Summary
In J. Ambrogi Food Distribution v. Top Dog America's Bar Grille of PA, Inc., 2005 WL 1655891 (E.D. Pa. July 14, 2005), the court noted that the issue was novel for the courts in the Third Circuit and explained that the issue "necessarily depends upon whether a restaurant that purchases wholesale or jobbing quantities of produce can be considered to buy such commodities `soley for sale at retail.'"
Summary of this case from BIX PRODUCE COMPANY, LLC v. BILIMBI BAY MINNESOTA, LLCOpinion
Civil Action No. 05-337.
July 14, 2005
Memorandum and Order
Defendants Top Dog America's Bar Grille ("Top Dog") and Taylor Mills move to dismiss this Complaint brought under the Perishable Agricultural Commodities Act for lack of subject matter jurisdiction, and Plaintiff J. Ambrogi Food Distribution, Inc. ("J. Ambrogi") moves for summary judgment in its favor. For the reasons stated below, the motion to dismiss will be granted, and the motion for summary judgment will be denied.
FACTUAL BACKGROUND
Defendant Top Dog owned and operated a sports bar, dance club, and restaurant located in the Penn Tower Hotel on 36th and Chestnut Streets in Philadelphia for a period extending from 2002 through 2004. D. Chambers Affidavit ¶¶ 3-4. During this time, J. Ambrogi supplied almost all of the agricultural produce, fruits, and vegetables Top Dog purchased, totaling approximately $88,000 for the two-year period. D. Chambers Affidavit ¶ 6-8.
In 2004, at the time that Top Dog went out of business, it was indebted to J. Ambrogi for certain agricultural produce in the amount of $14,354.27. Complaint at ¶ 3. J. Ambrogi subsequently filed this lawsuit against Top Dog and its former President, Taylor Mills, pursuant to the Perishable Agricultural Commodities Act, 7 U.S.C. § 499e (c) (5) ("PACA"). J. Ambrogi filed a motion for summary judgment in the case on June 17, 2005, and soon thereafter Top Dog and Taylor Mills moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. Because the Court's lack of jurisdiction over the dispute would be dispositive of the case, consideration of the motion to dismiss proceeded first, and is addressed herein.
J. Ambrogi alleges that it sold and delivered to Defendants wholesale amounts of produce and other items worth $14,554.77, but that only $14,354.77 would fall within the protective parameters of PACA, the statute pursuant to which this claim has been brought. J. Ambrogi Affidavit at ¶ 7.
DISCUSSION
I. Standard of Review
A district court can grant a motion to dismiss pursuant to Rule 12(b)(1) based on the legal insufficiency of a claim. Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1408 (3d Cir. 1991). In moving to dismiss a claim pursuant to Rule 12(b)(1), a party may challenge a court's jurisdiction either facially (based on the legal sufficiency of the claim) or factually (based on the sufficiency of jurisdictional fact). Medtronic Vascular, Inc. v. Boston Scientific Corp., No. 98-478, 2004 WL 2914922 (D. Del. Dec. 14, 2004).
Where subject matter jurisdiction "in fact" is challenged, the trial court's very power to hear the case is at issue, and the court is therefore "free to weigh the evidence and satisfy itself as to the power to hear the case." Mortensen v. First Federal Savings and Loan Assoc., 549 F.2d 884, 891 (3d Cir. 1977). In a Rule 12(b)(1) attack, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Carpet Group Int'l v. Oriental Rug Importers Ass'n, Inc., 227 F.3d 62, 69 (3d Cir. 2000). Where a defendant attacks a court's factual basis for exercising subject matter jurisdiction, the plaintiff must accept and meet the burden of proving that jurisdiction is appropriate.Id.
In the present case, J. Ambrogi asserts that subject matter jurisdiction is conferred on this Court pursuant to Section 5(c)(5) of PACA, and, therefore, a federal question is presented. J. Ambrogi also argues that jurisdiction is grounded on diversity jurisdiction. Complaint at ¶ 1. After concluding that jurisdiction based on diversity of parties does not exist, PACA is the only potential basis for subject matter jurisdiction in this case.
The Complaint states that J. Ambrogi is a New Jersey corporation with a principal place of business in New Jersey, that Top Dog America's Bar Grille of Pa, Inc. is a Pennsylvania corporation with its principal place of business in Philadelphia, and that Taylor Mills was an officer, director, and owner of Top Dog during the period in question. Complaint at ¶ 3. The Complaint does not make a statement regarding Mills' citizenship, but only states that he or she was in a position of control over the relevant assets that belong to the Plaintiff. Complaint at ¶ 3. Indisputably, J. Ambrogi requests a judgment in the amount of $14,354.27, an amount far below the jurisdictional minimum of $75,000. Thus, there is no federal jurisdiction based on the diversity of the parties.
II. Interpretation of PACA
Congress enacted PACA in 1930 "to promote fair trading practices in the marketing of perishable agricultural commodities, largely fruits and vegetables." Consumers Produce Co., Inc. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1377-78 (3d Cir. 1994). PACA protects unpaid suppliers by imposing a trust provision on buyers of perishable agricultural commodities. Bandwagon Brokerage, Inc. v. Mafolie Foods Co., 168 F. Supp. 2d 506, 507 (D.V.I. 2001). Under this provision, commission merchants, dealers, and brokers are required to hold the goods received in a floating, non-segregated trust for the benefit of the unpaid supplier. Id. at 507. In essence, PACA's trust provision gives the unpaid supplier an interest in the trust corpus superior to the interest of any other lien or secured creditor. Magic Restaurants, Inc v. Bowie Produce Co. (In re Magic Restaurants, Inc.), 205 F.3d 108, 112 (3d Cir. 2000).
In 1984, PACA was amended to protect sellers, in addition to suppliers, of agricultural commodities from certain financing arrangements practiced by merchants, dealers and brokers. 7 U.S.C. § 499e(c)(1). PACA was amended again in 1995, allowing for retailers and grocery wholesalers to be phased out of the license fee payment requirements. Magic Restaurants, 205 F.3d at 113, n. 1. The 1995 amendments had "no bearing on who was and was not covered by the statute." Id.
The basis of J. Ambrogi's claim, for both subject matter jurisdiction and liability is that Top Dog is considered a "dealer" of perishable agricultural commodities within the meaning of Section 499a(b)(6) of PACA. Under Section 499a(b)(6), a "dealer" is "any person engaged in the business of buying or selling in wholesale or jobbing quantities, as defined by the Secretary [of Agriculture], any perishable agricultural commodity in interstate or foreign commerce. . . ." 7 U.S.C. § 499a(b)(6). Section 499a(b)(6) also provides three exceptions to the definition of "dealer," including:
Wholesale or jobbing quantities are defined as "aggregate quantities of all types of produce totaling one ton (2,000 pounds) or more in weight in any day shipped, received, or contracted to be shipped or received." 7 C.F.R. § 46.2 (x). If Top Dog did not buy wholesale or jobbing quantities (i.e., a ton) of perishable agricultural commodities, it is not considered a "dealer" and PACA would not apply. See Bandwagon, 168 F. Supp. 2d at 508 (noting that defendant is not considered a "dealer" if it did not buy wholesale or jobbing quantities).
(A) no producer shall be considered as a "dealer" in respect to sales of any such commodity of his own raising;
(B) no person buying any such commodity solely for sale at retail shall be considered as a "dealer" until the invoice cost of his purchases of perishable agricultural commodities in any calendar year are in excess of $230,000; and
(c) no person buying any commodity other than potatoes for canning and/or processing within the State where grown shall be considered a "dealer" whether or not the canned or processed product is to be shipped in interstate or foreign commerce, unless such product is frozen or packed in ice, or consists of cherries in brine. . . .7 U.S.C. § 499a(b)(6).
For purposes of the Motion to Dismiss, the parties do not dispute that Top Dog did buy produce from J. Ambrogi in "wholesale or jobbing quantities." Rather, the root of the present dispute is whether the amount of produce Top Dog purchased from J. Ambrogi causes Top Dog to fall outside the parameter of PACA as a "non-dealer" pursuant to Section 499a(b)(6)(B). While Top Dog argues that because it is not a dealer, PACA does not govern this dispute, J. Ambrogi refutes this argument by asserting that no exception applies to exclude Top Dog in the first instance because Top Dog is a "dealer" and cannot be considered a "retailer" for purposes of the Section 499a(b)(6)(B) exception as the term "retailer" is defined under PACA and applicable case law.
For purposes of the Motion to Dismiss, Top Dog concedes that it did buy such quantities from J. Ambrogi. Stipulations of Fact for Defendants' Motion to Dismiss at ¶ 1. The Court notes that J. Ambrogi has provided evidence of only one occasion on which it asserts that this quantity of produce was purchased.See J. Ambrogi Affidavit Supporting Motion for Summary Judgment at ¶ 11. Moreover, despite its concession for the Motion to Dismiss, in its response to J. Ambrogi's Motion for Summary Judgment, Top Dog disputes that it ever purchased this amount of produce at one time. See Response of Defendants to Statement of Material Facts Accompanying Motion for Summary Judgment at ¶ 5. Nonetheless, Top Dog's stipulation with respect to the purchase of the requisite quantity of produce is unequivocal as it applies to the Motion to Dismiss.
Although PACA has been one of our federal laws for more than half a century, courts have only fairly recently been examining PACA to ascertain whether restaurants are "dealers." In Magic Restaurants, by which the Third Circuit appears to be the first appellate court to address the question of whether a restaurant could be considered a "dealer" under PACA, the plaintiff was a creditor-produce supplier pursuing an action against a debtor-restaurant operator. The plaintiff asserted that PACA should apply to require that funds from Magic Restaurants' bankruptcy estate be placed in a trust for repayment to the plaintiff. Magic, either indirectly or through its subsidiaries, owned and operated fifteen restaurants in the Washington, D.C. and New York City metropolitan areas, which generated $20,000,000 in sales revenues in a six month period in 1995-96. Id. at 110. The parties did not dispute that in the course of its business with the plaintiff, Magic purchased "wholesale or jobbing quantities of perishable agricultural commodities in interstate commerce." Magic Restaurants, 205 F.3d at 112. The consideration for the court, therefore, was whether Magic sufficiently met the definition of a "dealer" to be held subject to PACA.
After reviewing both the language and legislative purpose of PACA, the majority of the Magic Restaurants panel concluded that the statutory language with respect to the definition of "dealer" was unambiguous, and that the court was "constrained by [the statute] to hold that a restaurant such as Magic, which purchases produce in wholesale or jobbing quantities ( and in excess of $230,000 per year), is a "dealer" under 7 U.S.C. § 499a(b)(6)." Magic Restaurants, 205 F.3d at 115 (emphasis added).
Judge Rendell dissented from the Magic Restaurants majority, stating that it was her conclusion that restaurants should not be considered "dealers" under PACA. Judge Rendell noted that "restaurants are engaged in the business of preparing and selling meals to customers. Not only is buying and selling perishables in large quantities not their primary business, it is not their business at all." Magic Restaurants, 205 F.3d at 117.
While it is clear under Magic Restaurants that a restaurant purchasing wholesale or jobbing quantities of produce in excess of $230,000 per year is considered a "dealer" under PACA in this Circuit, the question of whether restaurants purchasing less than $230,000 of perishable agricultural products per year are "dealers" has not yet been examined as a court's focal point. This question necessarily depends upon whether a restaurant that purchases wholesale or jobbing quantities of produce can be considered to buy such commodities "solely for sale at retail," and thereby fall under the exemption provided pursuant to Section 499a(b)(6)(B). Based upon the Court's research, it appears that this question is a novel issue in the courts of the Third Circuit.
The issue of whether a restaurant which purchases less than $230,000 of perishable agricultural products per year is a "dealer" was examined in Sysco Food Serv. Chicago Inc. v. Reservoir Dogs, Inc. (In re Reservoir Dogs, Inc.), No. 00-7264, 2002 WL 663870 (N.D. Ill., 2001), vacated on other grounds, No. 00-7264 (N.D. Ill. April 22, 2002). The Reservoir Dogs court took a different position than the Third, Eighth, and Ninth Circuit courts of appeals and reasoned that the language of PACA is sufficiently ambiguous to require an interpretation of legislative history, and that the outcome of such an analysis leads to the conclusion that restaurants were not intended to be considered "dealers" under PACA. As explained below, this Court does not believe it would be appropriate to resolve this by examining "legislative history" of PACA.
In its Motion for Summary Judgment, J. Ambrogi argues that theMagic Restaurants parenthetical statement "in excess of $230,000 per year" is dicta that "is at odds with [the court's] own opinion as well as with the statute" and should therefore "be accorded no weight." Memorandum Supporting Motion for Summary Judgment at 10-11. Therefore, J. Ambrogi suggests that because Top Dog conceded that it purchased the requisite weight of produce to bring it within the definition of "dealer," there is no need to further consider the dollar amount of the produce purchased because a restaurant cannot be considered a "retailer," which is defined as "a person that is a dealer engaged in the business of selling any perishable agricultural commodity at retail." Memorandum in Support of Summary Judgment Motion at 9. In this respect, J. Ambrogi argues that because Top Dog processed (presumably by slicing, dicing and/or cooking) the perishable commodities as ingredients for meals, the food items would no longer be considered "perishable agricultural commodities," but rather became derivative products falling outside the purview of PACA, thereby rendering the applicability of the "retailer" exception moot. Memorandum in Support of Motion for Summary Judgment at 9.
In further support of its argument, J. Ambrogi cites to several cases in which suppliers of "foodstuff" products were found to have no protection under PACA because the "agricultural commodities" sold had been processed in one way or another.See, e.g., In re Natural Foods Corp., 199 B.R. 882 (Bankr. E.D. Pa. 1996) (excluding dried apricots and prunes from PACA protection). While the Court appreciates the distinction that J. Ambrogi asserts, it cannot ignore the fact that under Magic Restaurants, the monetary amount of produce purchased must be a consideration in deciding whether a restaurant would be considered a dealer under PACA. This Court is simply not free to disregard the straightforward import of this opinion from our Court of Appeals, even if to do so would be on the strength of the seemingly equally straightforward dissent in Magic Restaurants which calls upon the strength of the common sense experience of cooks and restaurant patrons alike.
Notwithstanding J. Ambrogi's arguments with respect to the statutory framework, the Court concludes that under Magic Restaurants, the monetary amount of agricultural commodities purchased by a restaurant in a given year must be considered in conjunction with the physical weight of produce purchased in determining whether a restaurant is considered a dealer under PACA. In Magic Restaurants, the phrase "in excess of $230,000 per year" is, in fact, a parenthetical expression, but one that comes directly from the statutory exception drafted by Congress. The Court disagrees with J. Ambrogi's suggestion that this phrase is dicta which contradicts the Magic Restaurants court's opinion. In addition to the parenthetical "qualifier" included in the court's holding, the court referred to Magic as a "restaurant with extensive operations," a concept that is compatible with the court's reference to the financial milestone. Magic Restaurants, 205 F.3d at 114. Thus, the holding in Magic Restaurants suggests that the exception for comparatively small retailers does apply to restaurants. That is, by stating that a restaurant "which purchases produce in wholesale or jobbing quantities and in excess of $230,000 per year," the Magic Restaurants court appears to advise that a court should look to both elements in deciding whether a restaurant may be considered a "dealer" under PACA, and that a restaurant with minimal operations should not be considered a "dealer" under PACA.
Moreover, in considering whether the legislative intent underlying PACA was helpful to the analytical process, the Magic Restaurants court noted that "[t]here is no clear evidence of legislative intent regarding treatment of such restaurants [purchasing wholesale or jobbing quantities] at the time the definition of "dealer" was originally enacted in 1930." Id. at 116. Rather, the Magic Restaurants court majority eschewed reliance on legislators' statements made in 1995 that restaurants were not intended to be considered "retailers" under PACA by the House of Representatives Agriculture Committee because those Congressional statements were so temporally removed from the earlier original enactment of PACA (including the exception at issue) that the Committee report should be disregarded. This Court finds, therefore, that the holding in Magic Restaurants instructs that the amount of produce a restaurant purchases must be considered when determining whether a restaurant is a "dealer" under PACA, and that only restaurants purchasing more than $230,000 per year would fall within the parameters of PACA. This conclusion is indirectly supported by case law from other courts which have drawn similar conclusions with respect to restaurants with extensive operations.
In so holding, the court stated that a House of Representatives Committee Report issued with respect to the 1995 amendments to PACA, in which the Committee stated that "[i]t is not the intent of the Committee that the definition of retailer be construed to include foodservice establishments such as restaurants. . . ." was not reliable to discern the intent associated with the original legislation from some 60 years earlier. Magic Restaurants, 205 F.3d at 113, 116.
For example, while recent decisions by the Eighth and Ninth Circuit courts of appeals indicate that they share the Third Circuit's view espoused in Magic Restaurants that the statutory language in PACA is unambiguous and that restaurants which purchase produce in wholesale or jobbing quantities and in excess of $230,000 per year are "dealers" under 7 U.S.C. § 499a(b)(6), these cases all concerned restaurants with "extensive operations." See, e.g., Royal Foods Co. v. RJR Holdings Inc., 252 F.3d 1102, 1109 (9th Cir. 2001) (finding PACA unambiguous and determining that restaurant that had "extensive operations" and purchased commodities exceeding $230,000 per year was dealer under PACA); Demma Fruit Co. v. Old Fashioned Enterprises, Inc. (In re Old Fashioned Enterprises, Inc.), 236 F.2d 422, 427 (8th Cir. 2001) (finding statutory language unambiguous and concluding that restaurant chain was considered dealer under PACA); Sysco Food Services of Seattle, Inc. v. Country Harvest Buffet Restaurants, Inc. (In re Country Harvest Buffet Restaurants, Inc.), 245 B.R. 650, 655 (9th Cir. B.A.P. 2000) (finding statute unambiguous and concluding debtor-restaurant chain was dealer under PACA, noting no need to look to definition of "retailer" if debtor meets the definition of "dealer"). Thus, notwithstanding the analysis of Judge Rendell in her dissenting opinion in Magic Restaurants, which would likely resonate in many quarters, the facts of the present case, when considered in light of Magic Restaurants, lead to the conclusion that Top Dog should not be subject to PACA. Moreover, while the clear language accompanying the 1995 amendments to PACA strongly suggests that restaurants should not be considered "retailers," and thus would not be able to try to make use of the exception in Section 499a (b)(6)(B), the Court of Appeals for the Third Circuit has discounted this legislative committee report as being unreliable. By including the minimal amount necessary to be a "dealer" in its Magic Restaurants holding, our Court of Appeals appears to instruct that restaurants that purchase less than $230,000 annually in perishable agricultural products are not "dealers." Given that Top Dog purchased far less than $230,000 in perishable agricultural products ($88,000 from 2002 through 2004), Top Dog should not be considered a "dealer" under PACA. Therefore, the Court concludes that PACA does not apply to this case and, therefore, there is no federal question presented.
CONCLUSION
Because the amount in controversy is under $75,000, the Court does not have subject matter jurisdiction over this matter arising from the diversity of the citizenship of the parties. Furthermore, because Top Dog is not considered a "dealer" under PACA, there is no federal question presented. For these reasons, the motion to dismiss for lack of subject matter jurisdiction is granted, the motion for summary judgment is denied, and the case is dismissed. An appropriate Order follows.
ORDER
AND NOW, this 14th day of July, 2005, upon consideration of the Motion to Dismiss for Lack of Subject Matter Jurisdiction filed by Top Dog America's Bar Grille and Taylor Mills (Docket No. 14), the response thereto (Docket No. 16), the Motion for Summary Judgment filed by the Plaintiff (Docket No. 13), the response thereto (Docket No. 15) it is ORDERED that the Motion to Dismiss the Complaint is GRANTED and the Motion for Summary Judgment is DENIED. The Clerk is instructed to close this case.