United States District Court, S.D. New York
June 7, 2005.
CONTINENTAL FOOD GROUP, LLC, ET AL., Plaintiff(s),
P.J. PRODUCE, INC., ET AL., Defendant(s).
The opinion of the court was delivered by: JOHN SPRIZZO, Senior District Judge
MEMORANDUM OPINION AND ORDER
At issue before the Court is whether contract terms that
provide for the collection of attorney's fees and costs can be
enforced in an action brought under the Perishable Agricultural
Commodities Act ("PACA"), 7 U.S.C. §§ 499a-499s, where the
statutorily-created PACA trust, even absent claims for attorney's
fees and costs, does not contain sufficient funds to pay the full
amount of claims against it. Given PACA's unambiguous plain
meaning, this Court agrees with intervenor plaintiff DeBruyn
Produce Company ("DeBruyn") and therefore orders that the
attorney's fees and costs provided for in its contract with
defendant should be included in its PACA trust claim.
The present action was filed on September 11, 2003, and since
then numerous intervenor plaintiffs have joined this action. All
disputes, save the present matter, have been resolved by the
parties.*fn1 See Order Providing Distribution to Eligible
Trust Beneficiaries, dated Apr. 13, 2005; Letter of Mark C.H.
Mandell, dated May 5, 2005 ("Mandell Letter").
At a Pre-Trial Conference held on February 7, 2005, DeBruyn
raised the issue of collecting its attorney's fees and costs from
the PACA trust. DeBruyn reiterated this request in a letter dated February 10, 2005, in which it indicated that its invoices with
defendant P.J. Produce, Inc. provided that "[i]n the event
collection becomes necessary, [P.J. Produce, Inc.] agrees to pay
all costs of collection, including attorney's fees." Letter of
Thomas G. Aljian, Jr., dated Feb. 10, 2005. DeBruyn contended
that these invoices amounted to contract terms and that this
amount totaled $15,091.05. Id. The remaining PACA claimants
("opposition claimants") opposed this request by letters dated
February 17, 2005 and February 28, 2005. See Letter of Leonard
Kreinces, dated Feb. 17, 2005; Letter of Leonard Kreinces, dated
Feb. 28, 2005. Those letters did not dispute the existence or
legal effect of the invoice terms between DeBruyn and defendant,
and they indicated that the PACA trust at issue was not large
enough to fully cover the claims of all claimants.
All interested parties agreed to rely upon the above-mentioned
submissions and to have this Court resolve this dispute without
further correspondence or Oral Argument. See Mandell Letter.
Congress passed PACA in an attempt to protect sellers of
perishable agricultural commodities from situations in which the
buyers of those goods fail to pay for their purchases while
simultaneously granting to others security interests in those
commodities and the proceeds generated therefrom. See
7 U.S.C. § 499e(c) (1); Endico Potatoes, Inc. v. CIT Group/Factoring,
Inc., 67 F.3d 1063, 1067 (2d Cir. 1995). To rectify this
problem, PACA provides that perishable agricultural commodities
purchasers shall hold their inventory of such commodities and any
proceeds therefrom "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." 7 U.S.C. § 499e(c) (2).
Although the statute clearly provides that the trust should be
used for payment of all "sums owing in connection with"
agricultural commodities transactions, id., some courts that have been faced
with the situation, as is present here, where the PACA trust is
not sufficiently large to pay all claims in full have held that,
for equitable reasons, PACA will not countenance the payment of
attorney's fees and costs out of the PACA trust. See
Nobles-Collier, Inc. v. Hunts Point Tomato Co., No. 02 Civ.
4128, 2004 WL 102756, at *2 (S.D.N.Y. Jan. 20, 2004); Fishgold
v. OnBank & Trust Co., 43 F. Supp. 2d 346, 351 (W.D.N.Y. 1999).
But see Middle Mountain Land & Produce Inc. v. Sound
Commodities Inc., 307 F.3d 1220, 1222-25 (9th Cir. 2002).
Although the Court understands the policy considerations
underlying those decisions, this Court is not free to disregard
the plain meaning of the statute. See Virgilio v. City of New
York, No. 04-1942-cv, 2005 U.S. App. LEXIS 7441, at *14-15 (2d
Cir. Apr. 29, 2005). As a number of courts have already held, if
a contract to sell agricultural commodities provides that the
seller of such commodities can recover attorney's fees and costs
related to the collection of payments due under the contract,
then those expenses are "sums owing in connection with
[agricultural commodities] transactions." See, e.g., Country
Best v. Christopher Ranch, LLC, 361 F.3d 629, 632-33 (11th Cir.
2004); Middle Mountain Land & Produce Inc.,
307 F.3d at 1222-25; E. Armata, Inc. v. Platinum Funding Corp.,
887 F. Supp. 590, 595 (S.D.N.Y. 1995). Any disparity between creditors
created by allowing these expenses to be recovered is based
solely on the various terms of the individual contracts
negotiated by the different PACA claimants. See Country Best,
361 F.3d at 633; Morris Okun, Inc. v. Harry Zimmerman, Inc.,
814 F. Supp. 346, 351 (S.D.N.Y. 1993).
In addition, besides being contrary to the plain meaning of
PACA, it would be improvident for this Court to ex post facto
attempt to parcel out individual parts of a negotiated contract
price in an attempt to arrive at the price of the agricultural
commodities alone. Cf. United States v. Lynch, 162 F.3d 732,
736 (2d Cir. 1998). Such an approach mistakenly ignores the
multitude of economic considerations that are factored into that contract price. See,
e.g., Country Best, 361 F.3d at 633 ("Commodity sellers
likely offer lower prices if they know that the financial burden
of their collection efforts will be lightened by the recovery of
attorney fees and prejudgment interest."); Middle Mountain Land
& Produce Inc., 307 F.3d at 1223.
Finally, opposition claimants' reliance on the Second Circuit's
decision in C.H. Robinson Co. v. Alanco Corp., 239 F.3d 483 (2d
Cir. 2001), is misplaced. See Letter of Leonard Kreinces, dated
Feb. 17, 2005. That ruling stands for the proposition that an
agricultural commodities purchaser cannot pay its attorney from
PACA trust funds until commodities sellers (PACA claimants)
receive "full payment of the contract price for the sale of
produce," C.H. Robinson Co., 239 F.3d at 487, because "PACA
trust beneficiaries are entitled to full payment before trustees
may lawfully use trust funds to pay other creditors," id. at
488. Here, as the Court has already indicated above, DeBruyn's
attorney's fees and costs are part "of the contract price for the
sale of produce." As such, C.H. Robinson Co. is inapposite.
Based on the foregoing, DeBruyn is entitled to have, in
accordance with its contract with defendant, "all costs of
collection, including attorney's fees" included in its PACA claim
for distribution on the same pro rata basis as all other PACA
claims. The parties shall be and hereby are ordered to submit an
appropriate order to this effect.
It is SO ORDERED.