S. Katzman Produce, Inc. et al v. JAT Beverage Inc. et al
Filing
161
MEMORANDUM AND OPINION AND ORDER: For the foregoing reasons, Plaintiffs motion for default judgment as against Rodriguez is granted. Plaintiffs are hereby awarded judgment against Rodriguez in the principal amount of $125,900.41, plus accrued in terest at an annual rate of 18% through May 22, 2018, in the amount of $24,517.60, and accrued attorneys' fees through May 22, 2018, in the amount of$67,274.66, for a total judgment in the amount of $217,692.67. Plaintiffs mu st credit any further payment by the JAT Defendants against Rodriguez's liability. The Clerk of Court is respectfully requested to enter judgment accordingly and to close this case. This Memorandum Order resolves docket entry no. 123. SO ORDERED. (Signed by Judge Laura Taylor Swain on 12/7/2018) (jca) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------x
S. KATZMAN PRODUCE, INC., et al.,
Plaintiff,
-v-
No. 17 CV 7930-LTS
JAT BEVERAGE INC., et al.,
Defendants.
-------------------------------------------------------x
MEMORANDUM OPINION AND ORDER
Plaintiffs S. Katzman Produce, Inc., and Katzman Berry Corp. (collectively,
“Plaintiffs”) move for a default judgment against Defendant Joanne Rodriguez d/b/a Albatross
Produce (“Rodriguez”), pursuant to Federal Rule of Civil Procedure 55(b)(2) and S.D.N.Y.
Local Civil Rule 55.2(b), on claims arising from Rodriguez’s receipt, retention, and
disbursement of assets held in trust pursuant to the trust provisions of the Perishable Agricultural
Commodities Act (“PACA”), 7 U.S.C. § 499e(c).1 (Docket entry no. 123.) Rodriguez has not
appeared or responded to the claims asserted against her in this action, despite being afforded
ample time and opportunity to do so. The Court has jurisdiction of this action pursuant to 28
U.S.C. § 1331 and § 1367(a). The Court has reviewed Plaintiffs’ submissions carefully and, for
the following reasons, Plaintiffs’ motion for default judgment is granted.
1
Other Defendants in this action include JAT Beverage Inc. t/a JAT Produce (“JAT
Beverage”), Starlight Food Service, Inc. t/a JAT Produce (“Starlight”), Ariel L. Tejada,
and Daniel E. Tejada (collectively, the “JAT Defendants”), as well as On Deck Capital,
Inc. (“On Deck”). Plaintiffs’ claims against the JAT Defendants were resolved pursuant
to a May 23, 2018, Stipulation and Order (docket entry no. 122, the “Stipulation”), and
the parties have advised the Court that all claims against On Deck have also been settled
(see docket entry no. 160).
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BACKGROUND
The following recitation of facts is drawn from Plaintiffs’ First Amended
Complaint (docket entry no. 64, the “FAC”), as well as uncontroverted documentary evidence
submitted by Plaintiffs in connection with the instant motion practice. In light of Rodriguez’s
failure to respond to the FAC, Plaintiffs’ well-pleaded factual allegations are deemed admitted.
See Fed. R. Civ. P. 8(b)(6); Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d
155, 158 (2d Cir. 19992) (“[A] party’s default is deemed to constitute a concession of all well
pleaded allegations of liability.”).
Plaintiffs are New York corporations engaged in the business of buying and
selling wholesale quantities of produce in interstate commerce. (FAC ¶¶ 3-4.) Defendants JAT
Beverage and Starlight are New York corporations engaged in the business of buying wholesale
quantities of produce in interstate commerce. (FAC ¶¶ 5-6.) Defendants Ariel L. Tejada and
Daniel E. Tejada were officers, directors, and/or shareholders of JAT Beverage and Starlight
who controlled the operations of both companies. (FAC ¶¶ 7-8.)
Between August 8, 2017, and September 20, 2017, Plaintiffs sold and delivered
produce worth $200,947.00 to the JAT Defendants. (FAC ¶ 13.) Plaintiffs assert that, “[a]t the
time of receipt of the produce [by JAT Defendants], Plaintiffs became beneficiaries in a statutory
trust designed to assure payment to produce suppliers. The trust consists of all produce or
produce-related assets, including all funds commingled with funds from other sources and all
assets procured with such funds, in the possession or control of Defendants since the creation of
the trust.” (FAC ¶ 15.) For each transaction, Plaintiffs issued invoices to the JAT Defendants
containing the statutory language required by 7 U.S.C. § 499e(c)(4), and notifying JAT
Defendants that Plaintiffs would seek to recover reasonable attorneys’ fees and interest at a rate
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of 1.5% per month in the event of the enforcement of Plaintiffs’ trust claim. (FAC ¶ 16; docket
entry no. 124, Brown Decl. Ex. E.)
Plaintiffs commenced this action to enforce their PACA trust claims against the
JAT Defendants on October 16, 2017. (Docket entry no. 1.) Pursuant to the November 8, 2017,
Preliminary Injunction Order (docket entry no. 17, the “PI Order”), Plaintiffs have recovered
$15,046.59 from the JAT Defendants’ bank account, and $60,000 from now-dismissed
Defendants Ace Funding Source LLC and Yellowstone Capital LLC. (Brown Decl. ¶ 11.) On
May 23, 2018, JAT Defendants entered into a Stipulation and Order admitting joint and several
liability to Plaintiffs under the trust provisions of PACA for a debt in the aggregate principal
amount of $125,900.41, plus accrued interest at the rate of 18% per annum, and reasonable
attorneys’ fees, for a total debt in the amount of $211,783.86. (Stipulation ¶ 1.) On July 20,
2018, after JAT Defendants failed to make payments in accordance with the terms of the
Stipulation, the Court, pursuant to the terms of the Stipulation, entered a Final Order and
Judgment against JAT Defendants for a debt in the principal amount of $125,900.41, plus
interest and attorneys’ fees, and less any payments made by the JAT Defendants, for a total
judgment amount of $208,783.86. (Docket entry no. 147.)
On February 16, 2018, Plaintiffs filed the FAC, asserting claims against
Defendant Rodriguez, an individual residing in the State of New York and registered to do
business in the City of New York as Albatross Produce. (FAC ¶ 9.) A summons and a copy of
the FAC were delivered to Rodriguez’s home and left with her husband on March 2, 2018, and
additional copies of the pleadings were mailed to Rodriguez that same day. (Docket entry no.
89.) When Rodriguez failed to appear or file an answer, Plaintiffs requested entry of a certificate
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of default against her. The certificate was entered by the Clerk of Court on April 5, 2018.
(Docket entry no. 97.)
The FAC alleges that Rodriguez received, dissipated, and continues to retain
PACA trust funds directly from Starlight or from third parties for the benefit of Starlight. (FAC
¶¶ 61-78.) The FAC also alleges that Rodriguez is “an officer, director and/or shareholder who
operated JAT Beverage and Starlight during the relevant time period” (FAC ¶ 68), that
Rodriguez “was in a position of control over the PACA trust assets belonging to Plaintiffs” (FAC
¶ 68), and that Rodriguez “has, on occasion, assumed and paid the debts of JAT Beverage and
Starlight” (FAC ¶ 73), “has continued the operations of JAT Beverage and Starlight after the
commencement of this action” (FAC ¶ 74), and has continued the operations of JAT Beverage
and Starlight “solely as a means of enabling the JAT Defendants to fraudulently escape their
liability to Plaintiffs” (FAC ¶ 76).
In support of these allegations, Plaintiffs proffer checks, issued prior to the
commencement of this action, demonstrating that Rodriguez and Albatross received $4,700 from
Starlight in June and July 2017 (Brown Decl. Ex. H), and demonstrating that Rodriguez has, on
one occasion, paid Plaintiffs for debts owed by the JAT Defendants (Brown Decl. ¶ 16; Ex. I).
Plaintiffs also proffer statements from Rodriguez’s personal bank account, which demonstrate
that Rodriguez’s personal bank account began receiving unusually large deposits of tens of
thousands of dollars per month after the PI Order was entered against the JAT Defendants, and
that Rodriguez began making payments to the JAT Defendants’ creditors shortly thereafter.
(Brown Decl. ¶ 18, Ex. K.) Plaintiffs argue that in total, these invoices show that between
November 2017 and April 2018, Rodriguez deposited funds totaling more than $100,000 into her
account, which had previously only received deposits of bi-weekly paychecks and other smaller
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amounts. (Id.) Plaintiffs allege that the funds received by Rodriguez consisted of proceeds from
the sale of produce by Plaintiffs to the JAT Defendants. (FAC ¶ 63.) Plaintiffs also proffer
evidence that suggests Rodriguez resides at the same address in Bayside, New York, as JAT
Defendant Ariel Tejada (Brown Decl. ¶ 13, Ex. B) and evidence which shows that Ariel Tejada
has entered the Hunts Point Terminal Market Cooperative Association using the identity card
and business address of Albatross Produce (Brown Decl. Ex. F, G). A check signature card for
Albatross Produce’s account at JP Morgan Chase Bank demonstrates that Ariel Tejada has check
signing authority, along with Rodriguez, for checks drawn on bank accounts belonging to
Albatross Produce. (Brown Decl. Ex. J.)
DISCUSSION
Default Judgment
In determining whether to grant a motion for default judgment, courts within this
district first consider three factors: “(1) whether the defendant’s default was willful; (2) whether
defendant has a meritorious defense to plaintiff’s claims; and (3) the level of prejudice the nondefaulting party would suffer as a result of the denial of the motion for default judgment.”
Indymac Bank, F.S.B. v. Nat’l Settlement Agency, Inc., No. 07 Civ. 6865 (LTS) (GWG), 2007
WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007) (citation omitted); see also Guggenheim Capital,
LLC v. Birnbaum, 722 F.3d 444, 455 (2d Cir. 2013) (applying these factors in review of lower
court grant of a default judgment). The Court finds that all three factors weigh in Plaintiffs’
favor. Rodriguez’s failure to respond to Plaintiffs’ FAC and the instant motion is indicative of
willful conduct. See Indymac, 2007 WL 4468652, at *1 (holding that non-appearance and
failure to respond to a complaint or motion for default judgment indicate willful conduct).
Moreover, the Court is unaware of any meritorious defenses and, as Rodriguez has failed to
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appear, she has not proffered any defense. Finally, the Court finds that Plaintiffs will be
prejudiced and left with no alternative recourse if they are denied the ability to seek judgment by
default.
Although Rodriguez has not appeared to defend this action and the Clerk of Court
has entered a certificate of default, this Court must determine “whether the allegations in
Plaintiff's complaint are sufficiently pleaded to establish [Rodriguez’s] liability.” Lenard v.
Design Studio, 889 F. Supp. 2d 518, 528 (S.D.N.Y. 2012).
(1) Ninth Cause of Action: Unlawful Receipt and Retention of PACA Trust Assets
In their Ninth Cause of Action, Plaintiffs allege that Rodriguez, a third party,
unlawfully received and continues to retain PACA trust assets. Under the trust provisions of
PACA, “perishable commodities or proceeds from the sale of those commodities are held in trust
by the buyer for the benefit of the unpaid seller until full payment is made.” Coosemans
Specialties, Inc. v. Gargiulo, 485 F.3d 701, 705 (2d Cir. 2007). The trust created by PACA is
governed by general trust principles. Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d
1063, 1069 (2d Cir. 1995). Thus, “when trust assets are held by a third party, resulting in the
failure of the trustee to pay unpaid sellers of perishable agricultural commodities, the third party
may be required to disgorge the trust assets.” Nickey Gregory Co., LLC v. AgriCap, LLC, 597
F.3d 591, 595-6 (4th Cir. 2010) (citing Endico Potatoes, 67 F.3d at 1067-68).
The allegations in the FAC, along with the Stipulation, establish that a PACA
trust was created at the time JAT Defendants received certain produce worth $200,947.00 (FAC
¶¶ 13, 15); that Plaintiffs preserved their respective interests in the PACA trust (FAC ¶ 16;
Brown Decl. Ex. E); and that the JAT Defendants are currently liable, jointly and severally, in
the principal amount of $125,900.41 for their failure to make full payments to Plaintiffs under
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the PACA trust provisions (Stipulation ¶ 1). The Court accepts as admitted Plaintiffs’
allegations that Rodriguez “received funds from third parties for the benefit of Starlight or
directly from Starlight,” that these funds “consisted of proceeds from the sale of produce,” and
that “Rodriguez continues to hold any and all proceeds from the sale of produce having come
into her possession.” (FAC ¶¶ 62-65.) Plaintiffs’ allegations are further supported by
uncontroverted documentary evidence demonstrating that, prior to the commencement of this
action, Rodriguez had received payments from Starlight (Brown Decl. Ex. H) and had made
payments to Plaintiffs on behalf of the JAT Defendants (Brown Decl. Ex. I). Then, between
November 2017 and April 2018, after the PI Order had been issued in this case, Rodriguez began
receiving unusually large deposits, which Plaintiffs argue total over $100,000, into her bank
account (Brown Decl. Ex. K), and Rodriguez subsequently began issuing payments from her
personal bank account to the JAT Defendants’ produce suppliers and employees (Brown Decl. ¶
18, Ex. K). In contrast, before the PI Order was issued, Rodriguez had only been receiving
deposits of bi-weekly paychecks and other smaller amounts. (Id.)
The Court infers that at least some of the deposits into and out of Rodriguez’s
account constitute PACA trust assets based upon Plaintiffs’ uncontroverted allegations that the
funds received by Rodriguez consisted of proceeds from the sale of produce (FAC ¶ 63), that
Rodriguez assumed and paid the debts of JAT Defendants (FAC ¶ 73), that Rodriguez assumed
such debts to enable JAT Defendants to escape their liability to Plaintiffs (FAC ¶ 76), and
evidence suggesting that Rodriguez and Albatross Produce’s business operations were closely
linked with those of Ariel Tejada, one of the JAT Defendants (see Brown Decl. ¶¶ 13, Exs. B, F,
G, J). Because there is no evidence that Rodriguez has given anything of value in exchange for
the deposits into her personal bank account, and because Rodriguez shares a residence with Ariel
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Tejada (Brown Decl. ¶ 13, Ex. B) and has previously been served on Ariel Tejada’s behalf in this
litigation (docket entry nos. 35, 39), she cannot reasonably contend that she provided value for
the trust assets she received, or that she had no actual or constructive notice of the trust. See
Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612, 615 (2d Cir. 2001) (noting
that, for a third party transferee to qualify as a bona fide purchaser and escape liability in a
PACA case, transferee must show that the trust assets were taken for value and without notice of
breach of trust). Accordingly, Plaintiffs have satisfied the elements required to establish liability
on their Ninth Cause of Action for the receipt and retention of PACA trust assets.
(2) Eleventh Cause of Action: Successor Liability
In their Eleventh Cause of Action, Plaintiffs allege that Rodriguez is liable as a
successor to the JAT Defendants because she continued their operations as a produce wholesaler.
(FAC ¶¶ 72-78.) Although the Second Circuit has not yet addressed the applicability of
successor liability in the PACA context, the “scant discussion” in this circuit suggests that a
successor may be liable for its predecessor’s PACA liability. Hop Hing Produces Inc. v. X & L
Supermarket, Inc., No. CV 2012-1401(ARR)(MDG), 2013 WL 1232948, at *9 (S.D.N.Y. Mar.
26, 2013); see also Moza LLC V. Tumi Produce Int’l Corp., 17CV1331, 2018 WL 2192188, at
*3-4 (S.D.N.Y. May 14, 2018) (discussing successor liability in PACA context). Under New
York law, a corporation that purchases the assets of another is generally not liable for the seller’s
debts unless “(1) [the successor] expressly or impliedly assumed the predecessor’s [debts],
(2) there was a consolidation or merger of seller and purchaser [i.e., a de facto merger], (3) the
purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction
is entered into fraudulently to escape such obligations.” Hop Hing Produces, 2013 WL 1232948,
at *9 (quoting N.Y. v. Nat’l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir. 2006)). In analyzing
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whether a de facto merger has occurred, courts consider “(1) continuity of ownership; (2)
cessation of ordinary business by the predecessor; (3) assumption by the successor of liabilities
ordinarily necessary for continuation of the predecessor’s business; and (4) continuity of
management personnel, physical location, assets, and general business operation.” Moza, 2018
WL 2192188, at *4. While “not all of these elements are necessary to find a de facto merger,”
there “must be continuity of ownership, because it is the essence of a merger.” Id. (internal
citations and quotations omitted).
Here, the uncontroverted allegations in the FAC and documentary evidence
proffered by Plaintiffs do not show any asset purchase but, rather, demonstrate that Rodriguez
has received the JAT Defendants’ trust assets and carried on their business directly. This record
is sufficient to establish Rodriguez’s liability as a successor of the JAT Defendants. The FAC
alleges that Rodriguez “has, on occasion, assumed and paid the debts of JAT Beverage and
Starlight” (FAC ¶ 73), “has continued the operations of JAT Beverage and Starlight after the
commencement of this action” (FAC ¶ 74), and has continued the operations of JAT Beverage
and Starlight “solely as a means of enabling the JAT Defendants to fraudulently escape their
liability to Plaintiffs” (FAC ¶ 76). Moreover, the Court infers from Rodriguez’s bank statements
that Rodriguez continued the JAT Defendants’ business by processing the JAT Defendants’
accounts payable and receivable through her personal account (Brown Decl. ¶ 18, Ex. K), and
that there is continuity of ownership based upon evidence that JAT Defendant Ariel Tejada has
entered the Hunts Point Terminal Market Cooperative Association using the identity card and
business address of Albatross Produce (Brown Decl. Ex. F, G), and that Ariel Tejada has check
signing authority, along with Rodriguez, for checks drawn on bank accounts belonging to
Albatross Produce. (Brown Decl. Ex. J.) The timing of certain unusually large deposits into
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Rodriguez’s bank account, which Plaintiffs allege are proceeds from the sale of produce by the
JAT Defendants, also supports an inference that Rodriguez’s continuation of the JAT
Defendants’ operations was undertaken to allow the JAT Defendants to evade their liability to
Plaintiffs. Accordingly, the Court finds that Plaintiffs have tendered uncontroverted allegations
and evidence sufficient to establish Rodriguez’s liability as successor to the JAT Defendants.2
Default Damages
Under PACA, perishable agricultural commodities are to be held in a trust by
purchasing dealers “until full payment of the sums owing in connection with” the purchase is
received. 7 U.S.C.S. § 499e(c)(2) (LexisNexis 2001). When third parties receive trust assets
from PACA debtors, “the unpaid commodities sellers have a prior interest in them and can
recover from [those third parties] to the full satisfaction of their debts up to the limit of trust
assets held while they remain unpaid.” Nickey Gregory, 597 F.3d at 607 n. 2. Because
Rodriguez assumed and continued the JAT Defendants’ PACA business, she is also liable as a
successor to the JAT Defendants for any unpaid PACA liability arising from that business.
Accordingly, the Court finds that Rodriguez is liable to Plaintiffs in the amount of $125,900.41,
which represents the JAT Defendants’ unpaid principal liability under PACA.
The Second Circuit has confirmed that, “where the parties’ contracts include a
right to [reasonable] attorneys’ fees, they can be awarded as ‘sums owing in connection with’
perishable commodities transactions under PACA.” Coosemans Specialties, 485 F.3d at 709
(citations omitted) (affirming judgment awarding principal, interest, and attorneys’ fees to
2
In light of the Court’s conclusions with respect to the Ninth and Eleventh Causes of
Action, the Court need not address Plaintiffs’ Tenth Cause of Action.
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plaintiffs under PACA). It is similarly settled that reasonable contractual prejudgment interest
provisions are enforceable under PACA. Tomato Mgmt., Corp. v. CM Produce LLC, No. 14
Civ. 3522 (JPO), 2014 WL 2893368, at *1 (S.D.N.Y. June 26, 2014). Where the parties’
contract so provides, “the interest and collection costs become subject to the PACA trust together
with the principal debt.” Dayoub Mktg., Inc. v. S.K. Produce Corp., No. 04 CIV. 3125 (WHP),
2005 WL 3006032, at *4 (S.D.N.Y. Nov. 9, 2005). Here, Plaintiffs’ invoices provide that
Plaintiffs are entitled to recover interest at an annual rate of 18% and attorneys’ fees as “sums
owing in connection with” their PACA trust transactions. (Brown Decl., Ex. E.) The Court
finds the rates and time charged by Plaintiffs’ attorney (see Brown Decl. Ex. M) and the
contracted interest rate are reasonable. Accordingly, the Court finds that Plaintiffs are entitled to
judgment against Rodriguez in the principal amount of $125,900.41, plus accrued interest at an
annual rate of 18% through May 22, 2018, in the amount of $24,517.60, and accrued attorneys’
fees through May 22, 2018, in the amount of $67,274.66, for a total judgment in the amount of
$217,692.67.
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CONCLUSION
For the foregoing reasons, Plaintiffs’ motion for default judgment as against
Rodriguez is granted. Plaintiffs are hereby awarded judgment against Rodriguez in the principal
amount of $125,900.41, plus accrued interest at an annual rate of 18% through May 22, 2018, in
the amount of $24,517.60, and accrued attorneys’ fees through May 22, 2018, in the amount of
$67,274.66, for a total judgment in the amount of $217,692.67. Plaintiffs must credit any further
payment by the JAT Defendants against Rodriguez’s liability. The Clerk of Court is respectfully
requested to enter judgment accordingly and to close this case. This Memorandum Order
resolves docket entry no. 123.
SO ORDERED.
Dated: New York, New York
December 7, 2018
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
United States District Judge
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