Summary of a Recent
Judicial Development in
Perishable Agricultural Commodities

Officers and Shareholders May Be Individually
Liable Under PACA

Harrison M. Pittman
Staff Attorney

Summary of Decision

In Weis-Buy Services, Inc. v. Paglia, No. 04-1890, 2005 WL 1389111 (3d Cir. June 14, 2005), the United States Court of Appeals for the Third Circuit held in a matter of first impression that officers and shareholders of a corporation may be individually liable for breaching their fiduciary duties under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. 499a-499t.

Background

PACA was enacted in 1930 to prevent "unfair business practices and promote financial responsibility in the perishable agricultural goods market." See Weis-Buy, 2005 WL 1389111 (citing Sunkist Growers v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997) (quoting Farley and Calfee, Inc. v. United States Dep't of Agric., 941 F.2d 964, 966 (9th Cir. 1991)). It was "‘designed primarily for the protection of the producers of perishable agricultural products– most of whom must entrust their products to a buyer or commission merchant who may be thousands of miles away, and depend for their payment upon his business acumen and fair dealing.'" Id. (quoting Tom Lange Co. v. Kornblum & Co., 81 F.3d 280, 283 (2d Cir. 1996) (quoting H.R. Rep. No. 84-1196, reprinted in 1956 U.S.C.C.A.N. 3701, 3701)).

In 1997 and 1998, Weis-Buy Services, Inc., and Brigiotta's Produce and Garden Center (hereinafter sellers) delivered several shipments of fruit to United Fruit & Produce Company (United Fruit). United Fruit filed a bankruptcy petition on December 9, 1997, and failed to pay for any of the shipments. See id. The bankruptcy court subsequently ordered United Fruit to pay a portion of the debt it owed to the sellers. See id. The sellers then brought an action against August J. Scolio, an officer of the corporation, arguing that he breached his fiduciary duty under PACA. See id.

Analysis and Holding

The Third Circuit noted that it had never considered the issue of whether an individual corporate officer may be liable for breaching his or her fiduciary duty under PACA but that other circuit courts have considered the issue and determined that individual liability exists in certain circumstances. See id. (citing Patterson Frozen Foods v. Crown Foods, Int'l, 307 F.3d 666, 669 (7th Cir. 2002); Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir. 2000); and Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 283 (9th Cir. 1997)). The court explained that in Sunkist Growers, the Ninth Circuit held that individual shareholders, officers, or directors who breach their fiduciary duties under the PACA may be held personally liable. See id. (citing Sunkist Growers, 104 F.3d at 283). It also explained that in Golman-Hayden, the Fifth Circuit followed the holding in Sunkist Growers and stated that "[a]n investor in a perishable commodities corporation ‘should know at the beginning of his association with such a corporation that he is ‘buying into' a corporation which is strictly regulated by the federal government through PACA.'" Id. (quoting Golman-Hayden, 217 F.3d at 351).

Relying upon the holdings in Patterson Foods, Golman-Hayden, and Sunkist Growers, the court held that "individual officers and shareholders, in certain circumstances, may be held individually liable for breaching their fiduciary duties under PACA." Id. (citations omitted). The court ultimately held that August J. Scolio was not individually liable, however, because the sellers failed to bring their action against him within the applicable statute of limitations period. See id.

The case was decided on June 14, 2005; this summary was posted July 26, 2005.