United States District Court, E.D. Pennsylvania
July 20, 2004.
PACIFIC INTERNATIONAL MARKETING, INC.
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.
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
IT IS SO ORDERED.
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