Summary of a Recent
Judicial Development in
Perishable Agricultural Commodities Act

Requirements for Imposing Personal Liability
for PACA Trust Violations

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Harvest Food Group, Inc. v. Newport International of Tierra Verde, Inc., No. 08-80681-CIV, 2008 WL 4927006 (S.D. Fla. Nov. 17, 2008), the United States District Court for the Southern District of Florida held that a plaintiff had alleged the required elements to establish personal liability in its Perishable Agricultural Commodities Act (PACA) claims and therefore denied the individual officers of the defendant produce company's motion to dismiss. The court also dismissed the plaintiff's PACA claims against the parent company that had recently purchased the produce retailer because the plaintiff had failed to allege that the parent company was not a bona fide purchaser for value that would be entitled to take free of the PACA trust.

Background

The plaintiff, a produce wholesaler, brought suit alleging various claims under the PACA, 7 U.S.C. § 499a-t, to enforce its right to payments due for produce purchased by a produce company. Id. at *1. The produce retailer's officers and parent company that had recently purchased the retailer filed a motion to dismiss based on the fact that the events giving rise to the plaintiff's claim had occurred before their involvement with the company. Id. at *2.

Arguments

The plaintiffs argued that the defendants' motion to dismiss was premised upon an overly narrow and incorrect interpretation of the PACA. Id. The defendants argued that the complaint improperly sought to impose liability against them for events that occurred before their involvement with the defendant company, during periods when none of them had any control over the company or the trust proceeds. Id.

Analysis and Holdings

Under the PACA, agricultural commodities, products derived from the produce, and proceeds from the sale of such items are subject to a statutory trust for the benefit of the seller until full payment is made to the seller by the dealer. Id. at *1. To establish personal liability under the PACA, a plaintiff must show that the person controls the trust assets and that the assets of the licensed commission merchant, dealer, or broker are insufficient to satisfy the PACA liability. Id. at *3. The court found that the plaintiff had alleged those necessary elements to establish personal liability as to the individual officers, and concluded that whether the officers were in a position of control of the defendant-company's finances at the relevant times was a fact-specific inquiry that could not be resolved on a motion to dismiss. Id. However, the court dismissed the claims against the parent company, which had recently purchased the produce retailer, because the plaintiffs had failed to allege that the parent company was not a bona fide purchaser of value, in which case it would receive the property free of the trust. Id. at *4.

The case was decided on November 17, 2008.