The Unsuspecting Fiduciary The Curious Case of PACA and Personal Liability

Journal Issue

May 2006

Column Name

Code to Code

Citation

ABI Journal, Vol. XXV, No. 4, p. 32, May 2006

Topic Tags

Agriculture/PACA

Legislation

Practice and Procedure

Journal HTML Content

The Perishable Agricultural Commodities Act (PACA)1 is a comprehensive
statute regulating the buying and selling of perishable agricultural commodities
(i.e., fresh fruits and vegetables).2 Since PACA's enactment in 1930,
amendments to the statute have given growers and suppliers of perishable food
powerful tools to protect their right to be paid for their produce. While the
goal of Congress has been to protect the more vulnerable players in a vital
area of commerce, PACA's protection of growers and suppliers comes at the cost
of others in the industry, such as the businesses that purchase perishable food,
the individuals who manage those businesses, and the lenders who provide the
purchasing companies with financing.3 In the context of bankruptcy, PACA turns
the usual distribution scheme on its head, placing growers and suppliers, who
would otherwise be unsecured creditors, at the front of the line. Further, to
the extent the claims of such growers and suppliers cannot be satisfied by the
purchaser, the growers and suppliers can turn to individuals within businesses
that purchase perishable food for the satisfaction of their claims. In certain
instances, individuals in control of the company, such as officers and directors,
are considered fiduciaries with respect to the money owed suppliers. Thus, anyone
working for or representing a purchaser falling under the purview of PACA must
be aware that a purchaser's inability to pay a grower or supplier may result
in personal liability for the officers, directors and others in control of the
purchasing company.
PACA Overview
PACA was enacted to protect sellers of perishable food who had been routinely
subjected to unfair business practices by commission merchants, dealers and
brokers, as those terms are defined in PACA.4 Congress understood that the nature
of the fresh-produce industry often required growers and suppliers to "entrust
their products to a buyer or commission merchant who may be thousands of miles
away, and depend for their payment upon his business acumen and fair dealing."5
Historically, and as Congress observed in enacting PACA, when the market was
in decline, dealers would improperly reject shipments from produce suppliers
rather than accept the shipment and pay the contract price.6 Thus, PACA "was
enacted to provide a measure of control over a branch of industry which is almost
exclusively in interstate commerce, is highly competitive, and presents many
opportunities for sharp practice and irresponsible business conduct."7

In the 1980s, Congress determined that PACA needed amending to address the
problem of commission merchants, dealers or brokers, due to insolvency or otherwise,
either not paying suppliers for deliveries or paying them late.8 In deciding
to amend PACA, Congress observed the following:
<blockquote>
Producers and shippers of perishable commodities are, for the most part,
small-size businesses. The process of growing, harvesting, packing and shipping
perishables is a real gamble; costs are high, capital is tied up in farm land
and machinery, and returns are delayed until the crop is sold. If the grower-shipper
cannot realize any returns on the sale of the crop when due, he may not be
able to survive. Thus, where business failures or reorganizations occur on
the part of buyers of their crop, the growers are usually the parties least
able to withstand the losses and inevitable delays which result from such
actions.9 
</blockquote>
Congress was particularly concerned with protecting the interests of unsecured
produce suppliers from lenders who had obtained a security interest in a purchaser's
entire inventory, including the perishable produce. If a purchaser then became
insolvent, a supplier of perishable food had little recourse but to stand in
line behind the lenders with the rest of the unsecured creditors.10 Congress
recognized that:
<blockquote>

Many commission merchants, dealers or brokers, in the normal course of their
business transactions, operate on bank loans secured by [the] inventories,
proceeds or assigned receivables from sales of perishable agricultural commodities,
giving the lender a secured position in the case of insolvency. Under present
law, sellers of fresh fruits and vegetables are unsecured creditors and receive
little protection in any suit for recovery of damages where a buyer has failed
to make payment as required by the contract.11 
</blockquote>
Protection Through a Nonsegregated, Floating Trust 
In response to the perceived inequity to suppliers created by the financing
arrangements between produce purchasers and their lenders, PACA was considerably
strengthened through amendments in 1984 that added a trust requirement benefitting
produce suppliers. The trust provision in 7 U.S.C. §499e(c)(2) states,
in relevant part:
<blockquote>
Perishable agricultural commodities received by a commission merchant, dealer
or broker in all transactions, and all inventories of food or other products
derived from perishable agricultural commodities, and any receivables or proceeds
from the sale of such commodities or products, shall be held by such commission
merchant, dealer or broker in trust for the benefit of all unpaid suppliers
or sellers of such commodities or agents involved in the transaction, until
full payment of the sums owing in connection with such transactions has been
received by such unpaid suppliers, sellers or agents.12 
</blockquote>
The supplier holds a beneficial interest in the trust from the moment the perishable
goods are delivered to the buyer and continues to hold the interest until the
claim is either paid in full or the supplier fails to preserve its interest
in the trust.13

In order to receive the benefit of a PACA trust, the produce supplier cannot
agree to payment terms beyond 30 days from the receipt and acceptance of the
perishable commodities.14 A produce supplier can further lose trust benefits
if he or she fails to provide timely notice of intent to preserve the trust
to the produce buyer and the Secretary of Agriculture.15 Amendments to PACA
in 1995 provide that an alternate form of notice of intent to preserve the trust
may be given through an invoice or billing statement containing certain language
described in the statute.16
The PACA trust is a nonsegregated floating trust that exists for the benefit
of the sellers and suppliers of perishable agricultural commodities.17 In a
further attempt to protect produce suppliers, beneficiaries are not required
to trace their assets in order to maintain the trust. The regulations supporting
PACA provide as follows:
<blockquote>
The trust is made up of perishable agricultural commodities received in all
transactions, all inventories of food or other products derived from such
perishable agricultural commodities, and all receivables or proceeds from
the sale of such commodities and food or products derived therefrom. Trust
assets are to be preserved as a non-segregated "floating" trust.
Commingling of trust assets is contemplated.18

</blockquote>
Therefore, once a producer establishes itself to be a PACA trust beneficiary
and provides the requisite notice, the PACA trust floats "over not only
the debtor's perishable commodities, but also products made from them and the
accounts receivable and proceeds from them... The term 'floating' extends the
trust to all produce-related inventory, receivables and proceeds of the debtor-dealer,
regardless of origin or destination, to satisfy a PACA trust res."19
In other words, it is not necessary for trust beneficiaries to link the trust
fund to the produce they supplied since the trust "applies to all
of [the purchaser/debtor's] produce-related inventory and proceeds thereof,
regardless of whether [one supplier] or another produce supplier was the source
of such inventory."20
Furthermore, trusts created under PACA are governed by general trust law principles
and therefore the PACA trust is not actually considered property of the bankruptcy
estate.21 In the bankruptcy context, the effect of the 1984 non-segregated,
floating trust provision is to give the produce suppliers, who are the beneficiaries
of PACA trusts, a superpriority right to payment from a purchaser who subsequently
files for bankruptcy. In other words, the rights of PACA trust beneficiaries
(i.e., growers and suppliers) to payment are superior to the rights of
the purchaser's secured creditors.22

By creating the trust provision, Congress has preferred one class of creditors—perishable
food growers and suppliers—to almost all others. This powerful deference
to a "special interest" has been criticized for undermining not only
"the rights of general unsecured creditors, but also the concept of a unitary,
self-contained Bankruptcy Code."23 However, as a matter of policy, Congress
determined "it would be less disastrous to risk the liquidation of a single
purchaser than to threaten the entire production chain with insolvency."24
Violation of the Trust Requirement and Personal Liability
A PACA trust is violated if a purchaser, either through action or inaction,
fails to keep the trust assets readily available to suppliers. The PACA regulations
provide in pertinent part as follows:
<blockquote>
(1) Commission merchants, dealers and brokers are required to maintain trust
assets in a manner that such assets are freely available to satisfy outstanding
obligations to sellers of perishable agricultural commodities. Any act or
omission which is inconsistent with this responsibility, including dissipation
of trust assets, is unlawful and in violation of section 2 of the Act, (7
U.S.C. §499b).25 
</blockquote>
Thus, the trust obligation may be violated even when the trust funds, namely
proceeds from the sale of perishable agricultural commodities, are used to pay
legitimate business expenses, such as rent.26

In certain circumstances, PACA allows suppliers to reach beyond corporate coffers
and into the pockets of individual shareholders and directors for repayment
of delinquent accounts. Courts have found that "PACA liability attaches
first to the licenced commission merchant, dealer or broker of perishable commodities,"
but if "the assets...are insufficient to satisfy the PACA liability, then
others may be held secondarily liable if they had some role in causing the corporate
trustee to commit the breach of trust."27 Therefore, a purchaser's failure,
either through act or omission, to maintain trust assets consistent with the
regulations may result in personal liability for those in positions of control,
such as a corporation's officers, directors or shareholders.28 A key question
in determining individual liability is whether the person is in a position to
control trust assets.29
As discussed further below, many courts have interpreted the PACA trust requirement
as imposing a type of strict liability on individuals in control of trust assets.
Simply put, an inability to pay PACA trust beneficiaries, without other evidence
of wrongdoing, may be enough to create personal liability.
The case of Weis-Buy Services Inc. v. Paglia provides an example of
how a personal liability action arises.30 In Weis-Buy, a corporate
purchaser of perishable agricultural commodities filed for bankruptcy and ceased
operations.31 Certain perishable produce suppliers received a partial
distribution of the estate's assets after the bankruptcy court determined they
had valid PACA claims.32 After receiving such partial distribution,
the produce suppliers sued a retired shareholder (hereinafter the shareholder)
in district court for the remainder owed to them, alleging breach of fiduciary
duty under PACA.33 The background of the shareholder subjected to
liability in Weis-Buy is instructive on the potential reach of the PACA
trust provisions. The shareholder, who became involved in the company started
by his father in 1914, sold the business in the 1980s, yet remained an employee
and eventually repurchased shares.34 He retired from the company shortly before
the beginning of the business relationship between the debtor company and the
produce sellers who sued him for violation of the trust.35 However, the shareholder
still had significant ties with the debtor company after he retired: At the
time of the bankruptcy in December 1997, he was a 25 percent shareholder, an
officer who retained his title of vice-president and a signatory on the company's
bank accounts.36

The district court found the shareholder liable, entered judgment in favor
of the produce suppliers and further awarded them interest and attorney's fees.37
Although the Third Circuit Court of Appeals ultimately found that the action
against the shareholder was barred by the statute of limitations,38
the court specifically held that "individual officers and shareholders,
in certain circumstances, may be held individually liable for breaching their
fiduciary duties under PACA."39 A compelling point highlighted
by Weis-Buy, and similar decisions from other circuits, is that "[a]n
investor in a perishable commodities corporation 'should know at the beginning
of his association with such a corporation that he is buying into' a corporation
which is strictly regulated by the federal government through PACA."40
 The cause of action for individual liability is an action in tort for breach
of fiduciary duty. While the cause of action arises under the PACA statute,
general trust law principles apply: "[i]ndividual liability in the PACA
context is not derived from the statutory language, but from common law breach-of-trust
principles."41 The imposition of personal liability for violation
of a PACA trust has been distinguished from the doctrine of piercing the corporate
veil as described by the court in Morris Okun, Inc. v. Harry Zimmerman Inc.
as follows:

This trust arises from the moment perishable goods are delivered by the seller.
An individual who is in the position to control the trust assets and who does
not preserve them for the beneficiaries has breached a fiduciary duty, and is
personally liable for that tortious act. This legal framework is to be distinguished
from the piercing-the-veil doctrine, where the corporate form is disregarded
because the individual has either committed a fraud, or because the corporation
is a "shell" being used by the individual shareholders to advance
their own purely personal rather than corporate ends.42
Some courts have interpreted PACA differently on the issue of individual liability.
In refusing to find the president and sole shareholder personally liable for
breach of his fiduciary duty to suppliers, the District Court for the Eastern
District of Tennessee in Farm-Wey Produce Inc. v. Wayne L. Bowman Inc.
stated that "there is no indication in the statute itself, the associated
regulations or the legislative history that Congress intended to abrogate substantial
portions of state corporation and contract law by making a large class of individuals
sureties on the contracts of produce buyers."43 The court further stated:
<blockquote>
Certainly the intent of PACA is that produce suppliers be paid first, and
in full, before other secured creditors. The regulations are equally clear
that any act in derogation of this duty should be construed as a violation
of PACA.... However, if Congress intended to ease a burden on commerce created
by the phenomenon whereby creditor banks supplying operating capital for produce
brokers have bankruptcy priority over produce sellers, it is unlikely that
it intended to replace that burden with the burden which would result from
the rule sought by plaintiffs. As a practical matter, the corporate form would
be meaningless for produce brokers. Shareholders, officers, directors and
even mere employees would risk personal liability for huge debts. Any financial
reversal of a company could mean instant personal ruin for practically anyone
associated with that corporation. Under those circumstances, few would wish
to be associated with a broker that did business on anything other than a
cash basis.44 
</blockquote>

The Farm-Wey court, rejecting the "strict liability" approach,
was reluctant to find the owner of the purchaser company personally liable without
finding any wrongdoing on his part other than the company's inability to pay.45
Specifically, the court did not find that the company or its president committed
any fraud or unfair practice; "[r]ather, they were the second 'domino'
in the chain when their own customers... defaulted."46 The court observed
that:
<blockquote>
[i]f an individual is licensed and commits PACA violations, he may have his
license revoked or suspended. If an individual is responsibly connected to
a company that violates PACA, he may be barred from employment with a PACA
licensee. Nothing in the statutory language suggests that individuals who
are associated with companies in the perishables trade should be in constant
fear of losing their life savings for operating a business responsibly.47

</blockquote>

The Farm-Wey court's argument may be compelling, but many courts have
reached contrary findings. In Consumers Produce Co. v. M & T Chirico
Inc., for example, the court found that "[b]y overwhelming majority,
the courts have held that PACA imposes individual liability on corporate officers,
shareholders or other persons in the position to control the trust assets for
repayment of amounts due to the supplier. This includes every circuit court
to have addressed the issue...as well as virtually every district within the
Second Circuit."48
In Consumers Produce, the defendants requested that they not be held
responsible for proceeds that the defendants themselves were owed from their
sale of the produce to third-party purchasers. The court declined their request
and rejected the defendants' reliance on Farm-Wey.49 The court found
that "PACA's regulatory scheme imposes personal liability upon individual
corporate officers for dissipation of PACA trust assets regardless of the inability
to collect proceeds from the resale of the commodities."50 The court further
stated that "[t]he fact that [the corporation] attempted but failed to
collect this money does not satisfy its duty to plaintiffs."51

Courts imposing individual liability appear to do so with the belief that it
is the only way to carry out Congress's intentions. As the District Court for
the Middle District of Florida in Red's Market v. Cape Canaveral Cruise Line
Inc. found:
<blockquote>
The extension of liability to those in control of the trust assets is reasonable
and necessary in order to enforce the goals of Congress in establishing the
statutory trust. If liability were limited to corporate dealers, the intent
of the federal statute to protect consumers and sellers of produce would be
easily frustrated.52 
</blockquote>
Thus, the extension of PACA trust liability to individuals provides additional
assurance that suppliers of perishable commodities will be paid.
Conclusion
PACA gives produce suppliers powerful protections that impact lenders' interests
and give members of companies that purchase perishable food substantially increased
exposure to liability. The protections PACA gives suppliers appear to be at
odds with the principles of bankruptcy law regarding property of the estate
and distribution priorities. Furthermore, PACA arguably challenges the spirit
of the Code's offer of relief to the honest debtor. However, through PACA's
trust requirement, Congress has accomplished its goal of providing an effective
tool for produce suppliers to receive compensation for their deliveries of perishable
foods.
<h3> Footnotes</h3>

1 PACA is codified in 7 U.S.C. §499(a)-(s) (2000).
2 PACA's definition of the term "perishable agricultural commodity"—
(A) means any of the following, whether or not frozen or packed in ice: fresh
fruits and fresh vegetables of every kind and character; and (B) includes cherries
in brine as defined by the Secretary in accordance with trade usages."
7 U.S.C. §499a(b)(4) (2000).
3 In this article the terms "supplier" and "grower" refer
to entities that supply perishable agricultural commodities and the terms "buyer"
and "purchaser" refer to the "commission merchants" "dealers"
and "brokers" who receive the perishable commodities, as those terms
are defined in 7 U.S.C. §499a(b)(5)-(7) (2000).
4 "The term 'person' includes individuals, partnerships, corporations
and associations." 7 U.S.C. §499a(b)(1) (2000). A "commission
merchant" is "any person engaged in the business of receiving in interstate
or foreign commerce any perishable agricultural commodity for sale, on commission,
or for or on behalf of another." 7 U.S.C. §499a(b)(5) (2000). Generally,
a "dealer" is defined as "any person engaged in the business
of buying or selling in wholesale or jobbing quantities as defined by the Secretary
[of Agriculture], any perishable agricultural commodity in interstate or foreign
commerce...." 7 U.S.C. §499a(b)(6) (2000). However, "no person
buying any such commodity solely for sale at retail shall be considered as a
'dealer' until the invoice cost of his [or her] purchases of perishable agricultural
commodities in any calendar year are in excess of $230,000...." Id.
The term "dealer" has also been applied to restaurants in certain
circumstances. See In re Magic Restaurants Inc., 205 F.3d 108, 117 (3d
Cir. 2000). A "broker" is " any person engaged in the business
of negotiating sales and purchases of any perishable agricultural commodity
in interstate or foreign commerce for or on behalf of the vendor or the purchaser,
respectively, except that no person shall be deemed to be a 'broker' if such
person is an independent agent negotiating sales for and on behalf of the vendor
and if the only sales of such commodities negotiated by such person are sales
of frozen fruits and vegetables having an invoice value not in excess of $230,000
in any calendar year." 7 U.S.C. §499a(b)(7) (2000).
5 In re Kornblum & Co., 81 F.3d 280, 283 (2d Cir. 1996) (quoting
H.R. Rep. No. 1196, 84th Cong., 1st Sess. 2 (1955), reprinted in 1956 U.S.C.C.A.N.
3699, 3701).

6 See George Steinberg & Son Inc. v. Butz, 491 F.2d 988, 990 (2d
Cir. 1974) ("upon receiving a shipment of perishable commodities, the commission
merchants, dealers and brokers would wrongfully reject the shipment, in many
cases making the false claim that the commodities had arrived in a damaged condition
or some other claim permitting rejection of the shipment. These fraudulent rejections
were made when the market for the commodity was declining so that the commission
merchant, dealer or broker would have suffered a loss had he accepted the shipment
and paid the contract price").
7 Zwick v. Freeman, 373 F.2d 110, 116 (2d Cir. 1967) (citing
H.R. Rep. No.84-1196, 84th Cong.,1st Sess. 2 (1955), reprinted in 1956 U.S.C.C.A.N.
3699, 3701). Initially, PACA consisted of licensing requirements for purchasers
and a list of unlawful conduct and penalty provisions for violations of the
statute. PACA specifically prohibits purchasers from engaging in conduct such
as using deceptive practices in determining the quantity of perishable produce,
rejecting the produce without reasonable cause, misrepresenting the quality
or condition of the produce, discarding the produce without reasonable cause
or failing to "make full payment promptly." See 7 U.S.C. §499b
(2000).
8 See H.R. Rep. No. 98-543, 98th Cong., 1st Sess. 3 (1983), reprinted
in 1984 U.S.C.C.A.N. 405, 406-07.

9 H.R. Rep. No. 98-543, 98th Cong., 1st Sess. 5 (1983), reprinted in 1984 U.S.C.C.A.N.
405, 406.
10 See Am. Banana Co. v. Rep. Nat'l. Bank of N.Y., 362 F.3d 33, 37 (2d
Cir. 2004); C.H. Robinson Co. v. B.H. Produce Co., 723 F.Supp. 785, 791
(N.D. Ga. 1989), aff'd., 952 F.2d 1311 (11th Cir. 1992).
11 H.R. Rep. No. 98-543, 98th Cong., 1st Sess. 3 (1983), reprinted in 1984
U.S.C.C.A.N. 405, 407); See, also, 7 U.S.C. §499e(c)(1) (2000).
12 7 U.S.C. §499e(c)(2) (2000). It should be noted that the trust provisions
do not apply to "transactions between a cooperative association, as defined
in 1141j(a) of Title 12, and its members." Id. See, generally,
Cardonick, Andrew R., "Let the Lender Beware The Perishable Agricultural
Commodities Act," 58 The Secured Lender, 16 (2002), for a discussion
on of assets subject to a PACA trust.

13 See 7 C.F.R. §46.46(c) (2006).
14 7 C.F.R. §46.46(e)(2) (2006); See Bocchi Americas Assocs.
Inc. v. Commerce Fresh Marketing Inc., No. Civ.A. H0402411, 2005 WL 3164240,
at *3 (S.D. Tex. Nov. 28, 2005). But see Cardonick, Andrew R.,
"Let the Lender Beware The Perishable Agricultural Commodities Act,"
58 The Secured Lender, 16 (2002) (describing the split between courts
as to strict or liberal enforcement of the 30-day requirement).
15 As the Second Circuit Court of Appeals described in D.M. Rothman &
Co. v. Korea Commercial Bank of N.Y., 411 F.3d 90, 96 (2d Cir. 2005), "although
a PACA trust is automatically established each time a broker or merchant purchases
perishable commodities upon credit, a particular grower or seller of perishable
commodities will not be entitled to PACA protection for any nonpayment claims
unless it perfects its claims within 40 days after the payment was due by sending
a notice of intent to preserve PACA trust benefits to both the Department of
Agriculture (USDA) and the particular commodities broker alleged to have violated
PACA." See 7 U.S.C. §499e(c)(3) and (4) (2000); 7 C.F.R. §46.46(f)(1)-(3)
(2006).

16 7 U.S.C. §499(e)(c)(4) (2000); 7 C.F.R. §46.46(f)(3) (2006).
17 7 U.S.C. §499e(c)(2) (2000); 7 C.F.R. §46.46(b),(c) (2006).
18 7 C.F.R. §46.46(b) (2006).
19 In re H.R. Hindle & Co., 149 B.R. 775, 784 (Bankr. E.D. Pa. 1993)
(internal citations omitted).
20 In re Fresh Approach Inc., 51 B.R. 412, 422 (Bankr. N.D. Tex. 1985)
(citations omitted) (emphasis in original).
21 Sunkist Growers Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997).
22 E. Armata v. Korea Commercial Bank of New York, 367 F.3d 123, 128
(2d Cir. 2004) ("the trust provides PACA creditors with 'a right to recover
against the purchasers superior to all creditors, including secured creditors,'"
quoting Endico Potatoes Inc. v C.I.T. Group/Factoring Inc., 67 F.3d 1063,
1067 (2d Cir. 1995)); In re Lombardo Fruit & Produce Co., 12 F.3d
806, 809 (PACA's trust provision has the precise effect Congress intended; namely,
in the event the seller does not receive payment, the seller is elevated to
a priority position above that of all the buyer's secured creditors").
Lenders to businesses that purchase perishable food, in addition to losing some
priority status to the superior rights of PACA suppliers, also face the prospect
of violating the PACA trust themselves through accepting payments from a violating
purchaser. For a discussion on how lenders may be able to protect their rights
through use of the "bona fide purchaser" defense among other
methods, see, generally, Freedman, Terri Jane, et. al.,
"Secured Creditors May Not Be as Secure as They Think: Understanding a
Lender's Rights under the Perishable Agricultural Commodities Act," 175
N.J. L. J. 1086 (March 15, 2004).

23 In re H.R. Hindle, 149 B.R. at 785.
24 In re Fresh Approach, 51 B.R. at 420.
25 7 C.F.R. §46.46(d) (2006).
26 Morris Okun Inc. v. Harry Zimmerman Inc., 814 F. Supp. 346, 348 (S.D.N.Y.
1993). Contra, Farm-Wey Produce Inc. v. Wayne L. Bowman Inc.,
973 F.Supp. 778, 784 (finding that payment of incidental business expenses did
not amount to breach of fiduciary duty under PACA); accord, In re Bear Kodiak
Produce Inc., 283 B.R. 577, 587 (Bankr. D. Ariz. 2002) ("this court
concurs with the rationale of the district court in Farm-Wey... Congress
did not intend to fashion a scheme which would impose strict secondary liability
on a PACA buyer's officers and shareholders for authorizing ordinary-course
business payments to employees and other creditors; there must be some outward
limit on a supplier's ability to collect its debts").

27 Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351
(5th Cir. 2000) (citing Sunkist Growers Inc. v. Fisher, 104 F.3d 280,
283 (9th Cir. 1997)).
28 Id.
29 Id. See, also, Sunkist Growers Inc. v. Fisher,
104 F.3d 280, 283 (9th Cir. 1997) (citing Frio Ice v. SunFruit Inc.,
724 F.Supp. 1373, 1382 (S.D. Fla. 1989)), rev'd. on other grounds, 918 F.2d
154 (11th Cir. 1990)) ("a court considering the liability of the individual
may look at 'the closely-held nature of the corporation, the individual's active
management role' and any evidence of the individual's acting for the corporation").

30 Weis-Buy Servs. Inc. v. Paglia, 411 F.3d 415 (3d Cir. 2005).
31 Id. at 419.
32 Id.
33 Id.
34 Id. at 418.
35 Id. at 418-19.

36 Id. at 418.
37 Id. at 419.
38 Id. at 422-25.
39 Id. at 421. However, the Third Circuit in Weis-Buy specifically
stated that "while we have indicated our agreement that there are circumstances
under which officers may be held individually liable for breaching their fiduciary
duties arising from a PACA trust, we express no opinion about the correctness
of the district court's conclusion that [the defendant's] activities were enough
to establish individual liability under the facts in this case." Id.
at 425 n.6.

40 Id. at 421 (quoting Golman-Hayden, 217 F.3d 348, 351 (5th
Cir. 2000)).
41 Id. at 421 (citing Sunkist Growers Inc. v. Fisher, 104 F.3d
280, 282 (9th Cir. 1997)).
42 Morris Okun Inc. v. Harry Zimmerman Inc., 814 F.Supp. 346, 348 (S.D.N.Y.
1993). As the Golman-Hayden court noted, "while individuals generally
are not held responsible for the liabilities of a corporation, we recognize
that a corporation can act only through its agents and can fulfill fiduciary
obligations only through its agents." Id. at 351 n.18.

43 Farm-Wey Produce Inc. v. Wayne L. Bowman Inc., 973 F.Supp. 778, 782-83
(E.D. Tenn. 1997).
44 Id. at 783 (internal citation omitted).
45 Id. at 783-84.
46 Id. at 785.
47 Id. at 784.
48 Consumers Produce Co. v. M & T Chirico Inc., No. 04-CV-295C (SR),
2005 WL 2420355, at *2 (W.D.N.Y. Sept. 30, 2005) (citations omitted).

49 Id. at *3.
50 Id. (citing Bronia Inc. v. Ho, 873 F.Supp. 854 (S.D.N.Y. 1995)).
51 Id. (quoting Bronia, 873 F.Supp at 860-61).
52 Red's Market v. Cape Canaveral Cruise Line Inc., 181 F.Supp. 2d 1339,
1343 (M.D. Fla. 2002).

Journal Authors

Nicole Leonard

Journal Date

Monday, May 1, 2006 - 12:00

Bankruptcy Rule

2006

none