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Sato & Co., LLC v. Produce

February 2, 2010

SATO & CO., LLC, ET AL., PLAINTIFF,
v.
PRODUCE, INC., ET AL., DEFENDANTS.
PRIDE OF SAN JUAN, INC., ET AL., PLAINTIFFS,
v.
S&M PRODUCE, INC., ET AL., DEFENDANTS.



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

CONSOLIDATED FOR ALL PURPOSES WITH S&M (termed)

CIVIL ACTION

MEMORANDUM OPINION AND ORDER

Currently before the Court are Plaintiffs Pride of San Juan, Inc., Classic Salads, LLC, Dayoub Marketing, Inc., Fru-Veg Marketing, Inc., Lakeside Produce, Inc., Natural Forest, Inc., Ruby Robinson Co., Inc., The Kinoko Company, The Mandolini Company, Inc., and Seashore West, Inc.' s (collectively the "PSJ Plaintiffs") Motion To Determine Validity Of Claims [138] and Plaintiffs Sato & Co., LLC, The Garlic Company, Champ Produce, Inc., and Royal Rose, LLC's (collectively the "Sato Plaintiffs") response [142]. As the parties note in those pleadings, the Sato Plaintiffs and S&M Produce, Inc. ("S&M") and its principals Donald J. Mided, and Lance K. Mided (collectively "Defendants") have filed objections to certain PACA trust claims (docket entries [124] and [123] respectively). Most of the PACA claimants have responded to those objections (see docket entries [130], [131], [135], and [136]).

I. Background

This case arises out of the Perishable Agricultural Commodities Act of 1930 (PACA"), 7 U.S.C. § 499a et seq., which was enacted to protect sellers of perishable agricultural commodities from unfair conduct by buyers of such commodities, including failure to pay promptly and fully for produce ordered. PACA creates a statutory trust in favor of sellers in produce sold to buyers (e.g., grocery stores and certain agents), under which 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). In this case, all Plaintiffs and claimants sold perishable agricultural commodities to Defendant S&M Produce, Inc. ("S&M"), and S&M failed to pay for that produce.

On March 17, 2009, this Court entered a Consent Injunction and Order for Establishing PACA Trust Claims Procedure (the "Claims Procedure") [53]. Pursuant to the Claims Procedure, creditors claiming PACA trust rights against S&M and seeking to share in a distribution of the PACA trust assets filed PACA trust claims with this Court. On May 15, 2009, the Sato Plaintiffs [124] and the Defendants [123] filed objections to the PACA trust claims. Both the Sato Plaintiffs and the Defendants object to certain specific claims made by the various claimants, as well as to the claims for attorneys' fees submitted as part of the PACA claims. The Sato Plaintiffs challenge only the reasonableness of the attorneys'fees claimed by the other claimants, while Defendants challenge both the claimants'entitlement to attorneys'fees as a threshold matter, as well as the reasonableness of the claimed fees.

III. Analysis

A. Specific Objections

1. Champ Produce

Defendants argue that there is no basis for Champ Produce Inc.'s claim [102] for interest. Champ responds [136] that it is entitled to 5% interest under the Illinois Interest Act, 815 ILCS 205/2, which provides:

"Creditors shall be allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance; on money received to the use of another and retained without the owner' s knowledge; and on money withheld by an unreasonable and vexatious delay of payment."

Champ does not cite any cases applying the Act in a PACA case, nor has the Court' s own research identified such a case. However, both the Second and Ninth Circuits, as well as various district courts, have held that "a district court may award reasonable prejudgment interest to PACA claimants if such an award is necessary to protect the interests of PACA claimants, and that such an award absent contract is discretionary." Middle Mountain Land and Produce Inc. v. Sound Commodities Inc., 307 F.3d 1220, 1226 (9th Cir. 2002); see also Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1071-72 (2nd Cir. 1995) (holding that district court has broad discretion to fashion prejudgment interest award to PACA claimants). In Endico, the district court had awarded prejudgment interest at a rate of 6.09%, the Federal Statutory Interest Rate (28 U.S.C. § 1961). 67 F.3d at 1072. On appeal, the PACA claimants argued that the district court should have used the New York statutory 9% rate. Id. The Second Circuit found that using the Federal Statutory Rate was not an abuse of discretion because the claims in the case were "purely a product of a federal statute." Id.

Only one court in this district has addressed the availability of prejudgment interest under PACA. See Weis-Buy Services, Inc. v. Roncone, 1998 WL 30702 (N.D. Ill. Jan. 26, 1998). Following the holding in Endico, the court held that "[p]rejudgment interest is an appropriate remedy to make the plaintiffs who prevail on a PACA action whole," although the court did not determine the appropriate rate of interest. 1998 WL 30702, at *4. However, that decision subsequently was reversed by the Seventh Circuit in Greg Orchards & Produce, Inc. v. Roncone, 180 F.3d 888 (7th Cir. 1999). In ...


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