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MORRIS OKUN, INC. v. HARRY ZIMMERMAN

February 22, 1993

MORRIS OKUN, INC. and FINEST FRUITS, INC., Plaintiffs,
v.
HARRY ZIMMERMAN, INC. and HARRY ZIMMERMAN, individually, Defendants.



The opinion of the court was delivered by: LEONARD B. SAND

 SAND, J.

 This case arises under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. ยง 499e(c). Plaintiffs, Morris Okun, Inc. ("Okun") and Finest Fruits, Inc. ("Finest"), move for summary judgment against defendants Harry Zimmerman, Inc. ("HZI") and Harry Zimmerman, individually, for monies allegedly to be held in statutory trust on behalf of plaintiffs under PACA for the sale of perishable goods. Plaintiffs also allege breach of contract. These motions raise a novel question regarding individual liability under PACA, a statute which has been litigated only rarely in this Circuit.

 Factual Background

 Both Okun and Finest are New York corporations engaged in the business of buying and selling wholesale quantities of fresh fruit and vegetables in interstate commerce. Each has its principal place of business in the N.Y.C. Terminal Market, Bronx, New York, and both are duly licensed pursuant to PACA.

 Defendant HZI is a New York Corporation, licensed under PACA as a dealer and/or commission merchant of perishable agricultural commodities, with its principal place of business in the N.Y.C. Terminal Market, Bronx, New York. Defendant Harry Zimmerman was the sole officer and 100% stockholder of defendant HZI.

 Plaintiff Okun alleges that between June 26, 1991 and August 1, 1991, Okun sold and delivered to defendants, pursuant to oral contracts, perishable agricultural commodities for which defendant HZI was to pay Okun $ 16,854.00. There is no dispute that Okun delivered these goods and that the defendants accepted them. Furthermore, there is no dispute that defendants did not pay for these goods. Okun filed timely written notice of its intent to preserve trust benefits as required under PACA by sending notice to defendant Zimmerman and the Secretary of Agriculture. Following the receipt of this notice, defendant HZI paid Okun $ 8,552.00, leaving an unpaid balance of $ 8,302.00.

 Although Okun alleges in the complaint that the purchases were made by "defendants", and alleges that defendant HZI was to pay for the goods, the affidavits in support of the motion submitted by Annabelle Burgess, Okun's credit/accounts receivable manager, and Murray Padover, the Okun salesman who handled the Zimmerman account, allege that the transactions were between Okun and Harry Zimmerman, individually. Defendant Zimmerman seeks to defeat the motion for summary judgment by arguing that a genuine issue of material fact exists as to the identity of the purchaser, stating that he always did business in corporate form as HZI, and not as an individual. Given the Court's interpretation of the law, to be addressed below, this distinction is of little significance, and will not serve as a basis for defeating the summary judgment motion.

 Finest alleges that between June 24, 1991 and July 26, 1991, defendant HZI purchased $ 15,022.50 in fruits and vegetables from Finest. When defendant HZI did not remit payment, Finest filed timely written notice of its intention to preserve trust benefits. Subsequent to that notice, HZI paid $ 8,167.00, leaving an unpaid balance of $ 6,855.50. HZI raises a defense which relates to the terms of payment printed on Finest's invoices, which will be discussed below with reference to the notice provisions of PACA.

 PACA

 The PACA statute regulates trading in agricultural commodities, essentially fruits and vegetables. The Act was amended in 1984 upon a finding by Congress that a burden on commerce in perishable agricultural commodities was caused by certain financial arrangements, whereby dealers would receive goods without having made payment for them. To remedy this burden, Congress provided for a statutory trust on behalf of unpaid suppliers or sellers. The relevant portion of the statute reads as follows:

 
Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers or agents.

 The statute further provides that to preserve one's rights as a beneficiary of a PACA trust, notice must be given by the seller to the dealer and the Secretary of Agriculture

 
within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary [which time is ten days from the date of receipt and acceptance of the goods], (ii) after expiration of such other time by which payment must be made, as the ...

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