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PACIFIC INTERNATIONAL MARKETING, INC. v. A & B PRODUCE

United States District Court, E.D. Pennsylvania


July 20, 2004.

PACIFIC INTERNATIONAL MARKETING, INC.
v.
A & B PRODUCE, INC. FRANK SPINGOLA & SONS, LTD. v. A & B PRODUCE, INC, et al.

The opinion of the court was delivered by: M. FAITH ANGELL, Magistrate Judge

MEMORANDUM AND ORDER

I. FACTUAL AND PROCEDURAL BACKGROUND

This case was referred to me by the Honorable Louis H. Pollak for resolution of all nondispositive pretrial matters by Order dated June 17, 2003. Subsequently, the parties consented to the exercise of jurisdiction by a United States Magistrate Judge, and Judge Pollak referred the action to me to conduct all proceedings and order the entry of judgment by Order dated October 1, 2003. Presently before me is Intervenor Exel Transportation Services, Inc.'s Brief in Support of its Administrative Expense Claim and Plaintiffs' opposition to the claim.

  Plaintiffs have instituted this action against A&B Produce, Inc. and Anthony G. Badolato, the President of A&B Produce, claiming that Defendants violated provisions of the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. § 499.

  II. PACA

  PACA was passed into law to encourage fair trading in the marketing of produce and to prevent unfair and fraudulent practices in the industry. See H.R. Rep. No. 543, 1984 U.S.C.C.A.N. 405, 406; see also Plaintiffs' Opposition to Administrative Expense Claim of Intervenor Excel Transportation Services, Inc. at 1-2. The Act was amended in 1984 by the creation of a statutory trust "to increase the legal protection for unpaid sellers and suppliers of perishable agricultural commodities until full payment of sums due have been received by them". 1984 U.S.C.C.A.N. at 406.

 

Under the 1984 provision, a buyer's produce, products derived from that produce, and the proceeds gained therefrom are held in a nonsegregated, floating trust for the benefit of unpaid suppliers who have met the applicable statutory requirements. See 7 U.S.C. § 499e(c); 7 C.F.R. § 46.46(b). Thus, the provision gives certain unpaid sellers of produce an interest in the PACA trust assets superior to that of a perfected, secured creditor. Idahoan Fresh v. Advantage Produce, 157 F.3d 197, 199 (3d Cir. 1998).
  Though United States District Courts maintain jurisdiction to hear actions by trust beneficiaries to enforce payment from the trust and actions by the Secretary to prevent and restrain the dissipation of the trust, see 7 U.S.C. § 499e(c)(4), "PACA contains no mechanism for the administration and distribution of trust assets". In the Matter of United Fruit and Produce Co., Inc., 119 R.R. 10, 11 (Bankr. 1990).

  In order to implement a procedure for the administration of the PACA Trust in the instant matter, a Stipulation and Agreed Order for Preliminary Injunction and PACA Claims Procedure was entered on September 30, 2003. Pursuant to that Order, the PACA Trust Assets of A&B Produce were to be identified, liquidated, and distributed to A&B Produce's qualified PACA trust beneficiaries on a pro-rata basis. Kenneth Federman, Esquire was appointed the PACA Trustee responsible for identification, recovery and liquidation of A&B Produce's assets. III. INTERVENOR EXEL TRANSPORTATION SERVICES, INC.'S ADMINISTRATIVE EXPENSE CLAIM

  Exel Transportation Services (Exel) filed a complaint in intervention in which it seeks the payment of administrative expenses chargeable against the res of the PACA Trust. Exel arranged and paid for the transportation of shipments of PACA-qualified produce in interstate commerce for delivery to A&B Produce prior to the instant lawsuit. As part of its services, Exel paid the freight charges of the carriers that provided the actual transportation services on behalf of A&B Produce. See Intervenor Exel Transportation Services, Inc.'s Brief in Support of its Administrative Expense Claim at 1-2.

  There is no PACA statutory provision which defines "administrative expenses"; however, in support of its claim, Exel relies upon the United Fruit case. That case differs from the within matter in that it addresses compensating a bankruptcy trustee of a debtor's estate whose incurred expenses came about as direct result of services he rendered, as trustee, which benefitted the trust and its beneficiaries. The services involved the actual administration of the trust. Exel's services were not utilized by the PACA trustee in the administration of the trust, and, therefore, cannot be called administrative expenses. Rather, Exel is simply an unsecured creditor.

  As previously noted, Congress amended the PACA in 1984, creating a statutory trust in 7 U.S.C. § 499e(c). The purpose of this trust was "to increase the legal protection for the unpaid sellers and suppliers of agricultural commodities until full payment of sums due have been received by them". 1984 U.S.C.C.A.N. at 406. Congress recognized an increase in non-payment or slow payment by buyers that unfairly burdened produce suppliers. Id.

  Courts have recognized that the PACA statute grants PACA trust beneficiaries priority even over secured creditors. "Clearly the primary purpose of the PACA trust provisions is to `move the unpaid produce creditor to the head of the line with respect to any distribution of a produce purchaser's assets.'" Frio Ice, S.A. v. Sunfruit, Inc., et al., 724 F. Supp. 1373, 1377 (S.D. Fla. 1989) quoting In re Fresh Approach, Inc., 48 B.R. 926, 931 (Bankr. N.D.Tex. 1985). "Thus, the provision gives certain unpaid sellers of produce an interest in the PACA trust assets superior to that of a perfected, secured creditor." Idahoan Fresh, 157 F.3d at 199.

  The Third Circuit has continuously recognized Congress' intent in enacting the PACA amendment was to protect the rights and priority of unpaid sellers and suppliers. "PACA's purpose, as Congress had crystallized, is to ensure payment to the unpaid seller in the perishable agricultural commodities industry." Tanimura & Antle v. Packed Fresh Produce, 222 F.3d 132, 138 (3d Cir. 2000) (citations omitted). "In 1984, Congress amended PACA to protect further certain unpaid suppliers of produce by including a statutory trust provision which provides an additional remedy for sellers against a buyer failing to make prompt payment." Idahoan Fresh, 157 F.3d at 199.

  Contrary to Excel's characterization of their claim as mere payment of an administrative expense, this Court correctly recognized the issue as a question of preferential standing. See Pacific International Marketing, Inc. v. A&B Produce, Inc., et al., CA. No. 03-3564, Order (E.D.Pa. March 17, 2004). In its claim for payment of administrative expenses, Exel is requesting priority payment ahead of the PACA trust beneficiaries. To do so would defeat the purpose of the PACA amendment to place unpaid sellers in a priority position and expand the term "administrative expense" too far. The claim of Exel for payment of administrative expenses shall be denied. ORDER

  AND NOW, this 20th day of July, 2004, upon consideration of Intervenor Exel Transportation Services, Inc.'s Brief in Support of its Administrative Expense Claim and Plaintiffs' Opposition to Administrative Expense Claim of Intervenor Exel Transportation Services, Inc., it is hereby ORDERED that Exel Transportation Services, Inc.'s claim for the payment of administrative expenses is DENIED.

  IT IS SO ORDERED.

20040720

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