Summary of a Recent
Judicial
Development in
Perishable Agricultural Commodities
Corporation President Personally Liable
for Not Preserving Trust Assets
Gaby R. JabbourNational AgLaw Center Research Assistant
Summary of Decision
In "R" Best Produce, Inc. v. Eastside Food Plaza, Inc., No. 02 Civ. 6925, 2003 WL 22231577 (S.D.N.Y. September 30, 2003) (unreported decision), the United States District Court for the Southern District of New York held that the president and sole shareholder of an entity that bought perishable agricultural commodities was personally liable for not preserving the assets of the trust established under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. §§ 499a-499t.
Background
Plaintiff "R" Best Produce Inc. was a seller of perishable agricultural commodities that sought payment from defendants Eastside Food Plaza Inc. (Eastside) and its owner Angelo Tomao for produce that it sold and delivered to the defendants in 2002. See id. at *1. Although the district court determined that the funds claimed by the plaintiff were due and owing, several issues remained open at the conclusion of the trial, one of which was whether Tomao was personally liable for not preserving the assets of the PACA statutory trust. See id.
Arguments
The defendants opposed the imposition of personal liability on Tomao, arguing that the plaintiff "failed to present evidence . . . that the defendants used the proceeds of the sales of [the] commodities received from [the] plaintiff for any purpose other than paying an outstanding PACA trust debt or offsetting a debt that the plaintiff owed the defendants." Id. at *6.
Analysis and Holding
The court explained that "[a]n individual who is in a position to control assets of the statutory trust established under PACA, and who breaches his fiduciary duty to preserve those assets, may be held personally liable to the trust beneficiaries." Id. (citing Morris Okun, Inc. v. Harry Zimmerman, Inc., 814 F.Supp. 346, 348 (S.D.N.Y. 1993)). It also explained that "under PACA, personal liability attached to the trustee, 'whether a corporation or a controlling person of that corporation,' who used trust assets 'for any purpose other than repayment of the supplier,' including use of the proceeds 'for legitimate business expenditures,' such as rent and payroll." Id. at *7 (quotation and citations omitted).
The court noted that the evidence established that Tomao was "the sole signatory to Eastside's operating and payroll bank accounts, as well as the only individual authorized to write checks on behalf of Eastside to pay its operating expenses and accounts payable," and that Tomao "was the person who ordered the produce at issue in this case, acknowledged receipt of such produce, and accepted it on behalf of Eastside." Id. The court concluded the "Tomao clearly exercise[d] the level of control over Eastside's business necessary to hold him personally liable under . . . PACA" and that he "breached his fiduciary duty to the PACA trust by allowing it to be dissipated." Id. The court therefore found Tomao personally liable to the plaintiff for any PACA damages. See id.
The case was decided on September 30, 2003; this summary was posted Apr. 6, 2004.