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Katy L. Koestner
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U.S.D.A. rules Hunt's Point receiver liable to shipper.

On October 27, 1999, nine U.S. Department of Agriculture ("USDA") fruit and vegetable inspectors and thirteen owners and/or employees of thirteen produce firms located at the Hunts Point Terminal Produce Market in the Bronx, New York were arrested on charges of bribery. During the course of a three-year investigation by the USDA's Office of Inspector General ("OIG"), the OIG discovered that the owners of those produce firms paid bribes to the USDA produce inspectors in exchange for a reduction in the grade of inspected produce. All nine of the USDA produce inspectors have since pled guilty in Federal Court.

The nine produce inspectors arrested include: David L. Ball, Glenn A. Jones, Michael Tsamis, Edmund R. Esposito, Paul I. Cutler, Elias Malavet, Thomas C. Vincent, Michael Strusiak, and William Cashin.

The thirteen Hunts Point Produce firms include: B.T. Produce Co., Inc., Kleiman & Hochberg, Inc., Jacobson Produce, Inc., Frankie Boy Produce Corp., Fierman Produce Exchange a/k/a Joseph Fierman & Sons, Inc., King Sol Produce Corp., Tray Wrap Produce, Cooseman Specialities, Inc., American Banana, Post & Taback, Inc., M. Trombetta & Sons, Inc., KOAM Produce, Inc., G & T Terminal Packaging Corp.

On November 16, 2000, the Secretary of the USDA issued a ruling on one of the earliest filed reparation cases pertaining to the Hunts Point matter. In Dimare Homestead, Inc. v. Koam Produce, Inc., PACA Docket R-00-159 (November 16, 2000), the Secretary ruled in favor of a complainant who agreed to price adjustments with a customer who had previously engaged in fraudulent behavior by bribing a federal produce inspector, where one of the federal inspectors who had engaged in such wrongful activity had issued an inspection on the produce in dispute. The Secretary based its decision, in large part, on the two legal theories of fraudulent misrepresentation and mistake.

As to the issue of fraudulent misrepresentation, the Secretary said that the complainant's confidence in the federal inspection was critical to its decision to enter into price adjustments. Withholding the information about the past briberies resulted in a fraudulent misrepresentation of the material terms of the agreement that justified voiding the price adjustment contract between the parties. The Secretary also found that the price adjustments were voidable on the legal ground of mistake, because the complainant entered into the price adjustment on the mistaken belief that the respondent had not engaged in prior wrongful conduct with the federal produce inspectors. That mistaken belief was a basic assumption inducing the complaint to enter into the price adjustment. Therefore, the complainant's mistaken belief had a material effect on the agreed adjustments, thereby rendering the price adjustments void.

Tanimura & Antle, Inc. v. Packed Fresh Produce, Inc.
2000 WL 1146667 (3rd Cir. 2000)(NJ)

The court ruled that PACA provides district courts with jurisdiction to entertain actions for injunctive relief by produce sellers to restrain dissipation of PACA trust assets. The court noted that PACA establishes jurisdiction in the district courts for two specific types of actions: (1) actions by the trust fund beneficiaries to enforce payment from the PACA trust and (2) actions by the Secretary of Agriculture to prevent dissipation of trust assets. The court further states that the prohibition of private injunctive actions in aid of trust beneficiaries' ability to carry out this enforcement provision would destroy remedies at common law, and, therefore, explicitly override the statutory mandate of section 499e(b).

In re Magic Restaurants, Inc.
205 F.3d 108 (3rd Cir. 2000) (Delaware)

PACA defines the term "dealer" as "any person engaged in the business of buying or selling in wholesale or jobbing quantities, as defined by the Secretary, any perishable agricultural commodity in interstate or foreign commerce." There is an exception to this definition which states that no person buying any such commodity solely for sale at retail shall be considered as a "dealer" until the invoice cost of his purchases of perishable agricultural commodities in any calendar year are in excess of $230,000. Therefore, the court held that a restaurant that purchases produce in wholesale or jobbing quantities, and in excess of $230,000 per year, is a "dealer" under PACA.

Greg Orchards & Produce, Inc. v. Edwin P. Roncone
180 F.3d 888 (7th Cir. 1999) (Illinois)

Under PACA, the maximum time for payment for a shipment to which a seller, supplier, or agent can agree and still qualify for coverage under the trust is 30 days after receipt and acceptance of the commodities. Here, the supplier and dealer entered into post-default written agreements that allowed the dealer to pay its outstanding obligations in weekly installments beyond the 30-day maximum. The court found that it was not sufficient for a supplier to be in compliance with PACA when it files its notice of intent to preserve PACA trust rights. The court stated that in order to qualify for PACA trust protection, a supplier must be in compliance with PACA and its implementing regulations at the time it seeks to enforce its trust rights. Accordingly, the court held that produce suppliers who entered into a forbearance agreement with a dealer that extended the dealer's time for payment beyond 30 days from receipt and acceptance of produce had voided their PACA trust protection and were ineligible to assert their trust rights under PACA.

Golman-Hayden Co., Inc. v. Fresh Source Produce Inc.
27 F.Supp. 2d 723 (5th Cir. 1998) (Texas)

This case addresses the common fund doctrine. A common fund is a trust having multiple parties sharing an interest. Some courts have held that recognition of the PACA trust established a common fund from which attorney's fees may be recoverable. Here, several PACA creditors sued for a money judgment for their personal claims from the remaining accounts receivable of the debtor. However, the court reasoned the creditors did not sue to create a PACA trust from which all potential PACA creditors could be compensated because their complaints did not include a prayer for relief requesting the preservation or creation of such a trust. Since, a common fund was not established, attorney's fees were not awarded to the creditors. The court did not express an opinion as to whether the common fund exception would permit the recovery of attorney's fees under PACA if a common fund was established.

Sunkist Growers, Inc. v. Fischer
104 F.3d 280 (9th Cir. 1997) (Arizona)

Sunkist obtained a judgment in state court against the buyer for breach of contract. After Sunkist obtained the state court judgment, Sunkist found that the judgment was uncollectible and brought suit against the owners of the buyer in federal court under PACA. One of the issues in this case was whether the state court judgment barred the second action in federal court. The court found that Sunkist's state court judgment against the buyer for breach of contract did not bar Sunkist's federal court action against the owners of the buyer for personal liability for breach of trust imposed under PACA. The court determined that the PACA claim was not essential to the determination of the state breach of contract claim and therefore, there was no full and fair opportunity to litigate the PACA claim in the state court action.

The Ninth Circuit Court of Appeals further addressed the issue of owners' personal liability. This is the only circuit court which has addressed this issue and held "that individual shareholders, officers, or directors of a corporation who are in a position to control PACA trust assets, and who breach their fiduciary duty to preserve those assets, may be held personally liable under the Act."

In re Kornblum & Co., Inc.
81 F.3d 1168 (2nd Cir. 1996) (New York)

In this case, the debtor sold its interests in a store and office unit. Thereafter, the debtor filed for bankruptcy protection. The court addressed the issue of whether the units were PACA trust property from which the Creditors were entitled to seek satisfaction of their claims. The court held that in order for the debtor to prevail on its claim that its office and store units were not PACA trust property from which creditors were entitled to seek satisfaction of their claims, the Chapter 7 debtor B produce buyer bore the burden of establishing either that: (1) no PACA trust existed when units were purchased; (2) even though PACA trust existed at that time, units were not purchased with trust assets; or (3) although PACA trust existed when units were purchased and units were purchased with trust assets, the debtor thereafter paid all unpaid sellers in full before transactions involving creditors, thereby terminating trust. This case affirms the principal that a single PACA trust exists for the benefit of all sellers to purchaser of produce on credit, and continues in existence until all of outstanding beneficiaries have been paid in full.

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