Opinion ID: 3019730
Heading Depth: 2
Heading Rank: 2

Heading: Common Law Trust Principles

Text: Although PACA does not include a provision authorizing the payment of trust administrative expenses, several courts have relied on common law trust principles to allow for the payment of certain administrative expenses, such as attorneys’ fees or fees for services rendered in collecting receivables for the benefit of the PACA trust, to be paid from the corpus of the PACA trust prior to its distribution to the statutory beneficiaries. See, e.g., In re Milton Poulos, Inc., 947 F.2d 1351, 1353 (9th Cir. 1991); In re Southland + Keystone, 132 B.R. 632, 643 (B.A.P. 9th Cir. 1991); In re United Fruit & Produce Co., 119 B.R. 10, 13 (Bankr. D. Conn. 1990) (“[W]ell-settled trust law furnishes the basis for compensating a trustee, unless [PACA] otherwise provides.”). These cases generally require the claimant to demonstrate that its efforts and resultant expenses were “directly responsible for the availability of the funds from the [PACA] trust.” See, e.g, Milton Poulos, 947 F.2d at 1353. For example, in Milton Poulos the Court of Appeals for the Ninth Circuit awarded attorneys’ fees to the attorneys for a produce supplier because, “[t]hrough their efforts, the bankruptcy court declared the trust valid and enforceable, thereby permitting the funds to be [disbursed] among the trust [beneficiaries.]” Id. at 1353. The court further explained that “the efforts of these attorneys resulted in a common fund for the group.” Id. Similarly, in United Fruit the bankruptcy court relied on common law trust principles as well as section 506(c) of the Bankruptcy Code, 11 U.S.C. § 506, in compensating a bankruptcy trustee for its “necessary” services from the PACA trust funds prior to their distribution. 119 B.R. at 13 & n.5. The court explained that “[t]he bankruptcy trustee of the debtor’s estate . . . rendered substantial services in collecting the PACA receivable for the benefit of the PACA beneficiaries and in contesting [a seller’s] claim that it is entitled to a priority payment from [the PACA trust.]” Id. at 13. The court further explained that “[t]he non-PACA creditors should not pay for these services and the trustee should not be forced to donate 6 them.” Id. The court in Southland + Keystone, in harmony with the court in United Fruit, allowed the trustee “to offset [from PACA trust fund monies] its collection costs.” 132 B.R. at 643. The court, however, limited the amount of the offset “to the ‘hard’ costs of collection such as outside attorney’s fees and expenses that were necessary to the collection effort,” and stated that costs such as “overhead expenses are not recoverable.” Id. Conversely, some courts have declined to allow the payment of attorneys’ fees from the PACA trust funds. For example, in C.H. Robinson Co. v. Alanco Corp., 239 F.3d 483, 485-88 (2d Cir. 2001), the Court of Appeals for the Second Circuit dealt with a case in which the attorney for the buyer of produce sought payment of attorneys’ fees incurred in collecting the buyer’s accounts receivable from which the produce seller recovered a portion of its unpaid receivables. The court did not allow the payment of the attorneys’ fees and in doing so rejected the argument that the fees should be allowed on the theory that the buyer’s accounts constituted assets of the PACA trust. See also Goldman-Hayden Co. v. Fresh Source Produce, Inc., 217 F.3d 348, 352-53 (5th Cir. 2000) (declining to award attorneys’ fees to sellers because “[i]t does not appear that [the sellers] sued to create a PACA trust from which all potential PACA creditors could be compensated . . . [and] [b]ecause the litigation did not result in the establishment of a common fund” for the benefit of all unpaid PACA creditors). Exel argues that it “has a valid claim for recovery of its freight charges as administrative expenses of the PACA trust because . . . A & B Produce incurred those freight charges in its role as the trustee of the PACA trust account.” Appellant’s br. at 21. Exel asserts that, “[w]ithout [its] services, there would be substantially less trust assets for distribution.” Id. at 20. But even if we accept the factual basis for Exel’s argument and adhere to the general view that a non-PACA creditor in some circumstances is entitled to payment of necessary and actual charges that it incurred for the benefit of the PACA trust beneficiaries, we are satisfied that the transportation costs that Exel seeks to recover do not constitute administrative expenses incurred for the benefit of the PACA trust beneficiaries. Therefore, common law trust principles do not afford Exel the right to payment for its transportation services as administrative expenses of the PACA trust.1 1 Exel argues, inter alia, that it is entitled to payment under common law trust principles because the PACA trust “attached to the 7 In particular, Exel did not provide the transportation services to A & B Produce to increase the value of the trust res for the benefit of the PACA trust beneficiaries. In other words, even though the transportation of the produce to A & B Produce ultimately generated a portion of the proceeds that came to constitute the res of the PACA trust, Exel’s services were not “directly responsible for the availability of the funds,” Milton Poulos, 947 F.2d at 1353, and its services certainly do not qualify as the “hard costs of collection.” Southland + Keystone, 132 B.R. at 643 (internal quotation marks omitted). Exel performed these services for A & B Produce during the ordinary course of A & B Produce’s business operations rather than to augment the corpus of the trust. Obviously, when Exel arranged for the transportation of the produce to A & B Produce, Pacific and A & B Produce had not yet entered into the October 1, 2003 stipulation and order concerning the imposition and administration of the trust. Moreover, Exel provided for the transportation of the produce without any court order authorizing or directing it to do so; rather Exel acted in accordance with its contract with A & B Produce. Indeed, we cannot even conceive that if Exel had believed before it arranged for and paid for the transportation of the produce to A & B Produce or for its benefit that it would need to seek payment for its services as an administrative expense from a PACA trust, it would have accepted A & B Produce’s business. As Pacific correctly notes, if we accepted Exel’s characterization of its transportation services as being “in furtherance of its administration of the trust,” Appellant’s br. at 21, “a multitude of general unsecured creditors [of the buyer of the produce] could step forward and assert ‘administrative expense’ claims for services performed in the course of produce transactions.” Appellees’ br. at 28. A partial list of these creditors would include “trucking companies which transport produce, utility companies, which ensure produce at the time it was tendered to [the carrier] for carriage.” Appellant’s br. at 22. However, the existence of the trust is not dispositive inasmuch as we still must consider the central issue in deciding whether to apply common law trust principles, i.e., whether the efforts and expenses of an alleged PACA trustee, such as A & B Produce in employing Exel to transport the produce, were “directly responsible for the availability of the funds from the [PACA] trust.” See Milton Poulos, 947 F.2d at 1353. 8 that produce companies have electrical power to refrigerate the produce, paper companies, which provide the paper on which invoices are printed and employees, who sold the [p]roduce and collected the proceeds.” Appellee’s br. at 28. Ultimately characterizing Exel’s services as administrative expenses would enable all sorts of the buyer’s unpaid creditors to assert priority administration expense claims ahead of the claims of the sellers and other entities that Congress intended to protect as beneficiaries of the PACA trust. The claims of such creditors, including Exel’s, are simply too tangential to the claims that Congress intended PACA to protect to permit their payment as PACA administrative expenses. We further emphasize that “[t]rusts created under PACA are statutory trusts, [to which] common law trust principles are not applicable if they conflict with the language of [PACA], the clear intent of Congress in enacting the statute, or the accompanying regulations.” C.H. Robinson, 239 F.3d at 487. Indeed, “[t]he applicability of any principle of trust law to a PACA trust must be tested against the language and purpose of the statute and the accompanying regulations.” Id. PACA expressly protects unpaid sellers, suppliers, and agents as trust beneficiaries, see 7 U.S.C. § 499e(c)(2), and “entitles the trust beneficiary to a sum certain.” C.H. Robinson, 239 F.3d at 487. “PACA’s purpose, as Congress has crystallized, is to ensure payment to the unpaid seller in the perishable agricultural commodities industry.” Tanimura, 222 F.3d at 138. Accordingly, “[i]f PACA’s trust is to have any meaning, and Congress’s intent is to be effectuated in any way, trust assets must be preserved and not dissipated,” id., and “PACA trust beneficiaries are entitled to full payment before trustees may lawfully use trust funds to pay other creditors.” C.H. Robinson, 239 F.3d at 488. Accordingly, we will not apply common law trust principles to allow Exel to recover charges that it characterizes as administrative expenses when doing so would conflict with the statutory language and Congress’ intent to protect unpaid sellers and suppliers above non-PACA beneficiaries such as Exel. See C.H. Robinson, 239 F.3d at 486 (“[C]ases in which there was no clash between the language of PACA and common law trust principles do not undermine the most fundamental principle of statutory interpretation that the language of the statute must govern.”).