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Castellini Co., LLC v. Haag food service, Inc.

United States District Court, S.D. Illinois

January 17, 2017

CASTELLINI COMPANY, LLC, Plaintiff,
v.
HAAG FOOD SERVICE, INC. a/k/a Haag Foods & Poultry, Inc., JACK E. GARCIA, LOIS A. GARCIA, and MIDLAND STATES BANK, Defendants. and FRESH UNLIMITED, INC. d/b/a Freshway Foods, Intervenor Plaintiff,

          MEMORANDUM AND ORDER

          NANCY J. ROSENSTENGEL United States District Judge

         Pending before the Court are various motions to dismiss the First Amended Complaint and First Amended Complaint in Intervention (Docs. 31, 32, and 48), and a Motion for Default Judgment (Doc. 43). Plaintiff Castellini Company, LLC (“Castellini”) and Intervenor Plaintiff Fresh Unlimited, Inc. d/b/a Freshway Foods (“Freshway”) have brought suit against Defendants Haag Food Service, Inc. a/k/a Haag Foods & Poultry, Inc. (“Haag Food”), Jack E. Garcia and Lois A. Garcia, individually and in their corporate capacities (“Garcia Defendants”), and Midland States Bank (“Midland”) (See Docs. 18 and 40), relating to their rights as beneficiaries to the statutory trust created under the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499e, et seq.

         PACA was enacted to protect and promote fair trade in the fruit and vegetable industry. See American Banana Co., Inc. v. Republic Nat. Bank of New York, N.A., 362 F.3d 33, 36 (2d Cir. 2004). It protects the interests of sellers of perishable agricultural commodities by requiring purchasers to hold the proceeds of these products in trust for the benefit of unpaid suppliers until full payment has been made. See 7 U.S.C. § 499e(c)(1)-(2); see also Patterson Frozen Foods, Inc. v. Crown Foods Int'l, Inc., 307 F.3d 666, 669 (7th Cir. 2002). This trust provision grants unpaid suppliers a priority position over other creditors, including secured creditors. See Patterson, 307 F.3d at 669. PACA grants district courts jurisdiction to hear “actions by trust beneficiaries to enforce payment from the trust.” 7 U.S.C. § 499e(c)(5)(i). “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 unless the third party can establish that it has some defense, such as having taken the assets as a bona fide purchaser without notice of the breach of trust.” Nickey Gregory Co., LLC v. Agricap, LLC, 597 F.3d 591-595-96 (4th Cir. 2010).

         Factual & Procedural Background

         On January 29, 2016, Castellini, a seller of perishable agricultural commodities (i.e. produce), filed a Complaint, and subsequently amended that complaint on March 8, 2016 (See Docs. 1, 18). In the Amended Complaint, Castellini alleges that, between May 3, 2015 and January 19, 2016, it sold and delivered $150, 651.16 worth of produce to Haag Food and the Garcia Defendants, but has not been paid for the produce that was delivered (Doc. 18, p. 4). Haag Food was a dealer and commission merchant of wholesale quantities of perishable agricultural commodities (Doc. 18, p. 3). The Garcia Defendants were owners, officers and/or directors of Haag Food during that time (Id.). Castellini alleges that it included on each of its invoices the requisite statutory language notifying these Defendants that Castellini was preserving its rights as a beneficiary to the statutory trust which was created under PACA when Defendants accepted delivery of the produce (Id. at p. 4). Castellini also contends that Haag Food and the Garcia Defendants have failed to maintain the trust assets in order to pay Castellini and thus have violated their statutory duties as trustees (Id. at p. 6-8). Castellini also brings a claim for priority/disgorgement of trust assets against Midland (Id. at p. 9).

         On February 26, 2016, Freshway sought to intervene as a matter of right in the action, asserting claims that mirrored Castellini's claims (Doc. 14). On May 11, 2016, the Court granted Freshway's Motion to Intervene (Doc. 37). On May 19, 2016, Freshway filed its Complaint in Intervention (Doc. 39), and subsequently amended it on May 20, 2016 (Doc. 40). Freshway alleges in the First Amended Complaint in Intervention that, between October 30, 2015 and December 2, 2015, Freshway sold $86, 925.73 of produce to Haag Food and the Garcia Defendants on account for which it has not been paid (Doc. 40, p. 3). Freshway alleges that it included on each of its invoices the requisite statutory language necessary to preserve its claim as a beneficiary to the statutory trust created under PACA. See 7 U.S.C. § 499e(c)(3) and (4) (Id. at p. 4). Thus, Freshway argues that it is also a beneficiary of Defendants' PACA statutory trust. Freshway also brings a claim for priority/disgorgement of trust assets against Midland (Doc. 40, p. 8).

         On April 13, 2016, Castellini moved for a Clerk's Entry of Default against Haag Food, on the basis that no answer or responsive pleading had been filed within the requisite time by this defendant (Doc. 29). On April 14, 2016, the Clerk entered a Rule 55(a) default against Haag Food (Doc. 30). On May 31, 2016, Castellini followed up with a Motion for Default Judgment pursuant to Rule 55(b), along with various affidavits in support (Docs. 43, 44, and 45). The Garcia Defendants have filed a Response in Opposition to the Motion for Default Judgment, to which Castellini filed a Reply (See Docs. 50 and 51).

         On April 25, 2016, the Garcia Defendants filed a Motion to Dismiss as to Counts IV and VII of Castellini's First Amended Complaint (Doc. 31). On May 2, 2016, Midland filed a Motion to Dismiss as to Count VII of Castellini's First Amended Complaint. Both motions have been fully briefed (See Docs. 38, 42, and 46). On June 9, 2016, Midland filed a Motion to Dismiss Count VII of Freshway's First Amended Complaint in Intervention (Doc. 48). That motion has also been fully briefed (See Doc. 52).

         Thus, there are currently four motions pending before the Court. The Court will address each motion separately.

         Relevant Legal Standards

         I. Federal Rule of Civil Procedure 12(b)(1)

         “When ruling on a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), the district court must accept as true all well-pleaded factual allegations, and draw reasonable inferences in favor of the plaintiff.” Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995). District courts may, however, “properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Evers v. Astrue, 536 F.3d 651, 656-657 (7th Cir. 2008). “In all cases, the party asserting federal jurisdiction has the burden of proof to show that jurisdiction is proper.” Travelers Prop. Cas. v. Good, 689 F.3d 714, 722 (7th Cir. 2012) (citing McNutt v. Gen. Motors Acceptance Corp., 289 U.S. 178, 189 (1936)).

         II. Federal Rule of Civil Procedure 12(b)(6)

         In deciding a motion to dismiss for failure to state a claim on which relief can be granted under Rule 12(b)(6), the district court's task is to determine whether the complaint includes “enough facts to state a claim to relief that is plausible on its face.” Khorrami v. Rolince, 539 F.3d 782, 788 (7th Cir. 2008) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)). The Court of Appeals for the Seventh Circuit has clarified that, “[e]ven after Twombly, courts must still approach motions under Rule 12(b)(6) by ‘constru[ing] the complaint in the light most favorable to the plaintiff, accepting as true all well-pleaded facts alleged, and drawing all possible inferences in her ...


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