817 F.3d 141
5th Cir.2016Background
- Delta Produce and Superior Tomato-Avocado filed chapter 11; various unpaid produce sellers (PACA claimants) asserted PACA trust claims and the matters were referred to bankruptcy court with many claimants' consent.
- The bankruptcy court appointed Craig Stokes as “Special PACA Counsel,” authorizing him to collect, liquidate, and disburse PACA trust assets and to be paid $350/hr from the PACA trust.
- Stokes collected over $4 million in PACA assets and submitted three fee applications (two interim, one final) totaling over $360,000 in fees and expenses; Kingdom Fresh objected that PACA trust funds cannot be used to pay counsel until all PACA beneficiaries are paid in full.
- The bankruptcy court approved the fee applications; Kingdom Fresh appealed to the district court, which vacated the interim awards and later vacated the final award as to Kingdom Fresh’s share, holding PACA requires full payment to beneficiaries before using trust funds for fees.
- On appeal to the Fifth Circuit, the court addressed (1) bankruptcy court jurisdiction post-Stern, (2) whether the district court had jurisdiction to review interim fee awards, (3) Kingdom Fresh’s standing, and (4) whether Stokes could be paid from PACA trust assets prior to full payment of beneficiaries.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bankruptcy-court constitutional jurisdiction over PACA claims (Stern) | Kingdom Fresh did not contest here; PACA claims can be adjudicated outside bankruptcy | Stokes/debtors relied on consent to bankruptcy reference | Bankruptcy court had jurisdiction because parties consented; Wellness allows waiver of Article III adjudication |
| District court jurisdiction to hear appeals of interim fee awards | Kingdom Fresh treated notices as appeals without leave | Stokes argued interlocutory and not final | District court lacked jurisdiction over first two interim fee appeals; those district orders vacating fees were vacated and appeals dismissed |
| Standing to challenge entire fee award | Kingdom Fresh argued entire award unlawful | Stokes argued nonobjecting claimants consented so Kingdom Fresh lacks standing to attack those portions | Kingdom Fresh is a “person aggrieved” only as to its pro rata share; cannot challenge fees allocable to nonobjecting claimants |
| Whether Special PACA Counsel may be paid from PACA trust before all beneficiaries paid in full | Kingdom Fresh: PACA’s plain text bars use of trust assets for fees until full payment of beneficiaries | Stokes: his appointment and consent by claimants permit payment from the trust; equitable/estoppel arguments | Stokes functioned as the functional equivalent of a PACA trustee; under PACA (no exception), trust funds cannot be used to pay such counsel until all beneficiaries receive full payment; affirmed as to Kingdom Fresh’s pro rata share |
Key Cases Cited
- C.H. Robinson Co. v. Alanco Group, 239 F.3d 483 (2d Cir. 2001) (PACA trust beneficiaries are entitled to full payment before trustee may use trust funds to pay other creditors, including attorneys)
- Bocchi Americas Assocs. Inc. v. Commerce Fresh Mktg. Inc., 515 F.3d 383 (5th Cir. 2008) (PACA trust assets are held in a floating trust and sellers retain equitable interests)
- Golman-Hayden Co. v. Fresh Source Prod. Inc., 217 F.3d 348 (5th Cir. 2000) (describing PACA’s protective purpose for produce sellers)
- Boulder Fruit Express v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001) (illustration of PACA priority over secured lenders for receivables)
- In re ASARCO, L.L.C., 650 F.3d 593 (5th Cir. 2011) (bankruptcy finality in appeals is flexible but interlocutory fee awards are generally not appealable)
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to adjudication by bankruptcy court despite Stern issues)
- Smith v. Gartley (In re Berman-Smith), 737 F.3d 997 (5th Cir. 2013) (appropriate remedy when district court lacked jurisdiction over bankruptcy appeal is vacatur and remand to dismiss)