United States District Court, E.D. Pennsylvania
March 29, 2004.
PHILLIPS MUSHROOM FARMS, L.P., Plaintiff
GOLD STAR MUSHROOM COMPANY, INC., and BERNARDO J. PENTURELLI, Defendants
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
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.
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
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
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
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.
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.
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
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
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
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
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);
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
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.
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)).
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
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.
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
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.
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
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
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
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
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
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
Moreover, there is ample evidence that the parties did contract in
writing sufficient to satisfy the statute of
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
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
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.