625 B.R. 111
Bankr. N.D. Fla.2021Background
- Plaintiff Melon Acres, Inc. is a produce seller protected by the Perishable Agricultural Commodities Act (PACA); it alleges $92,506 is owed for produce sold to A&J Produce, Inc.
- Defendants Alma D. Villa and Jaime Navarette were officers/managing members/shareholders of A&J and are listed on A&J’s PACA license.
- Defendants filed a joint Chapter 7 petition; Plaintiff filed an adversary complaint seeking a nondischargeable judgment under 11 U.S.C. § 523(a)(4) based on breach of the PACA trust and defalcation.
- The court was asked to decide whether a PACA statutory trust can create the fiduciary relationship required for nondischargeability under § 523(a)(4), whether corporate officers can be personally liable, and whether the alleged conduct amounts to defalcation.
- The court denied the motion to dismiss Count I (PACA breach/defalcation nondischargeability) and granted the motion as to Count II (“interference with receipt of trust assets”) without prejudice, allowing leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether breach of a PACA trust can support nondischargeability under § 523(a)(4) | PACA creates a statutory fiduciary trust (floating but identifiable res) and breach plus defalcation is nondischargeable | PACA’s nonsegregated, floating trust is not an "express/technical" trust required by § 523(a)(4) | Court adopts majority view: PACA creates a technical/express trust (identifiable res suffices); breach can be nondischargeable under § 523(a)(4) |
| Whether officers/shareholders can be personally liable for corporate breach of PACA trust | Officers in control who cause misappropriation are personally liable even without direct profit | Liability should be limited to the corporate entity, not individual officers who were not the dealer | Court: individuals in control of trust assets who knowingly cause misappropriation may be personally liable; allegations suffice to survive dismissal |
| Whether the alleged conduct amounts to "defalcation" under § 523(a)(4) | Alleged knowing failure to preserve/remit PACA trust assets and to cease operations despite insolvency shows defalcation or willful blindness | Defendants dispute sufficiency/intent; argue mere statutory violation isn’t § 523(a)(4) defalcation | Court: plaintiff alleged facts plausibly showing defalcation (conscious disregard/willful blindness); factual intent questions reserved for trial |
| Whether Count II states a separate claim for "interference with receipt of trust assets" | Count II alleges transfers of trust assets to non-beneficiaries that interfered with plaintiff’s recovery | Defendants moved to dismiss for shotgun/duplicative pleading | Court: Count II is a shotgun/duplicative claim and fails to state a separate cause of action; dismissal without prejudice granted |
Key Cases Cited
- Quaif v. Johnson, 4 F.3d 950 (11th Cir. 1993) ("fiduciary" in § 523(a)(4) refers to technical/express trusts; statute imposing duties before defalcation supports fiduciary finding)
- Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013) (Supreme Court definition of defalcation: conscious disregard or willful blindness to substantial unjustifiable risk)
- Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154 (5th Cir. 1990) (PACA establishes a nonsegregated statutory trust to protect unpaid sellers)
- Davis v. Aetna Acceptance Co., 293 U.S. 328 (1934) (historical distinction between express and constructive trusts)
- Whaley v. Guillen, 972 F.3d 1221 (11th Cir. 2020) (courts should not graft extra requirements onto clear Bankruptcy Code text)
- Idahoan Fresh v. Advantage Produce, 157 F.3d 197 (3d Cir. 1998) (PACA’s central purpose is to ensure payment to unpaid suppliers)
- Endico Potatoes, Inc. v. CIT Grp./Factoring, 67 F.3d 1063 (2d Cir. 1995) (background on PACA and its protections for sellers)