VLM Food Trading International, Inc. v. Illinois Trading Company et al

Filing 70

MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 3/5/2013:Mailed notice(wp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

VLM FOOD TRADING INTERNATIONAL,
INC.,
Plaintiff,

Case No. 12 C 8154

v.

Hon. Harry D. Leinenweber

ILLINOIS TRADING CO., et al.,
Defendants.

MEMORANDUM OPINION AND ORDER
Before the Court for decision are the merits hearing record
and

post-hearing

International,

briefing

Inc.

and

of

Plaintiff

Defendants

VLM

Illinois

Food

Trading,

Trading

Company,

Lawrence Oberman, Obee Family Partnership, and FJ Management (d/b/a
TAB Bank).
For the reasons stated herein, the Court finds in favor of
Plaintiff VLM Food Trading International, Inc. on Counts I-IV and
awards the Summ of

$200,672.88 plus attorneys’ fees.

finds against VLM with respect to Count V.

The Court

The Court enters the

following findings of fact and conclusions of law pursuant to
Federal Rule of Civil Procedure 52(a)(1).
I.

BACKGROUND

Plaintiff, VLM Food Trading International, Inc. (“VLM”) is a
seller of wholesale quantities of produce.

Defendant Illinois

Trading Company (“ITC”) is a business that purchases wholesale

amounts of produce from suppliers and resells such produce to other
distributors

or

retailers.

Defendant

Lawrence

N.

Oberman

(“Oberman”) was the President of ITC at all relevant times.

It is

undisputed that ITC ordered thousands of pounds of frozen potatoes
from VLM for which it failed to pay.
The sale of frozen potatoes and other perishable goods is
regulated by the Perishable Agricultural Commodities Act, 7 U.S.C.
§ 499a et seq. (the “PACA”).
protect

produce

sellers

PACA was enacted originally to

during

the

Great

Depression

by

“suppress[ing] unfair and fraudulent practices in the marketing of
fruits and vegetables in interstate and foreign commerce.” 49 Fed.
Reg. 45737. Accordingly, it requires produce dealers to make “full
payment

promptly”

for

any

produce

they

purchase.

7

U.S.C.

§ 499(b)(4).
Under certain circumstances, PACA allows produce sellers to
establish a constructive, non-segregated “floating” trust over
funds owed for sales on short-term credit and to recover against a
responsible shareholder of the debtor company.
On October 10, 2012, VLM filed suit against ITC, Oberman, and
The Obee Family Partnership (an Illinois entity which was in a
position to control ITC).

In its initial Complaint, VLM alleged

two claims under PACA, and state law claims for breach of contract
and breach of fiduciary duty.

ECF No. 1.

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On October 11, 2012, VLM filed a Motion for a Temporary
Restraining Order (the “TRO”) seeking to prevent ITC, Oberman and
the Obee Family Partnership from dissipating the assets held in
their PACA trust.

After a brief hearing, the Court granted VLM’s

TRO and required Defendants to deposit $197,387.78 in the Court’s
Registry.

ECF No. 11.

Five (5) days after the TRO was entered,

ITC filed a Motion to Vacate the TRO.

The Court disagreed with the

arguments set forth in Defendants’ Motion, but continued the Motion
until the Preliminary Injunction Hearing set for November 6, 2012.
On October 22, 2012, VLM filed an Amended Complaint, adding
Defendant FJ Management (d/b/a TAB Bank), and adding a count
against all Defendants (including TAB Bank) for unlawful retention
and conversion of PACA trust assets. In the Amended Complaint, VLM
contends that TAB Bank and Defendants entered into a security
agreement where TAB Bank would lend funds to Defendants in exchange
for a security interest in all of ITC’s assets, including ITC’s
inventory and accounts receivable.

VLM alleges that Defendants

defaulted on this security agreement in approximately September
2012.

When this occurred, TAB Bank exercised its rights as a

secured creditor and took possession of Defendants’ PACA trust
assets – namely, $445,000 of proceeds from ITC’s deposits and
$260,000 of ITC’s inventory.

VLM claims that TAB Bank knew or

should have known that these assets were generated through the sale
of produce and were part of a PACA trust.

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Based on these facts,

VLM alleges that TAB Bank has unlawfully retained and converted
funds from ITC’s PACA trust.

In its Answer to VLM’s Amended

Complaint, TAB Bank admitted that it had an agreement with ITC, but
denied the remainder of VLM’s allegations.

See ECF No. 40 at 13-

17.
On November 6, 2012, Defendants represented that the parties
were

engaging

in

settlement

discussions.

Because

of

this,

Defendants requested the Court continue the preliminary injunction
hearing. The Court agreed to do so and postponed the hearing until
November 26, 2012.
However, on November 19, 2012, counsel for Defendants ITC,
Oberman,

and

Obee

Family

Partnership

(hereinafter

“the

ITC

Defendants”) filed a Motion to Withdraw citing irreconcilable
differences. The Court granted counsel’s Motion, extended the TRO,
continued the hearing until January 15, 2013 and gave the ITC
Defendants until December 18, 2012 to obtain new counsel.

See ECF

No. 41.
On January 9, 2013, after the ITC Defendants failed to obtain
new counsel and answer VLM’s Complaint, VLM moved for default
judgment.

On January 15, 2013, Defendants appeared in Court

without counsel still having not answered VLM’s Complaint.

In

light of these facts, the Court granted VLM’s Motion for Default,
consolidated

the

preliminary

injunction

hearing

hearing, and set the hearing for February 19, 2012.

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to

a

merits

On February 5, 2013, Defendants obtained new counsel and moved
to vacate the entry of default judgment.

The Court granted this

motion only as to Oberman personally.
On February 14, 2013, the ITC Defendants answered VLM’s
Complaint.
of

law

Shortly thereafter, VLM moved for judgment as a matter

and

TAB

Bank

moved

to

continue

the

hearing

set

for

February 19, 2013.
On February 19, 2013, this Court denied VLM’s Motion for
Judgment as a Matter of Law because an issue remained with respect
to whether the ITC Defendants were required to pay attorneys’ fees
and interest. The Court denied TAB Bank’s Motion for a Continuance
and proceeded to hear testimony.
II.
PACA

provides

that

DISCUSSION

perishable

agricultural

commodities

received by a licensed dealer, as well as the proceeds from sales
of those commodities, are held in trust for the benefit of unpaid
suppliers until full payment has been made. 7 U.S.C. § 499e(c)(2).
This trust is automatically created when the dealer accepts the
goods so long as the supplier adheres to the notice requirements
set forth in 7 U.S.C. § 499e(c) and 7 C.F.R. § 46.46(f).

Greg

Orchards & Produce, Inc. v. Roncone, 180 F.3d 888, 890-91 (7th Cir.
1999).

PACA trust rights “take priority over the interests of all

other creditors, including secured creditors.”

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Patterson Frozen

Foods, Inc. v. Crown Foods Intern., Inc., 307 F.3d 666, 669 (7th
Cir. 2002).
PACA trust rights can be enforced through a court action for
breach of fiduciary trust.

7 U.S.C. § 499e(c)(5).

Such an action

permits recovery against “both the corporation and its controlling
officers.”

Id.

In

exchange

for

these

protections,

PACA

establishes strict eligibility requirements.
The ITC Defendants admit that they are “brokers” under PACA.
See Defs.’ Answer to Pl.’s First Amend. Compl. at 2. VLM presented
its PACA license and provided testimony that it has had a valid
PACA license since July 13, 2001.
Tr. 2/19/13 at 64.

See ECF No. 54-1; See Ct.

The ITC Defendants’ admitted that they owe VLM

for the unpaid invoices. Thus, the Court finds VLM has established
that the ITC Defendants are liable for at least $184,987.00 (the
principal amount of the unpaid invoices).

The remaining issues

before the Court are whether the ITC Defendants are liable for
attorneys’ fees and interest and whether Defendant Oberman is
personally liable for the debt.
A.

Attorneys’ Fees

VLM contends it is entitled to attorneys’ fees because the
invoices it sent to ITC included a provision that obligated ITC to
pay such fees and to pay interest. In relevant part, the provision
states:
The perishable agricultural commodities listed
on this invoice are sold subject to the
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statutory trust authorized by section 5c of
the Perishable Agricultural Commodities Act,
1930 (7 U.S.C. § 499e(c)).
The seller of
these commodities retains a trust claim over
these commodities until full payment is
received. Interest shall accrue on any pastdue account balance at the rate of 1.5% per
month (18% per annum).
Buyer agrees to pay
all costs of collection, including attorney’s
fees.
Pl.’s Ex. B; ECF No. 1-1, Page ID # 10.
The

ITC

Defendants

claim

that

this

provision

is

not

enforceable because (1) the United Nations Convention on Contracts
for the International Sales of Goods controls the transactions at
issue; and (2) even if the Uniform Commercial Code governs the
dispute,

VLM’s

invoices

were

counteroffers

or

proposals

for

additional terms and were not part of the contract that existed
between the parties.
1.

Findings of Fact

ITC and VLM engaged in transactions beginning in at least June
2012. In these transactions, VLM delivered produce (namely, frozen
potatoes) to ITC.
as follows.

The sequence of the parties’ transactions were

First, ITC would submit a Purchase Order to VLM which

described the item it sought to purchase, the quantity it needed,
the rate it was willing to pay, and the place of delivery.

After

receiving this Purchase Order, VLM would determine whether it could
fill the order.

Assuming it could, VLM sent ITC a Consolidated

Sales Confirmation via email that confirmed the product to be
shipped, the price, and the shipping terms.
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After ITC agreed to

these terms, VLM would ship the produce pursuant to the delivery
schedule

stated

in

the

Purchase

Consolidated Sales Confirmation.

Order

and

confirmed

in

the

Immediately after shipping the

produce, VLM sent an invoice to ITC.

The invoice listed the

quantity and description of the produce shipped, the price, the
delivery

location

and

date,

and

the

aforementioned

provision

regarding attorneys’ fees.
From June 26, 2012 through July 27, 2012, VLM and ITC engaged
in nine separate transactions pursuant to the steps described
above.

In all nine of these transactions, ITC received an invoice

(which included the attorneys’ fee provision at issue) and paid the
invoice in its entirety.
However, from July 31, 2012 through September 24, 2012, the
parties had nine additional transactions where ITC failed to pay
VLM.

It is undisputed that ITC received an invoice for all

transactions - paid or unpaid - that included the attorneys’ fee
provision.
While TAB Bank attempted to adduce an offer of proof that
challenged the validity of VLM’s PACA license, the Court denied
this offer.

The Court finds the copy VLM’s PACA license and the

testimony from VLM Vice President Witold Filemonowicz persuasive in
determining that VLM has had a valid PACA license since July 2001.
See ECF No. 54-1; Ct. Tr. 2/19/13 at 62-64.

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Thus, the Court finds

VLM and ITC had valid PACA licenses at all relevant times in this
dispute.
2.
a.

Conclusions of Law

United Nations Convention on Contracts for
the International Sales of Goods

The ITC Defendants argue that the United Nations Convention on
Contracts for the International Sales of Goods (the “CISG”) governs
this case because VLM has an office in Montreal, Canada.

The ITC

Defendants argue that since the CISG controls, the attorneys’ fee
provision on VLM’s invoices is unenforceable.
The CISG became effective in the United States on January 1,
1988.

See 15 U.S.C.A. App. at 332 (1998).

Its purpose is

“establishing substantive provisions of law to govern the formation
of international sales contracts and the rights and obligations of
the buyer and seller.”

Usinor Industeel v. Leeco Steel Products,

Inc., 209 F.Supp.2d 880, 884 (N.D. Ill. 2002).
“contracts

of

sale

of

goods

between parties

It applies to
whose

places

of

business are in different [nation] States . . . when the [nation]
States

are

Contracting

States.”

Id.

citing

15

U.S.C.A.App.

Art. 1(a). As the courts in this Circuit have noted, “federal case
law interpreting and applying the CISG is scant.” Ajax Tool Works,
Inc. v. Can-Eng Mfg. Ltd., No. 01-C-5938, 2003 WL 223187 at *2
(N.D. Ill. Jan. 30, 2003).

Because of this, this Court is

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authorized to interpret the CISG in accordance with its general
principles.
The

See Usinor Industeel, 209 F.Supp.2d at 884.

ITC

transactions

Defendants
at

issue

argue

that

the

because

VLM

Vice

CISG

governs

President

the

Witold

Filemonowicz testified that “the communications concerning the
transaction[s] at issue . . . [were] done out of the Montreal
office [and] the invoices were sent by the Montreal office.”
Defs.’ Trial Brief at 5.

The Court does not find this evidence

sufficient to conclude that the CISG trumps the Uniform Commercial
Code (the “UCC”) and PACA.
In Food Team International, Ltd. v. Unilink, LLC, et al., a
case factually similar to the one at bar, the defendant argued that
the CISG applied to the plaintiff’s PACA claims, and specifically
applied to an attorneys’ fee provision because the produce that the
plaintiff shipped was from China and the contracts were negotiated
by one of plaintiff’s agents in China.

Food Team International,

Ltd. v. Unilink, LLC, et al., 872 F.Supp.2d 405, 414 (E.D. Penn.
May 18, 2012). In rejecting this proposition, the court noted that
the “defendant failed to provide an explanation of how those facts
mandate[d] the application of the CISG and the displacement of the
PACA and UCC Article 2.”

Id.

The Court finds the same is true here.

First, Defendants

provide only one case to support their argument, Hanwha Corp. v.
Cedar Petrochemicals, Inc., 760 F.Supp.2d 426 (S.D.N.Y. 2011).

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Unlike Food Team, Hanwha did not involve PACA claims and instead
addressed

the issue

of

whether

the

language

in

the

parties’

contract had effectively caused them to opt-out of the CISG.
at

430.

Moreover,

in

Hanwha,

the

plaintiff

was

a

Id.

Korean

corporation and there was no discussion whether Hanwha even had an
office in the United States.

Id. at 428-431.

In this case, it is undeniable that the VLM has an office in
Canada.

See Amend. Compl. at 1.

However, VLM’s PACA license

expressly provides a business address in Jersey City, New Jersey.
See ECF No. 54-1.

The Court finds this evidence persuasive in

determining that VLM has “a place of business” in the United
States,

and

was

“contracting”

transactions at issue.

in

the

United

States

See 15 U.S.C.A.App. Art. 1(a).

for

the

The Court

rejects Defendants’ argument that the place of negotiations and the
place where the invoices were sent are dispositive.

Thus, the

Court concludes PACA and the UCC control.
b.

The UCC and the Attorneys’ Fees
and Interest Provision

The ITC Defendants argue in the alternative that even if the
UCC applies, the attorneys’ fees and interest provision in VLM’s
invoices is unenforceable because this provision was an additional
term added to the contract between the parties.

Defendants cite a

bankruptcy case, G&G Peppers, LLC v. Ebro Foods, Inc., as support.

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G&G Peppers, LLC v. Ebro Foods, Inc., 424 B.R. 420 (Bankr. N.D.
Ill. 2010).
Prior to analyzing the aforementioned case, the Court points
out that this case was reversed nearly two years ago.

In fact, the

portion of the case that was reversed by the district court was the
bankruptcy court’s finding denying attorneys’ fees.

See G&G

Peppers v. Ebro Foods, 449 B.R. 759, 767 (N.D. Ill. 2011) (stating
that the “bankruptcy court’s decision that G&G failed to preserve
its PACA trust is affirmed, while its decision denying G&G’s
request

for

attorney

fees

is

reversed

and

remanded

determination of a reasonable attorney fee award.”).
Court

finds

inappropriate.

Defendants’

reliance

on

this

for

Thus, the

case

entirely

Indeed, careless submissions of this kind tip-toe

around the line of Rule 11.

In this instance, the Court will give

Defendants the benefit of the doubt and assume that the relatively
short deadline to submit a trial brief caused their less than
thorough inquiry.
Setting aside this error, the Court addresses briefly the
merits of

Defendants’

argument.

In Brutyn,

N.V.

v.

Anthony

Gagliano Co., Inc. et al., a district court addressed the issue of
whether an attorneys’ fees and interest provision on an invoice was
enforceable in a plaintiff’s PACA claim.

Brutyn, N.V. v. Anthony

Gagliano Co., Inc. et al., No. 04-C-527, 2007 U.S. Dist. LEXIS

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48008 (E.D. Wis. July 2, 2007).

In finding it was, the court

noted:
I am satisfied that reasonable attorney’s fees
and interest should be awarded to Brutyn
[plaintiff]. This is because the attorney’s
fees language appeared on each and every
transaction, and at no point during the time
in which the parties were doing business did
AGCI [defendant] object to such term. Based
upon AGCI’s failure to object to the inclusion
of the term, AGCI accepted such term.
Id. at *56.
The Court finds the same is true here.

At the hearing,

Defendants presented testimony from ITC’s former bookkeeper.

On

cross-examination, she testified that she received the invoices
from VLM and noticed the fee provision on each and every invoice
VLM sent to ITC.

She also admitted that she never objected to the

provision and was unaware of anyone else from VLM who did.
Tr. 2/19/13 at 129-130.

Ct.

Similarly, Mr. Oberman testified that he

did not object to the provision.

Thus, the Court concludes that

the ITC Defendants “accepted the risk that if there was a dispute
concerning the amount owed” and they were held liable, they would
incur the reasonable attorney’s fees.

Brutyn, N.V., 2007 U.S.

Dist. LEXIS 48008 at *57.
Additional support lies in the PACA statute itself.

PACA

permits the recovery of attorneys’ fees and interest where the
parties have contemplated for such terms.

Indeed, if Congress

intended to limit PACA claims solely to the price of commodities,

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it could have included language reflecting that limitation in
7 U.S.C. §499e(c)(2).

Instead, a fair reading of the statute

permits attorneys’ fees and interest which are contractually due
within the scope of the statute’s protection of “full payment owing
in connection with the transaction.”

7 U.S.C. § 499e(c)(2).

Finally, the Court rejects Defendants’ argument that the
attorneys’ fee provision is unenforceable because it added a
material term to the parties’ established contract.

Instead, the

Court concludes that VLM’s practice of including this provision on
its invoices is standard practice in the produce supplier industry.
Because of this conclusion, the ITC Defendants cannot claim that
such

a

provision

was

a

material

alteration

that

caused

an

unreasonable surprise.
The Court finds support for such a conclusion in Section 2-207
of the UCC.

In relevant part, Section 2-207 provides:

[A]dditional terms are to be construed as
proposals for addition to the contract.
Between merchants such terms become part of
the contract unless: (a) the offer expressly
limits accepts to the terms of the offer; (b)
they materially alter it; or (c) notification
of objection to them has already been given or
is given within a reasonable time after notice
of them is received.
810 ILCS 5/2-207.
In this case, the parties are merchants who engage in the sale
of produce.

Furthermore, the Court has already concluded that

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Defendants failed to object to ITC about the provision.

Thus, the

only issue is whether the fee provision is a material alteration.
“In Illinois the test for whether an additional term would be
a material alteration to the contract is whether the addition
constitutes

unreasonable

surprise

to

one

of

the

bargaining

parties.” Jada Toys, Inc. v. Chicago Import, No. 07-C-699, 2009 WL
3055370 at *8 (N.D. Ill. Sept. 18, 2009.).

In light of the

testimony provided by Mr. Oberman regarding the number of invoices
ITC received from other suppliers with similar fee provision
language on invoices and the testimony from Mr. Filemonowicz
regarding his experience that such practice is standard in the
industry, the Court concludes that Defendants cannot claim that
this provision was an unreasonable surprise.
at 42-48, 75-76.

See Ct. Tr. 2/19/13

Thus, the Court finds the attorneys’ fees and

interest provision enforceable.
B.

Mr. Oberman’s Personal Liability

VLM argues that the Court should find Mr. Oberman personally
liable for the PACA claims.

After the ITC Defendants obtained new

counsel, this Court vacated the default judgment only against Mr.
Oberman personally.

Thus, a liability issue remains only with

respect to him.
1.

Findings of Fact

It is undisputed that Lawrence Oberman was the President of
ITC at the time of the transactions at issue.
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See Defs.’ Trial

Brief at 2; see also Ct. Tr. 2/19/13 at 20.

Furthermore, the ITC

Defendants admitted that Mr. Oberman is an officer, director, or
person in a position to control ITC.

See ECF No. 58 at 2.

Based

on ITC’s admissions and Oberman’s testimony, the Court also finds
Oberman had the authority to direct payments from ITC’s PACA trust
assets and was the person in charge of determining which suppliers
got paid and which did not.
2.

See Ct. Tr. 2/19/13 at 139.

Conclusions of Law

The Court concludes that Mr. Oberman is personally liable
under PACA.

In determining whether an individual is personally

liable the Court must determine:

“(1) whether an individual's

involvement with the company was sufficient to establish a legal
responsibility; and (2) whether the individual breached a fiduciary
duty to the PACA creditors.”

Sato & Co., LLC v. S & M Produce,

Inc., 859 F.Supp.2d 923, 927-28 (N.D. Ill. 2012).
In analyzing an individual’s involvement in a corporation,
courts examine a variety of factors.

Id.

Such factors include

whether an individual (a) was a director of the corporation; (b)
had a role in causing a breach of trust; (c) had control of the
day-to-day operations; (d) was active in the management of the
company; and (e) signed for company accounts.

Id.

Based on the

previously stated findings of fact regarding Mr. Oberman’s role at
ITC, the Court concludes his involvement is sufficient to establish
legal responsibility.
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In determining whether an individual breached a fiduciary duty
under PACA, courts have routinely held that paying other creditors
and dissipating assets of PACA trust funds constitutes a breach.
See, Anthony Marano Co. v. MS-Grand Bridgeview, Inc., No. 08 C
4244, 2010 WL 5419057 (N.D. Ill. Dec. 23, 2010).

Indeed, the

federal regulations define “dissipation” of trust assets as “any
act or failure to act which could result in the diversion of trust
assets or which could prejudice or impair the ability of unpaid
[sellers]

to

recover

transactions.”

money

owed

in

connection

with

produce

7 C.F.R. 46.46(a)(2).

VLM adduced evidence of ITC’s accounts payable. Such evidence
revealed that Mr. Oberman paid a phone bill and three other
creditors after the TRO was entered.
see also Pl.’s Ex. 9 at 1.

See Ct. Tr. 2/19/13 at 37;

The payment of ordinary business

expenses constitutes a violation of fiduciary duties to unpaid PACA
creditors.
Court

Anthony Marano Co., 2010 WL 5419057 at *8.

concludes

Oberman

breached

his

fiduciary

Thus, the

duty

and

is

personally liable for VLM’s PACA claims.
C.

Count V

Count V of VLM’s Complaint alleges that TAB Bank is liable for
the unlawful conversion and retention of PACA trust assets.

As

previously mentioned, TAB Bank denied all allegations that it took
possession or control over ITC’s assets.

At the hearing, VLM

failed to present any evidence or testimony to refute TAB Bank’s
- 17 -

denial.

Additionally,

VLM

has

not

presented

any

arguments

regarding TAB Bank’s liability in its post-hearing brief.

Thus,

the Court cannot make any findings of fact or conclusions at law
with respect to this claim.

Accordingly, the Court finds in favor

of TAB Bank with respect to Count V.
IV.

CONCLUSION

For the reasons stated herein, the Court finds for VLM on
Counts I-IV of the Complaint, and awards VLM the sum of $200,672.88
plus attorneys’ fees and any other interest which has accrued since
February 19, 2013.

The Court finds in favor of TAB Bank with

respect to Count V.
petition

by

April

The Court directs VLM to submit its fee
1,

2013.

Defendants

are

permitted

until

April 29, 2013 to file a response challenging the reasonableness of
VLM’s fees.

If VLM chooses, it will have until May 6, 2013 to file

a reply.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Date:3/5/2013

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