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Spada Properties, Inc. v. Unified Grocers, Inc.

United States District Court, D. Oregon

August 15, 2014

SPADA PROPERTIES, INC., an Oregon corporation dba UNITED SALAD CO., Plaintiff,
UNIFIED GROCERS, INC., a California corporation, Defendant

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[Copyrighted Material Omitted]

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For Plaintiff: David P. Weiner and Sanford R. Landress, GREENE & MARKLEY, P.C., Portland, OR.

For Defendant: Jeremy D. Sacks, Brandy A. Sargent, and Stephen H. Galloway, STOEL RIVES LLP, Portland, OR.

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Michael H. Simon, United States District Judge.

Plaintiff Spada Properties, Inc., doing business as United Salad Co. (" USC" ), brings this lawsuit against Defendant Unified Grocers, Inc. (" Unified" ), alleging claims regarding the bankruptcy of a " Food 4 Less" grocery store to which both U.S.C. and Unified supplied groceries. U.S.C. asserts two claims: (1) violation of the Perishable Agricultural Commodities Act (" PACA" ), 7 U.S.C. § § 499b, 499e; and (2) money had and received. Unified raises ten affirmative defenses: (1) waiver; (2) statute of limitations; (3) laches; (4) failure to state a claim; (5) bona fide purchaser; (6) good faith beneficiary pursuant to Or. Rev. Stat. § 130.855 and Uniform Trust Code § 1012; (7) unclean hands; (8) failure to mitigate; (9) estoppel and course of dealings; and (10) consent. U.S.C. has

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moved for summary judgment on all claims and all defenses.


A party is entitled to summary judgment if the " movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party has the burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir. 2001). Although " [c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for summary judgment," the " mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient . . . ." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). " Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation and quotation marks omitted).


Congress enacted PACA in 1930 " in order to provide growers and sellers of agricultural commodities with 'a self-help tool . . . enable[ing] them to protect themselves against the abnormal risk of losses resulting from slow-pay and no-pay practices by buyers or receivers of fruits and vegetables.'" D.H. Rothman & Co. v. Korea Commercial Bank of New York, 411 F.3d 90, 93 (2d Cir. 2005) (alterations in original) (citing Regulations Under the Perishable Agricultural Commodities Act; Addition of Provisions to Effect a Statutory Trust, Final Rule, 49 Fed. Reg. 45735, 45737 (USDA Nov. 20, 1984)). PACA requires purchasers of perishable produce to provide full and prompt payment to produce sellers. 7 U.S.C. § 499b(4). As described more fully below, § 499e(c)(2) of PACA creates a non-segregated, floating trust for the benefit of the seller of perishable commodities. The trust comes into existence when the produce is delivered, and remains in effect until payment is received. See Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 281 (9th Cir. 1997). PACA trust rights are superior to the rights of secured creditors, which can in certain circumstances be required to disgorge any PACA trust proceeds received. See Endico Potatoes, Inc. v. CIT Grp./Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir. 1995); Consumer Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1381 (3d Cir. 1994).

USC is an Oregon corporation that sells and distributes fresh fruit and produce and is licensed by the Secretary of Agriculture under PACA. For almost 20 years, U.S.C. was the primary wholesale produce supplier for Food Ventures 87, Inc. doing business as " Food 4 Less" (" Food 4 Less" ). This case, however, deals only with produce sales made between July 21, 2011 and April 24, 2012.

Unified is a secured seller of non-PACA qualified food and also supplies groceries to Food 4 Less. As part of the initial purchase agreement between Food 4 Less and Unified, Food 4 Less authorized Unified to withdraw automatic payments from Food 4 Less' bank accounts. During the period at issue, Unified received payments from Food 4 Less totaling $8,099,459.16.

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These payments were made through automatic withdrawals.

Between July 21, 2011 and April 24, 2012, U.S.C. sold fresh fruit and produce to Food 4 Less on terms requiring payment within ten days after invoice. The invoice date was also the date of delivery. Each invoice sent by U.S.C. to Food 4 Less included the following statement:

The perishable agricultural commodities listed on this statement are sold subject to the statutory trust authorized by Section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7. U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities and any receivables or proceeds from the sale of these commodities until full payment is received.

Spada Decl. ¶ 8, Dkt. 16.

Although the formal terms included in USC's invoices to Food 4 Less required payment in full within ten days of delivery, in the course of practice, U.S.C. allowed Food 4 Less to pay within 30 days of delivery. At some unspecified point, Food 4 Less began to pay even later than 30 days after delivery. U.S.C. decided not to commence collection actions against Food 4 Less because of its past experiences with Food 4 Less and the reassurances made to U.S.C. by the owners of Food 4 Less.

After Food 4 Less began to experience financial difficulties, it got further and further behind on payments owed to USC. In January of 2009, Food 4 Less was five months behind on payments. Ernest Spada, the owner of USC, and Michael Leech, the owner of the Food 4 Less, talked frequently about Food 4 Less' growing inability to pay USC. In July of 2009, U.S.C. asked for and received from Food 4 Less for a promissory note for $500,000. U.S.C. used the payments on the $500,000 promissory note to reduce a portion of Food 4 Less' past due accounts. The note required Food 4 Less to pay $22,000 a month to U.S.C. for two years. This covered both the principal and interest due on the $500,000 note. The note was paid off by August 2011, at which time Food 4 Less had fallen eight months behind on its produce payments. Leech offered U.S.C. a security agreement on his personal boathouse, worth approximately $180,000, which U.S.C. accepted. In April 2012, U.S.C. started selling produce to Food 4 Less on a cash-on-delivery basis only.

On or about April 30, 2013, Food 4 Less filed a voluntary petition under Chapter 7 of the Bankruptcy Code. The bankruptcy case was closed as a " no asset" case without any distribution to creditors on or about August 21, 2013. U.S.C. alleges that as of January 28, 2013, Food 4 Less still owed U.S.C. the total principal amount of $830,711.13.


A. The Perishable Agricultural Commodities Act

Produce dealers violate PACA if they do not promptly pay in full for any perishable commodity purchased in interstate commerce. 7 U.S.C. § 499b(4); see also Sunkist Growers, Inc., 104 F.3d at 282. Failure promptly to pay in full exposes the violating buyer to civil liability in favor of the seller. 7 U.S.C. § 499e. In 1984, Congress amended PACA to add an additional protection for produce suppliers--a non-segregated, floating trust that gives suppliers a security interest in the produce and its proceeds and makes the security interest superior to the claims of the buyer's other secured creditors. See An Act to Amend the Perishable Agricultural Commodities Act, 1930, Pub. L. No. 98-273, 98 Stat. 165 (codified as amended 7 U.S.C. § 499e(c) (1984));

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7 C.F.R. § 46.46(b) (2011). As the Ninth Circuit explained:

The PACA provisions provide for the establishment of a nonsegregated trust under which a produce dealer holds its produce-related assets as a fiduciary until full payment is made to the seller. The trust automatically arises in favor of a produce seller upon delivery of produce and is for the benefit of all unpaid suppliers or sellers involved in the transaction until full payment of the sums owing has been received.

In re Milton Poulos, Inc., 947 F.2d 1351, 1352 (9th Cir. 1991) (citations omitted).

In order to preserve its PACA trust rights, however, a seller must comply with the notice provisions of 7 U.S.C. § § 499e(c)(3) or (4). ...

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