individuals are generally not held responsible for the liabilities of a corporation, and that a corporation can act only through its agents and can thus fulfill fiduciary obligations only through its agents. The court therein found that the individual was the person who controlled all the signifIcant business of the PACA licensee.
Also on this issue is the decision in Mid-Valley Produce Corp. v. 4-XXX Produce Corp. 819 F. Supp. 209 (E.D.N.Y. 1993). The court held the president of 4-XXX was personally liable to PACA creditors based on its finding that he knowingly caused the corporation to breach its duty as a trustee. Id., citing West Indian Sea Island Cotton Ass'n v. Threadtex, Inc., 761 F. Supp. 1041, 1054 (S.D.N.Y. 1991) (an officer who causes a corporate trustee to commit a breach of trust which causes a loss to the trust is personally liable to the beneficiaries for that loss). However, the court found insufficient evidence of record to hold the president's wife liable. Although the owner of 100% of the stock of 4-XXX, the court found the wife could not be presumed to have exercised control over the company's affairs.
The Kalecks would have us read these decisions, especially the dichotomy created by the court in 4-XXX, as requiring active involvement on the part of each individual defendant for PACA liability to attach. The PACA creditors argue, based on Morris Okun that the phrase "a person who is in a position to control trust assets" means one who is "legally responsible" for trust assets. These cases, we find, read as a whole establish the proposition that PACA liability attaches first to the licensed seller of perishable agricultural commodities. If the seller's assets are insufficient to satisfy the liability, others may be found secondarily liable if they had some role in causing the corporate trustee to commit the breach of trust. Accordingly, the Kalecks are not secondarily liable merely because they served as corporate officers or shareholders. As stated in 4-XXX, there may be many small corporations in which an individual may hold corporate office or shares, for entirely legitimate purposes, and not exercise any day-to-day control over the company's affairs. Id. at 213. This, however, is not the end of the inquiry. First, we must consider whether the Kalecks' involvement with KB was sufficient to establish legal responsibility. Second, we must determine whether the Kalecks, in allowing Blumberg to use their corporation without any appreciable oversight, breached a fiduciary duty owed to the PACA creditors.
We find the Kalecks' involvement with KB was sufficient to demonstrate "active involvement" in the operation of the business. Viewing the evidence in the light most favorable to the Kalecks, the documentary evidence shows the Kalecks set up the corporation, owned the stock of the corporation and exercised legal control as officers and directors. The Kalecks were also signatories of KB's commercial banking agreement with Mellon Bank, applied for KB's business tax identification number, paid rent to the Terminal Corporation after Blumberg's operation ceased, and stored some of its produce in KB's stalls. The record demonstrates that the Kalecks were not merely uninvolved "silent" corporate officers or shareholders, but rather established the business, albeit for Blumberg's sake, used the premises and took action to continue the business after Blumberg abandoned it.
We also find the Kalecks breached a fiduciary duty owed to the PACA creditors. Being a statutory trust, PACA incorporates common law breach of trust principles. See generally, C.H. Robinson Co. v. B.H. Produce Co., Inc., 723 F. Supp. 785, 792 (N.D.Ga 1989) (applying general principles of the law of trusts to PACA breach of trust claim). Under the common law, the trustee of a trust is under a duty to the beneficiary in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property. Restatement of Trusts, § 174. Whether the trustee is prudent in the doing of an act depends upon the circumstances as they reasonably appear to him at the time when he does the act. Id., Comment b. Further, the trustee is under a duty to the beneficiary to take reasonable steps to take and keep control of the trust property. Restatement of Trusts, § 175. A trustee may entrust the control of trust property to an agent but only when doing so is reasonable. Id., Comment e. Permitting Blumberg to operate the PACA regulated business, which the Kalecks established and for which they were legally responsible, apparently without oversight to ensure that PACA creditors were paid, was not reasonable.
In conclusion, while we are sympathetic to the Kaleck's situation, having to shoulder responsibility for Blumberg's failures to pay trust creditors, we must keep in mind the intent of Congress in establishing PACA: that a burden on commerce in perishable agricultural commodities was caused by dealers receiving goods without having made payment for them. The statutory trust remedy was created to ensure that farmers do not suffer when the agricultural produce dealers abandon their businesses without paying their debts. While the Kalecks have been rewarded for their familial loyalty with the threat of loss of their own business, had they exercised reasonable care to see that KB was properly managed, this lawsuit may well have been avoided. For the reasons stated, the motion of the plaintiffs for summary judgment will be granted.
The motion for summary judgment of plaintiffs Larry Shepard d/b/a/ P.D.Q. Sales, et al is GRANTED.
The motion for summary judgement of defendants Joseph Kaleck, Brian Kaleck and Alan Kaleck is DENIED.
Judgment on the issue of liability is ENTERED in favor of all plaintiffs and against defendants Joseph Kaleck, Brian Kaleck and Alan Kaleck.
Plaintiffs shall file a motion for assessment of damages, supported by affidavits or other evidence, no later than July 8, 1994. Defendants shall file a reply no later than July 15, 1994.
IT IS SO ORDERED.
CHARLES R. WEINER