The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION AND ORDER RE (1) TRUSTEE‟S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION; AND (2) DEFENDANTS, LOREN SCHOENBURG‟S AND MARGARET SCHOENBURG‟S, MOTION FOR SUMMARY JUDGMENT, OR ALTERNATIVELY, ADJUDICATION OF ISSUES (DOC. 689, 680)
On May 22, 2009, two sellers of perishable agricultural commodities, Onions Etc., Inc. and Duda Farm Fresh Foods, Inc., commenced this action against Z&S Fresh, Inc. fdba Z&S Distributing Co., Inc. ("Z&S"), Martin Zaninovich, Loren Schoenburg, and Margaret Schoenburg (together, "Defendants") pursuant to the Perishable Agricultural Commodities Act of 1930 ("PACA"), 7 U.S.C. § 499a et seq. Doc. 1. On June 24, 2009, the parties stipulated to: (1) entry of a preliminary injunction; (2) appointment of Terence J. Long as trustee of the PACA trust ("Trustee"); (3) establishment of a PACA trust account; (4) liquidation of the PACA trust assets; and (5) establishment of a PACA trust claims procedure by which PACA trust creditors could file claims and intervene in the lawsuit. Doc. 48.
Before the court is the Trustee‟s motion for summary judgment, or alternatively, adjudication of issues against Defendants. Doc. 689. L. Schoenburg and M. Schoenburg (together, "Schoenburgs") filed an opposition (Doc. 699), to which the Trustee replied (Doc. 719). Z&S and Zaninovich did not file oppositions.
Also before the court is the Schoenburgs‟ motion for summary judgment, or alternatively, adjudication of issues of all claims asserted against them. Doc. 680. Plaintiffs in intervention Aron Margosian, Two Play Properties, LLC, Three Play Farms, Four Play Farms, George Margosian, and Margosian Bros (together, "Intervening Plaintiffs") and the Trustee filed oppositions (Doc. 701 and 702, respectively), to which the Schoenburgs replied (Docs. 715, 716). Intervenor Plaintiff Peters Fruit Farms, Inc. joined in the Trustee‟s opposition. Doc. 704.
The cross-motions for summary judgment were heard July 25, 2011.
In December 1985, L. Schoenburg and Zaninovich incorporated Z&S. Schoenburg Statement of Undisputed Material Facts ("SSUMF") ¶ 7. Z&S was a California corporation engaged in the business of marketing and selling produce in interstate commerce. Trustee Statement of Undisputed Facts ("TSUF") ¶ 1. ZM Fresh Special T‟s ("ZM") was a California corporation engaged in the handling, processing, and packaging of produce marketed by Z&S. TSUF ¶ 2. The United States Department of Agriculture‟s Agricultural Marketing Service ("USDA AMS") issued Z&S PACA license no. 19860395. TSUF ¶ 3; SSUMF ¶ 60.
On January 24, 1986, the Schoenburgs were issued fifty percent (50%) of the shares of stock in Z&S as joint tenants. SSUMF ¶ 8. Zaninovich received the other fifty percent (50%) of the issued shares. SSUMF ¶ 9. From at least as early as 2006 and continuing through 2009, there were three directors of Z&S: Zaninovich, L. Schoenburg, and M. Schoenburg. *fn1 TSUF ¶ 4.
In 2008 and 2009, Z&S transferred assets to ZM or to third parties on behalf of ZM. TSUF ¶ 31. The assets that were transferred to ZM were all assets protected by a PACA statutory trust, meaning that the source of the funds transferred from Z&S to ZM was from the sales of perishable agricultural commodities that were subject to the PACA statutory trust. TSUF ¶ 32. The assets transferred directly to ZM or to third-party vendors on behalf of ZM amounted to $4,319,241.23: $3,040,000.00 in direct transfers to ZM and $1,279,241.23 in transfers to third-party vendors on behalf of ZM. TSUF ¶ 33. Z&S became insolvent and unable to pay shippers and growers who had valid claims for debts covered by PACA. TSUF ¶ 34.
A court order dated June 24, 2009 ("Order") appointed Terence J. Long as Trustee of the assets of Z&S; required him to identify, take possession and control, and liquidate all assets of Z&S; and authorized him to "bring and prosecute all proper actions for the collection of contract proceeds due, or for the protection of the PACA trust assets, or to recover possession of the PACA trust assets from any person." TSUF ¶ 35. Pursuant to the Order, the Trustee calculated the total amount of the PACA claims after resolutions and settlements of objections and disputes regarding the PACA claims as $7,176,731.94, though this was later reduced to $6,978,264.59 after the Court issued an order invalidating I.G. Fruit, Inc.'s claim for $198,467.35. TSUF ¶ 36. Pursuant to the Order, the Trustee has distributed a total of $3,436,344.84, leaving the amount of $3,541,919.75 still owing to the PACA beneficiaries. TSUF ¶ 37.
Zaninovich was the sole shareholder of Z&S during the relevant period. TSUF ¶ 5. Zaninovich owned 50% of the shares in ZM. TSUF ¶ 6. Zaninovich was President of both Z&S and ZM. TSUF ¶ 7. Zaninovich oversaw the operations of Z&S. TSUF ¶ 8. Zaninovich had no other significant independent sources of income other than from Z&S and considered all of his personal assets, at least to the extent PACA trust monies were distributed to him, to be PACA trust assets. TSUF ¶ 9. The records of the USDA AMS show that Zaninovich was identified as a "Reported Principal" on the PACA license issued by the USDA AMS. TSUF ¶ 10.
a)Claims against the Schoenburgs
The operative complaints, complaints-in-intervention, cross-claims and counterclaims assert the following causes of action against the Schoenburgs: (1) violation of PACA: failure to account and pay promptly; (2) breach of fiduciary duty/nondischargeability; (3) conversion and/or unlawful retention of PACA trust assets; (4) violation of PACA: false and/or misleading statement relating to a PACA transaction; (5) injunctive relief - to compel turnover and disgorgement of PACA trust assets; (6) failure to maintain trust assets, and/or pay trust claims/funds; (7) declaratory relief; (8) enforcement of payments from/ dissipation of trust assets; (9) creation of common fund; (10) interest and attorneys fees; (11) enforcement of statutory trust provisions of PACA; (12) injunctive relief - temporary restraining order; (13) fraudulent conveyance of PACA trust assets; (14) unjust enrichment; (15) constructive fraud; (16) constructive trust and accounting; (17) failure to maintain trust; (18) breach of contract; (19) breach of statutory duties: Cal. Food & Ag. Code §§ 56611, 56615, 56623, 56620; (20) quiet title; and (21) unfair business practices under Cal. Bus. & Prof. Code § 17200, et seq. No other theories of liability are asserted against the Schoenburgs. SSUMF ¶ 1.
Common among all of the charging documents is the allegation that the Schoenburgs were either owners, shareholders, members, partners, officers or directors of one of the named defendant business entities. SSUMF ¶ 2.
Intervening Plaintiffs‟ claims against the Schoenburgs are for quantities of perishable agricultural commodities allegedly sold and delivered to Defendants throughout the 2006-2007 and 2007-2008 growing seasons for which claimants contend they have not been paid. SSUMF ¶ 4.
b)Defendant Business Entities Other than Z&S and ZM
The Schoenburgs played no role in and are not and have never been owners, shareholders, members, partners, officers or directors in the following business entity Defendants: Fresno-Madera Federal Land Bank Association, FLCA, Bank of the West, Belknap Pump Company, Inc., Jerry E. Robinson dba Sierra Fire Protection, Two Play Properties, LLC, Two Play Properties Arizona, LLC, Three Play Farms, Four Play Farms, and Four Play Ranch. SSUMF ¶ 5. As to these parties, none of whom assert claims against the Schoenburgs and against whom the Schoenburgs do not assert claims, these facts are confirmed.
L. Schoenburg was one of the original applicants for Z&S' PACA license in 1985. TSUF ¶ 11. L. Schoenburg was listed as a Principal on Z&S' PACA license for the years 2008 and 2009.*fn2 TSUF ¶ 12. From at least 2006, L. Schoenburg was the Vice-President of Z&S and was never removed from that office.*fn3 TSUF ¶ 13. From at least 2000, L. Schoenburg was a director of Z&S and was never removed from that office.*fn4 TSUF ¶ 14.
L. Schoenburg, individually, has never received, bought or sold any perishable agricultural commodities from any of the claimants in this action. SSUMF ¶ 47. L. Schoenburg has never entered into a contract, personally, on his own behalf, for the purchase or sale of any perishable agricultural commodities with any of claimants in this action. SSUMF ¶ 48.
Starting in 2007 and continuing into 2009, L. Schoenburg picked up Z&S checks in amounts between $6,500.00 and $9,000.00 at Z&S' office, cashed them at a bank, and returned the cash to Zaninovich. L. Schoenburg always only cashed one check at each financial institution to avoid the $10,000.00 IRS reporting requirement. TSUF ¶ 15. L. Schoenburg cashed the checks as a favor to Zaninovich pursuant to Zaninovich‟s request, always returned the funds to Zaninovich, and never kept any of the funds. SSUMF ¶ 40.
From 2000 to 2009, L. Schoenburg was on the payroll of Z&S.*fn5
TSUF ¶ 16. L. Schoenburg received a credit card that he used for personal expenses that were billed to and paid by Z&S. TSUF ¶ 17.
L. Schoenburg, as an officer of Z&S, executed loan documents in 2007 and 2008 on behalf of Z&S that purported to make Z&S a guarantor for loans made by the bank to ZM. TSUF ¶ 19.
For a month each summer season in 2007 and 2008, L. Schoenburg traveled to Nogales, Arizona for Z&S to inspect grapes crossing the border. SSUMF ¶¶ 42, 43. While L. Schoenburg‟s expenses were paid, he received no significant compensation for his limited inspection services for Z&S. SSUMF ¶ 44.
From 2000 to 2009, L. Schoenburg never asked for any financial reports for Z&S. TSUF ¶ 20. L. Schoenburg did not discover that Z&S was in financial trouble until April 2009. TSUF ¶ 21. L. Schoenburg was not involved with the operations of Z&S following his retirement in 1999. TSUF ¶ 22.
While L. Schoenburg was listed as a director of ZM, he was unaware of such status and neither of the Schoenburgs was actually involved in any way, shape or form with the actual management or operation of ZM. SSUMF ¶ 6. Zaninovich did not consult with L. Schoenburg regarding any of ZM‟s activities. SSUMF ¶ 26. L. Schoenburg was never involved with ZM, and did not know whether ZM ever received any monies from Z&S. TSUF ¶ 22.
Following L. Schoenburg‟s retirement sometime between 1999 and 2001*fn6 , M. Schoenburg gave a Mercedes sedan, which the Schoenburgs owned outright, to Aron Margosian for his wife, pursuant to Zaninovich‟s request. In exchange, M. Schoenburg received a Mercedes convertible from Zaninovich, which had been leased by Z&S. SSUMF ¶ 16. After Zaninovich explained that he could no longer make the payments on the lease, the Schoenburgs returned the Mercedes convertible to Z&S. SSUMF ¶ 17. Zaninovich also purchased an Acura from the Schoenburgs which L. Schoenburg bought following his retirement. SSUMF ¶ 18. L. Schoenburg took the money he received from Zaninovich in exchange for his Acura and bought a Mercedes SUV. SSUMF ¶ 19. L. Schoenburg kept the Mercedes SUV until Zaninovich requested it in exchange for a BMW, which Z&S leased. SSUMF ¶ 20. When the lease on the BMW came to an end, Zaninovich replaced it with a Range Rover, which Z&S leased and L. Schoenburg eventually purchased. SSUMF ¶ 21.
L. Schoenburg does not claim any interest in the property located at 39303 Road 56 in Dinuba, California 93618. SSUMF ¶ 58.
From at least 2000 and through 2009, M. Schoenburg was both a director and the Secretary/Treasurer of Z&S. TSUF ¶ 24.
In 2008 and 2009, M. Schoenburg cashed at least thirteen Z&S checks at the request of L. Schoenburg, who Zaninovich had asked to cash the checks. TSUF ¶ 25. In 2008 and 2009, M. Schoenburg received a salary from Z&S.*fn7 TSUF ¶ 26. M. Schoenburg received a credit card that was billed to Z&S.*fn8 TSUF ¶ 27. M. Schoenburg received a Mercedes-Benz convertible that was leased by Z&S. TSUF ¶ 28. M. Schoenburg, as an officer of Z&S, executed loan documents in 2007 and 2008 on behalf of Z&S that purported to make Z&S a guarantor for loans made by the bank to ZM. TSUF ¶ 29.
M. Schoenburg, individually, has never received, bought or sold any perishable agricultural commodities from any of the claimants in this action. SSUMF ¶ 47. M. Schoenburg has never entered into a contract, personally, on her own behalf, for the purchase or sale of any perishable agricultural commodities with any of the claimants in this action. SSUMF ¶ 48.
M. Schoenburg was never involved with ZM, was not involved in the management, operations or day-to-day activities of Z&S, and had no knowledge of whether, and in what amounts if any, of any moneys received by ZM from Z&S. TSUF ¶ 30.
M. Schoenburg does not claim any interest in the property located at 39303 Road 56 in Dinuba, California 93618. SSUMF ¶ 58.
1.Claims against the Schoenburgs
The Schoenburgs contend that, except for the claims by Intervening Plaintiffs, all of the other claimants‟ claims asserted against the Schoenburgs are for quantities of perishable agricultural commodities allegedly sold and delivered to Defendants after January 1, 2008 for which claimants contend they have not been paid. SSUMF ¶ 3. The Trustee rejoins that the claims asserted against the Schoenburgs are broader than just violations of PACA for failure to pay for perishable agricultural commodities.
The Schoenburgs contend that as to ZM, while L. Schoenburg was listed as a director, he was unaware that he held that position and neither of the Schoenburgs were actually involved in any way, shape or form with the actual management or operation of ZM. SSUMF ¶ 6. The Schoenburgs contend that Zaninovich did not consult with L. Schoenburg regarding any of the activities that occurred with ZM. SSUMF ¶ 26.
The Trustee rejoins that: (1) L. Schoenburg, as director and vice-president of Z&S, authorized Z&S to guarantee loans provided to ZM; and (2) M. Schoenburg, as director and secretary/treasurer of Z&S, authorized Z&S to guarantee loans provided to ZM.
The Schoenburgs contend that sometime prior to 2001, L. Schoenburg agreed to retire from his position with the company upon being paid an unspecified sum by Z&S (SSUMF ¶ 12), and that L. Schoenburg retired sometime prior to 2001 (SSUMF ¶ 13). The Schoenburgs argue that unknown to L. Schoenburg, Z&S continued to list him as a director and vice president of Z&S on its PACA license after his retirement. SSUMF ¶ 22. The Schoenburgs argue that L. Schoenburg did not become aware until April 2009 that he was listed on Z&S‟s PACA license, notwithstanding his retirement. SSUMF ¶ 23.
The Schoenburgs assert that after L. Schoenburg‟s retirement from Z&S:
He relinquished all authority, power and control so that neither of the Schoenburgs had the ability to or exercised any duties and/or responsibilities as director, officer and/or employee of Z&S, other than signing papers as directed by Zaninovich, and L. Schoenburg‟s limited stint as an inspector in Nogales for a month each year in 2007 and 2008. SSUMF ¶ 24.
The only documents the Schoenburgs signed, were signed at Zaninovich‟s direction. SSUMF ¶ 25.
L. Schoenburg did not have or exercise any authority or control over purchases, sales or payment for perishable agricultural commodities or any other financial matters involving Z&S. SSUMF ¶ 27.
He was not responsible for and did not make any decisions in the day-to-day operations of the company. SSUMF ¶ 28.
L. Schoenburg has not received, bought nor sold perishable agricultural commodities for Z&S at any time since his retirement (sometime between 1999 and 2001). SSUMF ¶ 29.
Neither of the Schoenburgs approved or had access to the financial records of Z&S. SSUMF ¶ 30.
The Schoenburgs made no representations regarding the amounts contained in grower accounts at Z&S. SSUMF ¶ 31.
L. Schoenburg did not have any access to Z&S‟s banking dealings. SSUMF ¶ 32.
L. Schoenburg did not have any access to Z&S‟s books and records. SSUMF ¶ 33.
L. Schoenburg did not have or exercise any responsibility or duties as an officer of Z&S, but Z&S continued to identify him as an officer of Z&S because Zaninovich understood more than one officer was needed to be a corporation. SSUMF ¶ 34.
All management decisions at Z&S were made by Zaninovich, such that Zaninovich was in total control of the business. SSUMF ¶ 39.
Neither of the Schoenburgs had any authority to and did not sign any checks that drew on any accounts ...