendor acknowledges and agrees that Vendor will at all times follow industry best practice, as well as all applicable OSHA standards, requirements and guidelines for employee health and safety. USF reserves the right to audit regarding worker health and safety practices. (i) Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to either party hereunder shall be in writing and shall be deemed given only if delivered by messenger or sent by certified mail (return receipt requested), overnight air courier, facsimile machine (followed by certified mailing) or other confirmable form of delivery, with courier, postage and registration or certification fees thereon prepaid, addressed to the party at its address set forth below: If to USF, to: US Foods, Inc. Merchandising 6133 River Road Suite 300 Rosemont, IL 60018 Attn: Category Manager With a copy to: US Foods, Inc. 9399 West Higgins Road Suite 600 Rosemont, IL 60018 Attn: General Counsel If to Vendor, to: _________________________ _________________________ _________________________ Attention: ______________________ (j) Dispute Resolution. In the event of any claim, dispute or controversy (a “Dispute”) arising out of or in any way relating to this VPA or the parties relationship hereunder, the parties shall first attempt to meet in a good faith effort to resolve such Dispute prior to referring any such Dispute to litigation or exercising any other rights that such party may have at law or in equity (other than the need to exercise emergency injunctive relief in which case no such dispute resolution process shall be required). Either party may provide written notice to the other party that such a Dispute has arisen. Within five (5) business days of such notice, each party shall appoint a senior level representative to meet to negotiate a mutually acceptable resolution to such Dispute. If the representatives of such party do not agree upon a resolution within thirty (30) calendar days after first meeting to resolve such dispute, then either party may refer the matter to litigation or exercise any other rights such party may have at law or in equity. The parties agree that all aspects of the meeting shall be confidential and all information and discussions shall be treated as compromise and settlement discussions for purposes of the applicable Rules of Evidence and shall be done without prejudice to any subsequent court proceedings. Notwithstanding the foregoing, the provisions of this Section shall not apply to any discrepancies or Disputes arising under Section 3(d) of the VPA, which shall be resolved in accordance with the provisions of that Section. Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 5 of 7 28672 Revised 9/15 5 APPENDIX ST-1 1. Equal Opportunity. (a) Equal Opportunity Clause. Vendor certifies that it is, and will remain, in compliance with the provisions of the Equal Opportunity clause prescribed by Executive Order 11246, as amended, as set forth at Title 41 of the Code of Federal Regulations ("C.F.R.") at Section 60-1.4 and the Federal Acquisition Regulation at 48 C.F.R. § 52.222-26, and consistent with other relevant guidance provided by 41 C.F.R. Chapter 60, which are incorporated herein by reference. Vendor also understands that it may be subject to Executive Order 11246, Section 503 of the Rehabilitation Act of 1973, as amended, and 38 USC Section 4212, and the regulations interpreting such provisions, including but not limited to 41 C.F.R. Section 60.1-4, 41 C.F.R. Section 60-250.5 and 41 C.F.R. Section 60.741.5, with respect to affirmative action program and plan requirements. Vendor shall abide by the requirements of 41 CFR §§ 60-1.4(a), 60-300.5(a) and 60-741.5(a). These regulations prohibit discrimination against qualified individuals based on their status as protected veterans or individuals with disabilities, and prohibit discrimination against all individuals based on their race, color, religion, sex, sexual orientation, gender identity or national origin. Moreover, these regulations require that covered prime contractors and subcontractors take affirmative action to employ and advance in employment individuals without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, protected veteran status or disability. The Vendor shall also abide by the requirements 41 CFR § 61-300.10 regarding veterans’ employment reports and 29 CFR Part 471, Appendix A to Subpart A regarding posting a notice of employee rights. Additionally, Vendor acknowledges that USF is an equal opportunity employer and that Vendor will not, to the extent that any portion of its services are subcontracted or performed by any other person, corporation, entity, or agent of any sort, discriminate in the selection or use of any such person, corporation, entity, or agent based upon sex, marital status, race, color, ancestry, national origin, religion, sexual orientation, physical handicap, medical condition, or age. (b) Certification of Non-Segregated Facilities. Vendor certifies that it is in compliance with 41 C.F.R. § 60- 1.8 and 48 C.F.R. § 52.222-21, as pertains to non-segregated facilities. Vendor certifies that is does not and will not maintain or provide for its employees any segregated facilities at any of its establishments, and it does not and will not permit its employees to perform their services at any location, under its control, where segregated facilities are maintained. As used in the certification, the term "segregated facilities" means any waiting rooms, work areas, parking lots, drinking fountains, recreation or entertainment areas, transportation, and housing facilities provided for employees which are segregated by explicit directive or are in fact segregated on the basis of race, color, religion, or national origin, because of habit, local custom or otherwise. Vendor further agrees that (except where it has obtained identical certifications from proposed subcontractors for specific time periods) it will obtain identical certifications from proposed subcontractors prior to the award of subcontracts exceeding $10,000 which are not exempt from the provisions of the Equal Opportunity clause; that it will retain such certifications in its files; and that it will notify proposed subcontractors and suppliers that it is subject to the provisions of the certification requirements. 2. Veterans' Employment Rights. Vendor certifies that it is, and will remain, in compliance with the provisions of the Vietnam Era Readjustment Assistance Act of 1974 (38 U.S.C. 2012), relating to affirmative action for qualified disabled veterans and qualified Vietnam Era veterans, as implemented by 41 C.F.R. Part 60-250 and 48 C.F.R. § 52.222-35, which are incorporated herein by reference. 3. Employment of the Handicapped. Vendor certifies that it is, and will remain, in compliance with the provisions of Section 503 of the Rehabilitation Act of 1973 (29 U.S.C. 793), relating to affirmative action for the handicapped, as implemented by 41 C.F.R. Part 60-741 and 48 C.F.R. § 52.222-36, which are incorporated herein by reference. 4. Utilization of Small Business Concerns and Small Business Concerns Owned and Controlled by Socially and Economically Disadvantaged Individuals. Vendor certifies that it is, and will remain, in compliance with the provisions of Executive Order 11625 and Section 211 of Public Law 95-507, relating to assistance to minority business enterprises, as implemented by 48 C.F.R. § 52.219-8, which is incorporated herein by reference. 5. Utilization of Women-Owned Business Concerns. Vendor certifies that it is, and will remain, in compliance with the provisions of Executive Order 12138, relating to opportunities for women-owned businesses, as implemented by 48 C.F.R. § 52.219-8, which is incorporated herein by reference. Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 6 of 7 28672 Revised 9/15 6 6. Wage and Hour Requirements. Vendor certifies that its production and packaging of products and all other matters relating to Vendor's performance of this Agreement will be done in compliance with all applicable requirements of (i) Sections 6, 7, and 12 of the Fair Labor Standards Act, as amended, and of Regulations and Orders of the United States Department of Labor issued pursuant to Section 14 thereof; and (ii) Section 1 of the Walsh-Healey Public Contracts Act. 7. Certification Regarding Lobbying. Vendor certifies, in compliance with the provisions of 32 U.S.C. 1352, that no Federal appropriated funds have been paid or will be paid, by or on behalf of the Vendor, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan or cooperative agreement. If any funds other than Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this Federal contract, grant, loan, or cooperative agreement, the undersigned shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with such Section. 8. Domestic Source Restrictions. This Agreements includes the following flow down clauses from the government prime contracts, incorporated by reference as if fully set forth herein. Whenever appropriate in the clauses incorporated by reference and addenda thereto, references to the “Government” or “Contracting Officer” shall mean “USF,” and references to the “Contractor” shall mean “Vendor.” Vendor certifies that it is, and will remain, in compliance with the provisions of the following regulations and statutes:  Berry Amendment, 10 U.S.C. 2533(a), as implemented by Department of Defense Federal Acquisition Regulation Supplement (DFARS) 225.7002 regarding restrictions on food acquisitions by the Department of Defense.  FAR 52.225-5, Trade Agreements (June 2006) (19 U.S.C. 2501, et seq., 19 U.S.C. 3301 note).  FAR 52.225-13, Restrictions on Certain Foreign Purchases (Feb 2006) (E.O.s, proclamations, and statutes administered by the Office of Foreign Assets Control of the Department of the Treasury).  DFARS 252.225-7000 – Buy American Act – Balance of Payments Program Certificate (JUN 2005)  DFARS 252.225-7001, Buy American Act and Balance of Payments Program (JUN 2005) (41 U.S.C. 10a-10d, E.O. 10582).  DFARS 252.225-7012, Preference for Certain Domestic Commodities (JUN 2004) (10 U.S.C. 2533a). If Vendor discovers that product that it has supplied does not comply with one or more of these domestic source restrictions, it shall promptly notify USF of the noncompliance and the circumstances surrounding the noncompliance. Case 1:15-cv-02988-WSD Document 383-2 Filed 10/14/16 Page 7 of 7 EXHIBIT Case 1:15-cv-02988-WSD Document 383-3 Filed 10/14/16 Page 1 of 2 Case 1:15-cv-02988-WSD Document 383-3 Filed 10/14/16 Page 2 of 2