N.P. Deoudes, Inc. v. Snyder (In Re Snyder)N.P. Deoudes, Inc. v. Snyder (In Re Snyder)
MEMORANDUM OPINION
This is аn appeal from the bankruptcy court’s order entering summary judgment for the Debtor on the Appellants’ Complaint to Determine Non-Dischargeability of Debt (“Complaint”). The Court hаs reviewed this matter and the briefs filed de novo. For the reasons below, the Court will reverse the bankruptcy court’s order.
Background
The Appellants commenced a civil action to enforсe their rights under the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499e(c), against Exsell, Inc., t/a Seneca Valley Produce Company and its principal, Thomas Snyder. The action was stayed against Snyder when he filed his bankruptcy petition.
In the bankruptcy proceedings, the Appеllants, creditors of Snyder under PACA, filed their Complaint arguing that their debts were non-dischargeable under 11 U.S.C. § 523(a)(4). This statute excepts from discharge debts incurred through “fraud or defalcation whilе acting in a fiduciary capacity.” 11 U.S.C. § 523(a)(4).
1
The Appellants moved for summary judgment. Sitting by designatiоn, Judge Francis Conrad appropriately denied the motion finding a genuine issue of material fact as to whether they had properly protected their interests. He then entered summary judgment
sua sponte
for the Debtor concluding that a PACA trustee does not serve in a fiduciary capacity under Section 523(a)(4).
In re Snyder,
Discussion
Under Section 499e(c), “a buyer of perishable agriсultural commodities holds the produce and any related inventory and accounts rеceivable in trust for the benefit of all of the buyer’s unpaid sellers.”
In re Richmond Produce Co., Inc.,
The issue in this case is whether PACA’s trust provisions give rise to the type оf trust necessary to except a debt from discharge under 11 U.S.C. § 523(a)(4). As
Under Section 523(a)(4), the term “fiduciary capacity” applies only to express trust, tеchnical trusts, or statutorily imposed trusts.
In re Mones,
The PACA trust satisfies these requiremеnts. First, there is an identifiable trust res. The trust res consists of the produce delivered to the prоduce buyer, the accounts receivable from the produce sold, and the prоceeds generated from the produce. 7 U.S.C. § 499e(c)(2). As noted by Judge Conrad, the trust assets need not be segregated from non-trust assets.
In re Snyder,
In addition, PACA imposes fiduciary duties on the buyer.
An individual who is in the position to control the trust assets and who does not preserve them for the beneficiaries has breached a fiduciary duty, and is personally liable for that tortious act ... [A] PACA trust in effect imposes liability on a trustee, whether a corporation or a controlling person of that corporation, who usеs the trust assets for any purpose other than repayment of the supplier.
Morris Okun, Inc. v. Harry Zimmerman, Inc.,
Finally, the trust clearly arises without reference to any wrongdoing by the trustee. 7 U.S.C. § 499e(c)(2). The PACA “trust arises from the moment perishable goоds are delivered by the seller.”
Morris Okun, Inc.,
In his thoughtful opinion, Judgе Conrad clearly questions the wisdom of PACA. However, Congress specifically creatеd the statute and its idiosyncratic trust features. Congress alone bears the responsibility for rеvising the statute.
Morris Okun, Inc.,
Accordingly, the opinion below will be reversed and remanded for further prоceedings consistent with this opinion. A separate order consistent with this opinion will issue.
ORDER
In аccordance with the Memorandum Opinion, it is this 7th day of June 1995 ORDERED:
1. That the opinion and order bеlow BE, and the same hereby ARE, REVERSED; and
2. That this case is REMANDED for further proceedings consistent with the Memorandum Opinion.
Notes
. The Court notes that Judge Learned Hand provided perhaps the best analysis of "defalcation.”
See Quaif v. Johnson,