The Honorable Jane A. Restani, Chief Judge of the United *

States Court of International Trade, sitting by designation.

07-3041-cv

A&J Produce v. Bronx Overall Economic Development Corp.

 UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 2007

(Argued June 12, 2008 Decided September 10, 2008)

Docket No. 07–3041–cv (L), 07-3402-cv (Con) 

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A&J Produce Corp., J&C Enterprise, Inc., Mercatropic Corp.,

Tarsana Fruit Co., Christopher Ranch, LLC, Dole Fresh Fruit

Co., Naumes, Inc. and Pacific Fruit, Inc.,

Plaintiffs-Appellees,

U.S. Produce Exchange, Cuba Tropical, Inc., Del Monte Fresh

Produce, N.A., Inc., London Fruit Inc., Banacol Marketing

Corp., Florida Fresh, Inc., Stanley Orchard Sales, Inc. and

United Apple Sales, Inc., 

Intervenors-Plaintiffs-Appellees, 

v.

Bronx Overall Economic Development Corporation,

Defendant-Appellant. 

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Before: POOLER and SOTOMAYOR, Circuit Judges, and RESTANI,*

Judge.

Defendant-Appellant Bronx Overall Economic

Development Corporation (“BOEDC”) appeals from a judgment

and order of the United States District Court for the

Southern District of New York (George Daniels, Judge)
2

granting in part Plaintiff-Appellee Tarsana Fruit Company’s

(“Tarsana”) Motion for Turnover of PACA Trust Assets in the

Court’s Registry and denying BOEDC’s Cross-Motion for

Summary Judgment. 

Affirmed.

LOUIS W. DIESS, McCarron & Diess,

Washington, DC; Sherylee F. Bauer, Dobbs

Ferry, NY, for Plaintiff-Appellee Tarsana

Fruit Co.

Tom M. Fini, Cadwalader, Wickersham &

Taft LLP, New York, NY, for

Plaintiff-Appellee Pacific Fruit, Inc.

Bruce Levinson, Law Office of Bruce

Levinson, New York, NY, for PlaintiffsAppellees Christopher Ranch, LLC, Dole

Fresh Fruit Co., and Naumes, Inc. 

Mark Mandell, Law Office of Mark Charles

Hewitt Mandell, Esq., Annandale, NJ, for

Plaintiffs-Appellees A&J Produce Corp.,

J&C Enterprise, Inc., and Mercatropic

Corp.

Mark A. Amendola, Martyn & Associates,

Cleveland, OH; Steve Kasper, New York,

NY, for Intervenors-Plaintiffs-Appellees

Banacol Marketing Corp., Cuba Tropical,

Inc., Del Monte Fresh Produce, N.A.,

Inc., Florida Fresh, Inc., London Fruit

Inc., Stanley Orchard Sales, Inc., and

United Apple Sales, Inc. 

Leonard Kreinces, Kreinces & Rosenberg,

Westbury, NY, for Intervenor-PlaintiffAppellee U.S. Produce Exchange.

JOHN P. AMATO, Hahn & Hessen, LLP, New

York, NY, for Defendant-Appellant Bronx

Overall Economic Development Corporation.
 ABC had operated out of the Hunts Point Terminal Market 1

for a number of years, and purchased the Units when the market

was converted to a cooperative. When ABC considered

relocating to New Jersey in 1998, the BOEDC loans were

extended as part of an economic incentive package to keep ABC

in New York.

3

PER CURIAM:

This appeal concerns the distribution of proceeds

received from the sale of certain assets in a statutory trust

created pursuant to the Perishable Agricultural Commodities

Act, 7 U.S.C. § 499e(c) (“PACA”). We agree with the district

court that a secured creditor’s lien on PACA trust assets does

not constitute a transfer of the assets beyond the reach of

PACA protected creditors. 

BACKGROUND

In 1986, American Banana Company, Inc. (“ABC”), a

perishable agricultural commodities dealer, purchased unit

shares in the Hunts Point Terminal Produce Cooperative

Association (“the Units”). When BOEDC made a one million

dollar loan to American Banana Realty (“ABR”), an affiliate of

ABC, in 1998, the loan was guaranteed by both ABC and ABR and 1

secured by a first priority interest in the Units.

In 2001 and 2002, Tarsana and other produce sellers

(“Appellees”) filed complaints against ABC for failure to pay

for various deliveries of produce. The complaints were
 In April 2002, the district court ordered all ABC 2

creditors to intervene to preserve their claims, and several

PACA and non-PACA creditors filed intervenor complaints.

 Another defendant in some of the consolidated cases, 3

George Mouyious, also cross-moved for an order directing the

assets to be used to satisfy ABC’s tax obligations and asking

that he not be held personally liable. The motion was granted

in part and denied in part, and the issues are not currently

on appeal. 

4

consolidated into the case currently on appeal. ABR defaulted

on the BOEDC loan in 2001, and BOEDC initiated foreclosure

proceedings against ABC seeking recourse to the collateral

units. After plaintiff A&J Produce Corporation (“A&J”) moved

to enjoin the foreclosure action, all parties to the

consolidated case agreed to allow A&J to purchase the Units

and deposit the net proceeds into the court’s registry pending

resolution of the competing claims. In 2005, Tarsana moved 2

for turnover of the proceeds and other PACA trust assets

allegedly held by ABC to PACA creditors, and BOEDC cross-moved

for summary judgment.3

The district court found on September 8, 2006, that

the assets were part of a PACA trust in existence when

Appellees brought their claims, and that BOEDC’s security

interest in the Units did not remove the assets from the PACA

trust or give BOEDC priority over the PACA creditors. The

district court therefore granted Tarsana’s motion in part and

denied BOEDC’s cross-motion, (see Order (Sept. 11, 2006)), and
 Judge Michael B. Mukasey presided over the original 4

proceedings in this matter, after which the case was

reassigned to Judge George B. Daniels who issued an order

directing the entry of a final judgment.

5

ordered the distribution of the trust assets according to the

valid claims of the PACA creditors, (see Order (July 10,

2007)). BOEDC appeals. 4

DISCUSSION

We review the district court’s grant or denial of

summary judgment de novo. Tasini v. N.Y. Times Co., 206 F.3d

161, 165 (2d Cir. 2000), aff’d, 533 U.S. 482 (2001). 

Congress enacted PACA in 1930 to regulate the sale

of perishable agricultural commodities and amended the statute

in 1984 to further strengthen the protections provided to

produce suppliers. Endico Potatoes, Inc. v. CIT

Group/Factoring, Inc., 67 F.3d 1063, 1066–67 (2d Cir. 1995).

The statute provides, in relevant part, that 

[p]erishable agricultural commodities received by a

commission merchant, dealer, or broker in all

transactions, and all inventories of food or other

products derived from perishable agricultural

commodities, and any receivables or proceeds from

the sale of such commodities or products, shall be

held by such commission merchant, dealer, or broker

in trust for the benefit of all unpaid suppliers or

sellers of such commodities or agents involved in

the transaction, until full payment of the sums

owing in connection with such transactions has been

received by such unpaid suppliers, sellers, or

agents.

7 U.S.C. § 499e(c)(2). This section “imposes a ‘non-
6

segregated floating trust’ on the commodities and their

derivatives, and permits the commingling of trust assets

without defeating the trust.” Endico Potatoes, 67 F.3d at

1067 (quoting 7 C.F.R. § 46.46(c)). This “highly unusual

trust beneficiary status” permits sellers, in the event of

default, “to trump the buyers’ other creditors, including

secured ones.” Am. Banana Co. v. Republic Nat’l Bank of N.Y.,

N.A., 362 F.3d 33, 38 (2d Cir. 2004). 

We previously addressed whether the very type of

trust property at issue here, the Units, could be considered

PACA trust assets in In re Kornblum & Co., 81 F.3d 280 (2d

Cir. 1996). Kornblum determined that the challenging party

bears the burden of proving either that “(1) no PACA trust

existed when the Units were purchased; (2) even though a PACA

trust existed at that time, the Units were not purchased with

trust assets; or (3) although a PACA trust existed when the

Units were purchased and the Units were purchased with trust

assets, [the PACA trust debtor] thereafter paid all unpaid

sellers in full prior to the transactions involving the

Creditors, thereby terminating the trust.” Id. at 287.

Appellees claim that a PACA trust was in existence

when the Units were purchased, that trust proceeds were used

to purchase the Units, and that the trust has remained in
7

continuous existence since that date. BOEDC, on the other

hand, contends that the trust terminated when the PACA

creditors with claims as to goods sold prior to BOEDC’s loan

were paid in full. Kornblum rejected this argument, holding

that “a single PACA trust exists for the benefit of all of the

sellers to a Produce Debtor, and continues in existence until

all of the outstanding beneficiaries have been paid in full.”

Id. at 286. There is no evidence in the record indicating

that all PACA creditors were paid between the time the Units

were purchased and the lien was granted to BOEDC, and BOEDC

has therefore not met its burden of demonstrating that the

Units were free of the PACA trust. Accordingly, we affirm the

district court’s finding that the Units are PACA trust assets.

BOEDC further maintains that the grant of a lien on

the Units constituted a transfer of the trust assets such that

they were removed from the PACA trust in favor of BOEDC.

BOEDC asserts that a breach of trust analysis is therefore

warranted to determine if ABC breached its fiduciary duties

under the trust when it granted BOEDC a lien on the Units. It

is necessary, however, to first determine the substance of the

transaction by analyzing the transfer of risk involved, in

order to resolve whether the lien constituted a purchase for

value or merely a security interest. See Endico Potatoes, 67
8

F.3d at 1068-69. As we explained in Endico Potatoes,

[w]here the lender has purchased the accounts

receivable, the borrower’s debt is extinguished and

the lender’s risk with regard to the performance of

the accounts is direct, that is, the lender and not

the borrower bears the risk of non-performance by

the account debtor. If the lender holds only a

security interest, however, the lender’s risk is

derivative or secondary, that is, the borrower

remains liable for the debt and bears the risk of

non-payment by the account debtor, while the lender

only bears the risk that the account debtor’s

non-payment will leave the borrower unable to

satisfy the loan.

Id. at 1069. A creditor holding “only a security interest,”

therefore, retains that interest “subject to the rights of the

trust beneficiaries.” Id. at 1068.

Other courts have similarly found that for PACA

purposes, “[l]enders who receive trust assets through

enforcement of a security agreement are not bona fide

purchasers . . . because such transfers are not ‘for value.’”

Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336

F.3d 410, 413–14 (5th Cir. 2003); see also Consumers Produce

Co. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1380 n.3

(3d Cir. 1994)(“[W]hen secured lenders use their security

agreement to foreclose on property or otherwise enforce their

contractual rights, they essentially force the transfer of

trust property in satisfaction of an antecedent debt. Any such

transfer . . . through the exercise of rights under a security
9

agreement is not for value.”) (quoting C.H. Robinson Co. v.

Trust Co. Bank, N.A., 952 F.2d 1311, 1315 n.5 (11th Cir.

1992)). 

Here, BOEDC’s risk remained secondary, as the possibility

that the Units would change in value would affect BOEDC only

if ABC were unable to satisfy the loan. As BOEDC held only a

security interest in the Units, its claims remain inferior to

the claims of the PACA creditors. Endico Potatoes, 67 F.3d at

1069. Any other result would elevate the rights of secured

creditors above those of PACA creditors, contrary to the

intent of the statute. See id. at 1067. Accordingly, we

affirm the district court’s finding that the Units were not

transferred beyond the reach of the PACA creditors. 

CONCLUSION

For the foregoing reasons, we conclude that a secured

creditor’s lien does not constitute a transfer of PACA trust

assets within the terms of the statute, and proceeds generated

from the sale of such assets are therefore properly awarded to

the PACA creditors. Accordingly, we AFFIRM the judgment of

the district court.