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Antle Marketing, Inc. v. A.J. Passafiume Sons, Inc.

United States District Court, W.D. Kentucky, Louisville

November 8, 2018




         I. Introduction

         Courts are often, in the exercise of their jurisdiction, called upon to determine what something is. In a contract case familiar to many lawyers and law students, Judge Friendly opened his opinion with the sentence: “The issue is, what is chicken?” Frigaliment Importing Co., Ltd. v. B.N.S. Int'l Sales Corp., 190 F.Supp. 116, 117 (S.D.N.Y. 1960). Similar cases abound.[1] In another famous case-closer to the subject matter of this litigation-the Supreme Court was called on to determine whether a tomato was a fruit or a vegetable. Nix v. Hedden, 149 U.S. 304, 306 (1893) (botanically a fruit, but a vegetable “in the common language of the people”).

         Here, the Court is called upon to determine what Defendant A.J. Passafiume Sons, Inc. (“Passafiume”) is. Plaintiffs Antle Marketing, Inc. and Castellini Company, LLC have asserted that Passafiume is a “commission merchant” or “dealer” of fresh produce such that it falls under the Perishable Agricultural Commodities Act (PACA). DN 12. The Defendants' motion to dismiss disagrees, thus challenging this Court's jurisdiction to hear the case. DN 14. See Fed. R. Civ. P. 12(b)(1). In the alternative, Defendants urge us to find that the Plaintiffs' amended complaint does not state a claim upon which relief can be granted. Id. See also Fed. R. Civ. P. 12(b)(6). To those allegations, Plaintiffs have responded in opposition. DN 15. Defendants have, in turn, replied. DN 16. As a result, this matter is now ripe (pun intended) for review. Finding it plausible that Passafiume is a “dealer” within the meaning of PACA and that the Individual Defendants could be liable under the amended complaint, the Court will deny the motion to dismiss.

         II. Factual Background

         Antle, Castellini, and Passafiume all sell fresh produce. DN 12 at 2-3. Antle and Castellini do so in wholesale quantities and nationwide. Id. As part of that business, all three companies held valid produce licenses from the United States Department of Agriculture's PACA Branch. Id. Anthony Passafiume Jr., Sebastian Passafiume, Pamela Passafiume, Rhonda Passafiume-Moss, and Teresa Passafiume (the “Individual Defendants”) (collectively, with A.J. Passafiume Sons, “Defendants”) are the owners, officers, directors, and shareholders of Passafiume. Id. at 3. Plaintiffs claim they were responsible for the day-to-day operations of Passafiume's business and assets and, as such, can be found liable individually. Id.

         This controversy arises from Antle and Castellini's sale of fresh produce to Passafiume on credit. Passafiume bought from Antle from October 2, 2017 to January 19, 2018 and Castellini from January 16, 2018 to March 18, 2018. Id. at 4. On each invoice sent to Passafiume, Antle and Castellini placed the statutorily prescribed language to preserve their rights as beneficiaries of the statutory trust. Id. at 5. See 7 U.S.C. § 499e(c)(4) (“a licensee may use ordinary and usual billing or invoice statements to provide notice of the licensee's intent to preserve the trust”). In total, Antle and Castellini sold and delivered $69, 196.83 worth of fresh fruits and vegetables to Passafiume. Id. Of that, they claim $43, 828.06 is unpaid and due. Id. Antle and Castellini now claim that Passafiume has begun to dissipate the trust res without paying the creditors. Id. at 6. To recover that unpaid amount, Antle and Castellini brought this suit for (I) failure to maintain the PACA trust, (II) dissipation of trust assets, (III) failure to account and pay, (IV) breach of fiduciary duty, (V) breach of contract, and (VI) for interest and attorney's fees.

         III. Discussion

         The Perishable Agricultural Commodities Act, codified at 7 U.S.C. §§ 499a, et seq., is designed to protect unpaid sellers of perishable agricultural commodities (e.g. fruits and vegetables). Overton Distribs., Inc. v. Heritage Bank, 340 F.3d 361, 364 (6th Cir. 2003). To that end, the act creates a statutory floating trust in favor of the creditors. Id. “The trust protects the sellers against financing arrangements made by merchants, dealers, or brokers who encumber or give lenders a security interest in the commodities or the receivables or proceeds from the sale of the commodities, thus giving the claims of these sellers precedence over those of secured creditors.” Id. at 365. See also 7 U.S.C. § 499e(c)(1) (Congressional finding that such arrangements constituted a burden on interstate commerce and was contrary to the public interest). The trust res includes all produce and produce-related assets, regardless of their source. Sanzone-Palmisano Co. v. M. Seaman Enters., Inc., 986 F.2d 1010, 1012 (6th Cir. 1993).

         Defendants' motion to dismiss under Rules 12(b)(1) and 12(b)(6) requires the Court to (A) determine the appropriate standard to apply to examining the jurisdictional predicate that Passafiume is a “dealer” under PACA, (B) apply that standard, and then (C) determine whether Antle and Castellini have stated a plausible claim on which relief may be granted against the Individual Defendants. The Court addresses each issue in turn.

         A. Standard for Examining Jurisdictional Predicate

         A 12(b)(1) challenge to jurisdiction may be either facial or factual. Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). A facial challenge “questions merely the sufficiency of the pleading.” Id. There, the court takes all factual allegations in the complaint as true to determine whether those allegations establish federal claims. Id. This is similar to the inquiry under Rule 12(b)(6). In contrast, a factual challenge looks to whether, as a matter of fact, jurisdiction is present. Id. In such a scenario, there is no presumption that the allegations in the complaint are true. Id. Instead, the Court may undertake a “summary-judgment-like procedure” where the Court “has wide discretion to allow affidavits, documents, and even a limited evidentiary hearing” to determine that subject matter jurisdiction exists. Id. If, however, “an attack on subject-matter jurisdiction also implicates an element of the cause of action, then the district court should ‘find that jurisdiction exists and deal with the objection as a direct attack on the merits of the plaintiff's claim.'” Id. (citation omitted) (emphasis in original). This rule “provides a greater level of protection to the plaintiff who in truth is facing a challenge to the validity of his claim.” Id.

         Here, Defendants make a factual challenge to this Court's jurisdiction. DN 14 at 4. Ordinarily, this would require the Court to undertake a more in-depth factual inquiry. However, Passafiume's status as a “commission merchant, dealer, or broker” is an element of the cause of action. 5 West's Fed. Admin. Prac. § 5658 (2018) (citing Golden West Veg, Inc. v. Bartley, 16-CV-3718, 2017 WL 386254 (N.D. Cal. Jan. 27, 2017) and S&S Packing Inc. v. Spring Lake Ratite Ranch, Inc., 702 Fed.Appx. 874 (11th Cir. 2017)). As a result, since the attack on jurisdiction is truly a challenge to the validity of the claim, the Court must analyze the 12(b)(1) motion under the more deferential standard of Rule 12(b)(6).

         To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal,556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The complaint need not contain “detailed factual allegations, ” yet must provide “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. “Conclusory allegations or legal conclusions masquerading as factual allegations will not suffice.” Eidson v. Tenn. Dept. of Child Servs.,510 F.3d 631, 634 (6th Cir. 2007). In undertaking this inquiry, “a district court must (1) view the complaint in the light most favorable to the plaintiff and (2) take all well-pleaded factual allegations as ...

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