Summary of a Recent
Judicial
Development in
PACA
Passive Officer of Defunct Company Held Liable
in Dissipation Claim
Craig RaysorNational AgLaw Center Research Associate
In Movsovitz & Sons of Fla., Inc. v. Axel Gonzalez, Inc., 367 F. Supp. 2d 207 (D. P.R. 2005), the District Court of Puerto Rico granted summary judgment for seller of produce, holding that the buyer was liable for Perishable Agricultural Commodities Act (PACA) trust funds. The officers were personally liable for dissipation of PACA trust funds, and the buyer company and its president were liable for attorney's fees pursuant to a contract of adhesion.
Axel Gonzalex, Inc. d/b/a North Produce (North Produce) and its officers ordered produce covered by PACA from Movsovitz & Sons of Fla., Inc. (Movsovitz) in the amount of $116,217.50 and failed to pay once North Produce ceased all operations. Id. at 210. During all pertinent times of operation of North Produce, Axel Gonazalez was the president and responsible for day-to-day operations and Sasha Aponte was an officer. See Id. at 214-15. All invoices from Movsovitz to North Produce included a statement of intention of a preservation of PACA trust and a clause regarding payment of one third of all attorneys' fees incurred in the event the account becomes delinquent. See Id. at 213, 215. Defendants claimed that this constituted a contract of adhesion, was unreasonable, and should not be enforced. Id.
The district court held that Movsovitz properly preserved its statutory trust benefits through a statement of intent published on the invoice, and it remained a beneficiary of the PACA trust. Id. at 213. The court found officers Axel Gonzalez and Sasha Aponte personally liable for dissipation of the PACA trusts because the statute created a fiduciary duty for officers, even passive shareholders, to secure the PACA trust funds. See Id. at 214-15. Additionally, the court found that the contract of adhesion regarding the attorneys' fees was voluntary and not unconscionable according to Puerto Rican law, and therefore was valId. See Id. at 215.
The case was decided on April 20, 2005.