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Brigiotta's Farmland Produce v. Przykuta

July 13, 2006


The opinion of the court was delivered by: William M. Skretny United States District Judge



Plaintiff commenced this action on April 20, 2005, alleging, among other things, that Defendants Przykuta, Inc. d/b/a Frontier Produce ("Frontier Produce") and Ralph Paglia, an owner, director and/or officer of Frontier Produce (together, "the Frontier Defendants") violated the Perishable Agricultural Commodities Act of 1930 ("PACA"), 7 U.S.C. §§ 499a et seq., breached their fiduciary duties under PACA and breached Frontier's contract with Plaintiff when they accepted deliveries of perishable agricultural commodities from Plaintiff, subsequently sold or disposed of those commodities, and failed and refused to pay Plaintiff. After the Frontier Defendants failed to enter an appearance, answer Plaintiff's Complaint or otherwise defend this action, Plaintiff obtained a Clerk's Entry of Default on September 26, 2005. (Docket No. 29).

Presently before this Court is Plaintiff's Motion for Default Judgment against the Frontier Defendants, filed on September 28, 2005. (Docket No. 31). Plaintiff seeks an order directing Defendants to make payment in the amount of $114,328.75 as demanded in the Complaint, plus prejudgment interest, attorney's fees, costs and disbursements.*fn1 For the reasons discussed below, this Court finds that an entry of default judgment is warranted.


A. Default Judgment Standard

A defendant's default is deemed to constitute a concession of all well-pleaded allegations of liability, but is not considered an admission of damages. Greyhound Exhibitgroup v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992) (citing Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974)). Thus, while a finding of liability can be predicated solely on a facially valid complaint, damages must be proven before a final default judgment is entered. See Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999); Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981). Here, Plaintiff's Motion for Default Judgment is governed by FED. R. CIV. P. 55(b), which provides, in pertinent part, that: [i]f, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or make an investigation of any other matter, the court may conduct such hearings or order such references as it deems necessary and proper . . . .

This language clearly indicates that a district court is required to ascertain, with reasonable certainty, the existence of a valid claim and the amount of damages owed.

Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 108, 111 (2d Cir. 1997); Wagstaff-EL v. Carlton Press Co., 913 F.2d 56, 57 (2d Cir. 1990) (affirming vacatur of default judgment where underlying claims were facially invalid or utterly unsupported and appellant's calculation of damages was preposterous). A district court can make these determinations without a hearing so long as it ensures that the pleadings and evidence submitted in support of the motion provide a basis for the default judgment and the damages specified therein. Transatlantic Marine, at 111. The Second Circuit cautions that "defaults are generally disfavored and are reserved for rare occasions" so, when there is doubt about the propriety of default relief, "the doubt should be resolved in favor of the defaulting party." Enron Oil Corp. v. Masonori Kiakuhara, 10 F.3d 90, 95 (2d Cir. 1993).

B. The Validity of Plaintiff's Claims

Plaintiff's claims against Frontier Produce include: failure to maintain trust under PACA, dissipation of PACA trust assets, breach of fiduciary duty under PACA, breach of contract, and action on account stated (Counts I - V). The claims against Ralph Paglia are: breach of fiduciary duty/conversion of PACA trust res, and dissipation of PACA trust assets (Counts VI and VII). The Frontier Defendants, along with other current and former Defendants against whom default judgment is not sought are alleged to have participated in a fraudulent conveyance in violation of New York Debtor and Creditor Law § 273 (Count X).

In its Motion for Default Judgment, Plaintiff does not identify the specific claims upon which judgment is sought. The supporting Affidavit of Thomas N. Galbato refers only to PACA. The supporting Affidavit of Warren B. Rosenbaum, Esq. does not refer to any particular claim, but appears to assume there is an entitlement to default judgment in the amount requested by Plaintiff based solely on the Frontier Defendants' failure to answer the Complaint. As set forth above, the Court's obligation involves more than a rubber stamp.

1. The PACA's Purpose and Requirements

PACA was enacted in 1930 to regulate the sale and marketing of produce in interstate commerce. American Banana Co., Inc. v. Republic Nat'l Bank of N.Y., 362 F.3d 33, 36 (2d Cir. 2004); Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Vegetable Co., Inc., 336 F.3d 410, 413 (5th Cir. 2003). In the early 1980s, Congress expressed concern for farmers and growers of perishable commodities, who, because of the need to sell their products quickly, were vulnerable to buyers whose creditworthiness was difficult to evaluate prior to a sale. H.R. REP. NO. 98-543, at 3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 406-407; Reaves, 336 F.3d at 413 (citing Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1066 (2d Cir. 1995)). Congress amended PACA in 1984 to create a statutory trust in favor of produce sellers. 7 U.S.C. § 499e(c). Under the 1984 provision, immediately upon a seller's delivery of perishable commodities, the commodities, products derived from the commodities, and the proceeds from their sale are to be held by the buyer in a nonsegregated "floating" trust for the benefit of unpaid suppliers who meet the applicable statutory requirements. American Banana, 362 F.3d at 38. If entitled to PACA protection, a seller's interest in the commodities and sales proceeds is superior to that of other creditors, including secured creditors. Id. at 37.

To obtain the extraordinary protection of the trust provision, a seller must ordinarily require payment for the produce "within 10 days after the day on which the produce is accepted." 7 C.F.R. § 46.2(aa)(5). "The maximum time for payment for a shipment to which a seller, supplier, or agent can agree and still qualify for coverage under the trust is 30 days after receipt and acceptance of the commodities." Id., § 46.46(e)(2). In addition to selling on the basis of cash or short-term credit, a seller must also give the buyer written notice of its intent to preserve its trust benefits as provided in 7 U.S.C. § 499e(c)(3) and (4).

A buyer who does not make a "full payment promptly"-i.e., within the statutory 10 day period or an agreed to period of up to 30 days-commits a violation of the Act. Id., § 46.2(aa).

2. Plaintiff's Allegations and Supporting Documents Regarding Frontier Produce

In its Complaint, Plaintiff alleges that it sold perishable commodities to Frontier Produce on delivered price terms between November 9, 2004 and February 2, 2005 (Compl., ¶ 11), Frontier Produce inspected and accepted the commodities at the times of delivery (Id., ¶ 13), and subsequent to delivery, Plaintiff invoiced Frontier Produce (Id., ¶ 18). Plaintiff further alleges that its invoices contained the specific notice authorized by 7 U.S.C. § 499e(c)(4).*fn2

However, the statutorily authorized notice is but one step in establishing PACA entitlement. As recently noted by the Second Circuit, "nothing in the text of PACA, in its legislative history, or in its implementing regulations indicates that PACA's super-priority was intended to benefit sellers who dealt in other than short-term credit in accordance with PACA's regulations." American Banana, 362 F.3d at 38 (citations omitted); see also, 7 C.F.R. §§ 46.2(aa) and 46.46(e). Because the Complaint does not provide any information regarding the terms of sale, this Court can not conclude, from the Complaint alone, that Plaintiff has a facially valid PACA claim.

The Court therefore turns to the Affidavit of Thomas N. Galbato, submitted in support of the Motion for Default Judgment, along with his earlier Certification submitted in support of Plaintiff's motion for a preliminary injunction. Based on the attestations and documentation therein, this Court is satisfied that Plaintiff has alleged a supportable claim under PACA (Docket Nos. 5 and 31). In his Affidavit, Galbato attests that "payment for the produce was due 10 days from the date of delivery" (Docket 31, ¶ 8). Consistent with that attestation, the term stated on the attached invoice is "10 days."*fn3

Thus, it appears that Plaintiff has taken the necessary steps to gain and retain its entitlement to the PACA statutory trust. Plaintiff alleges that Frontier Produce has failed and refused to pay Plaintiff for the perishable commodities set forth in the invoices submitted to the Court, has failed to hold the commodities, derivatives or proceeds in trust, and has improperly expended trust assets (Compl., ¶¶ 17, 21, 24). Accordingly, an entry of default judgment under PACA against Frontier Produce is appropriate.

Plaintiff has not expressly stated in its notice of motion or supporting affidavits that it is seeking default judgment on any ground other than PACA, nor has it provided briefing on any of its additional claims.*fn4 Therefore, the Court sees no need to analyze ...

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