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United States District Court, E.D. Pennsylvania

March 29, 2004.


The opinion of the court was delivered by: JAMES KNOLL GARDNER, District Judge


This matter is before the court on Plaintiff's Motion for Reconsideration to Vacate Judgment and for Summary Judgment filed May 5, 2003.*fn1 Plaintiff seeks the reversal of our Order granting summary judgment in favor of defendants and against plaintiff, which Order was placed on the record after argument held April 22, 2003. We simultaneously placed the Page 2 reasons for our determination on the record. Because we conclude that summary judgment was properly granted in favor of defendants and against plaintiff, we deny plaintiff's motion for reconsideration.

  Procedural History

  In the within civil action, plaintiff asserts a claim under the Perishable Agricultural Commodities Act*fn2 ("PACA"). The matter is before the court on federal question jurisdiction. 7 U.S.C. § 499e(c)(5); 28 U.S.C. § 1331. Venue is appropriate because the facts and circumstances giving rise to plaintiff's cause of action occurred in Berks County, Pennsylvania, and because defendants may be found in Berks County. See 28 U.S.C. § 118, 1391.*fn3

  On April 22, 2003, the undersigned held oral argument on the cross-motions for summary judgment of the Page 3 parties. At the conclusion of argument, on the record, in open court, and in the presence of counsel for the parties, the undersigned entered an Order granting defendant's motion for summary judgment, denying plaintiff's motion for summary judgment, and dismissing plaintiff's Complaint. Also at that time, the undersigned placed the reasons for the decision on the record, which we incorporate here. Our April 22, 2003 Order was reduced to writing and filed on May 7, 2003.


  Based upon the pleadings, record papers, affidavits, uncontested exhibits, and agreements of counsel at oral argument, the pertinent facts are as follows. On December 4 and 6, 1998 and May 15, 1999, plaintiff Phillips Mushroom Farms, L.P. (Phillips) sold persishable agricultural commodities to defendant Gold Star Mushroom Company, Inc. (Gold Star).*fn4

  On December 4, 1998, Phillips sold 18,382 pounds and 2860 containers of brown agricus-biporus mushrooms, known in the marketplace as portabella mushrooms ("portabellas"), to Page 4 Gold Star for $20,539.00.*fn5 Two days later, on December 6, 1998, Phillips sold 18,638 pounds and 2860 containers of portabellas to Gold Star for $20,857.20.*fn6 Plaintiff requested payment within 25 days in the invoices for both the December 4 and December 6 shipments. Page 5

  On January 8, 1999, James Angelucci, General Manager of Phillips, wrote to the Northeast Region of the PACA Branch of the Fruits and Vegetable Division of the Department of Agriculture. He wrote to file an informal complaint against Gold Star for delinquency concerning mushrooms sold to Gold Star from November 14, 1998 to December 6, 1998. The letter states that Gold Star had proposed a payment schedule of $3,000.00 per week for the $203,433.90 which Gold Star owed Phillips for mushroom sales. Mr. Angelucci claims that this offer was unacceptable.*fn7

  On January 14, 1999 Robert Smith, Controller for Gold Star, sent a letter to plaintiff in which he offered another alternative payment plan. Included in the letter was a check for $10,000.00 and a copy of a "Promissory Judgment Note".*fn8 The Promissory Judgment Note provided that Gold Star would pay Phillips for various outstanding debts, including the December 4 and December 6 sales, totaling $203,433.90. By the terms of the note Gold Star was to have until September 2, 1999 to pay its debt.*fn9

  On January 20, 1999, plaintiff responded to Mr. Page 6 Smith's letter. In the response, plaintiff agreed to the terms of the letter and the "Promissory Judgment Note". The acceptance letter was signed by R. Marshall Phillips, General Partner of Phillips.

  On January 20, 1999, Mr. Smith sent another letter to plaintiff. This letter enclosed a $6,000.00 check and a signed copy of the "Promissory Judgment Note". The letter also states that Mr. Smith understood from Tom Tranquillo, an agent of Gold Star, that plaintiff had agreed to the terms of the note.

  On May 15, 1999 Phillips Mushroom sold 20,562 pounds and 2880 containers of portabellas to Gold Star for $25,086.30.*fn10 The invoice for the May 15 sale requested payment within 25 days.

  On June 1, 1999, Mr. Angelucci wrote to Mr. Smith. The letter purports to memorialize a conversation held between Mr. Angelucci and Jim Penturelli, an agent of Gold Star.*fn11 According to the letter, the parties agreed to change the existing promissory note by altering the agreement term and the weekly payment amount contingent upon the following Page 7 addition:

Until this Promissory Judgment Note is paid in full, Obligor agrees not to sell, package, furnish, market, or otherwise make available to the fresh market, brown Agricus-biporus mushrooms known in the marketplace as Crimini or Portabella mushrooms. This in no way limits Obligor from processing the aforementioned mushrooms.
  The letter continues that if the change were acceptable, then Mr. Smith was to merely insert the language into the note and forward it to Mr. Angelucci for execution. By note dated June 7, 1999, Mr. Smith did so.*fn12 Page 8

  The second Promissory Judgment Note stated that Gold Star would pay Phillips for various outstanding debts totaling $116,520.20. By the terms of the agreement Gold Star was to have until May 25, 2000 to pay the debt.*fn13 Gold Star subsequently defaulted on the June 7, 1999 promissory note leaving $64,849.50 due.

  On March 1, 2000, Phillips again filed an informal complaint against Gold Star with the Department of Agriculture. In this letter, Phillips complained only of payments due from the December 4, 1998, December 6, 1998, and May 5, 1999 sales. The letter continues that Gold Star had proposed a payment schedule with which it had abided until December 15, 1999. At that time, Gold Star ceased making payments.*fn14

  On June 1, 2000, Phillips filed suit against Gold Star in the Court of Common Pleas of Berks County, Pennsylvania, to enforce the June 7, 1999 note. That same day, judgment was entered in favor of Phillips and against Gold Star in the amount of $67,970.74.*fn15 Phillips was unable Page 9 to collect the judgment.

  Standard for Reconsideration

  The purpose of a motion for reconsideration is to correct manifest errors of law or fact or to present newly discovered evidence. Brown v. Reed Elsevier Incorporated, 75 Fed. Appx. 869, 872 (3d Cir. 2003) (quoting Harsco. Corporation v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985)). A proper motion to alter or amend judgment must rely on one of three major grounds: (1) an intervening change in controlling law; (2) the availability of new evidence not available previously; or (3) the need to correct clear error of law or prevent manifest injustice. North River Insurance Company v. CIGNA Reinsurance Company, 52 F.3d 1194, 1218 (3d Cir. 1995) (quoting Natural Resources Defense Council v. United States Environmental Protection Agency, 705 F. Supp. 698, 702 (D.D.C. 1989)). Plaintiff contends that reconsideration is required in this case to correct a clear error of law.


  PACA provides that a qualified dealer*fn16 may Page 10 participate in a statutory trust under 7 U.S.C. § 499e(c)(2) in the sale of perishable goods. Specifically, PACA permits a supplier of perishable goods to compel a buyer to hold the proceeds of the buyers' sale in trust for a supplier until the supplier is paid in full. Idohoan Fresh v. Advantage Produce, Inc., 157 F.3d 197 (3d Cir. 1998). The statutory regime gives dealers rights superior to those of perfected, secured creditors, but requires that dealers meet exacting eligibility requirements. Idohoan, 157 F.3d at 199-200.

  In order to preserve its rights under PACA, a seller-dealer must notify the buyer-dealer of the seller's intention to assert its PACA rights. "A seller eligible for the statutory trust benefit must preserve its rights by satisfying a notice requirement by either sending notice to the buyer within 30 days of a payment default or, as provided in the 1995 amendment to PACA, including a statutory statement referencing the trust on its invoices." Idohoan, 157 F.3d 197, 200 (citing 7 U.S.C. § 499e(c)(3)(4); Page 11 7 C.F.R. § 46.46(c) and (f)). According to the invoices for each sale provided by plaintiff, Phillips properly noticed its intent to be protected by PACA's statutory trust and sought payment within 25 days.

  If a supplier gives proper notice that it intends to invoke PACA's statutory trust provisions, then it may not agree in writing to a payment term greater than 30 days and remain qualified for trust protection. "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 as defined in § 46.2(dd)*fn17 and paragraph (a)(1) of this section." 7 C.F.R. § 46.46(e)(2). "PACA does not preclude a seller from agreeing in writing to a payment term beyond 30 Page 12 days, but only disqualifies such a seller from participating in the trust." Idahoan, 157 F.3d at 209 (citing 7 C.F.R. § 46.2(aa)(11) and 46.46(e)(2)).

  If a supplier does agree to a payment term of greater than 30 days, then the manner in which a supplier agrees is dispositive concerning the issue of whether the supplier has forfeited its PACA rights. A written agreement for terms of greater than 30 days renders the supplier ineligible for the PACA trust rights. 7 C.F.R. § 46.46(e)(2); see Patterson Frozen Foods, Inc. v. Crown Foods International, Inc., 307 F.3d 666 (7th Cir. 2002).

  However, an oral agreement for such terms may not disqualify a supplier from PACA. See Hull Company v. Hauser's Foods, Inc., 924 F.2d 777, 781-782 (8th Cir. 1991).*fn18 The issue before the court is whether or not the letter between the parties, plaintiff's informal PACA complaints and the promissory notes agreed to by the parties, but signed only by Gold Star, evince a written agreement sufficient to require plaintiff's disqualification from PACA's statutory trust provisions. Page 13

  It is undisputed that plaintiff agreed to permit Gold Star to pay for the accepted shipments of portabellas pursuant to the terms of the promissory notes, which provide for payment beyond 30 days after acceptance. Plaintiff contends, however, that, because the promissory notes are signed only by Gold Star, the promissory notes do not constitute a writing which would disqualify it from the benefits of the statutory trust. Rather, plaintiff argues that a written contract is required for a unpaid seller to abrogate its PACA rights.

  In interpreting PACA, we must liberally construe the statute to effect the intent of Congress. See Idahoan Fresh, 157 F.3d at 204. Necessarily, however, our interpretation is confined to those same boundaries of Congressional intent.

  Congress has delineated two primarily purposes for PACA. "The principle justifications Congress has given for granting such generous protection for sellers of produce are (1) the need to protect small dealers who require prompt payment to survive and (2) the importance of ensuring the financial stability of the entire produce industry." Patterson, 307 F.3d at 669 (citing In Re Magic Restaurants, Inc., 205 F.3d 108, 111 (3d Cir. 2000)). Page 14

  In evaluating the interaction of these purposes in the context of the statutory trust provisions, it is helpful to analyze the balance of power imposed on dealers by the statute and the corresponding regulations. PACA clearly empowers sellers over buyers. By complying with formalistic, but simple, procedural requirements, a seller may invoke PACA's statutory trust provisions and have creditor rights superior to those of secured creditors.

  After a seller invokes the statutory trust provisions, the seller need do nothing further to maintain those rights. The scales are further tipped in favor of sellers by the provision that no oral communication between a buyer and seller may be construed to invalidate the trust. See Idahoan, 157 F.3d at 209. Thus, it is only by affirmative, written action that a seller may abrogate its trust rights.

  This structure accomplishes the dual goals of protecting small produce suppliers and ensuring industry stability. Small dealers are protected by the statutory trust provisions. The market is protected by ensuring that economic viability of producers is secure. Moreover, sellers are given the ability to choose whether an invocation of PACA rights or a different solution is in their best interest. Page 15

  In our interpretation, we also consider the framework in which PACA gives effect to the statutory trust. Pursuant to both the statute and the regulations, a seller may establish a PACA trust by any writing. See 7 C.F.R. § 46.46(f). There is no section of the statute or regulation that states that a seller may either invoke or abrogate its trust rights only by contract.

  "Nothing in either PACA itself or the policies that lie behind it justifies the judicial creation of a rule that can be satisfied only by a formally executed document with the word `CONTRACT' typed at the top." Patterson, 307 F.3d at 671. Because it is clear that a seller need not have a contract to invoke PACA, creating a rule that requires a formalistic contract to abrogate trust rights would create an unwarranted internal inconsistency in the manner in which the trust could be created and destroyed.

  Therefore, we agree with the holding of the United States Circuit Court of Appeals for the Seventh Circuit in Patterson when we conclude that a writing which satisfies the Statute of Frauds is sufficient to abrogate a seller's PACA trust rights. See Paterson, supra. Thus, we examine the sufficiency of the undisputed writings presented by the parties. Page 16

  The writings exchanged by the parties, including the letters between the parties, the promissory notes, and plaintiff's informal PACA complaints, indicate that Phillips agreed in writing to extend the payment period in which Gold Star could pay for the produce beyond 30 days. Moreover, the course of conduct between the parties supports this conclusion.

  Plaintiff's January 8, 2003 informal complaint to the Department of Agriculture is the first chronological document relating to the parties' agreement. That letter evidences Gold Stars' failure to pay for the December 4 and December 6 portabella within the 25 days request by plaintiff. But the letter also evidences negotiations between Phillips and Gold Star regarding alternative methods by which Gold Star could pay its debt. The letter relates a payment scale that Gold Star offered Phillips, and indicates that Phillips rejected this offer.

  The January 14, 1999 letter from Mr. Smith to Steve Phillips indicates that negotiations continued after Phillips' informal complaint. In this letter, Gold Star offered an initial payment of $10,000.00 with the remainder of the outstanding debt to be paid in accordance with the January 14, 1999 promissory judgment note. A copy of the promissory Page 17 judgment note was included with the letter and the note laid out numerous terms and conditions upon which the note was to be paid.

  On May 15, 1999, during the period in which the January 14, 1999 note was in effect, the parties again contracted a sale of portabellas. This arms-length transaction demonstrates a continuing business relationship between the parties. It further evinces the parties disposition to find a business solution to the problems between them, rather than invoking PACA.

  On June 1, 1999, Mr. Angelucci sent a letter to Mr. Smith to supplant the January 14, 1999 note. In the letter, Mr. Angelucci requested that Gold Star insert language into the promissory note and forward the note to him for execution. On June 7, 1999, Gold Star inserted the language and sent it to Phillips.

  Things again fell into disrepair the following year. In Phillips' March 1, 2000 letter to the Department of Agriculture, plaintiff states that it had received regular payments pursuant to the terms of the June 7, 1999 note until December 15, 1999. At that time, Gold Star defaulted on the note. There is no indication on the record that the Department of Agriculture took any action upon this informal Page 18 complaint, or that Phillips further prosecuted the complaint.

  On June 1, 2000, however, Phillips filed suit against Gold Star in the Court of Common Pleas of Berks County, Pennsylvania, to enforce the June 7, 1999 note. That same day, judgment was entered in favor of Phillips and against Gold Star in the amount of $67,970.74. Phillips' action to collect on the note in state court was the first effort to obtain judicial intervention seeking payment of Gold Star's debt. It was not until in became clear that Gold Star lacked the assets to cover the June 7, 1999 state court Judgment that Phillips filed the instant action asserting PACA.

  The undisputed evidence on the record indicates that the promissory notes were the product of arms-length negotiation by the parties. Moreover, there is no contrary contention by plaintiff. While it appears that plaintiff went to some lengths to avoid a formalistic document entitled "Contract" to govern the payment of Gold Star's debt to Phillips, it is equally clear that plaintiff choose to effect a business solution, rather than a PACA solution, to Gold Star's failure make payment.

  Moreover, there is ample evidence that the parties did contract in writing sufficient to satisfy the statute of Page 19 frauds to permit Gold Star to pay its debt beyond the 30-day period. In exchange for a suitable payment schedule from Gold Star, plaintiff appears to have agreed to forebear in its prosecution of its PACA claim with the United States Department of Agriculture. This arraignment is undisputedly demonstrated by the May 15, 2003 sale.

  If plaintiff had prosecuted its PACA claim with the Department of Agriculture pursuant to the January 8, 1999 letter, then Gold Star would have been striped of its dealer status under PACA and the sale would not have occurred. Plaintiff must have concluded that continued dealings with Gold Star were in its best interest.

  Accordingly, we conclude that plaintiff agreed in writing to permit Gold Star to pay for the December 4, 1998, December 6, 1998, and May 15, 1999 portabella sales beyond 30 days. Furthermore, we conclude that in so agreeing, this disqualifies plaintiff from invoking the statutory trust provisions of PACA.

  It is important to reiterate that "PACA does not preclude a seller from agreeing in writing to a payment term beyond 30 days, but only disqualifies such a seller from participating in the trust." Idahoan, 157 F.3d at 209 (citing 7 C.F.R. § 46.2(aa)(11) and 46.46(e)(2)). PACA gives Page 20 sellers flexibility and security in seeking payment for sales of produce. A seller has the discretion to invoke the protections of PACA or seek a business solution to an outstanding debt.

  While these two options need not be mutually exclusive, if a seller permits, in writing, a buyer to pay for produce beyond 30 days, then the option are mutually exclusive. In this case, plaintiff's decision to extend in writing Gold Star's payment terms beyond 30 days as part of a business solution disqualified plaintiff from asserting its rights under PACA.


  For the foregoing reasons, we conclude that we properly granted summary judgment in favor of defendants and against plaintiff. Because we conclude that we did not commit a clear error of law in granting summary judgment, we deny plaintiff's motion for reconsideration.

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