C.H. Robinson Worldwide, Inc. v. Auster Acquisitions, LLC et al
Filing
354
MEMORANDUM OPINION signed by the Honorable Charles P. Kocoras on 7/26/2011.Mailed notice(sct, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
C.H. ROBINSON WORLDWIDE, INC.,
a corporation, et al.,
Plaintiffs,
vs.
AUSTER ACQUISITIONS, LLC, d/b/a
THE AUSTER COMPANY, INC., a
corporation, et al.,
Defendants.
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11 C 105
MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
This case comes before the Court after the filing of numerous claims, objections,
and motions to determine the validity of claims. The claims, objections, and motions
to determine validity are granted in part and denied in part.
BACKGROUND
On January 7, 2011, Plaintiff C.H. Robinson Worldwide, Inc. (“C.H. Robinson”)
filed a complaint against Defendants Auster Acquisitions, LLC d/b/a The Auster
Company, Inc. (“Auster”), Tom Bastounes, Paul Duggan (“Duggan”), and The Estate
of Dennis F. Nardoni, individually and in their corporate capacities, and Standard Bank
and Trust Co. (“Standard Bank”), seeking enforcement of a trust pursuant to the
Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499(c)(4). Since a
similar complaint was later filed by Jack Tuchten Wholesale Produce, Inc. (“Jack
Tuchten”), on March 18, 2011, this Court consolidated the two cases.
On January 27, 2011, this Court entered a Consent Order for Appointment of
Receiver and for Establishing PACA Trust Claims Procedure (the “Procedures Order”).
See Dkt. No. 51. In the Procedures Order, this Court appointed a receiver (“Receiver”)
to collect Auster’s current receivables, auction equipment and vehicles, sell inventory,
and prevent further dissipation of PACA Trust Assets. The Procedures Order also set
forth the requirements for creditors to claim trust rights under PACA and against
Auster. Specifically, the Procedures Order required purported PACA trust claimants,
on or before March 28, 2011, to: (1) file a verified PACA proof of claim; (2) file a
Complaint in Intervention; and (3) serve the proof of claim, Complaint in Intervention,
and supporting documentation on the parties in this case. The Procedures Order warned
that untimely claims would be forever barred.
On April 4, 2011, this Court entered an order resetting the schedule for the PACA
Trust Claims Procedure and requiring those served with Standard Bank’s discovery to
respond by April 13, 2011 (the “Rescheduling Order”). See Dkt. No. 186. The
Rescheduling Order reset the deadlines as follows:
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DEADLINE
DATE
Deadline to Issue Notice of Deadlines
February 21, 2011
Deadline to File PACA Proof of Claim
and Complaint in Intervention
March 28, 2011
Deadline to Respond to Discovery
Served by Standard Bank
April 13, 2011
Deadline to File Objections to Claims
May 4, 2011
Deadline to File Responses to
Objections
May 18, 2011
Deadline to File Motion to Determine
Validity of Claim
June 1, 2011
Deadline to File PACA Trust Chart
June 15, 2011
Deadline to File Objections to PACA
Trust Chart
June 22, 2011
Deadline for Interim Distribution
June 29, 2011
Numerous parties filed objections to claims and the PACA Trust Chart and
motions to determine the validity of claims. This Court addresses all outstanding
objections below.
LEGAL STANDARD
PACA mandates that perishable agricultural commodities received by a
merchant, dealer, or broker, as well as the sales proceeds from such commodities, are
held in trust for the benefit of unpaid suppliers until full payment has been made.
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7 U.S.C. § 499e(c)(2). The trust is automatically created when the merchant, dealer, or
broker accepts the goods as long as the supplier complies with certain notice
requirements. Patterson Frozen Foods, Inc. v. Crown Foods Int’l, Inc., 307 F.3d 666,
669 (7th Cir. 2002).
DISCUSSION
This Court confirms the validity of all claims not addressed in this Opinion, as
described in the “amount deemed valid” column of the PACA Trust Chart filed by the
Receiver on June 15, 2011. See Dkt. No. 335-1.
I.
Objections Filed by Duggan and Standard Bank
On May 4, 2011, Duggan and Standard Bank filed nearly identical objections to
various PACA proof of claims. See Dkt. Nos. 249, 250, 258, 259.
A.
First Omnibus Objection
Duggan’s and Standard Bank’s First Omnibus Objection (the “First Omnibus
Objection”) attacks the claims filed by C.H. Robinson, Dayka & Hackett, E.J.’s Produce
Sales, Inc. (“E.J.’s Produce”), Jack Tuchten, New Era Produce, LLC (“New Era”),
Produce Plus, Inc. (“Produce Plus”), Scattaglia Growers & Shippers, LLC
(“Scattaglia”), Tom Lange Company (“Tom Lange”), and Jack Brown Produce (“Jack
Brown”) (collectively, the “First Omnibus Objection Claimants”).
Duggan and
Standard Bank object to the claims of the First Omnibus Objection Claimants, arguing
that the claimants forfeited the protections of the PACA trust by entering into post-4-
default agreements with Auster which extended the payment period beyond the 30 day
maximum.1
The PACA trust arises when the merchant, dealer, or broker accepts the goods
as long as the supplier complies with notice requirements. Patterson, 307 F.3d at 669.
A supplier, however, forfeits its trust rights if the supplier enters into a written postdefault agreement with the dealer that extends the time for payment beyond 30 days.2
Id. at 669, 671 (holding that “PACA rights are lost whenever the parties enter into a
written agreement that satisfies the Statute of Frauds”). Unlike a written post-default
agreement, “an oral agreement for an extension or a course of dealing allowing more
than 30 days for payment will not abrogate a PACA trust.” Id. at 669.3
1
Standard Bank also argues that this Court should deny the claims because the First Omnibus
Objection Claimants failed to fully comply with the Court’s Rescheduling Order by failing to
produce checks from Auster. Standard Bank’s argument lacks merit for several reasons. First, the
Court’s Rescheduling Order merely required the claimants to respond to Standard Bank’s discovery
by April 13, 2011, and did not specifically require the claimants to produce checks. Further, this
Court cannot determine whether the claimants should have produced checks from Auster, as
Standard Bank failed to attach the relevant discovery request to its objection. Finally, Standard Bank
concedes that it maintained copies of such checks in its files and this Court will not deny a claim
based on the failure to produce documents already within Standard Bank’s possession and control.
2
As of April 13, 2011, the amended PACA regulations now state that a seller retains its trust
rights even if it enters into a post-default agreement or accepts partial payment for a past due amount.
7 C.F.R. § 46.46(e)(3). Because the PACA amendment post-dates the events in this case, this Court
evaluates any alleged post-default agreements under the prior standard stated in Patterson.
3
Duggan and Standard Bank, relying on Am. Banana Co. v. Republic Nat’l Bank of New
York, 362 F.3d 33 (2d Cir. 2004), argue that a seller forfeits the PACA trust protections by entering
into a post-default agreement orally or in writing. The Second Circuit’s approach conflicts with the
Seventh Circuit’s approach and this Court must follow the law as stated by the Seventh Circuit in
Patterson.
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Duggan and Standard Bank argue that the First Omnibus Objection Claimants
forfeited their trust rights by entering into oral agreements with Auster and routinely
accepting payments from Auster for invoices that were more than 30 days past due.
Failing to point to a written agreement, Duggan and Standard Bank instead identify
documents, such as cashed checks, which demonstrate that the First Omnibus Objection
Claimants regularly accepted payments that were more than 30 days past due.
Duggan’s and Standard Bank’s arguments lack merit because the Seventh Circuit has
specifically held that oral agreements and courses of dealing do not abrogate the PACA
trust. Patterson, 307 F.3d at 669 (explaining that no post-default agreement exists even
where the evidence demonstrates that a supplier has routinely allowed the dealer more
than 30 days to make payment). The fact that the claimants accepted, as a course of
dealing, payments for some invoices more than 30 days past due does not establish that
the claimants had a written, post-default agreement to accept late payments for the
amounts claimed in this action and for which claimants seek to invoke their PACA trust
rights.4 To prove that the claimants forfeited their PACA trust rights, Duggan and
4
As an example, Duggan and Standard Bank rely on a fax sent from Scattaglia to Auster on
December 15, 2010, which listed the amounts Auster owed Scattaglia. In the fax, Scattaglia
demanded payment for numerous invoices more than 30 days past due. The fax, merely a demand
for payment, does not evidence a written agreement between Auster and Scattaglia that Auster
promised to pay Scattaglia a certain amount by a certain date. See, e.g., Patterson 307 F.3d at 671
(finding that written repayment plan which identified the contract’s subject matter and payment
terms constitutes a written post-default agreement which abrogated the PACA trust). Even if Auster
paid those past due amounts, that course of dealing does not eliminate Scattaglia’s trust rights with
respect to other amounts still due from separate transactions.
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Standard Bank must identify a written, post-default agreement in which Auster agreed
to make certain payments at a certain time to satisfy invoices more than 30 days past
due, demonstrate that Auster failed to make the promised payments, and establish that
claimants now attempt to enforce their PACA trust rights with respect to those past due
invoices. Because Duggan and Standard Bank fail to do so, this Court finds that the
First Omnibus Objection Claimants did not forfeit their PACA trust rights by entering
into written, post-default agreements.
B.
Second Omnibus Objection
Duggan’s and Standard Bank’s Second Omnibus Objection (the “Second
Omnibus Objection”) attacks the claims filed by Central Washington Marketing, Inc.
(“Central Washington”), Michael J. Navilio & Son, Inc. (“Navilio”), Jack Brown, and
Quality Food Products, Inc. (“Quality Food”).5 See Dkt. Nos. 250, 259. The Second
Omnibus Objection seeks to invalidate the claims based on the claimants’ failures to
respond to Standard Bank’s discovery by April 13, 2011. Navilio, Jack Brown, and
Quality Food argue that they have responded to the discovery and that neither Duggan
nor Standard Bank have suffered prejudice from their delay. Since Duggan and
Standard Bank do not argue any resulting prejudice from the delay, this Court declines
to invalidate the claims.
5
This Court addresses the objections to Central Washington’s claim below.
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C.
Objection to Central Washington’s Claim
Duggan and Standard Bank object to Central Washington’s claim for two
reasons. See Dkt. Nos. 250, 251, 259, 261. First, Central Washington violated the
Rescheduling Order by failing to respond to Standard Bank’s discovery. Central
Washington does not respond to this objection and, to the Court’s knowledge, never
responded to the discovery. Second, Central Washington violated the Procedures Order
by failing to file a Complaint in Intervention. The Procedures Order required Central
Washington to file a Complaint in Intervention and Central Washington failed to do so.
Again, Central Washington did not respond to this objection.
Because Central
Washington failed to comply with the Rescheduling Order and the Procedures Order or
respond to these objections, this Court finds that Central Washington’s claim is not
valid.
D.
Objection to Tom Lange’s Claim
Duggan and Standard Bank object to $25,523.50 of the Tom Lange claim for two
reasons. See Dkt. Nos. 252, 263. First, according to Tom Lange’s invoice, Auster owes
Tom Lange $25,523.50 for 2,550 cartons of blueberries when Tom Lange, in fact, only
delivered 2,300 cartons of blueberries. Tom Lange agrees that it delivered only 2,300
cartons of blueberries. Tom Lange’s claim for the blueberries is thus inflated because
it charges Auster for 2,550, rather than 2,300, cartons of blueberries.
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Second, Duggan and Standard Bank argue that Tom Lange’s claim for
$25,523.50 is further invalid because the blueberries were spoiled. To the extent
perishable items are spoiled and unsold, the trust res disappears and any obligation to
pay for those unsold goods lies outside the PACA Trust provisions. In re Zois, 201 B.R.
501, 509 (Bankr. N.D. Ill. 1996). Tom Lange does not dispute the fact that at least
some of the blueberries were spoiled. Tom Lange states that Auster planned to sell
some of the blueberries and that Tom Lange and Auster would later agree on a fair
price. Because Tom Lange never received a report from Auster concerning the number
of blueberries sold, Tom Lange claims that Auster owes an estimated price of
$25,523.50. Tom Lange purportedly bases the estimated price on the U.S. Department
of Agriculture Market News Report for blueberries less average percentages of
condition defects as established by USDA inspection certificates. Tom Lange, however,
fails to precisely show how it calculated a claim of $25,523.50 for the spoiled
blueberries. For this reason, this Court denies Tom Lange’s claim for the blueberries
and reduces Tom Lange’s claim by $26,605.98, the total amount claimed for the
blueberries (including accrued interest).
E.
Objection to Domex’s Claim
Duggan and Standard Bank object to $6,500 of the claim of Domex Superfresh
Growers, LLC (“Domex”), arguing that the amount is for freight charges which do not
qualify for PACA trust protection. See Dkt. Nos. 253, 260. On January 4, 2011,
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Domex was unable to deliver apples and pears ordered by Auster because Auster
stopped operating after the order was placed and the load was shipped. To mitigate its
damages, Domex paid the carrier of the produce the freight charges associated with
shipping and returning the produce to Domex for resale. Domex argues that the freight
charges are recoverable because the PACA trust extends to non-produce charges owed
in connection with the underlying produce transaction. Even accepting Domex’s
position, the PACA trust arises only when the commodities are received by the
merchant, dealer, or broker. See 7 U.S.C. § 499e(c)(2); see also Patterson, 307 F.3d at
669. Since Auster never accepted and received the produce, Domex cannot recover the
freight charges under PACA. Accordingly, this Court reduces Domex’s claim by
$6,500 to $259,355.08.
F.
Objection to Emerald Packing’s Claim
Duggan and Standard Bank object to part of the claim of Emerald Packing
Company, LLC (“Emerald Packing”), arguing that the invoices attached to Emerald
Packing’s proof of claim do not correspond to agreed upon price modifications between
Emerald Packing and Auster. See Dkt. Nos. 256, 262. Duggan and Standard Bank
support their objection by attaching invoices from Emerald Packing which include
handwritten modifications.
Because Emerald Packing does not respond to this
objection, this Court accepts the objection and reduces Emerald Packing’s claim to
$201,836.40.
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II.
Objections to PACA Trust Chart
A.
Nico Mexi’s Claim
Nico Mexi filed a PACA proof of claim in the amount of $92,371.74. Pursuant
to an objection, Nico Mexi agreed to reduce its claim by $8,669.50 to $83,702.24. See
Dkt. No. 321. According to the PACA Trust Chart, the Receiver offset Nico Mexi’s
claim in the amount of $80,963.06 due from Nico Mexi and owing to Auster. See Dkt.
No. 335-1. Further, the Receiver did not account for the agreed upon reduction by Nico
Mexi. For these reasons, the PACA Trust Chart lists Nico Mexi’s claim in the amount
of $11,408.68. Nico Mexi objects to the Receiver’s offset because the Receiver never
provided proof to Nico Mexi of the amount allegedly owed to Auster and never objected
to Nico Mexi’s claim. See Dkt. No. 340. This Court agrees with Nico Mexi that the
Receiver cannot offset Nico Mexi’s claim unless the Receiver provides proof to Nico
Mexi of the amount owed to Auster. Unless and until the Receiver provides such proof,
this Court finds that Nico Mexi’s claim is valid in the amount of $83,702.24.
B.
Quality Food’s Claim
Quality Food filed a PACA proof of claim in the amount of $68,442.48.
According to the PACA Trust Chart, the Receiver offset Quality Food’s claim in the
amount of $18,199.97 due from Quality Food and owing to Auster. See Dkt. No. 335-1.
Quality Food objects to the Receiver’s offset and argues that the statement of amounts
due from Quality Food does not properly reflect certain credits. Based on the exhibits
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attached to Quality Food’s objection, this Court finds that the Receiver should credit
Quality Food for payments made in full on Invoice Nos. 111038, 1211047, and
1242867. Further, since Quality Food lacks documentation concerning the remaining
amounts allegedly owed by Quality Food, the Receiver must provide Quality Food with
copies of Invoice Nos. 1155439, 1163836, 1197261, and 1208155, so that the parties
may determine whether Quality Food owes the amounts stated in those invoices.
Accordingly, this Court finds that the Receiver’s offset is at least partially invalid and
orders the parties to confer regarding the amount owed by Quality Food. If the
Receiver provides invoices supporting the amounts allegedly owed by Quality Food and
Quality Food fails to prove that it paid those invoices, then the Receiver may offset
Quality Food’s claim by the amount owing from Quality Food to Auster.
III.
Objection to Reasonableness of Attorneys’ Fees
The Tom Lange Group6 and Standard Bank have expressly reserved the right to
challenge the reasonableness of attorneys’ fees claimed by numerous claimants.7 See
Dkt. No. 254, 265. No party has objected to the right of claimants to recover reasonable
6
The Tom Lange Group consists of Tom Lange, Dayka & Hackett, E.J.’s Produce, Domex,
Hughes Produce Sales, Inc., New Era, Scattaglia, and T.J. Produce, Inc.
7
The Tom Lange Group reserved the right to challenge the reasonableness of the fees
claimed by Mandolini Company, Produce Plus, Ruby Robinson Co., Inc., C.H. Robinson, Dietz &
Kolodenko Co., Veg-Pro, Inc., Quality Food, Jack Tuchten, Strube Celery and Vegetable Company,
Durango Products, Inc. d/b/a Junior Produce, Everyday Fresh Produce, Evergreen International, Inc.,
J.L. Gonzalez Produce, Inc., Keith Connell, Inc. Nico Mexi, and Veg Fresh, Inc. See Dkt. No. 254.
The Tom Lange Group subsequently withdrew its objection to the attorneys’ fees claimed by
Mandolini Company, Inc., in the amount of $1,584.00. See Dkt. No. 325.
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attorneys’ fees. Most claimants have agreed to provide proof of their attorneys’ fees
and collection costs and ask this Court to establish a procedure by which redacted fee
records may be furnished. Accordingly, this Court orders each party requesting
attorneys’ fees to file a request with the Court stating the amount of attorneys’ fees
claimed and produce to the objecting parties copies of their records within thirty (30)
days from the date of this Order. The records must redact any information protected by
the attorney-client privilege or work product doctrines. Any objecting party then has
fifteen (15) days to file an objection with this Court. If no party objects to the claims
for attorneys’ fees, then the Receiver may treat the claims as valid.
CONCLUSION
This Court grants in part and denies in part the claims, objections, and motions
to determine validity of the claims. Further, this Court makes such orders as stated in
this Opinion to resolve the claims of Nico Mexi and Quality Food. Finally, the parties
requesting attorneys’ fees are ordered to file a request stating the amount of the fees and
produce redacted copies of their records by August 29, 2011. Parties objecting to the
attorneys’ fees have until September 12, 2011 to file their objections.
Charles P. Kocoras
United States District Judge
Dated:
July 26, 2011
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