Leprino Foods Co. v. Gress Poultry, Inc.

Citations: 379 F. Supp. 2d 650; 2005 U.S. Dist. LEXIS 15631; 2005 WL 1799190Docket: 3:CV-02-1073

Court: District Court, M.D. Pennsylvania; July 25, 2005; Federal District Court

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Leprino Foods Company initiated litigation against Gress Poultry, Inc. and several individuals (the Gress family) for damages related to over 8 million pounds of mozzarella cheese stored in a refrigerated warehouse. The case is based on diversity jurisdiction. The Gress defendants sought summary judgment, arguing that the warehouse is operated by Gress Frozen Foods, Inc., a distinct corporate entity, and not as a partnership. Key undisputed points include: Leprino entered into a bailment with "Gress Public Refrigerated Services," which is the registered fictitious name for Gress Frozen Foods, Inc.; Gress Frozen Foods used both "Gress Public Refrigerated Services" and "Gress Refrigerated Services" interchangeably; the individual defendants had no formal or informal partnership; and Leprino did not depend on individual liability assumptions when storing the cheese. Consequently, the court found Leprino's claims of individual liability against the Gress family members to be unsubstantiated. The Gress defendants' motion for summary judgment was granted. Background details indicate Leprino Foods is based in Colorado, while Gress Poultry Inc. is a Pennsylvania corporation, and Gress Frozen Foods, Inc. was incorporated in 1980. Key individuals in Gress Frozen Foods include Edward James Gress (President) and Glenn Gress (Vice President).

On December 2, 1985, Gress Frozen Foods, Inc. registered "Gress Public Refrigerated Services" as its fictitious name, with the business focused on the storage and shipment of perishable goods, and Edward James Gress serving as President. In early 1992, discussions began between Leprino's Bob Ekstrom and Glenn Gress regarding cheese storage at Gress's warehouse. Communication included a letter from Glenn Gress on Gress Public Refrigerated Services letterhead, indicating it was a family-owned cold storage operation. Subsequently, Gress provided handling and storage rate quotes, and Leprino began storing cheese at the Gress warehouse based on terms outlined in a letter from Ekstrom to Mr. Charles, which referenced the fictitious name.

Over time, Gress and Leprino modified their agreement concerning storage and handling rates. There was no indication that Leprino was informed of a change in the business structure from a corporation to a partnership among Gress family members. Throughout the mid-1990s, Gress Frozen Foods, Inc. began using names interchangeably, including Gress Public Refrigerated Services and Gress Refrigerated Services. Invoices and correspondence from Leprino consistently referred to the business as Gress Refrigerated Services, with payments made from Gress Frozen Foods, Inc.'s account.

Various documents, including warehouse receipts and customer inventory reports from 2001, were issued under the name Gress Refrigerated Services, while correspondence during the business relationship did not indicate that individual defendants operated under this name. An audit by the Pennsylvania Department of Transportation in April 2001 required a "dual locator" to clarify the entity associated with Gress Refrigerated Services.

On May 1, 2001, Len Mickavitz filed a fictitious name application in Pennsylvania for "Gress Refrigerated Services," which was designated as a broker of property and transportation in commerce. The application erroneously identified family members as individuals interested in the business, listing Glenn Gress, James Gress, Sr., James Gress, Jr., and Keith Gress, while misidentifying Edward James Gress as James Gress, Sr., and James M. Gress as James Gress, Jr. Gress Poultry Inc. was also mentioned as an interested entity. Leprino has utilized this registration to include the Gress family members as defendants in a case regarding liability related to damaged cheese discovered after their business relationship commenced.

The Gress defendants argue that the refrigerated warehouse business was operated by Gress Frozen Foods, Inc., which did business as Gress Public Refrigerated Services and Gress Refrigerated Services. The court must determine if Leprino has provided sufficient evidence to support the claim that the warehouse was operated as a partnership by the Gress family, justifying a jury trial on individual liability. 

Summary judgment is discussed, stating it should be granted if evidence reveals no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. A material fact is one that could affect the outcome of the case, and a genuine dispute exists if a reasonable jury could favor the nonmoving party. The moving party bears the initial burden to demonstrate no genuine issue exists, while the nonmoving party must then present affirmative evidence to counter the motion, beyond mere allegations. Summary judgment is warranted if the nonmoving party fails to establish an essential element of their case after a reasonable discovery period.

Leprino asserts that sufficient evidence exists to demonstrate the warehouse business operated as a partnership, primarily relying on the name "Gress Refrigerated Services" and a 2001 fictitious name registration identifying members of the Gress family as interested parties. Alternatively, Leprino claims the individual Defendants should be estopped from denying the partnership status. In a sur-reply brief, Leprino also argues that these Defendants should be held personally liable for not disclosing their corporate status during business dealings.

The criteria for establishing a partnership, as per Pennsylvania law, require "clear, mutual assent" among parties to operate a business for profit, with no necessity for a written agreement. Evidence of profit and loss sharing or partnership tax returns can indicate intent to form a partnership. However, Leprino has not provided evidence of the Gress family’s intent to operate as a partnership, nor any proof of profit and loss sharing. Leprino conceded the absence of partnership tax returns during oral arguments.

Leprino's reliance on the fictitious name registration is deemed insufficient to overcome summary judgment. The Fictitious Name Act requires entities operating under a fictitious name to register it, but failing to do so does not invalidate contracts or impede legal defenses. The Act's purpose is to protect creditors relying on the assumed name and clarify ownership. Filing under a fictitious name alone does not imply an intent to form a partnership, as supported by case law.

Gress Public Refrigerated Services was registered as a fictitious name for Gress Frozen Foods, Inc. on December 2, 1985, without the individual Gress Defendants listed as interested parties. Leprino asserts it contracted with Gress Public Refrigerated Services in February 1992, acknowledging it was dealing with a corporate entity. During oral arguments, Leprino's counsel indicated that the structure of the warehouse business may have changed after 1992; however, Leprino failed to dispute Glenn Gress's claim that "Gress Refrigerated Services" and "Gress Public Refrigerated Services" were used interchangeably by Gress Frozen Foods, Inc. Furthermore, a fictitious name registration for "Gress Refrigerated Services" was created in May 2001 for the Gress family's transportation business, not the warehouse operation. Consequently, there is insufficient evidence to support a conclusion that the warehouse business was operated by the individual Defendants as a partnership. 

Leprino argues for liability under the theory of partnership by estoppel, which requires: 1) a representation to a third party that one is a partner; 2) reliance on that representation by the third party; and 3) the extension of credit based on that reliance. Pennsylvania law suggests that if an individual presents themselves as a partner, they cannot deny their involvement when third parties rely on that representation. Leprino’s initial contact with Gress occurred in the late 1980s, culminating in a letter from Mr. Charles on "Gress Public Refrigerated Services" letterhead in January 1988, discussing storage rates and services. Further correspondence in January 1992 from Glenn Gress reaffirmed that Gress Public Refrigerated Services was a family-owned cold storage operation interested in doing business with Leprino.

A letter on Gress Public Refrigerated Services letterhead, signed by Glenn Gress, indicated business operations on February 4, 1992, when Mr. Charles quoted handling and storage rates to Don Kleck and Mr. Gates. Subsequently, Mr. Ekstrom summarized the business terms on February 11, 1992. Throughout the mid-1990s, Gress Public Refrigerated Services began to be referred to interchangeably as Gress Refrigerated Services. Evidence includes a March 4, 1999, invoice to Gress Refrigerated Services paid by Gress Frozen Foods, and correspondence concerning the Leprino account on Gress Refrigerated Services letterhead. A July 31, 2001, warehouse receipt named Gress Refrigerated Services as the signatory, while a report from January 1, 1997, to July 30, 2003, was under Gress Public Refrigerated Services.

Leprino acknowledges that documents referencing Gress Refrigerated Services do not imply the individual Defendants operated as a partnership. There is no evidence Leprino believed the individual Defendants were partners before entering a 1992 storage agreement or that the mid-1990s letterhead changes altered their perception of the business structure. Leprino's claim that a 2001 fictitious name filing indicates a partnership is unsupported by evidence of reliance on this filing for their continued storage arrangement. Consequently, without proof of reliance on representations of a partnership, Leprino cannot proceed with a partnership by estoppel claim.

Leprino also contends the individual Gress Defendants should bear personal liability for damaged cheese due to a failure to disclose their corporate status. Under Pennsylvania law, an agent who does not disclose they are acting on behalf of a principal is personally liable in contract matters. A third party dealing with an agent of an undisclosed principal may pursue claims against either the agent or the principal upon learning the principal's identity.

Leprino's lawsuit against the individual Defendants is based on negligence rather than breach of contract, leading to the inapplicability of the undisclosed principal doctrine, as established in Ayers v. Quillen. Consequently, the court grants summary judgment in favor of the individual Gress Defendants (Glenn Gress, Keith Gress, Edward James Gress, and James M. Gress), ruling that they are not liable due to Leprino's failure to argue for piercing the corporate veil or applying the participation theory of tort liability. The participation theory stipulates that corporate officers are only personally liable if they engage in the tortious act, which Leprino did not demonstrate in this case. An order for judgment in favor of the Defendants is set for July 25, 2005.