Cipriano
Filing
16
OPINION and ORDER Affirming Bankruptcy Court's Order re 1 Bankruptcy Appeal. Signed by District Judge Sean F. Cox. (JMcC)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
In Re: Salvatore Cipriano,
Debtor.
R.A.M. Produce Distributors, L.L.C.,
Plaintiff/Appellant,
v.
Case No. 14-14826
Salvatore Cipriano a/k/a Sal
Cipriano and Produce Buyers Co.,
Honorable Sean F. Cox
Defendants/Appellee (Cipriano)
(Bankr. Adv. No. 14-04957).
______________________________________/
OPINION & ORDER
AFFIRMING BANKRUPTCY COURT’S ORDER
This is a bankruptcy appeal. Plaintiff/Appellant R.A.M. Produce Distributors, L.L.C.
(“RAM Produce”) appeals the bankruptcy court’s order granting Defendant/Appellee Salvatore
Cipriano’s Motion to Dismiss Counts III and IV of RAM Produce’s adversary complaint. The
parties have briefed the issues and this Court heard oral argument on May 21, 2015. For the
reasons set forth below, this Court shall AFFIRM the bankruptcy court’s order.
BACKGROUND
Salvatore Cipriano (“Cipriano”) was the sole owner and operator of Produce Buyers
Company (“Produce Buyers”), a business that sold fresh produce. RAM Produce sold perishable
produce to Produce Buyers.
During the period from June of 2010 to November of 2010, RAM Produce sold
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$37,921.10 worth of produce to Produce Buyers, pursuant to written invoices. Those invoices
contained the following language:
CLAIMS MUST BE MADE AT TIME OF DELIVERY
CASH DUE AND PAYABLE UPON DEMAND
“The Perishable Agricultural Commodities listed on this invoice are sold subject
to the statutory trust authorized by Section 5(c) of the Perishable Agricultural
Commodities Act, 1920 (7 U.S.C. § 499e(c)). The seller of these commodities
retains a trust claim over these commodities, all inventories of food or other
products derived from these commodities, and any receivables or proceeds from
the sale of these commodities until full payment is received.”
“Payment is due within 10 days after the day on which the produce is accepted or
as otherwise specifically provided under the Perishable Agricultural Commodities
Act, 7 USC 499a et. seq.”
“The purchaser of the commodities listed on the invoices and those liable for
payment under the PACA are also liable for pre-judgment interest of 7% from the
day after the invoice is due and for attorney fees and costs in connection with
collecting payment under this invoice.”
(See Invoices attached as Ex. D to Pl.’s Br.).
It is undisputed that Produce Buyers made no payments on the invoices at issue for
approximately eighteen months. Then, Produce Buyers made a partial payment of $3,100.00 on
May 18, 2012, and then a partial payment of $875.00 on June 20, 2012. Shortly thereafter,
Produce Buyers ceased operations.
On May 16, 2014, Cipriano filed a voluntary chapter 13 bankruptcy petition in the United
States Bankruptcy Court, Eastern District of Michigan. The case was assigned to the Honorable
Marci B. McIvor. On June 13, 2014, the case was converted to chapter 7.
In September of 2014, RAM Produce filed an adversary complaint seeking a judgment on
the balance owed under invoices and a finding that the debt is nondischargeable. RAM
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Produce’s adversary complaint contains the following four counts: 1) Breach of Contract,
asserted against Defendant Produce Buyers (Count I); 2) Account Stated, asserted against
Defendant Produce Buyers (Count II); 3) Corporate and Individual Liability Under the PACA,
asserted against both Defendant Produce Buyers and Cipriano (Count III); and 4) Debt
Nondischargeable Pursuant to 11 U.S.C. §523(a)(4), asserted against both Defendant Produce
Buyers and Cipriano (Count IV).
On October 8, 2014, Cipriano filed: 1) a Motion to Dismiss Claims under Fed. R. Civ. P.
12(b)(6) (D.E. No. 7 in Adversary Case); and 2) an Answer and Affirmative Defenses to RAM
Produce’s adversary complaint (D.E. No. 8 in Adversary Case).
Cipriano’s Motion to Dismiss asserted, in the Table of Contents Section, that: “I.
Plaintiff’s claim for breach of fiduciary duty is time-barred by the statute of limitations period
under MCL 600.5805” and that “II. Plaintiff’s discharge action is correspondingly time-barred
by the statute of limitations.” (D.E. No. 7 in Adversary Case at 5). The body of the brief,
however, focused on other arguments.
Cipriano’s’s Answer and Affirmative included the following affirmative defenses: 1)
“Failure to state a claim”, stating the complaint fails to state a claim against Cipriano and stating
that he has filed a Motion to Dismiss; 2) Waiver; 3) Unclean Hands; 4) Latches; 5) Failure to
mitigate damages; and 6) Consent. Cipriano further stated that reserved the right to add
additional affirmative defenses.
A Clerk’s Entry of Default was issued as to Defendant Produce Buyers on October 15,
2014.
RAM Produce’s Brief in response to Cipriano’s Motion to Dismiss was devoted
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primarily to the arguments that Cipriano focused on in his brief, rather than the statute of
limitations argument contained in the Table of Contents section. Nevertheless, in a lengthy
footnote on pages 9 and 10 of its brief, RAM Produce stated:
Through an e-mail sent by Defendant Cipriano’s counsel on
October 1, 2014, Defendant Cipriano requested concurrence on
dismissal of the pending claims of RAM Produce based on lapse of
the applicable statute of limitations. (Exhibit F: 10-1-14 E-mail).
Through an e-mail sent by counsel for RAM Produce on October
2, 2014 (Exhibit G: 10-2-14 E-mail), RAM Produce responded to
the request for concurrence by stating that the applicable
limitations periods had not lapsed since, even assuming a three
year limitations period applies (which is an open question), the
limitations period was reaffirmed for limitations analysis purposes
by the partial payments made on 5-18-12 and 6-20-12 with citation
to applicable authority (Charbonneau v Mary Jane Elliott, P.C.,
611 F Supp 2d 736, 741-742 (ED MI 2009). Counsel for RAM
Produce also provided Defendant Cipriano a copy of the § 341
hearing transcript where Defendant Cipriano reaffirmed the
underlying debt to RAM Produce based on the 2012 partial
payments (see Exhibit A: § 341 Tr. p. 9). (See also Exhibit G: 102-14 E-mail). In the pending Motion to Dismiss, Defendant
Cipriano listed in the Analysis section (i) of the Table of Contents,
an argument that RAM Produce’s breach of fiduciary duty claim is
time-barred by the statute of limitations and, therefore, that RAM
Produce’s discharge action (under §523(a)(4)) is correspondingly
time-barred by the statute of limitations. (See p. 3 of Defendant
Cipriano’s Motion to Dismiss). However, substantive review of the
arguments made in Defendant Cipriano’s Motion to Dismiss
indicate that the statute of limitations argument was abandoned
presumably based on the authority provided by counsel for RAM
Produce. (See for e.g. Motion to Dismiss pp. 7-12). Instead, in the
argument section of the Motion to Dismiss, Defendant Cipriano
urges that the pending RAM Produce claims should be dismissed
based on a “course of dealing” and related “standing” arguments
arising from acceptance of partial payments and payments beyond
the 30 day deadline provided under the PACA. To the extent that
Defendant Cipriano argues in the pending Motion to Dismiss, that
the applicable limitations periods have lapsed on the pending
claims, RAM Produce objects as there are no such arguments
properly developed in the body of the Motion to Dismiss and any
efforts to rely on the statute of limitations argument through the
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pending Motion to Dismiss are being made surreptitiously and
without proper notice or citation to relevant facts or authority to
support the arguments. In the unlikely event that Defendant
Cipriano is attempting to assert lapse of the applicable statute of
limitations in the pending Motion to Dismiss, RAM Produce
requests an opportunity to respond more substantively to such
argument through a supplemental brief which will include the
authority noted in the 10-2-14 e-mail from counsel for RAM
Produce (Exhibit G).
(D.E. 15 in Adversary Case at 9-10).
Judge McIvor held a hearing on Defendant Cipriano’s Motion to Dismiss on November
25, 2014. At the conclusion of the hearing, she ruled on the record. She then issued an order
granting the motion as to Counts III & IV, stating those counts against Cipriano were being
dismissed for the reasons stated on the record at the hearing.
The transcript of the November 25, 2014 hearing reflects that the bankruptcy court
dismissed Count III against Cipriano because the claim was not asserted in a timely manner:
[T]his court agrees that at the time Plaintiff sold goods to Defendant Produce
Buyers, the goods were imposed with a Trust. However, the Court disagrees with
Plaintiffs’s conclusion that the statutory Trust created to protect sellers permits a
seller to assert that its lien rights exist forever.
While PACA does not explicitly state a deadline by which a PACA seller
must pursue its rights, both the case law and the statute make it clear that a PACA
seller must take some affirmative action within a reasonable time to assert its
superpriority claim against assets of the buyer.
....
This Court finds that waiting four years to assert a lien against Produce
Buyers cannot be considered “prompt action” under any definition of the word.
Presumably Plaintiff did not assert a claim against Produce Buyers when Produce
Buyers went out of business in 2012 because at that time Produce Buyers had no
assets traceable to produce Plaintiff had sold to Produce Buyers back in 2010.
Plaintiff cannot now magically reinstate a lien which lapsed due to Plaintiffs’
inaction.
This Court finds that Plaintiff’s failure to promptly pursue its PACA claim
against Produce Buyers is fatal to its argument that it has any lien rights against
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Produce Buyers principle [sic] Defendant Cipriano.
(Hrg. Tr. at 39 and 42-43).
At one point during the hearing, Counsel for RAM Produce argued: “I didn’t say that the
claim exists in perpetuity. What I said is that the claim exists as long as the statute of limitations
has not expired, and there is statute of limitations; it’s not at issue in this case.” (Hrg. Tr. at 2445).
Although the bankruptcy court was dismissing the claim as untimely, it stated it was not
viewing the issue as a statute of limitations issue:
The Plaintiff in this case did raise statute of limitations issues, but those cases
come up in a different context where there have been valid PACA claims asserted
against the corporate Defendant and then the question in the case was whether all
other PACA protections existing, that is that there was a 30 day protection that
the parties had agreed upon, the payments hadn’t been made, whether somehow a
delay in enforcing a proper PACA claim could be limited by the statute of
limitations. Those are not the facts of the instant case. Statute of limitations is
not an issue in this case.
(Id. at 43).
But Judge McIvor later vacated her November 25, 2014 oral ruling and her order
dismissing Counts III & IV for the reasons stated on the record. They were replaced by: 1) a
December 4, 2014 written Supplemental Opinion to Bench Opinion Issued on November 25,
2014; and an 2) Order Granting Defendant Cipriano’s Motion to Dismiss as to Counts III and IV.
(D.E. Nos. 33 & 34 in Adversary Case.) The opening paragraph of the December 4, 2014
Supplemental Opinion stated:
On November 25, 2014, this Court issued a bench opinion granting defendant,
Salvatore Cipriano’s Motion to Dismiss Plaintiff’s Complaint. The basis of the
Court’s ruling was that Plaintiff failed to state a claim against Defendant Cipriano
because of Plaintiff’s failure to take prompt action against defendant, Produce
Buyers, the party with primary liability to Plaintiff. While this Court was correct
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in finding that Plaintiff’s Complaint failed to state a claim upon which relief could
be granted, the legal analysis resulting in that conclusion was unnecessarily
tortured. Because this Court is concerned that its analysis could cause confusion1
to sellers and buyers who operate under the Perishable Agricultural Commodities
Act (7 U.S.C. § 499a et seq, (hereinafter “PACA”)), the Court is issuing a
Supplemental Opinion to clarify the basis of its dismissal of Plaintiff’s complaint.
(11/25/14 Suppl. Opin. at 1-2). The Supplemental Opinion further stated:
The Court acknowledges that in its bench opinion, it confused a PACA
beneficiary’s right to file a lawsuit to collect on its debt with the PACA
beneficiary’s right to enforce collection by attaching specific assets of the PACA
buyer. The opinion could create confusion as to whether PACA creates its own
limitations for the time period in which PACA sellers could bring legal action to
collect on their debt. This Court intended to create no such confusion. PACA
contains no specific language as to the deadline by which a seller must file a suit
to recover the proceeds from produce sold out of trust. Any limitation on the
filing of a lawsuit to collect money owed by a purchaser of PACA protected
goods is governed by the relevant statute of limitations.
(Id. at 4). The court noted that when a federal statute such as PACA fails to provide a limitations
period, courts look to state law. (Id. at 5). The court stated:
Produce Buyers was a Michigan limited liability company with its principal place
of business in Detroit, Michigan. Therefore for purposes of determining the
applicable statute of limitations in which Plaintiff could have filed a lawsuit
against defendants Produce Buyers and Cipriano, the relevant statute of
limitations is controlled by the laws of the State of Michigan. While the parties
did not brief the issue, a footnote in Plaintiff’s brief suggests that Defendants, at
one point, asserted a three year limitations period, presumably the limitations
period for bringing tort actions seeking damages for breach of fiduciary duty. See
Mich. Comp. Laws 600.5805(10)2; Bernstein v. Seyburn, Kahn, Gin, Bess &
1
The bankruptcy court’s concern in this regard may have actually stemmed from
comments/questions from RAM Produce’s Counsel after the bankruptcy court orally pronounced
her ruling. (See Hrg. Tr. at 54) (“Lastly, Your Honor, I need to advise RAM Produce reliably on
a going forward basis. I understand the Court’s ruling that there was not prompt pursuit. I heard
the Court mention that maybe a pursuit by 2011 or 2012. What should I tell my client, at least
vis-a-vis this Court, to keep a viable PACA claim is ‘prompt pursuit.’?”)
2
Mich. Comp. Laws § 600.5805(1) is the residual tort statute of limitations and states:
“Except as otherwise provided in this section, the period of limitations is 3 years after the time of
the death or injury for all actions to recover damages for the death of a person, or for injury to a
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Serlin Corp, 2014 WL 688652 (Mich. App.)(statute of limitations for breach of
fiduciary duty is three years); Wayne Co. Employees Retirement Sys. v. Wayne
Co., 836 N.W.2d 279, 316 n.37 (Mich. App. 2013)(same). Plaintiff, without
citation to any specific statute, asserts that even if the applicable limitations
period is three years, the period was “reset” with each partial payment made by
Defendants.
(Id. at 5).
The court concluded that because “the basis of Plaintiff’s Complaint against defendant
Cipriano is a breach of fiduciary duty, the relevant limitations period is three years.” (Id. at 6).
Next, the court considered when the statute of limitations began to run in this case and
concluded, based on authority cited in the opinion, that it began to run when the seller knew the
purchaser was making late payments in violation of the PACA. (Id. at 7).
The bankruptcy court acknowledged, but rejected, Plaintiff’s argument that the
limitations period “resets” any time a partial payment is made:
Plaintiff argues in a footnote in its brief that regardless of the relevant
statute of limitations, the statute starts to run again each time a payment is made.
Plaintiff argues that the partial payments made by Produce Buyers in May and
June, 2012, reset the beginning of the limitations period for commencing a
lawsuit. Plaintiff relies on Charbonneau v. Mary Jane Elliott, P.C., 611 F.supp.2d
736 (E.D. Mich. 2009) in support of this position.
Plaintiff’s reliance on this case is misplaced. In Charbonneau, Plaintiff
brought suit against the defendant under the Fair Debt Collection Practices Act
(15 U.S.C. § 1692). The parties agreed that the controlling statute of limitations
for the collection for past due debts was six years from the date the cause of
action accrued (M.C.L. 600.5807). The dispute was over M.C.L. § 600.5831,
which provides “in actions brought to recover the balance due upon a mutual and
open account. . . the claim accrues at the time of the last item proved in the
account.” In that context, determining when the statute of limitations runs on a
collection action, the court held that a partial payment may operate as an
acknowledgment of the continued existence of the debt.
As previously discussed, Plaintiff in the instant case is not suing defendant
Cipriano for nonpayment of a debt. In fact, Plaintiff’s cause of action for
nonpayment of a debt could only be brought against the party with whom it
person or property.” Case law holds that this statute controls claims for breach of fiduciary duty.
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contracted, that is, Produce Buyers. The sole basis of Plaintiff’s Complaint
against defendant Cipriano is breach of fiduciary duty. The partial payment
theory as a ground for extending the statute of limitations simply does not apply
when the cause of action is a breach of fiduciary duty.
In sum, this Court agrees with the conclusion of the Weis-Buy and Spada
courts that the statute of limitations on a breach of fiduciary duty claim runs from
the date on which Plaintiff first has knowledge that the defendant purchaser has
failed to pay timely as required by the invoice.
In the instant case, the statute of limitations on Plaintiff’s breach of
fiduciary duty claim against defendant Cipriano began running in December,
2010, when Produce Buyers defaulted on the 10 day payment terms set forth in
Plaintiff’s invoices. Plaintiff did not commence its lawsuit until September, 2014.
As stated above, the statute of limitations in Michigan for breach of fiduciary
duties is three (3) years. Plaintiff’s claim against both Defendants is untimely.
Defendant Produce Buyers failed to file a response to Plaintiff’s complaint and a
default judgment has already been entered against Produce Buyers. However, as
to defendant Cipriano, Plaintiff’s complaint is dismissed for the reason that it was
brought outside the applicable statute of limitations.
(Id. at 7-9). The Supplemental Opinion concluded by stating:
Because Plaintiff’s breach of fiduciary duty claim against defendant Cipriano is
time barred, Count II of the Complaint is dismissed as to that defendant. Without
a valid claim for breach of fiduciary duty, Plaintiff cannot establish a
nondischargeable claim under § 523(a)(4) and Count IV is also dismissed as to
defendant Cipriano
(Id. at 9).
On December 18, 2014, RAM Produce filed this appeal, appealing Judge McIvor’s order
dismissing Counts III & IV as to Defendant Cipriano.
ANALYSIS
I.
Did The Bankruptcy Court Err And/Or Deny RAM Produce Due Process by Sua
Sponte Raising A Statute Of Limitations Argument?
RAM Produce first asserts that the “Bankruptcy Court erred and/or denied due process
by, sua sponte, raising a statute of limitations argument where the pending Motion to Dismiss
Failed to Raise and/or support a statute of limitations argument.” (Pl.’s Br. at 15).
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Citing Fields v. Campbell, 39 F. App’x 221, 222-23 (6th Cir. 2002), Plaintiff asserts that
a trial court generally may not “sua sponte, dismiss a complaint where a filing fee has been paid
unless the court gives the plaintiff an opportunity to amend the complaint as well as
unambiguous notice of the court’s own motion to dismiss.” (Pl.’s Br. at 15). The Fields decision
applied the rule set forth in Tingler v. Marshall, 716 F.2d 479 (6th Cir. 1983) in determining that
the district court erred in sua sponte dismissing the plaintiff’s complaint before the complaint
was served on the defendant.
In response, Defendant Cipriano asserts that the Tingler rule does not apply here because
the bankruptcy court did not sua sponte raise the statute of limitations issue. He further contends
that the Tingler standard was satisfied under the circumstances presented here in any event.
This Court concludes that Plaintiff’s reliance on Tingler and its progeny is misplaced. In
Tingler, the Sixth Circuit addressed the “narrow issue” of the propriety of “sua sponte dismissals
on the merits, prior to the service of the complaint and without notice of the proposed dismissal
to the plaintiff to allow him to respond.” Tingler, 716 F.2d at 1111. The Sixth Circuit concluded
that “such sua sponte dismissals are not in accordance with our traditional adversarial system of
justice because they cast the district court in the role of ‘a proponent rather than an independent
entity.’” Tingler, 716 F.2d at 1111 (quoting Franklin v. State of Oregon, State Welfare Div., 662
F.2d 1337, 1342 (9th Cir. 1981)).
The court explained that “Plaintiffs are prejudiced by the procedure followed by the
district court in this case because, unlike with motions to dismiss filed by defendants, they have
no opportunity to amend their complaints or make legal arguments against the dismissal. The
prejudice is particularly acute with respect to pro se plaintiffs, like the plaintiff in this case, who
10
are generally unskilled in the art of pleading.” Tingler, 716 F.2d at 1111. The Tingler court
further explained that:
Sua sponte dismissals without service or notice are likewise unfair to defendants
because they deny defendants “the full panoply of litigation strategies available to
the typical defendant.” Lewis, 547 F.2d at 6. In these cases, the defendants must,
on appeal, choose between not participating, see Lewis, supra, or, as in this case,
making arguments based upon factual assertions which are not in the record. Such
facts are not in the record since the defendant was never served with the
complaint and did not have the opportunity to file an answer or any other
pleadings.
Tingler, 716 F.2d at 1111. The Tingler court held before a district court may sua sponte dismiss
a complaint before service on the defendant, the district court “must: (1) allow service of the
complaint upon the defendant; (2) notify all parties of its intent to dismiss the complaint; (3) give
the plaintiff a chance to either amend his complaint or respond to the reasons stated by the
district court in its notice of intended sua sponte dismissal; (4) give the defendant a chance to
respond or file an answer or motions; and (5) if the claim is dismissed, state its reasons for the
dismissal.” Id. at 1112.
The bankruptcy court’s dismissal of the claims asserted against Cipriano “did not violate
the rules for sua sponte dismissal established by Tingler.” Estate of Abdullah v. Arena, __ F.
App’x __, 2015 WL 664411 at * 6 (6th Cir. 2015). “Tingler does not apply to the dismissal of”
Plaintiff’s claims against Cipriano “because the dismissal was not sua sponte; [Cipriano] filed a
motion to dismiss, which the district court granted.” Id. Although the argument was not
developed in the body of the brief that Cipriano filed, his Motion to Dismiss asserted that
“Plaintiff’s claim for breach of fiduciary duty is time-barred by the statute of limitations period
under MCL 600.5805” and that “Plaintiff’s discharge action is correspondingly time-barred by
the statute of limitations.” (D.E. No. 7 in Adversary Case at 5).
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Thus, the Tingler rule does not apply here and neither does the rationale behind the rule.
Unlike the situation in Tingler, Cipriano was served with the adversary complaint in this action.
Cipriano then filed a formal Motion to Dismiss and he raised, among other arguments, a statute
of limitations argument. Defendant therefore had notice of that argument and, in its brief, it
devoted nearly a full page to its position as to the statute of limitations and its application here.
Defense Counsel also raised the statute of limitations issue again at oral argument. Thus,
Defendant had notice that the issue had been raised, made arguments as to its position on the
issue, and also had the opportunity to seek leave to file an amended complaint if it wanted to do
so. Finally, the bankruptcy court stated its reasons for the dismissal of the claims against
Cipriano in its written Supplemental Opinion.
Defendant’s relianace on Fields, Tingler, and other cases that actually involved a district
court’s sua sponte dismissal of claims before the defendant had been served is therefore
misplaced.
II.
Did The Bankruptcy Court Err And/Or Deny RAM Produce Due Process By Sua
Sponte Raising A Statute Of Limitations Defense Where Cipriano Failed To Assert
It As An Affirmative Defense?
Next, Plaintiff argues that the bankruptcy court erred by sua sponte raising the statute of
limitations issue because it is an affirmative defense and it “was not raised by Appellee Cipriano
in this proceeding.” (Pl.’s Br. at 19). Relying on Haskell v. Washington Twp., 864 F.2d 1266
(6th Cir. 1988), Plaintiff asserts that Cipriano “failed to raise, and therefore waived, a defense of
lapse of the statute of limitations in both a Motion to Dismiss and its Affirmative Defenses;
therefore, the limitations defense was waived.” (Pl.’s Br. at 20).
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In Haskell, the Sixth Circuit noted that, “[p]ursuant to Rule 8(c)3 of the Federal Rules of
Civil Procedure, a defense based upon a statute of limitations is waived if not raised in the first
responsive pleading.” Haskell, 864 F.2d at 1273. “Since it is a waivable defense, it ordinarily is
error for a district court to raise the issue sua sponte.” Id. “Otherwise, the waiver aspect of Rule
8(c) would have little meaning.” Id. In Haskell, although the timeliness of the action had never
been questioned by the defendants, the district court sua sponte raised the issue of whether a
claim was barred by the applicable statute of limitations and did so more than three years after
the action had been filed. Under those circumstances, the Sixth Circuit reversed the district
court’s dismissal on statute of limitations grounds.
Here again, the bankruptcy court did not sua sponte raise the issue of statute of
limitations. Before4 filing his Answer and Affirmative Defenses, Cipriano responded to
Plaintiff’s complaint by filing a Motion to Dismiss. Although the argument was not developed
in the body of the brief that Cipriano filed, that motion asserted that “Plaintiff’s claim for breach
of fiduciary duty is time-barred by the statute of limitations period under MCL 600.5805” and
that “Plaintiff’s discharge action is correspondingly time-barred by the statute of limitations.”
(D.E. No. 7 in Adversary Case at 5). Accordingly, the statute of limitations defense was not
waived. See Pierce v. Oakland County, 652 F.2d 671, 672 (6th Cir. 1981) (statute of limitations
defense was “not waived simply because it was raised in a motion to dismiss rather than in the
3
Fed. R. Civ. P. 8(c) currently provides that “[i]n responding to a pleading, a party must
affirmatively state any avoidance or affirmative defense,” including statute of limitations.
4
In addition, after he had filed the Motion to Dismiss, that included a statute of
limitations challenge, Cipriano filed an Answer and Affirmative Defenses and included “Failure
to state a claim”, stating the complaint fails to state a claim against Cipriano and that he had filed
a Motion to Dismiss.
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answer.”).
III.
Did The Bankruptcy Court Abuse Its Discretion By Not Converting The Motion To
Dismiss Into A Motion For Summary Judgment?
RAM Produce also argues that the bankruptcy court erred in not converting Cipriano’s
Motion to Dismiss into a motion for summary judgment and, therefore, not considering exhibits
that RAM Produce attached to its response brief.
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a case where the
complaint fails to state a claim upon which relief can be granted. When reviewing a motion to
dismiss under Rule 12(b)(6), a court must “construe the complaint in the light most favorable to
the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the
plaintiff.” DirectTV, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007). Dismissal is appropriate
if the plaintiff failed to offer sufficient factual allegations that make the asserted claim plausible
on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
In adjudicating a motion to dismiss under Fed.R.Civ.P. 12(b) (6), the Court generally
does not consider matters outside the pleadings. Fed.R.Civ.P. 10(c), however, provides that a
“copy of a written instrument that is an exhibit to a pleading is part of the pleading for all
purposes.” Fed.R.Civ.P. 10(c). “In addition, when a document is referred to in the pleadings and
is integral to the claims, it may be considered without converting a motion to dismiss into one for
summary judgment.” Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327,
335-336 (6th Cir. 2007).
Rule 12 of the Federal Rules of Civil Procedure allows a district court to convert a
motion to dismiss into a motion for summary judgment and provides, in pertinent part, that:
(d) Result of Presenting Matters Outside the Pleadings. If, on a motion under
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Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not
excluded by the court, the motion must be treated as one for summary judgment
under Rule 56. All parties must be given a reasonable opportunity to present all
the material that is pertinent to the motion.
Fed. R. Civ. P. 12(d).
Here, RAM Produce’s complaint refers to the invoices and they are central to its claims
against Cipriano. In addition, RAM Produce attached, as exhibits to its complaint, an Affidavit
that discussed the invoices and a list of the invoices. As such, the bankruptcy court can consider
the invoices, and the exhibits to the complaint, without converting Cipriano’s Motion to Dismiss
into a motion for summary judgment.
From this Court’s review of the bankruptcy court’s Supplemental Opinion, the only
exhibits to the pending motion and response brief that the bankruptcy considered were two
exhibits that RAM Produce and Cipriano filed that simply consisted of copies of the invoices.
(See Supplemental Opinion at 2). It does not appear that the bankruptcy court considered any
materials outside of the pleadings other than those invoices and, again, it can consider those
invoices without converting the motion because the invoices are referred to in the complaint and
central to the plaintiff’s claims against Cipriano.
The bankruptcy court, therefore, was not required to convert the Motion to Dismiss into a
summary judgment motion under Rule 12(d).
As Plaintiff acknowledged at the hearing before the bankruptcy court, the decision as to
whether to convert Cipriano’s Motion to Dismiss into a motion for summary judgment is a
matter left to the discretion of the bankruptcy court: “It’s up to the discretion of the Court
whether to accept this as a 12(b)(6) and not consider the attachments or not.” (11/25/14 Hrg. Tr.
at 17); see also Wysocki v. International Business Mach. Corp., 607 F.3d 1102, (6th Cir. 2010)
15
(A district court’s decision as to whether to convert a motion to dismiss into a motion for
summary judgment is reviewed under the abuse of discretion standard.). This Court finds that
the bankruptcy court acted within in discretion in choosing not to convert Cipriano’s Motion to
Dismiss into a summary judgment motion.
IV.
Did The Bankruptcy Court Err In The Ruling It Made As To Application Of The
Statute Of Limitations?
RAM Produce does not dispute that a three-year statute of limitations applies to its claims
against Cipriano. (See Pl.’s Br. at 21) (“For purposes of this Appeal, Appellant RAM Produce
does not contest that a three year statute of limitations applies . . .”). But RAM Produce
contends that the bankruptcy court erred in not restarting the statute-of-limitations clock when
Cipriano made partial payments to RAM Produce in May and June of 2012.
Cipriano disagrees and contends that the bankruptcy court got it right in ruling that the
partial payments did not restart the clock.
This Court agrees with the bankruptcy court’s analysis and conclusion set forth in its
Supplemental Opinion.
Congress enacted PACA to deter unfair business practices in the perishable agricultural
goods market. Weis-Buy Svs., Inc. v. Paglia, 411 F.3d 415, 419 (3rd Cir. 2005). It was designed
to protect the producers of perishable agricultural products, who usually entrust their products to
a buyer or commission merchant who may be located far away. Id. As explained in Overton:
One of the purposes of PACA is to protect unpaid sellers of perishable
agricultural commodities. In 1984, Congress amended PACA to create a statutory
trust in their favor. 7 U.S.C. § 499e(c); Endico Potatoes, Inc. v. CIT
Group/Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir.1995) ( “[D]ue to the need to
sell perishable commodities quickly, sellers of perishable commodities are often
placed in the position of being unsecured creditors of companies whose
creditworthiness the seller is unable to verify.”). The trust protects the sellers
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against financing arrangements made by merchants, dealers, or brokers who
encumber or give lenders a security interest in the commodities or the receivables
or proceeds from the sale of the commodities, thus giving the claims of these
sellers precedence over those of secured creditors.
Overton Distrib., Inc. v. Heritage Bank, 340 F.3d 361, 364-65 (6th Cir. 2003).
Under PACA, when a seller or dealer such as RAM Produce ships produce to a buyer
such as a Produce Buyers, a statutory trust is created upon acceptance of the commodities by
Produce Buyers. 7 U.S.C. § 499e(c)(2). If the buyer fails to make full prompt payment for the
shipment, the seller may file suit against the buyer, which is essentially a breach of contract
action. That is what RAM Produce did here, as Count I of its adversary complaint asserts a
breach of contract action against Produce Buyers. In other words, RAM Produce sued Produce
Buyers for nonpayment of its debt.
Courts have also concluded that an individual corporate officer can be held liable for
breaching his or her fiduciary duty to protect PACA trust assets. Weis-Buy Servs., 411 F.3d at
421. “Individual liability in the PACA context is not derived from the statutory language, but
from common law breach of trust principles.” Id.; see also Six L’s Packing Co., Inc. v. Beale,
524 F. App’x 148, 156 (6th Cir. 2013). Under such trust principles, PACA imposes individual
liability on corporate officers “to the extent that they control the trust assets.” Six L’s Packing
Co., Inc., 524 F. App’x at 156. That is, an individual officer or shareholder of a corporation who
is in a position to control statutory trust assets, and who fails to preserve those assets, may be
held personally liable under PACA. Id. This kind of a claim is a breach of fiduciary duty claim;
not a claim for nonpayment of a debt.
Because PACA does not contain a statute of limitations period for breach of fiduciary
duty claims, the Court borrows the appropriate limitations period from the forum state, which
17
here, is Michigan. A breach of fiduciary duty claim is a tort cause of action and it governed by a
three-year statute of limitations under Michigan law. Miller v. Magline, Inc., 76 Mich.App. 284
(1977). Again, RAM Produce does not dispute that a three-year limitations period applies to a
breach of fiduciary duty under Michigan law.
Thus, RAM Produce’s breach of fiduciary duty claim against Cipriano will only be
timely if it was brought within three years of accrual, or if the statute of limitations was tolled.
The few cases that have addressed the issue of when a PACA-based breach of fiduciary
duty claim begins to run have concluded that the claim starts to run when the seller knows the
buyer is making late payments in violation of PACA. Weis-Buy Servs., 411 F.3d at 422-24;
Spada Properties, Inc. v. Unified Grocers, Inc., 38 F.Supp.3d 1223 (D. Oregon Sept. 22, 2014).
In Weis-Buy Servs., the Third Circuit began its analysis by noting that, “[g]enerally, the
statute of limitations begins to run on a breach of fiduciary duty claim when the trustee openly
and unequivocally violates his duties.”
Weis-Buy Servs., 411 F.3d at 422. The defendant
officer in that case argued that the breach of fiduciary duty claim against him accrued on the date
that the seller’s invoices became due. The district court rejected that rationale, and concluded
that because of the continuing nature of the PACA trust, the buyer’s failure to pay the sellers’
invoices amounted to a “continuing violation.” The Third Circuit disagreed and reversed,
concluding that continuing violations doctrine does not apply to a breach of fiduciary duty claim
under PACA.
The court concluded that “once United Fruit [(the buyer)] and its officers failed to pay
Sellers for the goods received, Sellers were on notice that the trustees were in breach of their
fiduciary duties.” Id. at 423. The court further explained that the “unique nature of the PACA
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trust,” does not change the analysis:
We recognize that the trust created by PACA exists until a seller is paid, 7 U.S.C.
§ 499e(c)(2), and “[p]articipants who preserve their rights to benefits ... remain
beneficiaries until they are paid in full,” 7 C.F.R. 46.46(c)(2). However, when
Sellers are not suing to enforce the trust obligations or to preserve their shares of
the trust res, but instead are suing the trustee in tort for damages resulting from a
breach of his fiduciary duties, we believe that the statute of limitations must
accrue from the time that the trustee openly repudiates those duties.
Id.
The district court in Spada Properties, Inc. found the reasoning in Weis-Buys Servs.
persuasive and followed it.
RAM Produce asserts that the bankruptcy court erred in following Weis-Buys Servs. and
characterizes its claim against Cipriano as a claim for nonpayment of a debt. (See Pl.’s Br. at 26)
(“The bottom line is that in this proceeding, Appellant RAM Produce asserts claims for
nonpayment of a debt against Appellee Cipriano with liability premised on the PACA.”).
Relying on Charbonneau v. Mary Jane Elliott, P.C., 611 F.Supp.2d 736 (E.D. Mich. 2009), it
contends that under Michigan law, the statute of limitations on its claim against Cipriano was
reset by Produce Buyer’s two partial payments in May and June of 2012.
Notably, however, Charbonneau, was not a case involving a breach of fiduciary duty
claim. Rather, the action involved the collection of a debt. The district court noted that the
controlling statute of limitations for the collection of past due debts is six years from the date of
accrual. The district court noted that the defendants asserted that “Plaintiff’s partial payment on
July 3, 2001, served to reset the statute of limitations” and then stated “[t]here is no question that
under Michigan law, a partial payment may operate as an acknowledgment of the continued
existence of the debt and as a waiver of any right to take advantage of the statute of limitations.”
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Charbonneau, 611 F.Supp.2d at 741.
This Court agrees with the bankruptcy court that RAM Produce’s reliance on
Charbonneau is misplaced:
Plaintiff’s reliance on this case is misplaced. In Charbonneau, Plaintiff
brought suit against the defendant under the Fair Debt Collection Practices Act
(15 U.S.C. § 1692). The parties agreed that the controlling statute of limitations
for the collection for past due debts was six years from the date the cause of
action accrued (M.C.L. 600.5807). The dispute was over M.C.L. § 600.5831,
which provides “in actions brought to recover the balance due upon a mutual and
open account. . . the claim accrues at the time of the last item proved in the
account.” In that context, determining when the statute of limitations runs on a
collection action, the court held that a partial payment may operate as an
acknowledgment of the continued existence of the debt.
As previously discussed, Plaintiff in the instant case is not suing defendant
Cipriano for nonpayment of a debt. In fact, Plaintiff’s cause of action for
nonpayment of a debt could only be brought against the party with whom it
contracted, that is, Produce Buyers. The sole basis of Plaintiff’s Complaint
against defendant Cipriano is breach of fiduciary duty. The partial payment theory
as a ground for extending the statute of limitations simply does not apply when
the cause of action is a breach of fiduciary duty.
(Bankruptcy Court’s 12/4/14 Suppl. Opinion).
Accordingly, this Court shall affirm the bankruptcy court’s statute of limitations ruling.
CONCLUSION & ORDER
For the reasons set forth above, IT IS ORDERED that the bankruptcy court’s Order
granting Defendant/Appellee Salvatore Cipriano’s Motion to Dismiss Counts III and IV of RAM
Produce’s adversary complaint is AFFIRMED.
IT IS SO ORDERED.
S/Sean F. Cox
Sean F. Cox
United States District Judge
Dated: May 28, 2015
20
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
In Re: Salvatore Cipriano,
Debtor.
R.A.M. Produce Distributors, L.L.C.,
Plaintiff/Appellant,
v.
Case No. 14-14826
Salvatore Cipriano a/k/a Sal
Cipriano and Produce Buyers Co.,
Honorable Sean F. Cox
Defendants/Appellee (Cipriano)
(Bankr. Adv. No. 14-04957).
______________________________________/
PROOF OF SERVICE
I hereby certify that a copy of the foregoing document was served upon counsel of record
on May 28, 2015, by electronic and/or ordinary mail.
S/Jennifer McCoy
Case Manager
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