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Spring Valley Produce, Inc. v. Stea Bros., Inc.

United States District Court, E.D. Pennsylvania

May 18, 2015

SPRING VALLEY PRODUCE, INC. d/b/a PRODUCE CONNECTION AND THE SALAD FARM, LLC, Plaintiff,
v.
STEA BROS., INC., FRANK STEA, JR. AND ANTHONY STEA, Defendants.

MEMORANDUM OPINION

WENDY BEETLESTONE, District Judge.

Plaintiffs Spring Valley Produce, Inc. ("Spring Valley") and The Salad Farm, LLC, ("Salad Farm") filed their Complaint in this action on January 15, 2015, seeking to recover funds allegedly owed to them for produce that they sold to Defendants. Defendants Stea Brothers, Inc. ("Brothers") and Anthony Stea ("Stea") (collectively the "Defendants") were served on January 26, 2015. ECF Nos. 4, 5. Nevertheless, they have failed to respond to the Complaint, and on March 9, 2015, the Clerk of Court entered default against them. In their present motion, Plaintiffs seek the entry of a default judgment and an award of damages. For the reasons discussed below, the motion will be granted as to those parties.[1]

I. STATEMENT OF FACTS[2]

Plaintiffs are sellers of perishable agricultural commodities. Compl. ¶ 12-13. Defendant Brothers was in the business of buying and selling perishable agricultural commodities throughout the United States and was, at all times relevant to this action, licensed by the United States Department of Agriculture as a broker, commission merchant and/or dealer of perishable agricultural commodities pursuant to the Perishable Agricultural Commodities Act, 7 U.S.C. § 499e et seq. ("PACA"). Compl. ¶ 4. At all relevant times, Stea was an officer, director shareholder and/or controlling principal of Brothers and was responsible for its daily management and control. Id. ¶ 6.

Between November 15, 2013 and February 6, 2014, Plaintiff Spring Valley sold perishable agricultural commodities to Brothers in a series of transactions with a total price of $159, 945.95. Id. ¶ 12. Between January 4, 2014 and March 4, 2014, Plaintiff Salad Farm sold such commodities to Brothers in a series of transactions with a total price of $25, 988.80. Id. ¶ 13.[3] Brothers received and accepted all of the shipped commodities. Id. ¶ 14. For each of the transactions, Plaintiffs forwarded invoices to Brothers, each of which contained the language required by 7 U.S.C. § 499(c)(4), giving notice to Brothers that the commodities sold were subject to the PACA trust provisions stated in 7 U.S.C. § 499(e)(c)(2). Camany Decl. ¶ 8 & Ex. 1; Meena Decl. ¶ 8 & Ex. 1. Defendants have made payments of $42, 918.70 to Spring Valley, leaving a principal balance of $117, 027.25 unpaid. Compl. ¶ 16. Defendants have made payments of $7, 145.48 to Salad Farm, leaving a principal balance of $18, 843.32 unpaid. Id. ¶ 17. Salad Farm's invoices include terms requiring Brothers to pay 1.5% monthly interest on past due balances and attorneys' fees and costs. Id. ¶ 19. Spring Valley's invoices contain no such terms.

II. Analysis

Courts have discretion to enter default judgments. Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984). Default judgments, however, are disfavored. United States v. $55, 518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1983). Whenever practicable, cases should be decided on the merits. Hritz, 732 F.2d at 1131. In determining whether to grant a default judgment, a court should first determine whether the unchallenged facts stated in the complaint establish a cause of action. Md. Cas. Co. v. Frazier Family Trust, No. 13-2311, 2014 WL 345218, at *2 (E.D. Pa. Jan. 30, 2014); Carrol v. Stettler, No. 10-2262, 2012 WL 3279213, at *2 (E.D. Pa. Aug. 10, 2012).

A. Whether Plaintiffs Have Established a Cause of Action Against Brothers

Under PACA, it is unlawful for a dealer in commodities to fail to make prompt, full payment to the person with whom it made a commodity transaction. 7 U.S.C. § 499b(4). To ensure payment, perishable agricultural commodities sold and the proceeds from the resale of those commodities are held in trust by the buyer for the benefit of the seller until full payment is made to the seller.

Perishable agricultural commodities received by a commission merchant, dealer or broker... and any receivables or proceeds from the sale of such commodities... 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.

Id. § 499e(c)(2). It is unlawful for a buyer to fail to maintain the PACA trust for the benefit of the seller. Id. § 499b(4). The purchaser is charged with a duty to insure that the PACA trust has sufficient assets to ensure prompt payment of the amounts owed to the seller. Bear Mountain Orchards, Inc. v. Mich-Kim, Inc., 623 F.3d 163, 166 (3d Cir. 2010). A purchaser who violates these provisions is liable for the full amount of damages the seller sustains. 7 U.S.C. § 499e(a). Federal District Courts are "vested with jurisdiction specifically to entertain... actions by trust beneficiaries to enforce payment from the trust." Id. § 499e(c)(5).

In the uncontroverted pleadings of their Complaint, Plaintiffs have alleged that they supplied Brothers with agricultural commodities covered by PACA, Compl. ¶¶ 12, 13, and that they have not received full payment for those commodities. Id. ¶¶ 16, 17. They further allege that Defendants have failed to maintain the trust assets and keep them available to satisfy their claims as required by PACA. Id. ¶ 27. Thus, they have stated a valid claim that Brothers is liable for the amounts due them. See 7 U.S.C. § 499e(a).

B Whether Plaintiffs Have Established a Cause of Action Against Stea

As for Stea, Plaintiffs also have stated a valid claim against him as a PACA trustee. "[I]ndividual shareholders, officers, or directors of a corporation who are in a position to control trust assets, and who breach their fiduciary duty to preserve those assets, may be held personally liable under PACA." Bear Mountain, 623 F.3d at 171 (emphasis in original) (quoting Golman-Hayden Co. Inc. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir. 2000)); see also Coosemans Specialties, Inc. v. Gargiulo, 485 F.3d 701, 705-06 (2d Cir. 2007) (similar standard). Plaintiffs have alleged that Stea was an officer, director, shareholder, and/or controlling principal of Brothers, Compl. ¶ 6, was responsible for the daily management and control of Brothers, id. ¶ 7, and was in position to control Brothers' PACA trust assets, id. ¶ 8. Absent contravention, he is liable for breach of his fiduciary duty to preserve trust assets. See Bear Mountain, 623 F.3d at 171-72 (individuals ...


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