A federal appeals court ruling this summer that allowed a bankrupt Florida grocery store owner to discharge debts owed to a produce supplier has raised questions about the PACA Trust.
An attorney that specializes in Perishable Agricultural Commodities Act law says an appeal to the ruling could lead to the U.S. Supreme Court taking the case.
On August 31, the appeals court ruled that PACA “imposes some trust-like duties,” but it didn’t qualify for the fiduciary exemption in bankruptcy law.
Spring Valley Produce BB #:146007 appealed a bankruptcy court order that allowed Central Market of Florida to discharge a $261,504 debt for produce it didn’t pay for. Spring Valley argued that PACA overrules bankruptcy laws in discharging debt because PACA makes it illegal for a buyer to fail to pay for fresh produce.
The 11th U.S. Circuit Court of Appeals disagreed, saying that PACA “imposes some trust-like duties,” but it didn’t qualify for the fiduciary exemption in bankruptcy law, and that PACA does not require a produce buyer to keep trust assets separate from its other assets or prevent the buyer from using the trust assets for other purposes.
Mark Amendola, an attorney with Martyn and Associates Co., Cleveland, OH, with more than 25 years’ experience with PACA law, said the next step would be to appeal the ruling to the Supreme Court, since there has been a split in ruling at the Court of Appeals level.
“In the history of PACA litigation, and really almost all litigation, the final step is the U.S. Court of Appeals,” he said.
“No PACA case has ever reached the U.S. Supreme Court, which is a court of very limited jurisdiction,” he said. Most cases get rejected, but the Spring Valley case has a chance of being heard.
“They don’t have to accept a case if they don’t want to. You have to formally petition them and ask them to accept your case,” he said. “But one big determining factor is inconsistent results by the U.S. Courts of Appeal, which we have with this PACA issue. So, the U.S. Supreme Court may actually accept the Spring Valley case.”
He said he has heard rumors of an appeal to the highest court, but that would have to be done within 90 days of the Appeals Court ruling, which was August 31, so that would have to be one this week.
Amendola said the ruling doesn’t necessarily weaken PACA enforcement, but it brings in more questions about its power.
“In addition to having one less remedy at our disposal, the risk to PACA enforcement is inconsistent results by the Courts nationwide,” he said.
“There are about a dozen U.S. Circuit Courts of Appeal. I think this issue of non-dischargeability has reached about half of them. Each Circuit Court has applied the state law within its circuit to define a ‘trust’ and so the result is differing opinions between the various circuits.”
Amendola said he still has faith in the strength of PACA for the produce industry.
“The important part for our produce audience is don’t get too worried about this issue, one way or another,” he said.
“The non-dischargeability aspect of PACA, while certainly important to our industry, is just one small remedy. Overall, PACA is alive and well. Courts are still very much enforcing PACA laws, and we are generally continuing to receive very favorable rulings from judges. PACA claims still enjoy the benefits of accrued interest, attorney fees, personal liability, and priority against secured lenders, just to name a few.”
