575 B.R. 298
Bankr. D.N.J.2017Background
- Defendant Joseph Guarracino was sole owner/operator of GFP Distributors, Inc. (Garden Fresh Produce), a wholesale produce buyer; GFP purchased produce from Krisp‑Pak during April–July 2010 and received invoices containing PACA statutory trust language.
- GFP owed Krisp‑Pak $292,444.20 for produce; GFP deposited sale proceeds into a company account and Defendant had sole check‑writing authority and control over disbursements.
- Krisp‑Pak went out of business in 2012; Alliance Shippers obtained a state court default judgment against Krisp‑Pak and, via an execution order, received assignment of Krisp‑Pak’s $292,444.50 claim against GFP (the court entry directed GFP to pay Alliance).
- Alliance later obtained a state court default judgment against GFP and Guarracino for the same amount; Guarracino filed chapter 7 bankruptcy and Alliance sued in bankruptcy court under 11 U.S.C. § 523(a)(4) seeking a determination that the debt is non‑dischargeable as a fiduciary defalcation under PACA.
- At trial Alliance proved Krisp‑Pak was PACA‑licensed and that its invoices satisfied PACA notice requirements; the court found Guarracino had actual control over trust assets and that he intentionally or recklessly dissipated sale proceeds.
- The bankruptcy court held Alliance (as assignee) had standing, found a PACA trust existed, held Guarracino personally liable for breach of the PACA fiduciary trust, and ruled the $292,444.20 debt (plus attorney’s fees and costs) non‑dischargeable under § 523(a)(4).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity / standing of Alliance's claim as assignee of Krisp‑Pak's PACA claim | Assignment via state court execution order transferred Krisp‑Pak’s rights to Alliance; Alliance may enforce the PACA trust claim as assignee | Alliance lacks standing because assignee is a non‑supplier and PACA beneficiary interests are not assignable | Execution order is valid; PACA trust interests are assignable under trust and bankruptcy law; Alliance has standing as assignee |
| Existence of PACA trust and notice compliance | Krisp‑Pak was PACA‑licensed and its invoices contained statutorily adequate trust language, preserving trust rights | No proof Krisp‑Pak was PACA‑licensed or that notice requirements were met | Invoices and witness testimony established Krisp‑Pak’s PACA status and adequate notice; PACA trust existed upon delivery |
| Individual liability of Guarracino under PACA | As sole owner/officer with sole check‑writing authority, Guarracino had actual control over trust assets and is personally liable for dissipation of trust funds | Guarracino disputes individual liability and denies or cannot substantiate payments; challenges applicability of PACA to him individually | Court applies the Third Circuit control test and finds Guarracino controlled trust assets and owed fiduciary duties; individual liability established |
| Defalcation / non‑dischargeability under § 523(a)(4) | Guarracino knowingly or recklessly used sale proceeds to pay other expenses, thereby committing defalcation and making the debt non‑dischargeable | Denies liability and disputes facts; challenges standing but offers no evidentiary rebuttal | Under Bullock standard, court finds intentional or reckless dissipation (conscious disregard) — debt is non‑dischargeable under § 523(a)(4) |
| Attorney’s fees and costs | Invoices provided for attorney’s fees; fees are recoverable and non‑dischargeable if allowed | (Implicit) disputes entitlement or amount | Court awards attorney’s fees and costs as contractually authorized by invoices; amount to be fixed on submission |
Key Cases Cited
- Consumers Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d 1374 (3d Cir.) (PACA history and purpose)
- Am. Banana Co. v. Republic Nat’l Bank of N.Y., N.A., 362 F.3d 33 (2d Cir.) (legislative background for PACA trust amendment)
- Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197 (3d Cir.) (PACA trust and seller protections)
- Weis‑Buy Servs., Inc. v. Paglia, 411 F.3d 415 (3d Cir.) (individual officer/shareholder liability under PACA)
- Bear Mountain Orchards, Inc. v. Mich‑Kim, Inc., 623 F.3d 163 (3d Cir.) (control/test for individual liability over PACA trust assets)
- Bullock v. BankChampaign, N.A., 569 U.S. 267 (Supreme Court) (definition of defalcation for § 523(a)(4))