Thorough Invoice Language Can Give Added Teeth to PACA Judgment Favoring Produce Seller

In Iscavo Avocados v. Pryor, 953 F.3d 916 (5th Cir. 2020), Iscavo Avocados and Villita Avocados sold produce (avocados) totaling over $70,000 in value, to Coram Deo Farms, Inc.  According to defendant Adrian Pryor, an agent of Coram Deo, his sole business partner absconded with most of Coram Deo’s liquid assets, leaving the invoices for the purchase price of the aforementioned avocados unpaid.  Iscavo and Villita then filed suit against Pryor, claiming that he was personally liable under PACA for the amounts that Coram Deo owed, plus interest.  They argued that Pryor was personally liable because he “was in a position to control the PACA trust assets at issue and breached his fiduciary duty to preserve them.”  Pryor did not contest that Coram Deo (now defunct) was liable for the invoices for the avocado sales.  He only maintained that he was not personally liable for such debts.

The court noted that Pryor was an officer and the owner of 80% of Coram Deo.  He was listed as the principal on Coram Deo’s PACA license, and had access to Coram Deo’s assets including its bank account. The Court then found that “[i]t is undisputed that…Pryor had the ability to control Coram Deo’s assets but failed to do so.”  Therefore, the Fifth Circuit panel concluded, “[t]he district court did not…err in holding Pryor personally liable.”

The Court rejected Pryor’s argument that he was not personally liable because he was not involved in the day-to-day business operations and that his partner handled everything.  The Court noted that, “[a]ctual involvement is not the standard,” that Pryor was personally liable precisely because he refused to exercise the authority that he possessed, i.e., to preserve the PACA trust assets for the benefit of the beneficiaries of the trust. 

An unremarkable result, perhaps.  But it may be that it is the Court’s ruling on the recovery of attorneys’ fees that is the most important part of the case.

In arguing that Iscavo and Villita were not entitled to their attorneys’ fees under PACA, or otherwise, Pryor noted that the claimants were relying on isolated, non-binding authorities, as precedent.  The Court observed that while PACA does not expressly require an award of attorneys’ fees, it does state that PACA trust assets “must be held for the benefit of all unpaid sellers ‘until full payment of the sums owing in connection with such transactions has been received by the sellers.’”   Citing cases from other jurisdictions (2nd, 3rd, 9th, and 11th Circuits), the Court stated that the phrase “sums owing in connection with” is broad, and that it “unambiguously encompasses not just the contract price …but also all the sums the buyer owes in connection with the transaction memorialized by the invoice.”  Therefore, when the buyer [note:  the opinion says, “seller,” but this may be a typographical error, perhaps it should be “buyer”) agrees to pay those fees in the same invoice, the fees are sums “‘owed in connection with’ the transaction.”

In its decision, the Court then awarded attorneys’ fees to plaintiff Villita because Villita’s sales invoice stated that, “Buyer also agrees to pay all costs of collection, including attorneys’ fees.”   The Court therefore concluded that “[u]nder the PACA trust provision, Coram Deo was thus required to maintain trust assets sufficient to cover Villita’s attorneys fees incurred in its collection efforts.  And because Pryor failed to exercise control over Coram Deo’s PACA assets to preserve them for Villita as a trust beneficiary, Pryor is personally liable for Villita’s attorneys’ fees.”

As for plaintiff Iscavo, the Court found that the record was unclear as to whether its invoices encompassed attorneys’ fees.  Therefore, the Court remanded this issue back to the district court to explain its reasons for awarding fees to Iscavo, with further proceedings to follow.

The case is a good one for PACA sellers.  As to personal liability, it emphasizes that it is the ability to control PACA trust assets, not the actual controlling, or non-controlling, of such assets, that counts.  As to attorneys’ fees, the case serves as a reminder that sellers of perishable agricultural commodities (produce) should always, always, include on the invoices, in addition to PACA’s “magic words” requiring the preservation of PACA trust assets, some further magic words such as, “Buyer also agrees to pay all costs of collection, including attorneys’ fees.”  Although not all of the federal appellate courts, and certainly not the Supreme Court, have spoken to this issue, those that have have ruled in favor of the claimants, so long as the right language appears on the invoices.  The wording on the invoices is, quite simply, critical. Don’t ever overlook it.             

Bankruptcy, Defaults and Personal Liability, Oh My!

The recent case of Grimmway Enterprises v. B & B Organics, 3:19-CV-261-JD (N.D. Ind. Mar. 25, 2020) contains some interesting rulings and discussions of issues involving bankruptcy, defaults, and individual liability under the PACA (Perishable Agricultural Commodities Act, 7 U.S.C. 499a, et al.). These are well worth attention and review.

Grimmway is a buyer and seller of produce located in California. B & B was an Indiana corporation. Cynthia Boynton was the sole officer and shareholder of B & B, while her husband, Brad Boynton was named on Blue Book Services’ Business Report as the Vice President/General Manager of B & B. For a number of years, Grimmway sold produce to B & B, on contract. The invoices attendant to each sale of produce contained the requisite language under PACA to preserve the seller’s rights under the PACA trust, whereby the purchaser and its controlling officers became trustees of PACA trust assets, and Grimmway, as seller, became a beneficiary of such trust. The “PACA trust assets” included the buyer’s proceeds from the sales of the produce.

After a while, B & B, apparently experiencing financial difficulties, stopped paying Grimmway’s invoices. Grimmway then filed suit under PACA against the corporation B & B, as well as against Cynthia and Brad Boynton as its controlling officers. After filing suit, both summons and an ex parte temporary restraining order preventing dissipation of PACA trust assets, that had been obtained when the suit was filed, were served on Brad Boynton, both individually and as an agent of the corporation. Thirteen days after the entry of the TRO, Grimmway filed a motion for civil contempt against B & B charging that B & B had failed to comply with the TRO’s document production provisions.

On the day that all defendants were required to respond to plaintiff’s Complaint, B & B filed a petition in bankruptcy. Thereafter, plaintiff Grimmway obtained an order of default against the individual defendants, who, unlike the corporation, did not file bankruptcy. This case arose on plaintiff’s motions for default judgment against both defendants, and on its motion for contempt against the corporation.

As to individual liability, the court found that Cynthia Boynton was a controlling officer of B & B. She was listed on the company’s PACA license as B & B’s “Principal,” was identified on the Blue Book Services report as the sole officer and shareholder, was the signee on the company’s bankruptcy petition, and, according to plaintiff’s accounts receivable manager’s declaration, was the primary person with whom plaintiff communicated with regarding contacts with the plaintiff. In response to Ms. Boynton’s argument that she was not subject to personal liability because “bankruptcy trumps all,” the court noted that while her position was correct as to the corporation, B & B’s corporate bankruptcy did not apply to or negate her personal or individual liability.

The court then entered a default judgment against Ms. Boynton in the full amount of the debt, subject to a reduction in the amount of any recovery made by the plaintiff in the corporate bankruptcy proceeding.

As to Brad Boynton, the court found that there was insufficient evidence to support a finding that he was a controlling officer of B & B. In effect, the court found that the only substantive evidence that plaintiff presented on this question was the fact that Blue Book listed Mr. Boynton as “Vice President/General Manager.” This was not enough. The court held that titles, in and of themselves, cannot support a finding of personal liability under PACA. Something more in terms of actual facts is necessary in order to establish that an individual is or was a “controlling officer” so as to make him individually liable under PACA.

With respect to the plaintiff’s motion for civil contempt against the corporation, the court mentioned, but did not rule on, the fact that B & B had filed bankruptcy thereby triggering an automatic stay of proceedings against it. Instead, the court noted that B & B was subject to production and disclosure requirements in the bankruptcy case itself, under Rule 2004 of the Bankruptcy Rules, that were broader than the production order that was a part of the TRO. Finding that B & B was not in violation of the Rule 2004 production requirements, the court denied plaintiff’s request that B & B be held in contempt for violating the TRO.

Finally, the court considered the question of Grimmway’s entitlement to attorneys’ fees. Noting that the 7th Circuit Court of Appeals had not ruled on this issue, the court looked to a line of cases which held that attorneys’ fees can be recoverable in PACA cases, as “sums owing in connection with” PACA trust transactions. (7 U.S.C. 499c(2). The court found these cases reasonable and persuasive, and therefore awarded Grimmway its reasonable attorneys’ fees against Ms. Boynton, subject to the qualifier that plaintiff could not double-charge her for whatever fees had been or would be awarded to it in the corporate bankruptcy case.

PACA, Poor Recordkeeping & Personal Liability

Earlier this year Judge William H. Pauley III of the United States District Court for the Southern District of New York issued an opinion in a case involving claims under the Perishable Agricultural Commodities Act (“PACA”) by a produce wholesaler (“Moza”) against another wholesaler (“Tumi”) and several of Tumi’s officers and agents.

Moza claimed it was owed $222,709.93 for unpaid bills for produce shipped to Tumi and for certain freight charges. Moza also contended it was entitled to prejudgment interest on the amounts claimed.

The court noted that neither party was “adept at recordkeeping, and the evidence at trial was disorganized.” Much of the oral testimony was contradictory, so the judge had his hands full trying to determine who was right and who was wrong.

Without getting into the details of each particular claim, which involved about two dozen separate shipments and sales, the primary issues before the court were:

  1. Whether Moza, the seller, received full payment, and was entitled to reimbursement for freight charges.
  2. Whether Moza preserved its PACA trust rights.
  3. Whether the individual defendants, and a successor corporate defendant, were liable under PACA.
  4. Whether Moza was entitled to pre-judgment interest.

As to (1) above, the court concluded, contrary to Tumi’s arguments, that as to shipments that were allegedly inspected by the USDA and found wanting, Tumi failed to prove its case that Moza either agreed to accept lesser amounts for such shipments, or that according to industry custom and usage payment of lesser amounts was warranted.

With respect to transactions paid with cash, the court found that the invoices which provided that Moza would accept lesser amounts were not reliable, particularly in the face of the testimony of Moza’s agent that his signature on such invoices had been forged.

With respect to transactions involving revised invoices for increased amounts of produce shipped, the court found that Moza had met its burden of showing that such transactions had in fact occurred and that Moza was entitled to full payments of such revised invoices.

The court also found that where Tumi had failed to offer any evidence of payment of certain invoices, all of those invoices remained due.

However, as to Moza’s claim for freight charges, the court found that because Tumi never agreed to the payment of freight charges with respect to its transactions with Moza, Moza could not recover for the same.

As to (2) above, the court found that Moza had preserved its PACA trust rights by including on its invoices the requisite PACA language. The judge rejected Tumi’s argument that Moza failed to prove that it protected its PACA rights because it did not prove at trial when the invoices were created and when they were served on Tumi. The judge noted that Moza ”was not required to show delivery of the invoices beyond a metaphysical doubt.” The testimony of Moza’a agent that the invoices were delivered to Tumi normally within a day after the produce was shipped was sufficient.

Regarding (3) above, the court found that the company’s principal, who conceded that she controlled Tumi’s finances, and who signed payment checks to Moza, was personally liable as a person who was in the position to control the assets of the PACA trust and who failed to preserve them.
As to another person, “Mike,” who was not on the PACA license as a principal, and who was not an officer or director of Tumi, and who did not have authority to write checks or make withdrawals from the corporate bank account, and who described himself as only a salesman, the court nonetheless held him to be personally liable. The court noted that the evidence showed that Mike was the person who had almost all of the contact with Moza. It also did not help his case when Moza’s agent testified that Tumi’s principal told him, with respect to his inquiries about short payment checks, that he should “talk to Mike, that’s between you and Mike; I just write the check.” The court also noted that a string of text messages corroborated that testimony.

As to a third individual, “William,” the judge found him not to be personally liable, even though his name was on the PACA license, and he had been a majority shareholder of the company, where Moza had presented only “conclusory and undetailed evidence” of his involvement and control over PACA trust assets.

Finally, the court concluded that a successor company that assumed and continued Tumi’s business after Tumi’s dissolution, was not liable where Moza failed to present any evidence of the “hallmarks of continuation,” especially evidence of continuity of ownership of the two companies.

As to (4) above, the judge, exercising his discretion, declined to award prejudgment interest to Moza, noting that PACA does not provide for prejudgment interest, and the contract between the parties (the invoices and documents of shipment) does not provide for it.

In conclusion, in what must be seen as a substantial victory for Moza, even though it did not get everything it wanted, the court entered judgment against Tumi and the above two individual defendants in the amount of $218,921.73, which was approximately 98% of Moza’s total claim, less interest.

Moza, LLC v. Tumi Produce Int’l Corp., et al., 17 cv 1331 (S.D.N.Y. 2019)