Summary of a Recent
Judicial Development in
Perishable Commodities

Cross-Motions for Summary Judgment
Denied in PACA Action

Jay Kiiha
National AgLaw Center Graduate Assistant

In a breach of contract action brought under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §499a-§499t, between a distributor of perishable agricultural commodities and a purchaser of perishable agricultural commodities, the United States District Court for the Northern District of Illinois has denied both parties' motions for summary judgment. Agrexco USA, Ltd. v. Benny's Farm Fresh Distributing Co. Inc., No. 01-C-4798, 2003 WL 722232 (N.D. Ill. March 3, 2003).

This action arose out of a dispute over the amount of money owed for two shipments of red and yellow peppers that were purchased by Benny's Farm Fresh Distributing Co., Inc., and its President, Ronald E. Pomerantz (collectively "Farm Fresh"), from Agrexco USA, Ltd. ("Agrexco"), plaintiff. See id. at *1. Farm Fresh was a distributor of perishable agricultural commodities and purchased the peppers for resale to C.H. Robinson Company ("Robinson"), third-party defendant. See id.

On March 23, 2001, an agent of Farm Fresh negotiated a contract with a sales representative from Robinson to sell various quantities of red and yellow peppers. See id. The contract required Robinson "to purchase 400 red and 300 yellow peppers for shipment on . . . March 23, 2001, and 500 red and 300 yellow peppers for shipment on . . . March 25, 2001." Id. Robinson agreed to purchase the peppers for $36,550.00. See id.

Farm Fresh purchased the peppers from Agrexco, who shipped the fruit directly to the Dallas and Atlanta locations of Standard Fruit and Vegetable ("Standard"). See id. at *2. On March 27, 2001, the sales representative from Robinson informed Farm Fresh that "Standard representatives in Dallas and Atlanta told her the peppers had arrived and were too large." Id.

Robinson claimed that in initial contract negotiations, Farm Fresh agreed to provide smaller peppers which would fit twenty-eight to thirty per box. See id. The order confirmation did not contain a statement indicating that there was a size requirement for the peppers. See id. Farm Fresh denied that it agreed to provide peppers of any particular size and pointed to an e-mail that an agent of Farm Fresh wrote to an Agrexco representative on March 28, 2001. See id. That e-mail stated the following:

[I] am having a little problem with the weekend shipments of peppers. The customer is complaining that the peppers are too large. The shipment from Sunday which went to Atlanta was inspected, it showed 3% decay in the red peppers & an average count of 21 peppers per case. The yellow peppers showed no decay & an average of 22 peppers per case. I know we can not guarantee number of peppers per case, but Fred had stated the red peppers were running about 28 peppers per case with an occasional case with 22 per case. The peppers which left on Friday were also very large, I do not have a specific count. I was wondering if you can help me in this situation . . . .

Id. (citation omitted).

Farm Fresh claimed that after Robinson complained about the size of the peppers, it requested that Robinson have a federal inspection conducted. See id. Robinson complied and faxed Farm Fresh two inspection certificates. See id. The first certificate represented the results of an inspection performed on March 27, 2001, on 300 cartons of red and yellow peppers that were originally shipped on March 23, 2001. See id. It noted some decay on the peppers and that there was an average of twenty-one to twenty-two peppers per carton. See id. The second certificate represented the results of an inspection that was performed on March 27, 2001, on approximately 800 cartons of sweet peppers that were delivered on March 25, 2001. See id. It indicated that there were some quality defects with the peppers, including decay and that there was an average of twenty-one to twenty-two peppers per carton. See id.

Robinson claimed that after reviewing the inspection reports, Farm Fresh "agreed that the peppers were too large, and accordingly allowed Robinson's purchaser to sell the peppers that could not be repacked." Id. Robinson also claimed that "it was forced to deduct $18,204 from the sale price to its customer because the peppers Farm Fresh provided did not conform to the agreed-upon size requirements." Id. Robinson submitted two letters "from Standard dated May 17, 2001, stating that on March 26, 2001, Standard received red and yellow peppers that did not meet the specifications of what was ordered, and lists a return of $10,500 and $11,718 on each shipment, for a total of $22,218." Id.

Initially, Agrexco brought an action against Farm Fresh to recover the balance due on the purchase contract, and Farm Fresh "filed a third-party complaint against Robinson, asserting a violation of PACA and breach of contract, and seeking payment for the commodities it ordered from Agrexco and sold to Robinson." Id. Agrexco and Farm Fresh settled and dismissed their dispute, but the third-party complaint between Farm Fresh and Robinson continued. See id.

Robinson filed a motion for summary judgment, "contending that Farm Fresh provided non-conforming goods and therefore Robinson was entitled to deduct the damages it sustained from the full contract amount." Id. at *1. Farm Fresh responded by filing a motion for summary judgment, arguing that Robinson had not proved its damages. See id. The district court denied each of these motions. See id.

The court explained that the PACA "comprehensively regulates the produce industry, providing, among other things, 'that perishable agricultural commodities received by a [broker], as well as the proceeds from sales of those commodities, are held in trust for the benefit of unpaid suppliers until full payment has been made.'" Id. at *3 (quoting Patterson Frozen Foods v. Crown Foods Int'l, 307 F.3d 666, 669 (7th Cir. 2002) (citing 7 U.S.C. § 499e(c)(2)). The PACA trust is intended to aid the produce seller in recovering proceeds from a delinquent purchaser. See id. (citation omitted). The court also explained that the PACA "'vests the district courts of the United States with jurisdiction to hear 'actions by trust beneficiaries to enforce payment from the trust.'" Id. (quoting United Potato Co. Inc. v. Burghard & Sons, Inc., 18 F.Supp.2d 894, 898 (N.D. Ill.1998) (citing 7 U.S.C. §499e(c)(5)).

The court noted that although it had jurisdiction as a result of the PACA, both sides were essentially arguing a state law breach of contract action. See id. Farm Fresh asserted breach of contract as a cause of action, and Robinson asserted breach of contract as an affirmative defense. See id. The parties stipulated that "Robinson's request to purchase, and Farm Fresh's agreement to sell two shipments of red and yellow peppers for $36, 550.00 created a valid and enforceable contract." Id. The parties did not stipulate to any other material issues of fact. See id.

The court first considered Robinson's motion for summary judgment. See id. Robinson argued that because "Farm Fresh sent nonconforming goods . . . it was entitled to withhold a portion of payment in order to off-set its damages." Id. Robinson asserted Farm Fresh's breach of contract as an affirmative offense. See id. The court stated that "to prevail on summary judgment, Robinson [had to] establish that, as a matter of law, it satisfies each element of a breach of contract cause of action." Id. To prevail on a breach of contract action, under Illinois law, the party bringing the complaint must demonstrate "(1) the existence of a valid and enforceable contract; (2) its performance of the contract; (3) breach of contract by the other party; and (4) resulting injury." Id. (citing Preibe v. Autobarn, Ltd., 240 F.3d 584, 587 (7th Cir. 2001)). The court considered each element in turn. See id.

The court noted that the facts stipulated by the parties established the first element of the existence of a valid and enforceable contract. See id. at *4. With regard to the second element, it noted that proving performance of the contract was contingent upon proving that Farm Fresh breached the contract and that Robinson was injured. See id. Therefore, the court stated that it needed only to consider the elements of breach of contract and resulting injury. See id.

Robinson argued that Farm Fresh breached the contract because it provided peppers that were too large. See id. Farm Fresh argued that size of the peppers was not a term specified in the contract. See id. To support its argument, Robinson submitted affidavits from David Duggan, an agent of Farm Fresh, and Hoehne, an agent of Robinson, that "[attested] to Hoehne's specific request on behalf of Robinson for peppers that would fit 28 to 30 per box, and Duggan's promise as a representative of Farm Fresh to fulfill that requirement." Id. In response, Farm Fresh submitted the above-described e-mail sent from Duggan to Agrexco on March 28, 2001, in which where Duggan noted that Robinson had complained about the size of the peppers, but conceded that he knew that Agrexco could not guarantee a specific number of peppers per case. See id.

Farm Fresh argued that the March 28, 2001, e-mail proved that Duggan did not aver to an agreement with Hoehne regarding pepper size. See id. The court, however, disagreed, stating that the e-mail only proved that Duggan was aware that Agrexco could not guarantee a specific number of peppers per case and did not speak to any factual promises that may or may not have been made to Robinson. See id.

The court also rejected Farm Fresh's claim that Robinson failed to provide specific evidence that the peppers were nonconforming because federal inspectors failed to verify the sources of the peppers which were inspected on March 27, 2001. See id. at *5. The court noted that because identification numbers listed on inspection certificates exactly matched the numbers listed on the March 23 and 25, 2001, shipping invoices from Farm Fresh to Robinson, that Robinson's contention that nonconforming peppers were delivered was not disputable as an issue of fact. See id. The court also stated that because Farm Fresh failed to offer any support that the goods inspected were not the peppers it shipped rendered any arguments to the contrary as mere speculation. See id. Therefore, the court ruled as a finding of fact that "[t]he evidence of record [established] that Farm Fresh promised peppers that would fit 28-30 per box, but, according to USDA inspection reports, the peppers supplied were too large." Id. at *6. The court concluded that this established that Farm Fresh breached its contract with Robinson. See id. at *5.

Even though the third element of breach of contract was proven, the court stated that it would not sustain Robinson's motion for summary judgment because Robinson failed to prove that there was a resulting injury. See id. The court reasoned that Robinson did not introduce any evidence "of the amount of losses, if any, that [it] sustained as a result of receiving non-conforming products." Id. As a result of Robinson's failure to demonstrate why a deduction of $18,204.00 from the original purchase price of $36,550.00 was warranted, the court ruled that a triable issue of fact existed with respect to the element of injury that precluded summary judgment with respect to Robinson's claim as a whole. See id. at *6.

The district court rejected Farm Fresh's motion for summary judgment, stating that "as [we] have already found, it has not demonstrated the second element of its own breach of contract claim, performance of its duties under a valid contract to sell red yellow peppers of a certain size." Id. The court concluded that

[I]n Illinois, "the rule is well-settled that a party cannot sue for breach of contract without alleging and proving that he has himself substantially complied with all the material terms of the agreement." The evidence of record establishes that Farm Fresh promised peppers that wold fit 28-30 per box, but, according to the USDA inspection reports, the peppers supplied were too large. Farm Fresh, as a cross-movant for summary judgment, therefore has not met its burden of demonstrating that judgment as a matter of law should be entered in its favor.

Id. (citations omitted).

The case was decided on March 3, 2003; this summary was posted April, 2003