NOT RECOMMENDED F OR FUL L -TEXT PUB L I CATI ON File Na me: 12a0832n.06 No. 11-1944 UNITED STAT ES COURT OF AP P EALS F OR THE S IXTH CIRCUIT ARAVA USA, I

NC., Plaintiff-Appellant,

v. KARNI FAMI L Y FA RM, L L C, MATI KARNI , and UNI TED B ANK OF MI CHI GAN, Def endants-A

ppellees. ) ) ) ) ) ) ) ) ) ) ) ) ON APPEAL FROM THE UNI TED ST ATES DI STRI CT COURT FOR THE WES TERN DI STRI CT OF MI CHI GAN

Be fore : NORRI S, MCKEAGUE, and KE THL EDGE, Circuit Judges. KETHL EDGE, Circu i t J u d ge. Ara va USA, I nc. sued Kar ni Family Fa

rm L L C (“K arni Fa rm”); its pre sident, Mati Kar ni; a nd United Ba

nk of Michig an under the Perishable Ag ricultural Commodi ties Ac t (“ the Act”)

. The district court enter ed a defa ult judgme nt ag ainst Kar

ni Fa rm, dismiss ed the claim ag ainst Mati Kar ni, and g rante d summary judgme nt to United Ba nk. We aff

irm in part, vac ate in par

t, and re mand. I

. Ara va is a distributor of fre sh produce that sold fruits and veg etables to Kar ni Fa rm betwee n October and Dec ember of 2009. Kar ni Fa rm failed to pay for the produce , so Ara va sued Kar ni Fa rm and Mati Kar

ni under, among other things, the Act. See 7 U.S.C. § 499e. The Act reg ulates cer tainNo. 11-1944

Arava USA v . Karni Family Farm transac tion s betwee n “commission merc hants, deale rs, [and] broker s” who buy and sell fre sh p ro d u ce . Id. § 499b. When a buy er of produce —like Kar ni Fa rm—qualifies as a “commissi o n

merc hant, deale r, or broker ,” the Act require s the buy er to hold the proce eds of its produce re- sales in trust for the benef

it of an unpaid p ro d u ce s el ler—like Ara va—until the seller is fully paid. Id. § 499e(c )(2)

. Ara va ar g ued that Ka

rni Fa rm was a “dea ler” under the statute, there by cre ating a trust for Ara va’s benef

it in the proce eds of Kar

ni Fa rm’s produce sales. Be cause Kar ni Fa rm and Mati Kar

ni failed to keep those proce eds in trust, Ara va claimed, the defe ndants are liable. Neither Kar ni Fa rm

nor Mati Kar

ni appea red befor e the district court. The court enter ed a defa ult judgme nt ag ainst Kar

ni Fa rm, but held that the Ac t does not authorize a suit ag ainst Mati Karni a s an individual. Ara va also sued United Ba nk, seeking to disgor g e cer tain loan repa

y ments that Kar

ni Fa rm made betwee n Dec ember 2007 and September 2009. Ara va arg ued that those pay ments wer e made fr o m the t rust res. Her e the district court entered summary judgme nt for United Ba nk. The court held that Ara va failed to show that a statu t o ry t rust exis ted prior to November 2009. All of the pay ments wer e made befor e that date, the court found, so the Act does not allow Ara va to rea ch the pay ments. This appea l followed. I I

. A. Ara va first arg ues that it was entitled to seek a judgme nt ag ainst Mati Kar ni as an individual. The district court held that a corpor ate office r like Mati Kar ni is not a trustee of a § 499e trust. Thus,

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Arava USA v . Karni Family Farm the court held, t he Act does not authorize liab i lity ag ainst Mati Kar ni absent a showing of “active wrong doing”

— i.e. , that he did more w rong than simply mismanag e Ka

rni Fa rm’s asse ts. The district cour

t was rig ht that Mati Kar

ni is not a st atutory trustee. Only a “c ommissi on

merc hant, deale r, or broker ” that rec eives perishable ag ricultural commodities can be a trustee under the Act. 7 U.S.C. § 49 9 e( c) (2 ). And unlike Kar ni Fa rm, Mati Kar

ni is not a “commission

merc hant,” “ deale r,” or

“broke r,” a s the Act de fines those ter ms. Id. § 499a. But that does not mean that Mati Kar ni cannot be persona lly liable for interfe ring with Ara va’s r ece ipt of trust a ssets. Ordinar y principles of trust law a pply to statutory

trusts created by the Act. See Owner Operator Indep. Drivers Ass’n, Inc. v. Comerica Bank ( In re Arctic Exp. Inc. ), 636 F.3d 781, 798 (6th Cir. 2011). This court has held that, wher e an o ff icer cause s a corpor ate trustee to commit a brea ch of trust, the benef iciary of the trust may sue the office r persona lly for the loss. See Capitol Indem nity Corp. v. Interstate Agenc y, Inc. ( In re Interstate Agenc

y, Inc. ), 760 F.2d 121 (6th Cir. 1985). This liability arises not beca use the office r is a trustee or beca use of a pierc ing of the corpor ate veil, but r ather beca use the office r himself has committed a tort ag ainst the trust’s benef iciary

. Id. at 125. The law of t rusts is clea r t hat “a benef

iciary who i s entitled to immediate distribution of

. . . proper ty may bring an action ag ainst a third party [ i.e. , not the trustee] who has damag ed that prope rt y or interfe red with its delivery to the benef iciary .” Restatement (Third) of Trusts § 107 cmt. c(1)

. Every court of appea ls to consider this issue has held t h at a co rpora te office r may be held persona lly liable under the Act. See Coosemans Specialities, Inc. v. Gargiulo , 485 F.3d 701, 705–06 (2d Cir. 2007) (collec ting case s from the First, Second, Third, Fifth, Seventh, and Ninth Circuits). -3-No. 11-1944

Arava USA v . Karni Family Farm We now join them and hold that “individual share holders, office rs, or direc tors of a corpor ation who

are in a position to control [st atutory ] trust assets,” and who fail to prese rve those assets, may be held persona lly liable under the Act. Sunkist Growers , 104 F.3d at 283. Where the office r has “fa il[ ed] to maintain” the assets of a § 499e trust, trust law allows an unpaid produce seller to sue that office r in his personal ca

pacity . 7 U.S.C. § 499b(4). On re mand, Ara

va may pursue a claim ag ainst Mati Karni a s an individual. B. Ara va also a

rg ues that it cre ated a

jury question about whethe r Ka rni Fa rm was a statutory “dea ler” as ear ly as 2005, so that Arava might re ach the loan re pay ments that Karni F arm made to United Ba

nk betwee n Dec ember 2007 and September 2009. (Arava ag ree s that Kar ni Fa rm was

never a “commission merc hant” or “broke r.”) The Act define s “dea ler” as “any person eng ag ed in the business of buy ing or selling in wholesale or jobbing quantities, as define d by the Secre tary [of Ag riculture], any perishable ag ricultural commodity in inter state or fore ign commerc e,” subject to

cer tain exceptions that do not apply here

. 7 U.S

. C

. § 499a(b) (6). The Secre tary has define d “wholesa le or jobbing quantities” as “ag g reg ate quantities of all ty pes of produce totaling one ton (2,000 pounds) or more in weig ht in any day shipped, received, or contra cted to be shipped or

rec eived.” 7 C.F.R. § 46.2(x). Thus, an entity does not become a “dea l er , ” an d t h e Act does not apply , until the entity buy s, sells, or contra cts for 2,000 pounds or more of produce in a single day

. Ara va arg ues that it met its summary -judg ment burden by introducing the license to buy and sell “wholesa le or jobbing quantities” of produce that Kar ni Fa rm obtained from the Depa rtment of Ag riculture in 2005. But we h av e fo u nd no case s holding that this license, without more, can -4-No. 11-1944

Arava USA v . Karni Family Farm establish that an entity is a “dea ler” under the Act. This is n o t s u rp ri sing: a license is mere ly permission to eng ag e in re gu l at ed activity ; it does not show that the licensee ever undertook the activity

. The Ac t only

reg ulates entities that ac tually buy or sell 2,000 pounds or more of produce in a sing le day

—not those that merely

obtain permission to do so. Ara va off ere d no evidenc e that Kar ni Fa rm boug ht that much produce until November 2009, by which point Kar ni Fa rm had completed the pa

y ments to United Ba

nk. Ara va also arg

ues that United Ba

nk should be f

o r e c lose d from contesting Kar ni Fa rm’s status

as a “dea ler” by virtue of Kar ni Fa rm’s defa ult. Ara va’s complaint ag ainst Kar ni Fa rm alleg ed that Kar ni Fa rm boug ht and sold 2,000 pounds of more of produce in 2005—the arg ument g oes—so Kar ni Fa rm’s defa ult require s the court to trea t that fac t as established for purposes of

Arava’s claims against United Bank . Ara va has no a uthority for this proposition, either. We re ject it. Giv en Ar ava’ s evidenc e, no rea sonable jury could find that Kar ni Fa rm was subject to the Act prior to November 2009. Thus, none of the loan pay ments that Kar

ni Fa rm made to United Ba

nk

wer e trust assets, a

nd the Act doe s not allow Arava to rea ch those pa

y ments. * * * The district cour

t’s judgme nt is aff

irmed as to United Bank and vacated as to Mati Karni. The c ase is re manded f

or proc eeding s consistent with this opi nion.

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