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Costa Oro, LLC v. Evergreen International

March 23, 2009

COSTA ORO, LLC, PLAINTIFF,
v.
EVERGREEN INTERNATIONAL, INC., WAYLAND JOE, AND RICHARD DOMAGALA, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Currently pending before the Court is Wayland Joe and Richard Domagala' s motion to dismiss Counts I, II, and IV of Plaintiff's complaint [14]. Plaintiff's complaint [1] alleges that Joe and Domagala ("the Individual Defendants") violated two provisions of the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. § 499a et seq.) ("PACA" or the "Act") and otherwise breached their fiduciary duties under the Act. For the reasons stated below, the Individual Defendants' motion to dismiss is denied.

I. Background

A. PACA

The Perishable Agricultural Commodities Act of 1930 imposes various duties on commercial buyers and sellers of produce. In addition to PACA's comprehensive regulatory scheme, the Act allows buyers and sellers to seek redress in the courts for certain statutory violations. See 7 U.S.C. §§ 499e(b)(2), (c)(5) (conferring jurisdiction for the alleged PACA violations in Plaintiff's complaint).

Two provisions are important for the instant motion and for this case. The first is 7 U.S.C. § 499b(4). That provision pertains to prompt payment; it makes it unlawful for "any * * * dealer[] or broker * * * to fail or refuse truly and correctly to account and make full payment promptly" for a shipment of produce. The terms "dealer" and "broker" -- the people who have a duty to make prompt payment*fn1 -- are defined broadly. A "dealer," is basically one who buys or sells produce. Under the Act, and subject to a handful of statutory exceptions, the term means "any person engaged in the business of buying or selling [in quantities defined by the Secretary of Agriculture] any perishable agricultural commodity in interstate * * * commerce." Id. at § 499a(b)(6). And a "broker" is basically an agent who buys produce. The term, likewise subject to limited exceptions, includes "any person engaged in the business of negotiating sales and purchases of any perishable agricultural commodity in interstate * * * commerce for or on behalf of the vendor or purchaser." Id. at § 499a(b)(7). The dealer or broker who fails to tender prompt payment "shall be liable to the person or persons injured thereby for the full amount of damages * * * sustained in consequence of such violation." Id. at 499e(a).

The second important provision is a statutory trust provision. Under PACA, when a seller (e.g., a wholesaler) sells produce to a buyer (e.g., a grocery store and certain agents), the law imposes a trust: the buyer holds the produce and any proceeds and receivables from the produce in trust for the benefit of the seller. 7 U.S.C. § 499e(c)(2). A dealer or broker who receives "perishable agricultural commodities" is a trustee of the trust. Id. The trust lasts "until full payment * * * has been received" by an unpaid seller (id.) but in order to preserve the benefits of the trust, the seller must provide written notice (id. at § 499e(c)(3)).*fn2 Most important, at least for present purposes, is that a trust beneficiary can initiate an action in federal court "to enforce payment from the trust." Id. at 499e(c)(5)(i).

Plaintiff's complaint alleges violations by all of the Defendants of both the prompt payment provision of Section 499b(4) and the statutory trust provision of Section 499e(c), and also alleges that the Individual Defendants breached their fiduciary duties as PACA trustees.

B. The Complaint

Plaintiff filed its four-count complaint on June 30, 2008. For purposes of this motion, the Court accepts as true all of Plaintiff's well pleaded allegations. See, e.g., Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir. 2007).

Plaintiff sells wholesale produce under a valid Department of Agriculture PACA license. Compl. ¶¶ 1-2. Plaintiff states that it sold $10,641.50 in Produce to the Defendants. Compl., Ex. A. And although the corporate Defendant, Evergreen International, Inc. ("Evergreen"), accepted the produce and received invoices for the Produce (Compl. ¶ 9-10), Evergreen and the Individual Defendants have failed to pay Plaintiff in accordance with their agreement (id. at ¶¶ 13, 22).

Moreover, both of the Individual Defendants were officers or directors of Evergreen who were in a position to control the company and were "in charge of [Evergreen' s] business undertakings." Id. at ¶¶ 31-32. Because the Individual Defendants exerted extensive control over Evergreen (id. at ¶¶ 34-40), and because their jobs included buying and selling produce in PACA-triggering quantities (id. at ¶¶ 32-33), Plaintiff states that they had statutory duties under PACA to maintain the statutory trust and to pay over to Plaintiff the monies held in trust (id. at ¶¶ 42-43). Plaintiff alleges that the Individual Defendants breached both duties. Id. at ¶¶ 42-48.

The complaint comprises four counts: Count I -- Enforcement of the PACA Trust; Count II -- Failure to Pay Promptly; Count III -- Breach of Contract;*fn3 and Count IV -- Breach ...


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