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Jacobs Silver K Farms, Inc. v. Taylor Produce, LLC

United States District Court, D. Idaho

December 15, 2016

JACOBS SILVER K FARMS, INC., et al., Plaintiffs,
v.
TAYLOR PRODUCE, LLC, et al., Defendants.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          B. Lynn Winmill Chief Judge United States District Court

         INTRODUCTION

         The Court held a three-day bench trial in this case concluding on November 9, 2016. Thereafter, the parties submitted proposed Findings of Fact and Conclusions of Law that were received on November 21, 2016. The case is now at issue. For the reasons explained below, the Court finds that plaintiffs are entitled to a judgment in the sum of $1, 327, 478.16 against Idaho Potato Packers Corporation, Nonpareil Corporation, Nonpareil Farms, Inc., Nonpareil Processing Corporation, and Nonpareil Dehydrated Potatoes, Inc., jointly and severally

         FINDINGS OF FACT

         Plaintiff Jacobs[1] shipped $1.5 million worth of potatoes to Taylor Produce in 2013, but was paid only a fraction of that sum. Jacobs brought this lawsuit to recover the unpaid balance of over $1.3 million.

         Jacobs grows potatoes while Taylor Produce packages, sells and ships potatoes to end-users. The relationship between Jacobs and Taylor Produce began in 2013 when Jacobs consigned fresh potatoes to Taylor Produce for sale. Their agreement was not a pure consignment, however, because Alan Taylor, Manager of Taylor Produce, promised Jacobs a price range that would vary but was most often between $6.50 and $8.00 a hundredweight. All of Taylor Produce's expenses - from marketing to packaging - were factored into the price, except for taxes. This meant that Taylor Produce would remit all the sales proceeds to Jacobs except for the taxes.

         As those potatoes were sold, Taylor Produce sent accountings to Jacobs verifying that they would receive payment for the sale of their potatoes as follows:

a. Silver K Farms was owed $611, 408.44;
b. Kirk Jacobs Farms was owed $719, 640.20; and
c. Reynolds Bros. was owed $208, 028.71.

See, Defendants' Exhibit 5008. Those figures add up to $1, 539, 077.35. Taylor Produce made some payments but the amount still due and owing is $1, 327, 478.16.

         Taylor Produce did not sell the potatoes itself but entered into a Marketing Agreement with Idaho Potato Packers Corporation (IPPC) whereby IPPC would market and sell the potatoes, remitting the sales proceeds to Taylor Produce, who would then package the potatoes and ship them to the customer. The Marketing Agreement stated that IPPC could charge Taylor Produce for marketing fees and for commissions for sales under the Betty Crocker label, but the Agreement did not specify whether IPPC could deduct those expenses before remitting the proceeds to Taylor Produce or whether IPPC should remit all the sales proceeds and bill Taylor Produce for those expenses.

         Prior to entering into the Marketing Agreement, IPPC invested $5 million in Taylor Produce, taking a 49% interest in the company. The point of the Marketing Agreement was to put in writing Taylor Produce's promise to use IPPC as the exclusive marketing agent for Taylor Produce's potatoes and to specify the expenses IPPC could charge to Taylor Produce.

         The arrangement between Taylor Produce and IPPC was strictly between those two parties, and Jacobs was not a party to their Marketing Agreement. In like fashion, the arrangement between Taylor Produce and Jacobs was strictly between those two parties, and IPPC was not a party to their agreement.

         Each of the parties did know of the other's involvement. For example, Jacobs knew that IPPC was marketing and selling potatoes for Taylor Produce. However, no evidence was presented that Jacobs had agreed with Taylor Produce to pay IPPC's expenses such as those for marketing, freight, packaging materials, or commissions. There was no evidence that Jacobs or Taylor Produce contemplated that the sales proceeds due to Jacobs would be reduced by anything other than taxes.

         Between January 1, 2012, and December 31, 2013, IPPC marketed and sold Taylor Produce's fresh potatoes that were supplied by multiple farmers. IPPC provided packaging materials to Taylor Produce, but did not perform any packing services in connection with its sales of the potatoes. All the potatoes consigned by Jacobs were packed by Taylor Produce and shipped directly to IPPC's customers.

         Following the sales of Taylor Produce's potatoes, IPPC collected the gross proceeds from its customers and deposited them into its operating account, which included both PACA trust and non-trust assets. Between January 1, 2012, and April 2013, IPPC deducted, before remitting the sales proceeds to Taylor Produce, the following expenses: (1) freight, (2) Outside Brokerage Fees and (3) commissions for sales under the Betty Crocker label.

         In April, 2013, Alan Taylor complained to IPPC that he was having cash flow problems, could not pay his growers, and needed IPPC to remit the entire sum of sale proceeds without taking out deductions. Christopher Abend of IPPC disputes a portion of Alan Taylor's account. Abend testified that Alan Taylor only expressed a concern over cash flow in requesting that no deductions be taken, and never revealed that he was unable to pay growers. Abend testified that he did not learn that Taylor Produce was unable to pay growers until November of 2013.

         Concerning the conflict in the testimony between Alan Taylor and Christopher Abend, the Court finds Alan Taylor most credible. But even if Abend's version is accepted, Alan Taylor's complaint put IPPC on inquiry notice in April of 2013 that ...


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