Weis-Buy Services, Inc. v. Paglia

• Citation: 411 F.3d 415
• Decision Date: 14 June 2005
• Docket Number: No. 04-1890.,04-1890.
• Parties: WEIS-BUY SERVICES, INC.; Brigotta's Produce & Garden Center v. Ralph PAGLIA, Jr., in his individual capacity; August J. Scolio, Jr., in his individual capacity August J. Scolio, Jr., in his official capacity Appellant
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

411 F.3d 415

WEIS-BUY SERVICES, INC.; Brigotta's Produce & Garden Center v. Ralph PAGLIA, Jr., in his individual capacity; August J. Scolio, Jr., in his individual capacity August J. Scolio, Jr., in his official capacity Appellant

No. 04-1890.

United States Court of Appeals, Third Circuit.

Argued May 3, 2005.

Filed: June 14, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Arthur D. Martinucci (Argued), Kenneth W. Wargo, Quinn Buseck Leemhuis Toohey & Kroto, Inc., Erie, PA, Counsel for Appellant.

Michael J. Keaton (Argued), Keaton & Associates, P.C., Palatine, IL, Counsel for Appellee.

Before: McKEE, VAN ANTWERPEN, and WEIS, Circuit Judges.

OPINION OF THE COURT

VAN ANTWERPEN, Circuit Judge.

In 1997 and 1998, Appellees Weis-Buy Services, Inc. ("Weis-Buy") and Brigiotta's Produce & Garden Center ("Brigiotta's") (collectively "Sellers" or "Appellees") each sold several shipments of fruit to Appellant United Fruit & Produce Company ("United Fruit"), but never received payment.¹ United Fruit filed for bankruptcy on December 9, 1997. On December 29, 1999, the Bankruptcy court authorized a partial distribution of United Fruit's assets to the Sellers. Seeking recoupment of the balance of the money owed to them by United Fruit, Sellers then filed suit on April 26, 2000, against August J. Scolio, Jr., an officer and shareholder of United Fruit, alleging that he had breached his fiduciary duty under the Perishable Agricultural Commodities Act of 1930, as amended, 7 U.S.C. §§ 499a-499s ("PACA").

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

United Fruit was started by Scolio's father in 1914. Scolio became involved with the company in 1949 and was a partner by 1960. In 1965, Scolio's father died and Scolio became the sole proprietor of the business until 1986, when he sold United Fruit to John Tarantino, Irvin Rovner, and Larry Altman. In 1988, the owners brought in Ralph Paglia to manage the company. Scolio remained an employee of United Fruit, and was responsible for paying bills and calculating the employees' pay.

In 1994, Tarantino and Altman sold their shares, leaving ownership of United Fruit in the hands of Paglia (50%), Rover (25%), and Scolio (25%). According to Scolio, he purchased shares for the benefit of Paglia who could not afford to buy all the shares that he wanted. Although Scolio claims that he eventually intended to sell his interest to Paglia, he never did so, and thus Scolio remained a shareholder at the time of United Fruit's bankruptcy.

Not only was Scolio a shareholder and employee of United Fruit, but company policy required his and Paglia's signature for disbursement of United Fruit checks. To assist him in this endeavor, Scolio had a signature stamp created to use when issuing United Fruit's checks.

In June 1997, Paglia asked Scolio to retire, but encouraged him to remain active in the directorship of the company. Scolio ceased working for United Fruit, but retained his stake in the company, his position as officer, and his title as vice-president. Scolio also remained a signatory on United Fruit's bank accounts and United Fruit continued to use Scolio's signature stamp after his retirement. Furthermore, Scolio acted as a guarantor on transactions between United Fruit and Dollar Bank Leasing and possibly First Western Bank.

Soon after Scolio retired, United Fruit began doing business with Weis-Buy and Brigiotta's. From July 9, 1997 through September 23, 1997, Weis-Buy sent five shipments of produce to United Fruit, with payment on each shipment due within ten days. October 3, 1997 was the latest date on which payment was due for any of the Weis-Buy invoices. Brigiotta's provided produce in numerous shipments to United Fruit from August 23, 1997 through February 22, 1998. Again, payments were due within ten days of the date of each invoice, and March 4, 1998 was the latest date on which payment was due on any of the Brigiotta's invoices. Neither Seller received any payment for the produce it provided.

United Fruit filed for bankruptcy under Chapter 11 of the Bankruptcy Code on December 9, 1997. The company ceased operations in March 1998. Sellers' claims were determined to be qualified valid PACA claims by the Bankruptcy Court and each received a partial distribution from United Fruit's remaining assets.

Seeking the rest of the money owed to them, Sellers filed suit against Scolio in the United States District Court for the Western District of Pennsylvania on April 26, 2000. In their complaint, Sellers alleged that Scolio breached his fiduciary duty owed to them under PACA. A bench trial was held on March 19, 2003, and the District Court found Scolio liable and ordered judgment in favor of the Sellers. The District Court also awarded interest and attorneys' fees. Scolio timely appealed.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction over this matter pursuant to 7 U.S.C. § 499e(c)(5)(i)² and 28 U.S.C. § 1367. We have jurisdiction over the final decision of the District Court pursuant to 28 U.S.C. § 1291.

We exercise plenary review of the District Court's refusal to dismiss the case on statute of limitations grounds. Lake v. Arnold, 232 F.3d 360, 365 (3d Cir.2000). We review the award of attorneys' fees and interest for abuse of discretion. In re Rite Aid Corp. Securities Litig., 396 F.3d 294, 299 (3d Cir.2005); Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999, 1002 (3d Cir.1992).

III. ANALYSIS

Scolio raises three issues on appeal. First, he argues that the District Court erred when it failed to dismiss the case on statute of limitations grounds. Second, he claims that the District Court erred in finding him personally liable. Finally, Scolio challenges the District Court's award of attorneys' fees and interest. Because we conclude that Sellers' claims were not timely, we do not address Scolio's other arguments.

A. PACA

This Court has had few opportunities to examine PACA, thus we begin by examining the history and purpose of the statute. Congress enacted PACA in 1930 to deter unfair business practices and promote financial responsibility in the perishable agricultural goods market. Sunkist Growers v. Fisher, 104 F.3d 280, 282 (9th Cir.1997) (quoting Farley and Calfee, Inc. v. United States Dep't of Agric., 941 F.2d 964, 966 (9th Cir.1991)). "The Act was `designed primarily for the protection of the producers of perishable agricultural products — most of whom must 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.'" Tom Lange Co. v. Kornblum & Co., 81 F.3d 280, 283 (2d Cir.1996) (quoting H.R.Rep. No. 84-1196 (1955), reprinted in 1956 U.S.C.C.A.N. 3701, 3701).

In 1984 Congress amended PACA to allow for a non-segregated floating trust for the protection of producers and growers. H.R.Rep. No. 98-543 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 406. Congress recognized that these producers and growers tend to be small businesses in a high cost/high risk industry. Id. They generally have capital tied up in land and machinery and their survival depends on timely returns on the sale of their products. Id. Congress explained:

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.

This legislation would provide a remedy by impressing a trust in favor of the unpaid seller or supplier on the inventories of commodities and products derived therefrom and on the proceeds of sale of such commodities and products in the hands of the commission merchant, dealer or broker in the same manner that has been provided by `trust' amendments to the Packers and Stockyards Act adopted in 1976. The trust provisions of that act have operated very successfully without imposing a regulatory burden on the industry.

The trust impression by section 5(c)(2) of this act is made up of a firm's commodity related liquid assets, and is a nonsegregated `floating trust', which permits the commingling of trust assets. In the view of the committee it provides the protection needed by the trust beneficiaries without creating an undue hardship to any person.

The committee believes that the statutory trust requirements will not be a burden to the lending institutions. They will be known to and considered by prospective lenders in extending credit. The assurance the trust provision gives that raw products will be paid for promptly and that there is a monitoring system provided for under the act will protect the interests of the borrower, the money lender, and the fruit and vegetable industry. Prompt payments should generate trade confidence and new business which yields increased cash and receivables, the prime security factors to the money lender.

These amendments would give the industry and department effective new tools to overcome the payment problems.

Id. at 406-07. It is clear that Congress intended to create a system by which producers and growers would be secured in their transaction with buyers, and in return they were expected to make prompt claims when the buyers failed to pay. With this background, we now turn to the claims against Scolio.

B. Individual Liability

We have not previously decided whether an individual corporate officer can be held liable for breaching his or her fiduciary duty to protect PACA trust assets. We have guidance from our sister circuits, however, and several have considered this issue and have concluded that individual liability does exist in certain circumstances. See ...