Court Opinion

ID: 618719
Source: CourtListenerOpinion
Date Created: 2011-12-12 18:42:34+00
Date Added: 2024-06-11T17:50:46.015533
License: Public Domain

Case: 10-20788     Document: 00511691550         Page: 1     Date Filed: 12/12/2011

            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                        December 12, 2011

                                       No. 10-20788                        Lyle W. Cayce
                                                                                Clerk

RUBY ROBINSON CO., INC.,

                                                  Plaintiff
v.

BRYAN HERR; SAMUEL PETRO, JR.,

                                                  Defendants - Appellants
v.

NATUREBEST PRE-CUT & PRODUCE LLC,

                                                  Intervenor Plaintiff- Appellee

                   Appeal from the United States District Court
                        of the Southern District of Texas
                            USDC No. 4:08-CV-00199

Before HIGGINBOTHAM, DAVIS, and STEWART, Circuit Judges.
PER CURIAM:*
        Defendants-Appellants Bryan Herr and Samuel Petro, Jr. appeal the
district court’s summary judgment, holding them liable to Intervenor Plaintiff-
Appellee NatureBest Pre-Cut & Produce LLC (“NatureBest”) under the

        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
  Case: 10-20788    Document: 00511691550     Page: 2   Date Filed: 12/12/2011

                                 No. 10-20788

Perishable Agricultural Commodities Act (“PACA”). We AFFIRM.
                                        I.
      Herr and Petro each owned 25% of the stock of Kalil Fresh Marketing Inc.,
d/b/a Houston’s Finest Produce (“Houston’s Finest”), a wholesale produce
business established in 2000 by John Kalil, Petro’s cousin. In 2002, Kalil
informed Petro that he needed a capital infusion to turn his business around.
Petro and Herr decided to invest, and executed a joint stock purchase agreement
in July 2002, together assuming ownership of half the company. The stock
purchase agreement entitled Herr and Petro to input and authority regarding
which accounts to sell to and on what terms, equipment purchases, major
personnel changes, and sales and business strategies. The agreement further
stated that a company board of directors would be established, with Petro, Herr,
and Kalil as its members. Kalil was appointed chief executive officer, with day-
to-day operating authority. The stock purchase agreement afforded each owner
a right to audit the company’s books.
      NatureBest sold produce to Houston’s Finest during the period of
November 15, 2007, to January 23, 2008. Houston’s Finest filed a voluntary
Chapter 7 bankruptcy petition on January 29, 2008, with an outstanding
balance due to NatureBest of $41,201.85.
      On July 17, 2008, NatureBest was permitted to intervene in this action,
in which several PACA creditors sued Herr, Petro, and Kalil for the debts of
Houston’s Finest. All claims were resolved, with the exception of NatureBest’s
claims against Herr and Petro, from whom NatureBest sought the remaining
balance of $8,918.82.
      On September 16, 2010, Judge Gray H. Miller granted NatureBest’s
motion for summary judgment and denied Appellants’ motion for summary
judgment. Relying solely on the 2002 stock purchase agreement, the district
court concluded that Herr and Petro are liable under PACA because, even if they

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                                  No. 10-20788

did not have actual control of the PACA trust assets, they were shareholders in
a position to control those assets and failed to preserve them. On October 1,
2010, final judgment was entered on behalf of NatureBest and against Herr and
Petro in the amount of $8,918.82.
      Herr and Petro brought the instant appeal, asserting that they are not
liable under PACA because they did not have actual control or dominion over the
trust assets.
                                       II.
      This court reviews a district court’s grant of summary judgment de novo,
applying the same standards as the trial court. See Urbano v. Cont’l Airlines,
Inc., 138 F.3d 204, 205 (5th Cir. 1998). Summary judgment is proper if the
evidence shows that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law. Kee v. City of
Rowlett, 247 F.3d 206, 210 (5th Cir. 2001). The Court views all evidence in the
light most favorable to the non-moving party and draws all reasonable
inferences in that party’s favor. Crawford v. Formosa Plastics Corp., 234 F.3d
899, 902 (5th Cir. 2000).
                                       III.
      “PACA regulates the produce industry and promotes fair dealings in
transactions involving fruits and vegetables. Under the Act, when a seller,
dealer, or supplier ships produce to a buyer, a statutory trust is created upon
acceptance of the commodities.” Golman-Hayden Co. v. Fresh Source Produce
Inc., 217 F.3d 348, 350 (5th Cir. 2000) (citation omitted). “We have recognized
that PACA is a ‘tough law[.]’” Id. at 351 (quoting Hawkins v. Agric. Mktg. Serv.,
10 F.3d 1125, 1130 (5th Cir. 1993)). “In addition to protecting consumers,
Congress expressly designed it to protect the producers of perishable agricultural
products, most of whom must entrust their products to a buyer who may be
thousands of miles away, and depend for their payment upon his business

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                                       No. 10-20788

acumen and fair dealing.”        Id.    “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.’” Id. (quoting Hawkins, 10 F.3d at 1131).
                PACA liability attaches first to the licensed commission
         merchant, dealer, or broker of perishable agricultural commodities.
         If, however, the assets of the licensed commission merchant, dealer,
         or broker are insufficient 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. Thus, . . .
         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.

Id.
         “Ordinary principles of trust law apply to trusts created under PACA, so
that for instance the trust assets are excluded from the estate should the dealer
go bankrupt.” Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997)
(citing In re Kornblum & Co., 81 F.3d 280, 284 (2d Cir. 1996)). A shareholder
“may not escape liability based on a real or claimed failure to exercise his right
and obligation to control the company.” Golman-Hayden, 217 F.3d at 351.
         In its summary judgment analysis, the district court relied solely on the
2002 stock purchase agreement, which granted Herr and Petro authority over
certain business and financial matters and entitled them to sit on the company’s
board of directors. Although Herr and Petro assert that they never assumed the
responsibility they were entitled to under the agreement, our precedent makes
clear that they remain liable for a breach of fiduciary duty so long as they were
in a position to control the PACA trust assets, which are the agricultural
commodities and the proceeds therefrom. 7 U.S.C. § 499e(c)(2). It is established
that a shareholder may not avoid liability under PACA merely by failing to
assume responsibilities that he is entitled to. Golman-Hayden, 217 F.3d at 351.

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                                  No. 10-20788

Accordingly, summary judgment was appropriate because, based on the evidence
of their stock purchase alone, there is no genuine issue as to the Appellants’
legal authority to control the trust assets.
      Herr and Petro insist that there should not be liability under PACA merely
because someone is a shareholder of an agricultural commodities dealer. This
interpretation is consistent with the case law in this area. See, e.g., Shepard v.
K.B. Fruit & Vegetable, Inc., 868 F. Supp. 703, 706 (E.D. Pa. 1994)
(“[Individuals] are not secondarily liable merely because they served as corporate
officers or shareholders.”). However, the district court’s conclusion did not rest
solely on the Appellants’ status as shareholders; rather, the summary judgment
evidence established that Herr and Petro had the contractual authority and
ability to control the trust assets, yet they failed to protect those assets. See
Golman-Hayden, 217 F.3d at 350 n.12 (approving of the Shepard court’s
reasoning that “permitting 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”).
      PACA is designed to protect agricultural producers who, because of the
nature of their industry, must rely on assurances of payment from dealers
following the dealers’ receipt of their commodities. This purpose would be
thwarted by permitting individual shareholders to avoid liability by refusing to
protect trust assets over which they had the authority.
                                       IV.
      For the foregoing reasons, we AFFIRM the district court’s judgment.

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