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.