Heeren Bros., Inc. v. Cherry Growers, Inc.
OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
HEEREN, LLC d/b/a RIDGEKING
APPLE PACKAGING AND STORAGE,
Case No. 1:15-cv-47
HON. ROBERT HOLMES BELL
CHERRY GROWERS, INC.,
This case involves a claim under the Perishable Agricultural Commodities Act, 7
U.S.C. § 499 (“PACA”) and an accompanying breach of contract claim. On December 23,
2015, the Court issued an opinion denying both parties’ motions for summary judgment.
(12/23/2015 Op., ECF No. 29.) The parties’ motions for summary judgment centered on an
issue of statutory interpretation: whether, under PACA, a pre-default, non-written agreement
to extend payment terms outside of 30 days waives a seller’s PACA trust rights. The Sixth
Circuit has not weighed in on the issue. This Court, adopting the position of the Court of
Appeals for the Second Circuit, determined that “a seller who enters into a pre-transaction,
non-written agreement permitting the buyer to make payments outside of 30 days fails to
preserve its trust rights under PACA.” (12/23/2015 Op. 16.) The Court found that a question
of fact existed as to whether such an agreement was entered into between Plaintiff Heeren,
LLC and Defendant Cherry Growers, Inc. A bench trial was held on February 3, 2016, to
resolve this question, as well as questions concerning the amount of damages resulting from
the breach of contract.
I. The Parties’ Contractual Relationship
This case arises out of Defendant’s failure to pay Plaintiff for apples purchased during
the 2013 crop year. Defendant does not dispute that it owes Plaintiff money. The issues of
contention concern how much money Defendant owes, and whether the contractual
agreement between the parties resulted in a waiver of Plaintiff’s PACA trust rights.
The parties had done business together since 2009. The parties’ obligations to each
other were not, however, spelled out neatly in a written contract. The parties instead operated
on a more informal basis. Typically, prior to entering into an agreement to buy and sell
apples, the parties would discuss a “target price” for the apple shipments. After the target
price was agreed on, Plaintiff would ship the apples to Defendant. With each shipment,
Plaintiff provided a bill of lading. The bill of lading states the shipping method, an order
number, the quantity of the crop, the total weight, the payment terms, and a product
description. The bill of lading also contains language designed to preserve Plaintiff’s PACA
Any claims for shortage, damage or condition will not be honored unless the
problem is reported in writing to seller within 48 hours (forty eight) of receipt
of the product and a timely U.S.D.A. Inspect is performed on the product when
requested by seller. 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, 1930 (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. Buyer agrees that Interest shall accrue on past due balances at
1.5% (18% per annum). Buyer agrees to pay all costs of collections including
(3/20/2014 Bill of Lading, ECF No. 25-4.) The payment terms on the bill of lading state:
“NET 10 DAYS.” (Id.) After receiving the apples, Defendant performs an inspection and
issues a settlement statement to Plaintiff that states the grade of the apples, how many pounds
were delivered, and how much is owed based on the target price. Later in the year, the target
price is finalized.
Throughout the course of the parties’ relationship, payments on the apples were rarely,
if ever, made within 10 days of receipt. In fact, Defendant regularly made payments months,
or even years, after receiving the apples. Prior to this lawsuit, Plaintiff never once attempted
to enforce a 10-day payment period or collect interest on payments made after 10 days.
By 2013, the crop year at issue, Defendant was still making payments on crops
received in 2011. Bruce Heeren, of Plaintiff Heeren, LLC, approached Eric MacLeod, the
president and general manager of Defendant Cherry Growers, Inc., to see whether Defendant
was interested in purchasing crops in 2013. MacLeod explicitly told Heeren that Defendant
was interested, but would not be able to make payments for fourteen to sixteen months.
Subsequently, the parties agreed on a target price and agreed that Plaintiff would sell
Defendant apples for the 2013 crop year. When Defendant shipped the apples to Plaintiff,
as was customary, Defendant attached a bill of lading. The bill of lading, as it always did,
stated that payment terms were “Net 10 days.” And as was always the case, the parties never
discussed the payment terms on the bill of lading.
II. PACA Trust Rights
The first issue before the Court is whether Plaintiff preserved its PACA trust rights.
The parties do not dispute that, because the contract is for the sale of goods—apples, to be
specific—the terms of the contract are governed by Article 2 of Michigan’s Uniform
Commercial Code (“UCC”), Mich. Comp. Laws § 440.2101. Thus, to determine whether
Plaintiff preserved its PACA trust rights, the Court must determine whether, under the UCC,
the payment terms agreed upon by the parties were in compliance with PACA’s “prompt
payment” requirement. The Sixth Circuit has noted:
Thirty days is the maximum allowable payment term under PACA regulation
7 C.F.R. 46.46(e)(2), which provides as follows: “The maximum time for
payment for a shipment to which a seller, supplier, or agent can agree and still
qualify for coverage under the trust is 30 days after receipt and acceptance of
the commodities. . . .” This limitation exists because the statute is intended to
protect only those produce sellers making short-term credit arrangements. H.R.
Rep. No. 98-543 at 7 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 410 (“[T]he
committee does not intend the trust to apply to any credit transaction that
extends beyond a reasonable period.”).
Overton Distribs., Inc. v. Heritage Bank, 340 F.3d 361, 365 (6th Cir. 2003). The “relevant
question is whether [the buyer and seller] ‘agreed,’ pre-default, through their course of
dealing or otherwise, that payments could be made after the 30-day statutory maximum.”
Spada Props., Inc. v. Unified Grocers, Inc., No. 3:13-cv-1760, 2015 WL 4662930, at *13 (D.
Or. Aug. 6, 2015).
Defendant argues that the prompt payment requirement was not met because the
parties’ course of dealing in prior transactions (where Plaintiff never enforced nor discussed
a 10-day payment period) and the conversation between Bruce Heeren and MacLeod (where
MacLeod informed Heeren that payments would not be made for 14 to 16 months) show that
the parties entered into a pre-transaction, non-written agreement to extend payment terms
outside of the 30-day window set forth in 7 C.F.R. § 46.46(e)(2). Plaintiff, on the other hand,
contends that the language set forth in the bill of lading governs and, therefore, Plaintiff
satisfied the prompt payment requirement. Plaintiff contends that it always understood the
payment terms to be 10 days.
The Court agrees with Defendant. “A valid contract requires a meeting of the minds
on all essential terms.” FLF Co., Inc. v. Perry, No. 264397, 2006 WL 3020257, at *1 (Mich.
Ct. App. Oct. 24, 2006) (citing Kamalnath v. Mercy Mem’l Hosp. Corp., 487 N.W.2d 499,
503 (Mich. Ct. App. 1992)). “A meeting of the minds is judged by an objective standard,
considering the express words of the parties and their visible acts rather than their subjective
states of mind.” Oceguera v. Seaway Cmty. Bank, No. 298174, 2011 WL 3115786, at *2
(Mich. Ct. App. July 26, 2010) (emphasis added) (citing Kloian v. Domino’s Pizza, LLC, 733
N.W.2d 766 (Mich. Ct. App. 2006)).
First, the express words of the parties favor a finding that the payment terms agreed
upon were 14 to 16 months rather than 10 days. Plaintiff does not dispute that MacLeod
expressly told Bruce Heeren that payments would not be made for 14 to 16 months. After
hearing testimony from both Heeren and MacLeod at trial and examining the record in its
entirety, the Court finds that the agreement to engage in a business relationship during the
2013 crop year was contingent on a 14 to 16 month payment period. (See, e.g., MacLeod
Dep. 40 (“I wanted to put it out on the table now, instead of later and risk disappointing him
later, that we would take at least 14 to 16 months to pay for this  crop.”)). This
payment period was agreed upon and understood before the parties agreed to a target price
or agreed to the quantity of apples. The inclusion of boilerplate language on the bill of lading,
which expressly contradicts the payment terms agreed upon, and which the parties never
discussed, does not change the fact that the parties had agreed upon payment terms outside
of 30 days prior to entering into the transaction.
Second, the visible acts of the parties also indicate that the payment terms agreed upon
were 14 to 16 months rather than 10 days. Plaintiff, after being informed that Defendant
would not be able to make payments for 14 to 16 months, shipped apples to Defendant
anyway. Plaintiff was free to do so, but Plaintiff was not free to agree to payment terms
outside of 30 days, and then argue that it is still entitled to the protections of PACA. See
Overton Distribs., 340 F.3d at 367 (“Overton was of course free as a business matter to
provide lenient payment terms to Quality, but by doing so it failed to preserve its trust
benefits under PACA.”); see also Patterson Frozen Foods, Inc. v. Crown Foods Int’l, Inc.,
307 F.3d 666, 669 (7th Cir. 2002) (noting that a principal justification given by Congress for
providing PACA trust benefits to sellers of produce is “the need to product small dealers who
require prompt payment to survive”). Moreover, Plaintiff never once discussed a 10-day
payment term or attempted to collect payments within 10 days. Only after more than 14 to
16 months had passed did Plaintiff attempt to collect payments. This action (or lack thereof)
also indicates that the parties had agreed to payment terms outside of 10 days.
Bruce Heeren’s subjective belief that the payment terms were always 10 days conflicts
with the express words spoken and agreed upon between the parties and with the parties’
visible actions. Accordingly, the Court finds that the pre-default, non-written agreement to
payment terms outside of 30 days, which occurred during the conversation between MacLeod
and Heeren, waived Plaintiff’s PACA trust rights.1
III. Breach of Contract Damages
The parties also dispute the amount of damages owed to Plaintiff for apples received
by Defendant during the 2013 crop year. Defendant does not dispute that it breached the
contract and owes money, but does dispute the amount owed.
Plaintiff has expressed concern that such a holding will alter its industry, and require produce sellers to immediately
rush to court if a late payment is made, rather than attempt to work out a compromise with the buyer. The Court does
not foresee such a result. This Court’s holding stands for the proposition that a seller who, before entering into a
transaction, is told that a buyer will not make payments within 30 days, yet agrees to do business anyway, is not entitled
to PACA’s protections. The law is clear that, after a buyer has defaulted, the seller can agree to accept late payments and
to accommodate the buyer. When a buyer and seller have an understanding that payments will be made within 30 days,
and the buyer does not live up to its end of the bargain, the seller does not have to rush to the courtroom on day 31. But
that is not what happened in this case. Here, Plaintiff was explicitly informed that Defendant would not be making
payments for up to 16 months. Even if Plaintiff had attempted to rush to the courtroom on day 31, it would still have had
no remedy because the payment was not due at that point.
On July 3, 2014, Defendant issued what was intended to be a finalized “Grower
Statement” for the 2013 crop year. (7/3/2014 Statement, ECF No. 25-1.) This Grower
Statement was based on a price of 8 cents for soft apples and 10 cents for hard apples. It also
included a “PUR” charge, described as a “capital call charge,” of $30,869.11. (Id. at
PageID.154.) Based on these numbers, the “net balance due” from Defendant to Plaintiff was
set at $120,903.21. (Id. at PageID.156.)
On February 2, 2015, Defendant issued a “Revised Grower Statement” for the 2013
crop year. (2/5/2015 Grower Statement, ECF No. 25-12.) The Revised Grower Statement
was based on a price of 7 cents for soft apples and 9 cents for hard apples. It also removed
the PUR charge that was imposed on Plaintiff. As a result, the “net balance due” from
Defendant to Plaintiff was set at $112,841.70. (Id. at PageID.235.)
Plaintiff contends that Defendant owes $151,772.32. This amount reflects the removal
of the PUR charge, but utilizes the initial target price of 8 cents for soft apples and 10 cents
for hard apples. Plaintiff does not dispute that, per the terms of the agreement, Defendant was
able to unilaterally adjust the target price. Plaintiff contends, however, that the July 2014
Grower Statement included the finalized price, and that Defendant only reduced that price
after litigation began in this matter, resulting in a lesser figure owed by Defendant. At trial,
however, Eric MacLeod stated that the decision to reduce the target price occurred in April
2014—three months prior to the erroneous July 2014 Grower Statement’s issuance. MacLeod
also stated that the July 2014 Grower Statement’s failure to reflect the reduced price was a
simple oversight that resulted from internal trauma the company had gone through. MacLeod
did not realize that the July 2014 Grower Statement did not reflect the price that Defendant’s
board of directors had agreed upon in April, and when he realized the mistake, he adjusted
the price in the February 2015 Grower Statement.
As Plaintiff does not dispute Defendant’s assertion that Defendant had the ability to
unilaterally set and adjust the final price, the amount of damages largely comes down to an
issue of credibility. The Court finds that MacLeod’s testimony that the pricing included in
the July 2014 Grower Statement was a result of an oversight, and that the board of directors
determined that the target price should be reduced in April 2014 to be credible. Accordingly,
the Court will award Plaintiff damages in the amount reflected in the February 2015 Grower
IV. Interest and Attorney’s Fees
Lastly, as mentioned, the bill of lading also provided that: “Buyer agrees that Interest
shall accrue on past due balances at 1.5% (18% per annum). Buyer agrees to pay all costs of
collections including attorney fees.” Unlike the payment terms–which were expressly
discussed and agreed upon between the parties, and conflicted with the bill of lading–interest
and attorney’s fees were never discussed at all. Thus, Plaintiff never agreed to waive the
interest and attorney’s fees provision, as it did the 10-day payment term provision.
“Although PACA does not explicitly provide for attorney’s fees, interest, and costs,
the circuit courts have determined that the broad language of 7 U.S.C. § 499e(c)(2),
specifically the phrase ‘sums owing in connection with,’ includes a right to attorney’s fees,
interest, and costs, provided there exists a contractual right to such fees.” La Grasso Bros.
Inc. v. Am. Foodservice, L.L.C., No. 10-10711, 2011 WL 891221, at *4 (E.D. Mich. Mar. 11,
2011). In La Grasso, the court upheld an award of interest when an invoice contained
language identical to the bill of lading in this case. Id. at *6. As in La Grasso, the Court finds
that an award of interest and attorney’s fees is proper in this matter.
Plaintiff will be directed to provide an updated statement of the interest that has
accrued and the attorney’s fees incurred. Interest shall accrue from 16 months after the date
of the transaction, and shall be based upon a principal amount of $112,841.70. Defendant
will have an opportunity to respond.
In sum, the Court finds that Plaintiff did not preserve its PACA trust rights. The
PACA “is intended to protect only those produce sellers making short-term credit
arrangements.” Overton Distribs., 340 F.3d at 365. The arrangement between Plaintiff and
Defendant was not a short-term credit arrangement. It allowed Defendant to make payments
whenever possible. Plaintiff agreed to do business with Defendant anyway, thus taking the
risk that these payments would not be made. Doing so resulted in a waiver of the PACA trust
rights. Id. at 367. Moreover, the Court finds Eric MacLeod’s testimony that the price listed
on the July 2014 Grower Statement was the result of an oversight to be credible.
Accordingly, the damages owed to Plaintiff for Defendant’s breach of contract will be based
on the prices reflected in the February 2015 Grower Statement. Plaintiff is also entitled to
attorney’s fees and interest, which shall accrue based on the net balance due in the February
2015 Grower Statement.
A separate order shall issue in accordance with this Opinion.
Dated: May 27, 2016
/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE
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