453 F. App'x 463
5th Cir.2011Background
- Herr and Petro each owned 25% of Kalil Fresh Marketing, d/b/a Houston’s Finest Produce, with Kalil as CEO and board chair and a board including Kalil, Petro, and Herr.
- In 2002, they invested to acquire half the company; the stock purchase agreement granted them governance rights, including auditing and authority over major decisions.
- NatureBest sold produce to Houston’s Finest from Nov 15, 2007 to Jan 23, 2008, culminating in a $41,201.85 debt before Houston’s Finest filed Chapter 7 on Jan 29, 2008.
- NatureBest intervened in July 2008 in PACA creditor litigation, seeking the remaining $8,918.82 from Herr and Petro after other claims settled.
- The district court granted summary judgment for NatureBest on Sept 16, 2010, holding that Herr and Petro, as shareholders with control rights, breached PACA trust duties by not preserving trust assets.
- Final judgment was entered Oct 1, 2010, against Herr and Petro for $8,918.82.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether shareholders can be secondarily liable under PACA for breach of trust when they had authority to control trust assets | NatureBest argues Herr and Petro controlled trust assets via stock agreement and board power, making them liable. | Herr and Petro contend they did not have actual control or dominion over PACA trust assets. | Yes; liability attaches if in a position to control trust assets, regardless of actual control. |
Key Cases Cited
- Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348 (5th Cir. 2000) (secondarily liable if in position to control assets and breach trust duties)
- Sunkist Growers, Inc. v. Fisher, 104 F.3d 280 (9th Cir. 1997) (trust assets excluded from debtor's estate; ordinary trust principles apply)
- In re Kornblum & Co., 81 F.3d 280 (2d Cir. 1996) (trust principles in PACA context)
- Hawkins v. Agric. Mktg. Serv., 10 F.3d 1125 (5th Cir. 1993) (PAC A purpose to protect producers; strict regulation)