Carnival Fruit v . Grewal 04-CV-252-SM 01/31/06 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Carnival Fruit Co., Inc., Plaintiff

v. Civil N o . 04-cv-252-SM Opinion N o . 2006 D N H 010 Narotam S . Grewal, Defendant

O R D E R

Carnival Fruit Co., Inc. (“Carnival”) has sued Narotam S .

Grewal under the Perishable Agricultural Commodities Act

( “ P A C A ” ) , 7 U . S . C . § 499a, et seq., to recover the cost of

produce allegedly shipped to but not paid for by four restaurants

in which Grewal held an ownership interest. Before the court are

cross motions for summary judgment. For the reasons given,

defendant’s motion for summary judgment is granted, and

plaintiff’s motion for summary judgment is denied.

Summary Judgment Standard

Summary judgment is appropriate when the record reveals “no

genuine issue as to any material fact and . . . the moving party

is entitled to a judgment as a matter of law.” FED. R . CIV. P . 56(c). “The role of summary judgment is to pierce the

boilerplate of the pleadings and provide a means for prompt

disposition of cases in which no trial-worthy issue exists.”

Quinn v . City of Boston,

8 , 28 (1st Cir. 2003) (citing

Suarez v . Pueblo Int’l, Inc.,

9 , 53 (1st Cir. 2000)).

When ruling on a party’s motion for summary judgment, the court

must view the facts in the light most favorable to the nonmoving

party and draw all reasonable inferences in that party’s favor.

See Lee-Crespo v . Schering-Plough Del Caribe Inc.,

4 ,

37 (1st Cir. 2003) (citing Rivera v . P.R. Aqueduct & Sewers

Auth.,

, 185 (1st Cir. 2003)).

Background

Defendant Grewal owns a controlling interest in On Lake

Investments. On Lake, in turn, incorporated Global Restaurants

Concepts, which was subsequently renamed Prezzo International,

Inc. (“Prezzo”). Prezzo served as a holding company for four

restaurants in Florida: Prezzo Aventura, Prezzo Boca, Prezzo

Wellington, and Prezzo Kendall (collectively “the restaurants” or

“the Prezzos”). On Lake held one hundred percent of the stock in

Prezzo. Prezzo, in turn, was the sole member of each of four

2 limited liability companies established to operate the four

Prezzo restaurants.

Carnival sold perishable agricultural commodities (i.e.,

fresh produce) to the Prezzos. Carnival’s relationship with the

Prezzos began in late September 2002, when each opened a credit

account with Carnival. Each credit application included a

handwritten notation “Net 45 days” under the heading “terms

requested.” At her deposition, Kathleen Burch, Carnival’s credit

manager, stated that the request for forty-five day credit was

automatically rejected. In an affidavit she said that “[p]ayment

for the produce was due ten (10) days from receipt of the

produce.” (Pl.’s Mot. Summ. J., Ex. 10 (Burch Aff.) ¶ 1 2 ) .

However, most of the invoices submitted as exhibits to that

affidavit unequivocally state “WEEKLY - 28 DAYS” in the box

labeled “terms,” and the invoices bearing that notation provide

for a “due date” approximately 28 days after the “invoice date.”

(See Burch Aff., Attach. 2.)

At some point in the Spring of 2003, the Prezzos got behind

in their payments to Carnival. Burch responded by putting them

3 on COD status and then halting deliveries. After the restaurants

paid their overdue accounts, Carnival began shipping them produce

again, on credit. Shipments resumed on about July 7 , 2003. By

early or mid-August, the restaurants were again behind in their

payments. Burch was able to secure partial payment of the

arrearage, then shifted the restaurants to COD, and, finally,

stopped delivering produce.

In an effort to retain the Prezzos as customers during the

winter season, Burch, at the direction of Carnival’s president,

devised a payment plan. That plan called for the restaurants to

pay down the arrearage in four installments, the first on October

1 5 , then on October 2 2 , November 2 2 , and December 2 2 , 2003.

Burch faxed a letter detailing the payment plan to Sue Bailey, an

accounting consultant for Prezzo and the restaurants, on October

7. Bailey signed the letter and faxed it back to Burch on

October 1 0 . (Def.’s Mot. Summ. J., Ex. D (Bailey Aff.) ¶ 6.)

Although Burch says she never received Bailey’s response,

Carnival does not dispute that Bailey faxed the Prezzos’

acceptance of its offer to Burch. (Burch Aff. ¶ 16.)

4 In any event, Carnival received no payment on October 1 5 , so

it immediately stopped shipping produce to the Prezzos. In

November or December of 2003, the Prezzos closed. At the time,

they owed Carnival, in the aggregate, approximately $79,342.06

for produce delivered between July 7 and October 1 5 , 2003. 1

In this suit, Carnival seeks to recover its remaining losses

on the Prezzo accounts directly from Grewal. Carnival offers

three legal theories entitling it to recover, all arising from

the Perishable Agricultural Commodities Act. Specifically,

Carnival asserts that: (1) Grewal is liable for failing to pay

for produce supplied by Carnival, see 7 U.S.C. § 499e(a) (Count

1 ) ; (2) Grewal, as the “sole member and manager” of Prezzo, “was

in a position of control over the PACA trust assets belonging to”

Carnival but failed to direct the corporation to preserve those

assets and, therefore, is liable for unlawfully dissipating the

assets of a trust arising in Carnival’s favor under PACA, see

1 The Prezzos owed Carnival another $5,651.30 for non- produce items. In a lawsuit brought under PACA against the four restaurants and Grewal in the Southern District of Florida, Carnival obtained default judgments against three of the restaurants, recovering $8,602.02. In addition, the district court in Florida granted Carnival’s motion for voluntary dismissal, without prejudice, of its claims against the fourth restaurant and Grewal.

5 7 U.S.C. § 499e(c)(5) (Count 2 ) ; and (3) Grewal, as the person in

control of Prezzo and as a dealer and commission merchant, is

liable for failing to pay PACA trust funds to Carnival, see id.

(Count 3 ) . Plaintiff also seeks prejudgment interest, costs, and

fees (Count 4 ) .

Discussion

Defendant moves for summary judgment on grounds that: (1) he

is not subject to liability under PACA because he was not a

“dealer” within the meaning of the statute; (2) as a mere

investor, he cannot be held personally liable for PACA violations

by the restaurants or by Prezzo; and (3) Carnival waived its

protections under PACA when it extended credit to the restaurants

beyond the maximum term allowed by the statute. Plaintiff

objects categorically and moves for summary judgment.

Assuming Grewal is a produce dealer for PACA purposes, or

may properly be held accountable for the debts of a dealer, and

further assuming that Carnival did not forfeit its PACA rights by

selling the Prezzos produce on twenty-eight-day terms without a

prior written agreement – all debatable propositions – Carnival’s

6 claim still fails as a matter of law. The parties’ agreement, in

October 2003, to payment terms longer than those allowed under

PACA and its implementing regulations precludes Grewal’s

liability under the Act.

The Perishable Agricultural Commodities Act provides

“extraordinary protection” for those who sell fresh produce by

effectively imposing a trust upon proceeds from the resale of the

produce until the bill is paid. Am. Banana C o . v . Republic Nat’l

Bank,

3 , 45 (2d Cir. 2004). That protection, however,

is intentionally limited to those who sell on a short-term credit

basis.

Ordinarily, for a party in plaintiff’s position to

enjoy the benefit of a PACA trust, it must require payment for

the produce “within 10 days after the day on which the produce is

accepted.”

(aa)(5). A longer payment term is

allowed, but only if the seller and buyer “reduce their agreement

to writing before entering into the transaction and maintain a

copy of the agreement in their records.”

(aa)(11). However, “[t]he 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

7 receipt and acceptance of the commodities.” Hiller Cranberry

Prods., Inc. v . Koplovsky,

, 5 (1st Cir. 1999) (quoting

(e)(2)).

Here, defendant argues that Sue Bailey’s acceptance of

Carnival’s October offer of a payment plan disqualified Carnival

from protection under PACA. Carnival does not dispute that

Bailey faxed Burch a signed copy of the letter outlining the

terms of the payment plan, thereby accepting those terms.

Bailey’s return of the letter to Burch, with written indication

of agreement, was sufficient to accept Carnival’s offer and form

an agreement:

“To establish a contract . . . there must be . . . an offer and an acceptance thereof in accordance with its terms . . . . (W)hen the parties to such a contract are at a distance from one another and the offer is sent by mail . . . the reply accepting the offer may be sent through the same medium, and the contract will be complete when the acceptance is mailed . . . properly addressed to the party making the offer and beyond the acceptor’s control.”

Cushing v . Thomson,

9 2 , 294 (1978) (quoting Busher v .

N.Y. Life Ins. Co.,

5 1 , 552 (1904)). Here, the same

8 medium of communication - facsimile transmission - was used to

make the offer and to accept i t .

Moreover, based upon the undisputed factual record, the

October 2003 agreement extended the time for payment beyond the

thirty days permitted by

(a)(2). At the time

Carnival proposed the payment plan, the Prezzos were in default

on payments due for produce delivered in July, August, and

September. Kathleen Burch stated that if the October 15 payment

had been made, it would have been applied to the oldest

outstanding invoices, and each successive payment would be

applied to the oldest remaining invoices. (Def.’s Mot. Summ. J.,

Ex. C (Burch. Dep.) at 76-77.) It cannot be reasonably contested

that the agreement extended the Prezzos’ payment obligations by

more than thirty days after delivery for all of the produce

included in the past due invoices.

The parties dispute whether a produce seller loses PACA

trust protection by making a post-default agreement to accept

payment more than thirty days after delivery. The

disproportionate weight of authority favors defendant’s position;

9 all three circuits that have considered the question decided that

a seller does relinquish PACA trust protection by entering into a

post-default agreement to accept payment more than thirty days

after delivery. See American Banana, 362 F.3d at 43-45;

Patterson Frozen Foods, Inc. v . Crown Foods, Int’l, Inc.,

(7th Cir. 2002) (citing Greg Orchards & Produce,

Inc. v . Roncone,

8 8 , 892 (7th Cir. 1999) (“By

disqualifying suppliers who enter into post-default agreements

that violate PACA, we can ensure that the extraordinary

protection provided by PACA is not enlarged beyond its intended

scope.”)); Tom Lange C o . v . Lombardo Fruit & Produce C o . (In re

Lombardo Fruit & Produce C o . ) ,

(8th Cir.

1993). Plaintiff suggests that those cases were wrongly decided,

but offers little by way of support or persuasive analysis.

In American Banana, the most recent and most detailed

consideration of the issue, the court turned to the legislative

history of the 1984 amendments to PACA, which “makes clear that

Congress intended trust protection to extend solely to cash and

short-term credit transactions.” 362 F.3d at 4 3 . The court then

considered “whether there is a meaningful difference between pre-

10 transaction and post-default agreements.” Id. at 4 4 . In holding

that there is not, the court explained that

the result of a post-default agreement extending the payment period beyond thirty days is no different than that of a pre-transaction agreement doing the same: both are inconsistent with the prompt-payment objective, which is fundamental to PACA.

Id. Finally, the court pointed out that the extension of PACA

trust protection to sellers who give long-term credit encourages

the extension of credit to buyers who are, or may b e , dangerously

close to insolvence, thus keeping them in business and increasing

financial risks to others. Id. at 44-45. In short, plaintiff

has offered no persuasive reason to reject the holding in

American Banana that

[s]ellers who are willing and able to enter into such [long-term credit] agreements – whether pre-transaction or post-default – neither need nor deserve the elevated priority they receive under PACA’s trust provision.

Id. at 4 5 .

Because Carnival extended credit beyond thirty days for all

the purchases at issue here, it is not entitled to the trust

protections afforded under PACA. Plaintiff raises only PACA

11 claims in its complaint. Accordingly, defendant is entitled to

judgment as a matter of law on all counts.

Conclusion

For the reasons given, defendant’s motion for summary

judgment (document no. 8) is granted, and plaintiff’s motion for

summary judgment (document no. 10) is denied. The clerk of the

court shall enter judgment in accordance with this order and

close the case.

SO ORDERED.

Steven J. McAuliffe Chief Judge

January 31, 2006

cc: Donald J. Perrault, Esq. Daniel J. Will, Esq.

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