Sunkist Growers, Inc. v. Fisher

• Decision Date: 06 January 1997
• Docket Number: No. 95-15735,95-15735
• Citation: 104 F.3d 280
• Parties: 97 Cal. Daily Op. Serv. 125, 97 Daily Journal D.A.R. 184 SUNKIST GROWERS, INC., a California corporation, Plaintiff-Appellant, v. Michael S. FISHER and Meryle Fisher, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 280

104 F.3d 280

97 Cal. Daily Op. Serv. 125, 97 Daily Journal

D.A.R. 184

SUNKIST GROWERS, INC., a California corporation, Plaintiff-Appellant, v. Michael S. FISHER and Meryle Fisher, Defendants-Appellees.

No. 95-15735.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 14, 1996.

Decided Jan. 6, 1997.

Karen L. Karr, Mohr, Hackett, Pederson, Blakley, Randolph & Haga, P.C., Phoenix, Arizona, for plaintiff-appellant Sunkist Growers, Inc.

Marjorie F. Cunningham, Curtis & Cunningham, Tucson, Arizona, for defendants-appellees Michael S. Fisher, et al.

Appeal from the United States District Court for the District of Arizona, William D. Browning, District Judge, Presiding. D.C. No. CV-94-00466-WDB.

Before BOOCHEVER, JOHN T. NOONAN, Jr., and DAVID R. THOMPSON, Circuit Judges.

BOOCHEVER, Circuit Judge:

This appeal involves the applicability of res judicata, or claim preclusion. The district court granted summary judgment, finding that a grower who sold fresh fruit to a juice company and obtained a state court judgment against the juice company for failure to pay in full, was barred from suing the company's sole shareholders under a federal statute providing a trust remedy against dealers who fail to pay for perishable agricultural commodities. We reverse.

FACTS

In 1991, Sunkist Growers, Inc. ("Sunkist"), a citrus producer incorporated in California, sold fresh fruit to Quality Fresh Juice Company, Inc. ("Quality Fresh"), a produce dealer incorporated in Arizona. When Quality Fresh failed to pay Sunkist most of the money owed for the fruit, Sunkist filed suit in Arizona state court alleging breach of contract. [ER tab 11] Quality Fresh offered to confess judgment, and in July 1993 the state court entered a judgment for Sunkist in the amount of $31,500. [Id.]

Sunkist also filed a complaint against Quality Fresh with the Secretary of Agriculture under the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. ("PACA"). After Sunkist received the judgment in the state court case, it wrote the Agriculture Department authorizing the dismissal of the administrative complaint. In January 1994, the department dismissed the complaint.

Quality Fresh went out of business and never satisfied the state court judgment. In April 1994, Sunkist filed a complaint in federal district court against Michael S. Fisher and Meryle Fisher ("the Fishers"). The complaint alleged that the Fishers were officers, directors, and sole shareholders of Quality Fresh and controlled its operations. [ER tab 1 p. 2] Under PACA, Sunkist claimed it was the beneficiary of a trust requiring Quality Fresh to hold its assets to pay Sunkist, and that the Fishers, as fiduciaries, had breached their duties to maintain the trust assets and pay Sunkist. [Id. pp. 3-4] The complaint asked for enforcement of the PACA trust by payment by the Fishers of the $31,500 owed by Quality Fresh.

The Fishers answered that the fruit was not suitable for juice. [CR 3] The Fishers also claimed "[t]hat the factual basis of this claim was previously raised in a cause of action in the Superior Court of the State of Arizona, and Defendants are now collaterally estopped from bringing a new cause of action on the same facts," invoking res judicata and collateral estoppel.

Sunkist filed for partial summary judgment on the collateral estoppel and res judicata

issues, and submitted the Arizona state court judgment. [ER tab 11] The district court granted judgment for the Fishers, finding that the Arizona state court judgment was res judicata under federal law, precluding Sunkist's federal suit under PACA. After denial of its motion for reconsideration, Sunkist appealed.

DISCUSSION

Enacted in 1930, PACA had the intent of "preventing unfair business practices and promoting financial responsibility in the fresh fruit and produce industry." Farley and Calfee, Inc. v. United States Dep't of Agric., 941 F.2d 964, 966 (9th Cir.1991). PACA requires all brokers and dealers in perishable agricultural commodities to obtain licenses from the Secretary of Agriculture. Id.; 7 U.S.C. §§ 499c, 499d. Dealers violate PACA if they do not pay promptly and in full for any perishable commodity in interstate commerce. 7 U.S.C. § 499b(4).

Such liability may be enforced either (1) by complaint to the Secretary ... or (2) by suit in any court of competent jurisdiction; but this section shall not in any way abridge or alter the remedies now existing at common law or by statute, and the provisions of this chapter are in addition to such remedies.

Id. at § 499e(b).

Congress amended the statute in 1984 to add an additional remedy: the perishable commodities or proceeds from the sale of those commodities are held in trust by the dealer for the benefit of the unpaid seller until full payment is made. Id. at § 499e(c)(2). Ordinary principles of trust law apply to trusts created under PACA, so that for instance the trust assets are excluded from the estate should the dealer go bankrupt. See In re Kornblum & Co., 81 F.3d 280, 284 (2d Cir.1996).

Although the use of a trust under the Act was aimed at remedying problems created by buyers' bankruptcies, the trust was also envisioned as a method of enforcing debts against solvent buyers. In fact, by operation of § 499e(c)(2), a statutory trust in a defined res is created whenever a seller or supplier of perishable agricultural products provides such products to a commission merchant, dealer, or broker on credit. If the seller gives timely notice of its intent to preserve its benefits under the trust, the buyer must conduct itself as trustee of its assets until the seller is paid in full.

JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 77-78 (2d Cir.1990) (citations omitted).

Once the unpaid supplier has given written notice to the Secretary of its intent to preserve the trust benefits, 7 U.S.C. § 499e(c)(3), a trust action may be brought in federal court: "The several district courts of the United States are vested with jurisdiction specifically to entertain (i) actions by trust beneficiaries to enforce payment from the trust, and (ii) actions by the Secretary to prevent and restrain dissipation of the trust." Id. § 499e(c)(5).

Sunkist complied with PACA's requirement that it timely file a notice of its intent to preserve the trust benefits. See id. § 499e(c)(3). Sunkist then brought an action in state court against Quality Fresh on a contract theory, a remedy available at common law that is expressly preserved by section 499e(b) of the statute. When the corporation failed to satisfy the judgment, Sunkist turned to PACA and sued the Fishers as individuals in federal court on the trust theory created by 7 U.S.C. § 499e(c)(2). Nevertheless, the district court granted summary judgment, finding "we must follow [federal] law and dismiss this matter even though the result does not appear to be equitable--the defendants had the benefit of goods tendered and received without ever making payment--[because] the judgment entered by the [Arizona] court is res judicata to the instant claims." [ER tab 20 p. 6]

I. Individual liability under PACA

Several district courts have concluded that individuals associated with corporate defendants may be liable under a PACA trust theory.

Anyone found to be a PACA "dealer" is subject to liability under PACA section 499b, which makes unlawful unfair conduct Frio Ice v. SunFruit, Inc., 724 F.Supp. 1373, 1381-82 (S.D.Fla.1989) (footnote and citation omitted), 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. Id. at 1382.

including the failure to maintain a statutory trust.... If deemed a PACA "dealer," an individual is liable for his own acts, omissions, or failures while acting for or employed by any other dealer. 7 U.S.C. § 499e(a).

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.... [A] PACA trust in effect imposes liability on a trustee, whether a corporation or a controlling person of that corporation, who uses the trust assets for any purpose other than repayment of the supplier.

Morris Okun, Inc. v. Harry Zimmerman, Inc., 814 F.Supp. 346, 348 (S.D.N.Y.1993). See Bronia, Inc., v. Ho, 873 F.Supp. 854, 861 (S.D.N.Y.1995) (sole shareholder, director, and president of corporation personally liable for corporation's breach of PACA trust under Morris Okun ); Mid-Valley Produce Corp. v. 4-XXX Produce Corp., 819 F.Supp. 209, 211 (E.D.N.Y.1993) ("an officer who causes a corporate trustee to commit a breach of trust which causes a loss to the [PACA] trust is personally liable to the beneficiaries for that loss"); In re Zois, 201 B.R. 501, 507 (Bankr.N.D.Ill.1996) ("Courts have generally imparted individual responsibility for breaches of PACA while individuals were in the employ or an officer of a corporation."); In re Snyder, 184 B.R. 473, 475 (D.Md.1995) (PACA trust imposes liability on controlling person of corporation for use of trust assets for any purpose other than repayment, quoting Okun ).

The unanimous conclusion of the cases is that "PACA liability attaches first to the licensed seller of perishable agricultural commodities. If the seller's assets are insufficient to satisfy the liability, others may be found secondarily liable if they had some role in causing the corporate trustee to commit the breach of trust." Shepard v. K.B. Fruit & Vegetable, Inc., 868 F.Supp. 703, 706 (E.D.Pa.1994).

We agree that individual shareholders, officers, or directors of a corporation who are in a position to control PACA trust assets, and who breach their fiduciary duty to preserve those assets, may be held personally liable under the Act.

I...