Opinion ID: 857463
Heading Depth: 3
Heading Rank: 6

Heading: JE Beale’s Liability

Text: The district court held JE Beale personally liable under PACA, concluding that he was “in a position to control the assets of the PACA trust and [failed] to preserve them.” Though we agree with the district court that certain classes of individuals face personal liability as trustees under the Act, we cannot agree with its conclusion that JE Beale falls into that class.7 “Individual liability in the PACA context is not derived from the statutory language, but from common law breach of trust principles.” Weis-Buy Servs. v. Paglia, 411 F.3d 415, 421 (3d Cir. 2005) (citing Sunkist Growers v. Fisher, 104 F.3d 282, 282 (9th Cir. 1997)). Applying these trust principles, our sister circuits unanimously agree PACA imposes individual liability on corporate officers, shareholders, and others, to the extent that they control the trust assets. See, e.g., Coosemans Specialties, Inc. v. Gargiulo, 485 F.3d 701, 705-06 (2d Cir. 2007); Weis-Buy, 411 F.3d 7 We also note that even if we found JE Beale faces personal liability, it is still unclear that summary judgment would be appropriate on this issue, because nothing in the record suggests JE Beale dissipated funds necessary to cover the purchased produce. The creation of the PACA trust was meant to protect sellers, and the obligations imposed on buyers are therefore quite stringent. As the district court found, any use of trust assets for any purpose, besides re-paying the seller, can be a dissipation, and a Plaintiff need only show that the assets held by the buyer could not cover the debt in order to show that dissipation. Coosemans Specialties, Inc. v. Gargiulo, 485 F.3d 701, 707 (2d Cir. 2007). Though Six L’s correctly argues that tying up the funds in litigation might constitute a breach of duty, it must still demonstrate that at some point JE Beale had less cash available for immediate payment than he owed under the trust. - 15 - No. 12-5659 Six L’s v. JR Beale, et al. at 421; Patterson Frozen Foods, Inc. v. Crown Foods Int’l, Inc., 307 F.3d 666, 667-68 (7th Cir. 2002); Golman-Hayden Co., 217 F.3d at 351; Hiller Cranberry Prods., Inc. v. Koplovsky, 165 F.3d 1, 9 (1st Cir.1999); Sunkist Growers, 104 F.3d at 283; Red’s Mkt. v. Cape Canaveral Cruise Line, Inc., 181 F. Supp. 2d 1339, 1343-44 (M.D. Fla. 2002), aff’d, 48 F. Appx 328, 2002 WL 2001204 (11th Cir. 2002) (table). A panel of this court recently adopted this position in Arava USA, Inc. v. Karni Family Farm, LLC, 474 F. App’x 452 (6th Cir. 2012). In that case, Arava, a distributor of fresh produce, sued Karni Farm and its president, Mati Karni, under the Act. The district court dismissed the suit against Karni, holding that the Act did not authorize individual liability. We reversed, concluding that “individual shareholders, officers, or directors of a corporation who are in a position to control statutory trust assets, and who fail to preserve those assets, may be held personally liable under the Act.” Arava, 474 F. App’x at 453 (citing Sunkist, 104 F.3d at 283). Nothing in Arava or previous circuit decisions suggests that we should extend PACA-liability to individuals who are not shareholders, officers, or directors of a corporation. By emphasizing the individual’s position of control over the company—as a shareholder, officer, or director—Arava points to a different outcome in this case. Id. Unlike the individual defendant in Arava, who was the president of the PACA merchant, JE Beale is neither an officer nor a director of Sunfresh. He owns no Sunfresh stock, has never occupied a position comparable to that of a corporate officer or director, and reviews none of - 16 - No. 12-5659 Six L’s v. JR Beale, et al. Sunfresh’s financial reports. In fact, much like the officer absolved of liability in Bear Mountain Orchards, Inc. v. Mich-Kim, Inc, 623 F.3d 163 (3d Cir. 2010), JE Beale lacked check-signing authority and financial control over Sunfresh. The district court focused on the fact that JE Beale had some leeway in making purchasing decisions on behalf of Sunfresh. Yet buying and selling produce on another’s behalf is not the control contemplated by these cases. Even so, the record shows that JR Beale restricted his son’s purchasing discretion. On these facts, we cannot conclude that JE Beale had the requisite control over the trust assets to justify holding him personally liable, and we reverse this aspect of the district court’s judgment.