Kingdom Fresh Produce, Inc. v. Stokes Law Office, L.L.P. (In Re Delta Produce, L.P.)
845 F.3d 609
| 5th Cir. | 2016Background
- PACA creates a statutory trust requiring buyers to hold proceeds/receivables for unpaid produce sellers until they receive full payment; trust assets are insulated from the bankruptcy estate. 7 U.S.C. § 499e(c)(2).
- Delta Produce and Superior Tomato filed Chapter 11; the bankruptcy court appointed Craig Stokes as “Special PACA Counsel” to collect, liquidate, adjudicate PACA claims, and distribute trust assets. The appointment authorized fees from the PACA trust.
- Stokes collected over $4 million in PACA assets and submitted three fee applications totaling over $300,000; most PACA claimants consented to paying his fees from the trust, but Kingdom Fresh objected.
- The bankruptcy court approved the fees each time; Kingdom Fresh appealed to the district court. The district court vacated the awards for the first two interim applications and later vacated the final award; those rulings were appealed.
- On appeal to the Fifth Circuit, the court held it lacked jurisdiction over the district court’s vacatur of the two interim awards (interlocutory), vacated that district-court decision, and addressed the remaining appeal limited to Kingdom Fresh’s pro rata share of the final fee award.
Issues
| Issue | Plaintiff's Argument (Kingdom Fresh) | Defendant's Argument (Stokes) | Held |
|---|---|---|---|
| Whether the bankruptcy court had constitutional authority to adjudicate PACA claims (Stern problem) | Bankruptcy court lacks constitutional authority to finally decide non-core PACA claims | Parties consented to bankruptcy-court adjudication; bankruptcy court had authority | Consent (express or implied) cured Stern concerns; bankruptcy court jurisdiction upheld on consent grounds |
| Whether district court had appellate jurisdiction over interim fee awards | District court exercised appellate review appropriately | Interim fee awards are interlocutory and not subject to automatic review | District court lacked jurisdiction over appeals of the first two interim awards; those vacaturs were vacated and remanded to dismiss the appeals |
| Standing: scope of appellant’s challenge to fee award | Kingdom Fresh can challenge the entire fee award | Only the pro rata share attributable to Kingdom Fresh is directly injured | Kingdom Fresh is a “person aggrieved” only as to its proportional share; appeal limited to Kingdom Fresh’s allocated amount |
| Whether Special PACA Counsel can be paid from PACA trust before all beneficiaries are paid in full | PACA trust prohibits using trust assets to pay Stokes until beneficiaries are fully paid; Stokes was a functional PACA trustee | Stokes performed necessary collection services and was entitled to payment from the trust (appointment/order authorized it) | Stokes was the functional equivalent of a PACA trustee; under PACA’s unambiguous "full payment" rule and C.H. Robinson, he could not be paid from trust assets until all beneficiaries were paid in full; district court’s vacatur of the final award is affirmed as to Kingdom Fresh’s share |
Key Cases Cited
- C.H. Robinson Co. v. Alanco Group, 239 F.3d 483 (2d Cir.) (PACA trustee may not use PACA funds to pay attorney’s fees before beneficiaries receive full payment)
- Bocchi Americas Assocs. Inc. v. Commerce Fresh Mktg. Inc., 515 F.3d 383 (5th Cir.) (PACA trust assets are held by buyer in legal title while sellers retain equitable interest)
- Boulder Fruit Express v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir.) (illustration of PACA trust priority over secured lenders)
- Stern v. Marshall, 131 S. Ct. 2594 (Sup. Ct.) (limits on bankruptcy courts’ constitutional authority to enter final judgments on certain non‑bankruptcy claims)
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (Sup. Ct.) (parties may consent to adjudication by bankruptcy tribunal, curing Stern defect)
- Golman‑Hayden Co. v. Fresh Source Prod. Inc., 217 F.3d 348 (5th Cir.) (discussing PACA’s purpose and effects in bankruptcy)