Onions Etc., Inc. et al v. Z & S Fresh, Inc. et al

Filing 881

ORDER GRANTING 879 Judgment in the Sole Favor of Frank A. Logoluso Farms, signed by District Judge Anthony W. Ishii on 7/2/2013. (Marrujo, C)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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ONIONS ETC., INC. and DUDA FARM
FRESH FOODS, INC.,
Plaintiffs,

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v.
Z & S FRESH, INC., a California
corporation; Z & S DISTRIBUTING
COMPANY, INC., a California corporation;
MARTIN J. ZANINOVICH, an individual;
LOREN SCHOENBURG, an individual;
MARGE SCHOENBURG, an individual,

Case No. 1:09-cv-00906-AWI-MJS
ORDER GRANTING JUDGMENT IN THE
SOLE FAVOR OF FRANK A. LOGOLUSO
FARMS
(Doc. 879)

Defendants.

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AND ALL RELATED CONSOLIDATED
ACTIONS.

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On May 29, 2013, intervenor plaintiff Frank A. Logoluso Farms (“Logoluso”) filed the

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instant motion for judgment in its sole favor and against defendants Z&S Fresh, Inc. fdba Z&S

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Distributing Co., Inc. (“Z&S”) and Martin Zaninovich (“Zaninovich”). Doc. 879. The basis for the

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motion is that the Court-appointed trustee for the assets of Z&S has been permanently relieved of

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his duties. Doc. 877. By the terms of the August 10, 2011 judgment in favor of the trust, individual

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trust beneficiaries such as Logoluso are now eligible for similar judgments for the amounts still

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owed to them under the trust. Doc. 731.

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No briefs were filed in opposition. On June 28, 2013, the Court took the matter under
submission. Doc. 880. For the reasons that follow, the motion is granted.

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FINDINGS OF FACT1

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Z&S was a California corporation that marketed and sold produce in interstate commerce.

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As such, it was governed by the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. §

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499a et seq. PACA creates a non-segregated, floating trust which permits suppliers to recover from

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dealers such as Z&S for the commodities they supply until paid in full. 7 U.S.C. § 499e(c)(2). The

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trust is “a self-help tool,” enabling suppliers “to protect themselves against the abnormal risk of

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slow-pay and no-pay practices” by the dealers they supply. 49 Fed. Reg. at 45735.

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By 2001, Zaninovich was the sole shareholder of Z&S. He was its president, oversaw its

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day-to-day operations, and directed the use of its PACA trust assets. He treated these as his own,

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oftentimes using them for personal expenses, gifts, and entertainment. In 2008 and 2009, Z&S

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transferred $4,319,241.23 in trust assets to a separate company of which Zaninovich was 50%

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shareholder and president or to other companies on its behalf. As a result, Z&S became insolvent

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and failed to tender prompt and full payment to suppliers who had debts covered by PACA.

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On May 22, 2009, a pair of suppliers commenced this action against Z&S, Zaninovich, and

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the company’s other directors. The action would come to include many additional plaintiffs and

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defendants, including Logoluso, who intervened as plaintiff on June 10, 2009. Doc. 23, Doc. 159.

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On June 24, 2009, the Court appointed a trustee for the assets of Z&S. Doc. 48.

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On August 11, 2011, the Court entered summary judgment against Z&S and Zaninovich for

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$3,541,919.75, the amount still owing to trust beneficiaries. Doc. 731. This judgment was entered

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in favor of the trust. However, the Court explained that, once the trustee was relieved of his duties

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with no successor appointed, individual trust beneficiaries could seek judgment in their own favor

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against these defendants for the amount still unpaid to them at that time.

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On April 24, 2013, the trustee indicated he would be making his final distribution. Doc.

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875-1 (Trustee’s Final Report and Accounting). The Court granted his request to be relieved of his

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duties, as well as the request by beneficiaries that their complaints be dismissed with prejudice. Doc

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876, Doc. 877. On May 29, 2013, Logoluso filed a motion for judgment in its sole favor and against

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Z&S and Zaninovich for $363,797.71, the PACA trust amount still unpaid to it. Doc. 878, Ex. A

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(trustee’s distribution chart); Doc. 879 (motion).
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Unless otherwise noted, these findings of fact are derived from the Court’s August 10, 2011 Judgment. Doc. 731.

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CONCLUSIONS OF LAW

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All conclusions of law in the Court’s August 10, 2011 Judgment are incorporated herein by

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reference. Doc. 731. Z&S and Zaninovich violated PACA, and Zaninovich violated his fiduciary

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duties under PACA and converted PACA trust assets. They thereby became jointly and severally

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liable to the PACA trustee for the amounts unpaid to the trust beneficiaries. Furthermore, because

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the trustee has been relieved and no successor appointed, trust beneficiary Logoluso is entitled to a

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similar judgment in its favor for $363,797.71, the PACA trust amount still unpaid to it.

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This judgment does not include costs. Logoluso, like the other beneficiaries, stipulated to

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bearing the costs and fees associated with its complaint. Doc 876. Furthermore, the 2011 Judgment

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stated that any judgments in favor of trust beneficiaries “shall not exceed the amount left owing and

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unpaid to said beneficiary” according to the trustee’s chart. Doc. 731.

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For the reasons stated in the Court’s August 10, 2011 Judgment, this judgment in favor of

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Logoluso is nondischargeable as to Zaninovich. As the Court previously found, the PACA trust

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gives rise to the “fiduciary capacity” required under 11 U.S.C. §523(a)(4) applicable only to

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express or technical trusts. The “defalcation” within the meaning of 11 U.S.C. §523(a)(4) includes

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the dissipation of and failure to account properly for PACA trust assets.
JUDGMENT

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IT IS HEREBY ORDERED, ADJUDGED AND DECREED that:

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1.

The Intervenor Plaintiff FRANK A. LOGOLUSO FARMS may have and recover from

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Defendants Z&S FRESH, INC. FDBA Z&S DISTRIBUTING CO., INC., and MARTIN J.

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ZANINOVICH, jointly and severally, in the amount of $363,797.71.

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2.

This Judgment is nondischargeable as to MARTIN J. ZANINOVICH. 11 U.S.C. §523(a)(4).

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3.

There being no just reason for delaying an appeal, this Judgment constitutes a final,
appealable judgment under Federal Rules of Civil Procedure Rule 54(b).

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IT IS SO ORDERED.

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Dated: July 2, 2013
SENIOR DISTRICT JUDGE
DEAC_Signature-END:

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