Source: https://law.justia.com/cases/federal/appellate-courts/F3/239/483/636105/
Timestamp: 2019-08-17 23:01:27
Document Index: 505965556

Matched Legal Cases: ['§ 499', '§ 499', '§ 499', '§ 284', '§ 541', '§ 2', '§ 499', '§ 499', '§ 46', '§ 46', '§ 46']

C.h. Robinson Company, Plaintiff-appellee,first Capital Corporation, Bacchus Associates, Stanley Orchard Sales, Inc. and Jac Vandenburg, Inc., Intervenor-plaintiff-appellees, v. Alanco Corp., Defendant-appellant,alan I. Elkin, Defendant, 239 F.3d 483 (2d Cir. 2001) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Second Circuit › 2001 › C.h. Robinson Company, Plaintiff-appellee,first Capital Corporation, Bacchus Associates, Stanley Orc...
C.h. Robinson Company, Plaintiff-appellee,first Capital Corporation, Bacchus Associates, Stanley Orchard Sales, Inc. and Jac Vandenburg, Inc., Intervenor-plaintiff-appellees, v. Alanco Corp., Defendant-appellant,alan I. Elkin, Defendant, 239 F.3d 483 (2d Cir. 2001)
U.S. Court of Appeals for the Second Circuit - 239 F.3d 483 (2d Cir. 2001)
Under PACA, purchasers of produce on credit are required to hold the produce and its proceeds, including accounts receivable and derivatives, "in trust for the benefit of all unpaid suppliers or sellers of such commodities . . . until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers [or] sellers." 7 U.S.C. § 499e(c) (2) (1999); see also In re Kornblum & Co., 81 F.3d 280, 284 (2d Cir. 1996). PACA "imposes a 'non-segregated floating trust' on the commodities and their derivatives, and permits the commingling of trust assets without defeating the trust . . . . Through this trust, the sellers of the commodities maintain a right to recover against the purchasers superior to all creditors, including secured creditors." Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir. 1995). To preserve benefits under a PACA trust, the unpaid produce seller must deliver written notice to the buyer. 7 U.S.C. § 499e(c) (3). It is undisputed that Alanco gave notice as required by § 499e(3), and the withheld cash now at issue is a PACA trust asset held by Alanco for the benefit of Robinson.
In support of this argument, Alanco relies on cases in which courts have said that " [o]rdinary principles of trust law apply to trusts created under PACA." Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997); see also C.H. Robinson Co. v. Trust Co. Bank, 952 F.2d 1311 (11th Cir. 1992). This Court has made similar statements. See Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612, 615 (2d Cir. 1998) ("The trust created by PACA is governed by general principles of trust law."); In re Kornblum, 81 F.3d at 284 ("Ordinary principles of trust law apply to the trusts created under the Act."); Endico Potatoes, 67 F.3d at 1067 ("Although not expressly stated in PACA, courts have unanimously held that the trust created by PACA is governed by general trust principles.").
In Albee Tomato and Endico Potatoes, we applied the principle that a bona fide purchaser for value of PACA trust assets may retain the assets even though they were transferred in breach of the trust. Albee Tomato, 155 F.3d at 615-616; Endico Potatoes, 67 F.3d at 1067-68; see also C.H. Robinson Co., 952 F.2d at 1314 (applying bona fide purchaser rule in context of PACA trust); Consumers Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d 1374,1380 (3rd Cir. 1994) (same); see generally Restatement of Trusts (Second) § 284 (1959). We applied the common law principle because "PACA does not impose explicit obligations upon, or provide explicit remedies against, third-party transferees who receive trust property in breach of trust." Albee Tomato, 155 F.3d at 615.
In Kornblum, we said that, in accordance with trust law, a PACA trustee holds legal title to PACA trust assets but the seller retains an equitable interest in the trust assets pending full payment, so that the Bankruptcy Code excludes PACA trust assets from the PACA trustee's bankruptcy estate. In re Kornblum, 81 F.3d at 284; see also In re San Joaquin Food Serv., Inc., 958 F.2d 938, 939 (9th Cir. 1992); see generally 11 U.S.C. § 541(d) (1999); Restatement (Second) of Trusts § 2 (1959). That holding was essential to further the stated purpose of PACA -- to give unpaid produce sellers priority over secured creditors in case a buyer defaults. In re Kornblum, 81 F.3d at 283-284; see 7 U.S.C. § 499e(c) (1).
Trusts created under PACA are statutory trusts, and common law trust principles are not applicable if they conflict with the language of the statute, the clear intent of Congress in enacting the statute, or the accompanying regulations. Cf. Varity Corp. v. Howe, 516 U.S. 489, 497 (1996) (interpreting ERISA and holding that " [i]n some instances, trust law will offer only a starting point, after which courts must go on to ask whether, or to what extent, the language of the statute, its structure, or its purposes require departing from common-law trust requirements").
As with any question of statutory interpretation, we first look to "the language of the statute itself." In re Kornblum, 81 F.3d at 285-286 (internal quotations omitted); see also Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc. 447 U.S. 102, 108, 100 S. Ct. 2051, 2056 (1980). The trust provision of PACA requires a produce buyer to hold the produce and its proceeds and derivatives in trust for the benefit of the seller "until full payment of the sums owing in connection with such transactions has been received" by the unpaid seller. 7 U.S.C. § 499e(c) (2). It is clear from the language of PACA that beneficiaries are entitled to full payment of the contract price for the sale of produce. Unlike most common law trusts, a PACA trust entitles the trust beneficiary to a sum certain. The trust requirement is intended to supplement the seller's contract rights.
The accompanying regulations also indicate that PACA trustees have a duty under PACA to pay the full amount of the debt owed to their produce suppliers. The regulations define "dissipation" of trust assets as "any act or failure to act which could result in the diversion of trust assets or which could prejudice or impair the ability of unpaid [sellers] to recover money owed in connection with produce transactions." 7 C.F.R. § 46.46(a) (2). Because Alanco has been liquidated, any payment of fees to Mandell out of the Freshway recovery would impair the ability of Robinson to recover the money it is owed under PACA. The regulations further state that "Commission merchants, dealers and brokers are required to maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities." 7 C.F.R. § 46.46(d).
Courts have recognized that the intent of Congress in enacting PACA's trust provision was to provide unpaid produce sellers with greater protection from the risk of default by buyers. Endico Potatoes, 67 F.3d at 1067; In re Kornblum, 81 F.3d at 283 (Congress enacted the trust provision "to broaden the protections afforded to produce suppliers"). See also Tanimura & Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 135-136 (3rd Cir. 2000); Hiller Cranberry Products, Inc. v. Koplovsky, 165 F.3d 1, 6 (1st Cir. 1999); In re Southland + Keystone, 132 B.R. 632, 639 (B.A.P. 9th Cir. 1991) (PACA "was established by Congress to protect sellers and suppliers of perishable agricultural commodities until full payment of sums due have been received") (internal quotations omitted). Allowing a defunct PACA trustee to pay other creditors with PACA funds before the seller is paid in full would frustrate this purpose, and would be contrary to the language of PACA and its accompanying regulations. PACA trust beneficiaries are entitled to full payment before trustees may lawfully use trust funds to pay other creditors.
The other cases cited by Alanco, in which non-PACA trustees were allowed to use PACA funds to pay the costs of collecting and distributing PACA assets, are inapposite. See In re Southland + Keystone, 132 B.R. at 643 (allowing a bank that collected a PACA trustee's accounts receivable and was ordered to disgorge the proceeds to the produce seller to retain a portion of the trust funds to pay collection costs); In re United Fruit and Produce Co., 119 B.R. 10, 13 (Bankr.D. Conn. 1990) (allowing trustee in bankruptcy to use PACA funds to pay collection costs). Even if we were to adopt the rule announced in In re Southland + Keystone for non-PACA trustees, we would not extend it to the case at bar because Alanco is a PACA trustee. As Magistrate Judge Peck noted, a PACA trustee has a fiduciary obligation under PACA to repay the full amount of the debt owed to the PACA beneficiary. Bankruptcy trustees and other collecting agents may not owe the same fiduciary duties to PACA beneficiaries, and therefore the law governing them is inapplicable.
Alanco's prediction that a ruling against it will have dire consequences for the produce industry is hyperbole. A PACA trustee may use trust assets to pay ordinary business expenses as long as it does not do so at the expense of its PACA beneficiaries, or in any way impair the ability of the beneficiaries to collect money owed in connection with produce sales. See Department of Agriculture Explanation of the Regulations Under PACA, 49 F.R. 45735, 45738 ("Trust assets are available for other uses by the buyer or receiver. For example, trust assets may be used to pay other creditors. It is the buyer's or receiver's responsibility as a trustee to insure that it has sufficient assets to assure prompt payment for produce and that any beneficiary under the trust will receive full payment. . . ."). To satisfy its obligations under PACA, a produce buyer must simply "maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities." 7 C.F.R. § 46.46(d) (1).