* Judge of the United States Court of International Trade, sitting by designation. UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Nos. 98-11506 & 99-10489

GOLMAN-HAYDEN CO., INC.;

IDEAL SALES INC.,

Plaintiffs-Appellees,

MARTIN BROTHERS PRODUCE; ROGER’S

PRODUCE INC.; BEAR PRODUCE CO., INC.;

SOUTHMILL DISTRIBUTION INC. doing

business as Southmill Dallas,

Intervenor Plaintiffs-Appellees,

versus

FRESH SOURCE PRODUCE INC., ET AL,

Defendants,

EDWARD TOMANENG,

Defendant-Appellant.

Appeals from the United States District Court

for the Northern District of Texas

July 17, 2000

Before POLITZ and DAVIS, Circuit Judges, and RESTANI, * Judge.

POLITZ, Circuit Judge:1 7 U.S.C. §§ 499a, et seq.

2 The original and intervening plaintiffs are hereinafter referred to as “Appellees.”

2 Fresh Source Pr oduce, Inc. and Edward Tomaneng appeal an adverse

summary judgment and award of attorney’s fees in a suit brought under the

Perishable Agricultural Commodities Act (PACA). 1 For the reasons assigned, we

affirm the summary judgment and reverse the award of attorney’s fees.

BACKGROUND

This action inv oking PACA was filed on December 3, 1997. The original

plaintiffs, Golman-Hayden Company, Inc. and Ideal Sales, Inc., sued Fresh Source

Produce, Inc. and Edward Tomaneng, se e king amounts claimed due under the

PACA trust provisions. Intervenors Martin Brothers Produce, Roger’s Produce,

Inc., Bear Produce Compan y, Inc., and Southmill Distribution, Inc. also filed

complaints against Fresh Source and Tomaneng. 2

Plaintiff-appellees are wholesale sellers of perishable agricultural

commodi ties. They sold produce to Fresh Source, a dealer and commission

merchant as defined in PACA. Fresh Source ceased doing business on November

21, 1997, and filed for protection under Chapter 7 of the Bankruptcy Code on April

3, 1998. Tomaneng is the sole shareholder and principal in Fresh Source.

The claims against Fresh Source and Tomaneng are based on the failure of3

Fresh Source to make payments. Appellees alleged that they sold and delivered to

Fresh Source produce co l lectively worth $271,527.70. If the funds from Fresh

Source’s remaining accounts receivable were disbursed on a pro-rata basis to

Appellees, a shortfall of $134,582.60 would result.

Appellees moved for summary judgment, asserting that Tomaneng was the

sole principal, owner, officer, a nd director of Fresh Source, and that he was in a

position of total control over the dissipated trust assets. Because Fresh Source

lacked sufficient assets to satisfy their PACA trust claims, Appellees claimed that

Tomaneng was liable i ndividually for breaching his fiduciary duty by failing to

exercise the requisite control to preserve the trust assets.

The district court agreed and concluded that Tomaneng, as the sole

shareholder o f Fresh Source, was liable for breaching his duty to preserve trust

a s sets. Specifically, he failed to exercise reasonable care to ensure proper

management of the company. The court granted the motion for summary judgment

and entered a final judgment in the a mount of $134,582.60, representing the

difference between the collective amount owed to Appellees and the amount being

held in trust by Fresh Source for their benefit. The court subsequently awarded

attorney’s fees in the amount of $58,015.75. Tomaneng timely appealed both the3 The appeals from the summary judgment (No. 98-11506) and the award of attorney’s fees (No.

99-10489) have been consolidated.

4 Fed. R. Civ. P. 56(c); City of Arlington v. FDIC

, 963 F.2d 79 (5 th Cir.), cert. denied sub nom

, 506 U.S. 1021 (1992).

5 Horton v. City of Houston

, 179 F.3d 188 (5 th Cir.), cert. denied

,

___ U.S.

___, 120 S.Ct. 530

(1999).

6 Wayne Cusimano, Inc. v. Block , 692 F.2d 1025 (5 th Cir. 1982).

4 summary judgment and award of attorney’s fees. 3

ANALYSIS

I. Summary Judgment

Summary judgment is appropriate when the case presents no genuine issue

as to any material fact and the movant is entitled to judgment as a matter of law. 4

In determining whether summary judgment was appropriate we conduct a de novo

review, judging the facts of record in the light most favorable to the non-movant. 5

Tomaneng’s personal liability under P ACA is at the core of this dispute.

PACA regulates the produce industry and pro motes fair dealings in transactions

involving fruits and vegetables. 6 Under the Act, when a seller, dealer, or supplier

ships produce to a buyer, a statu tory trust is created upon acceptance of the

commodities. Once this trust comes into being, and the supplier’s rights are

properly preserved, the produce supplier obtains a priority interest in the trust assets7 Barthol om ew M. Botta, P ersonal Liability for Corporate Debts: The Reach o f the

Perishable Agricultural Commodities Act Continues to Expand

, 2 Drake J. Agric. L. 339 (1997).

7 U.S.C. § 499e(c)(2) provides in part:

Perishable agricultural commodities received by a commission merchant, dealer, or broker in

all transactions, and all inventories of food or ot her products derived from perishable

agricultural commodities, and any receivables or proceeds from the sale of such commodities

o r products, shall be held by such commission merchant, dealer, or broker in trust for t he

benefit of all unpaid s uppliers or sellers of such commodities or agents involved in the

transaction, until full

payment o f the sums owing in connection with such transactions has

been received by such unpaid suppliers, sellers, or agents.

8 104 F.3d 280 (9 th Cir. 1997).

9 Id. at 283.

10 Bronia, Inc. v. Ho

, 873 F. Supp. 854 (S.D.N.Y. 1995) (sole shareholder, di rector, and

president of corporation held personally liable for corporations breach of PACA trust); M orri s

Okun, Inc. v. Harry Zimmerman, Inc.

, 814 F. Supp. 346 (S.D.N.Y. 1993) (sole shareholder who

was in a position to control trust assets but failed to preserve them for beneficiaries breached a

fiduciary duty and was held secondarily liable for unpaid produce).

5 held by the debtor. 7

Recognizing an absence of controlling precedents in o ur circuit, the trial

court relied on the holding of our Ninth Circuit colleagues in Sunkist Growers, Inc.

v. Fisher 8 that “individual shareholders, officers, or directors of a corporation who

are in a position to control PACA trust assets, and who breach their fiduciary duty

to preserve those assets, may be held personally liable under the Act.” 9 The trial

court also observed that district courts in New York have held sole shareholders of

a corporation secondarily liable for breach of a PACA trust. 10 Notably, the trial

court à quo found persuasive the reasoning in Shepard v. K.B.Fruit & Vegetable,11 868 F. Supp. 703 (E.D. Pa. 1994).

12 Id. at 706. Regarding the second factor, the S hepard court found that perm itti ng the

corporation’s manager to operate the PACA-regulated business, which the individual shareholders

established and for which they were legally responsible, apparently without oversight to ensure that

PACA creditors were paid, was not reasonable under common law breach of trust principles.

13 Hawkins v. Agricultural Marketing Serv. , 10 F.3d 1125, 1130 (5 th Cir. 1993); Cusimano

, 692 F.2d at 1028, n.2.

6 Inc.

, 11 wherein the court concluded that the liability determination of individual

shareholders should be based on two factors: (1) whether the indi viduals’

involvement with the corporatio n was sufficient to establish legal responsibility,

and (2) whether the individuals, in failing to exercise any appreciable oversight of

the corporation’s management, breached a fiduciary duty o w ed to the PACA

creditors. 12

In granting summary judgment the district court found that Tomaneng was

the sole shareholder of Fresh Source and that he was in a position to control the

company’s PACA trust assets. The court then concluded that he should be held

secondarily liable for breaching his fiduciary duty to preserve those assets.

We have recognized that PACA is a “tough law”. 13 In addition to protecting

consumers, Congress expressly designed it to protect the producers of perishable

agricultural products, most of whom must entrust th eir products to a buyer who

may be thousands of miles away, and depend for their payment upon his business14 Cusimano , 692 F.2d at 1028, n.2.

15 Hawkins , 10 F.3d at 1131.

16 See Sunkist , 104 F.3d at 283 (quoting Shepard , 868 F. Supp. at 706).

17 Id.

18 W hile individuals generally are not held responsible for the liabilities of a corporation, we

recognize that a corporati on can act only through its agents and can fulfill fiduciary obligations only

through its agents. S ee Shepard

, 868 F. Supp. 705-06. Thus, our holding does not necessitate a

piercing of the corporate veil. Rather, it is premised on the breach of one’s fiduciary duty to protect

PACA trust assets by an individual who is in a position to control such assets.

7 acumen and fair dealing

. 14 An investor in a perishable commodities corporation

“should know at the beginning of his association with such a corporation that he is

‘buying into’ a corporation which is strictly regulated by the federal government

through PACA.” 15

PACA liability attaches first to the licensed commission merchant, dealer,

or broker of perishable agricultural commodities. 16 If, however, the assets of the

licensed commission merchant, dealer, or broker are insuffici ent to satisfy the

PACA liability, then others may be held secondarily liable if they had some role

in causing the corporate trustee to commit the breach of trust. 17 Thus, we join our

colleagues in the Ninth Circuit and hold that individual shareholders, officers, or

directors of a corporation who are in a position to control trust assets, and who

breach their fiduciary duty to preserve those assets, may be held personally liable

under PACA. 18 We view this conclusion as consistent with the intent of Congress19 PACA requires corporate licensees, such as Fresh Source, to list on the license all of ficers,

directors, and holders of more than 10% of the corporation’s stock. The record on appeal includes

a certified copy of Fresh Source’s license. Under the section for officers, directors, and holders of

more than 10% of the corporation’s stock, only one person is listed: Edward Tomaneng.

20 A supplier preserves its trust rights by giving written notice of intent to preserve the benefits

of the trust to the commission merchant, dealer, or broker within thirty days (i) after the expiration

of payment due date; (ii) after expiration of such other time by which payment is due, as expressly

agreed to by the parties in writing before entering the transaction; or (iii) after the time the supplier,

seller, or agent has received notice that the instrument properly presented for payment has been

dishonored. 7 U.S.C. § 499e(c)(3). Ordinary and usual billing or invoice statements may provide

notice of intent to preserve the trust if t hey include the information required by § 499e(c)(3) and

co nt ain o n the face of the statement certain language prescribed by the statute that puts the

commission merchant, broker, or dealer on notice that the commodities are being sold subject to the

PACA trust provisions. 7 U.S.C. § 499e(c)(4).

8 in establishing the statutory trust provisions of PACA.

It is undisputed that Tomaneng is the sole owner of Fresh Sourc e. As the

sole shareholder, he manifestly had absolute control of the corporation. 19 Although

Tomaneng maintains that he was a passive shareholder, he may not escape liability

based on a real or claimed failure to exercise his right and obligation to control the

company. We conclude that his refusal or failure to exercise any appreciable

oversight of the corporation’s management was a breach of his fiduciary duty to

preserve the trust assets. Our review of the record on appeal persuades that each

of the Appellees preserved their trust rights under PACA. 20 Accordingly, the

district court correctly found and concluded that Tomaneng was liable personally

to the Appellees in the amount of $134,582.60.

II. Attorney’s Fees21 421 U.S. 240 (1975).

22 Id. at 257-260.

23 See, e.g., In re Milton Poulos, Inc.

, 947 F.2d 1351 (9 th Cir. 1991) (holding that PACA trust

fund was valid and enforceable under U.S.C. § 499e(c)(2) and should be used to pay attorney’s fees

under the common fund doctrine); Fishgold v. OnBank & Trust Co.

, 43 F. Supp.2d 346 (W.D.N.Y.

1999) (same); JC Produce, Inc. v. Paragon Steakhouse Restaurants, Inc.

, 70 F. Supp.2d 1119

(E.D. Cal. 1999) (holding that PACA trust created by the court under 7 U.S.C. § 499e(c)(2) should

be used to pay attorney’s fees because the statute does not preclude them); In re Monterey House,

Inc.

, 71 B.R. 244 (Bankr. S.D. Tex. 1986) (granting award of attorney’s fees under PACA trust fund

because t he PACA statutory provision is similar to the Packers & Stockyard Act, which allows

recovery of attorney’s fees).

9 In Alyeska Pipeline Service Co. v. Wilderness Society

, 21 the Supreme Court

recognized the general rule that attorney’s fees are granted only when specified in

a statute. The Court, however, noted several exceptions allowing the award of

attorney’s fees where: (1) there was a willful violation of a court order; (2) a losing

party acted in bad faith; or (3) a litigant created a common fund for the benefit of

others. 22

PACA does not provide for attorney’s fees, but it does mandate that proceeds

from the sale of perishable goods shall be held in trust for the unpaid suppliers.

Based upon the statutory requirement that a commission merchant, dealer, or

broker hold the proceeds in trust for the benefit of all unpaid suppliers, some courts

have held th at recognition of the PACA trust established a common fund from

which attorney’s fees may be recoverable. 23 Other courts, however, have denied

the recovery of attorney’s fees, concluding that the common fund exception does24 Hereford Haven, Inc. v. Stevens

, No. Civ. A.3:98-CV-0575-P, 1999 WL 155707 (N.D. Tex.

Mar. 12, 1999) (concluding that no attorney’s fees should be awarded from a PACA trust because

Congress contemplated attorney’s fees for actions under 7 U.S.C. § 499g(c) but did not include them

in 7 U.S.C. § 499e(c)(2)); Valley Chips Sales, Inc. v. New Arts Tater Chip Co. L.L.C.

, No. 96-

2351-JWL, 1996 WL 707028 (D. Kan. Oct. 10, 1996) (same); In re Fair

, 134 B.R. 672 (Bankr.

M.D. Fla. 1991) (same); In re W.L. Bradley Co.

, 78 B.R. 92 (Bankr. E.D. Pa. 1987) (same). S ee

also In re Southland + Keystone , 132 B.R. 632 (B.A.P. 9 th Cir. 1991) (finding that Congress did

not intend to award attorney’s fees because the statute does not provide for it).

25 Trustees v. Greenough

, 105 U.S. 527 (1881); see also Marre v. United States

, 117 F.3d 297

(5 th Cir. 1997).

26 Greenough , 105 U.S. at 533.

27 Marre , 117 F.3d at 308, n.20.

10 not apply to PACA. 24 In awarding attorney’s fees to Appellees, the district court

relied on the common fund exception.

A common fund is a trust having multiple pa rties sharing an interest. 2 5 A

party may be entitled to attorney’s fees from a common fund when acting to either

protect the trust from destruction or to restore it to its purpose. 26 The common fund

doctrine typically applies in situations where the attorneys sue for an interest

commonly held by members of a class or third parties who benefit from the suit. 27

In the present case, several of Fresh Source’s PACA creditors sued for a

money judgment for their personal claims from the remaining accounts receivable

of Fresh Source or from Tomaneng personally. It does not appear that Appellees

sued to create a PACA trust from which all potential PACA c reditors could be

compensated, as their complaints did not include a prayer for relief requesting the11

preservation or creation of such a trust. Further, the district court’s opinion does

not reflect that it intended to create a common fund fo r the benefit of all unpaid

PACA creditors. Because the litigation did not result in the establishment of a

common fund, we must conclude that the district court erred in awarding attorney’s

fees to Appellees under the common fund exception. We express no opinion as to

whether the common fund exception would permit the recovery of attorney’s fees

under PACA if a common fund was established. That decision remains for another

day.

The judgment against Tomaneng in the amount of $134,581.60 is,

accordingly, AFFIRMED. The award of attorney’s fees is REVERSED.