Red's Market v. Cape Canaveral Cruise Line, Inc.Red's Market v. Cape Canaveral Cruise Line, Inc.
ORDER
Plaintiff, Red’s Market (“Red’s”), has sued Defendants, Cape Canaveral Cruise Line, Inc. (“Cape”), Steve Kosmas, Paul Kosmas, Nicholas Kosmas, and Bruce Burner (“individual defendants”) to recover payment for produce sold by Red’s to Cape. The action was brought under the Perishable Agricultural Commodities Act (“PACA” or “the Act”), 7 U.S.C. § 499a et seq., and this court has jurisdiction pursuant to 7 U.S.C. § 499e(c)(5) and 28 U.S.C. § 1331. Judgment was entered in favor of Red’s and against Cape after Red’s accepted Cape’s offer of judgment, leaving unresolved only the question of whether the individual defendants are liable to Red’s under PACA. This court now answers that question in the affirmative.
Factual and Procedural Background
Red’s is a Florida corporation “engaged in the business of buying and selling wholesale quantities оf perishable agricultural commodities” and “licensed under the provisions of PACA as a dealer.” Defendant Cape is a Florida corporation engaged or formerly engaged in the management of a cruise ship and restaurants of the ship. There is no dispute that Cape was a regular purchaser of produce from Red’s and thаt Cape used the produce in the preparation of meals for its passengers. Furthermore, it is agreed that the individual defendants were the officers and directors of Cape during the period of time in question.
In its Complaint, Red’s alleged eleven counts based on Cape’s failure to pay for produce it sold to Cape betwеen June 16, 2000, and September 7, 2000. The claims included allegations that PACA applied and that, under 7 U.S.C. § 499e, a statutory trust was created in favor of Red’s. In their Answer, Defendants admitted that Cape purchased the goods as alleged in the Complaint and that Cape had not tendered payment for said goods. However,
In their Motion for Summary Judgment (Doc. No. 24), Defendants argued that PACA did not apply to this dispute because Cape is excluded from the PACA definition of “dealer.” This argument was rejected and the court denied Defendants’ Motion for Summary Judgment (Doc. No. 42). Red’s had argued in its Cross Motion for Summary Judgment (Doc. No. 32) that PACA applied to both Cape and the individual defendants. The court granted this motion in part, concluding that Cape was a dealer and that PACA applied (Doc. No. 42). However, because there was nо evidence in the record from which the court could determine whether the individual defendants were in positions of control over PACA trust assets, the motion was denied as to the issue of liability of the individual defendants (Doc. No. 42).
A nonjury trial was then held on the only remaining issue-whether the individual defendants were responsible for the debt under § 5(c) of PACA [7 U.S.C. § 499e(e) ]. At trial, the parties stipulated that the individual defendants were in positions of control over the PACA trust assets and were responsible for all aspects of Cape’s business, which included directing payments to be made to Cape’s creditors.
However, in their written final argument the individual defendants assert that PACA does not apply on other grounds. First, the individual defеndants argue that the PACA trust ceased to exist when the produce was converted to meals, contending that the “PACA trust applies only to perishable goods, receivables and sale proceeds thereof, and not to those products which have been manufactured into a food product of a different kind or character.” Sеcond, relying on the reasoning contained in
Farm-Wey Produce, Inc. v. Wayne L. Bowman Co.,
Analysis
Are prоceeds from the sale of meals subject to the PACA trust?
This court rejects the individual defendants’ theory of defense that the trust provisions of PACA ceased to apply when the produce was converted into meals. Essentially, this theory is based on the premise that the trust asset--the pro-was no longer in existence anda therefore the defеndants’ trust responsibilities terminated. This theory simply does not square with the statute, federal regulations, or relevant case law.
Congress enacted PACA in 1930 to regulate trading in perishable agricultural products with “the intent of ‘preventing-unfair business practices and promoting financial responsibility in the fresh fruit and produce industry.’ ”
Sunkist Growers, Inc. v. Fisher,
PACA narrowly defines “perishable agricultural commodities” as “[f]resh fruits and fresh vegetables of every kind and character.” 7 U.S.C. § 499a(b)(4). However, § 499e(c) explains that other products derived from perishable agricultural commodities, as well as the proceeds from the sale of such assets, are part of the trust provided for by the Act. This portion of the statute provides:
(2) Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other prоducts derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents....
7 U.S.C. § 499e(e)(2) (emphasis added). Thus, the рlain language of the statute provides that the res of a PACA trust includes not only the produce itself but also those products derived from the produce and the proceeds from the sale of the products. In the instant case, the meals must be construed as “products derived from perishable agricultural commodities.” 7 U.S.C. § 499e(e)(2).
It is equally cleаr that by enacting section 499e(c)(2), Congress intended that PACA trusts remain in effect until full payment is made by the purchaser of agricultural commodities. This intended result is echoed in 7 C.F.R. § 46.46(d)(1), which requires that dealers “maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities.” (emphasis added). Neither of these provisions contains an exemption eliminating a dealer’s responsibility once the dealer converts the commodities to meals which it later sells.
Case law discussing the application of the PACA trust to processed food makes clear that — as plainly set forth in the statute — the trust applies to both the perishable аgricultural commodities themselves and to products derived from those commodities. For example, in
JC Produce, Inc. v. Paragon Steakhouse Restaurants, Inc.,
Although the individual defendants do offer case law in support of their theory that the PACA trust did not extend to the food incorporated into meals by Cape, the cases are distinguishable. Those cases-A
& J Produce Corp. v. CIT Group/Factoring Inc.,
Are the individual defendants subject to PACA liability?
As noted above, by enacting 7 U.S.C. § 499e(c) Congress armed sellers of produce by designating them beneficiaries of statutory trusts. The
res
of these trusts includes produce, products dеrived from produce, and proceeds from the sale of such goods. As trustees, once dealers accept delivery of produce the dealers owe the sellers a fiduciary duty to protect the
res.
Because the failure of corporate dealers to pay for produce is most often due to the corpоration’s inability to pay, the question has arisen whether employees and officers of corporate dealers who are in a position to control trust assets may also be considered trustees under PACA. Courts have generally answered this question in the affirmative.
See, e.g., Sunkist,
The individual defendants agree that they are officers, shareholders, and directors of Caрe, that they were in positions of control over the PACA trust assets at issue here, and that they were responsible for all aspects of Cape’s business, including directing payment of Cape’s creditors. Nonetheless, the individual defendants claim that they are not responsible for the debt owed Red’s because there is no evidence that thеy committed fraud or engaged in unfair practices. Relying on
Farm-Wey Produce, Inc. v. Wayne L. Bowman Co.,
The defendants are correct in asserting that there is no evidence that as corporate officers they did not effectively execute their responsibilities to Cape. However, that is not the test to determine whether they breached their responsibilities as PACA trustees. Several cases have discussed the duties owed by PACA trustees in general terms. For instance, in
Sunkist
the Ninth Circuit noted that those “who are in a position tо control PACA trust assets, and who breach their duty to preserve those assets, may be held personally liable under the Act.”
In the instant case, the individual defendants failed to account for the trust assets. Because these defendants admittedly had total control over Cape, the trust аssets, and the payment of corporate debts, they are liable to Red’s for failure to preserve the trust assets. As discussed above, use of trust assets for any purpose other than to pay Red’s was a violation of the individual defendants’ fiduciary duty to Red’s. Findings of misappropriation or bad faith are not essential to an imposition of individuаl liability upon these individual defendants who were in total control of the PACA trust assets. A simple finding that they failed to account for the trust assets is sufficient. Moreover, the facts do not support the individual defendants’ assertion that they are blameless. Indeed, it is unlawful for a dealer to “fail to maintain the trust as required under section 499e(c).” 7 U.S.C. § 499b(4).
Conclusion
The court having determined that the PACA trust was not tеrminated when Cape converted the produce into meals and having also determined the individual defendants to be liable for the amount held in trust for the benefit of Red’s Market, it is ORDERED as follows:
1. The Clerk of Court is hereby directed to enter judgment against the individual defendants (Steve Kosmas, Paul Kos-mas, Nicholas Kosmas, and Bruce Burner) and in favor of Red’s Markеt in the amount of $25,243.95, 2 which sum shall bear postjudgment interest at the current rate provided by law. The judgment shall indicate that liability is joint and several as to all defendants, including Cape Canaveral Cruise Line, Inc.
2. In accordance with Local Rule 4.18, Plaintiff may submit a claim for costs or attorney’s fees by separate motion or petition within fourteen (14) dаys of the entry of judgment.
Notes
. Defendants also cite In re Lombardo Fruit & Produce Co., 12 F.3d 110 (8th Cir.1993); however, that case involves notice requirements under PACA and is not germane to the issues in the instant case.
. The total sum of $25,243.95 represents the principal debt of $24,553.70 plus prejudgment interest of $690.25 calculated from October 7, 2000 — thirty days after the last produce was sold to Cape on thirty-day payment terms. In its discretion, the court has determined to grant Plaintiff’s request for prejudgment interest and has determined the prevailing post-judgment interest rate of 2.24% per annum is an appropriate prejudgment interest rate in this case.
See, e.g., Smith v. Am. Int'l Life Assurance Co. of New York,