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FISHGOLD v. ONBANK & TRUST CO.

March 25, 1999

DAVID FISHGOLD, ET AL., PLAINTIFF,
v.
ONBANK & TRUST CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Larimer, Chief Judge.

DECISION AND ORDER

I. Background

By prior order of June 23, 1997, this Court directed that monies collected from accounts receivable of David Fishgold, Inc. ("Fishgold"), be held in trust for the benefit of Fishgold's suppliers under provisions of the Perishable Agricultural Commodities Act ("PACA").

Fishgold originally commenced this action when it sought to enjoin one of its creditors, OnBank & Trust Company ("OnBank"), from seizing its accounts receivable to satisfy its loan, now in default. Fishgold claimed that this seizure was in violation of PACA. Eventually, numerous PACA creditors intervened and filed claims to the trust's assets. A receiver was appointed to marshal the assets and to make payment to creditors with undisputed claims. The amount of money held in trust is unquestionably insufficient to satisfy the claims of all PACA suppliers, thus the trust will be distributed on a pro rata basis to the eligible named PACA creditors.

The receiver sought to distribute $46,750 of the money held in the trust account, roughly 85% of the account balance. Pro rata distributions to five of the PACA creditors whose claims were undisputed were ordered by this Court on August 13, 1998:

Key Produce Sales, Inc.:                 $3,478.20
Giumarra Vineyards, Corp.:               $4,726.43
Cayuga Produce, Inc.:                    $4,511.37
Weis-Buy Service, Inc.:                  $1,991.55
Giorgio Foods, Inc.:                     $9,999.83

Cayuga Produce, Inc. ("Cayuga") has filed objections as to the claims made by five of the remaining potential PACA creditors: Genecco Produce, Inc. ("Genecco"), Oswego Growers and Shippers, Inc. ("Oswego"), Brock's Fresh Foods, Inc. ("Brock"), Double Diamond Acres, Ltd. ("Double Diamond"), and OnBank.*fn1 Obviously, to the extent these objections are sustained, the trust corpus would increase, which would also result in an increased pro rata share to Cayuga and those other creditors whose claims to the funds are undisputed.

II. Cayuga's Specific Objections

  A.  Objection to Genecco and Oswego's Claims — Were the
      Claimed Transactions in Interstate Commerce?

Cayuga asserts that two of the potential trust recipients, Genecco and Oswego,*fn2 should be disqualified because the claimed transactions were solely "intrastate," thus falling outside the provisions of PACA. Cayuga advocates a very narrow interpretation of the statute, limiting the provisions of PACA to commodities that have physically crossed state lines, or to situations where the parties specifically envisioned such a crossing. Although courts have employed differing methods of statutory analysis to define PACA's application to intrastate transactions, the policy behind these decisions remains consistent — PACA should not be interpreted in the rigid manner suggested by Cayuga.

The PACA statute, at 7 U.S.C. § 499e(c)(2), creates a trust for the benefit of sellers of "perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions. . . ." The PACA trust provision is triggered when "in connection with any transaction in interstate or foreign commerce . . . any commission merchant, dealer, or broker . . . fail[s] . . . to . . . make full payment. . . ." 7 U.S.C. § 499b(4). The term interstate commerce is defined as "commerce between any State or Territory, or the District of Columbia and any place outside thereof; or between points within the same State or Territory, or the District of Columbia but through any place outside thereof; or within the District of Columbia." 7 U.S.C. § 499a(3). A transaction under the Act is considered to be in interstate commerce if it "is part of that current of commerce usual in the trade in that commodity whereby such commodity and/or the products of such commodity are sent from one State with the expectation that they will end their transit, after purchase, in another. . . ." 7 U.S.C. § 499a(8).

This language has been interpreted broadly, and covers the transactions conducted by Fishgold. In re Southland Keystone, 132 B.R. 632, 640 (B.A.P. 9th Cir. 1991) (The definition in this section "is essentially consistent with the broad definitions of interstate commerce developed by the Supreme Court.").

The D.C. Circuit poetically analyzed the Secretary of Agriculture's interpretation of the language in section 499a(8), noting that:

  In the spirit of the riverine metaphor used by the
  Congress . . . the current of interstate commerce
  should be thought of as akin to a great river that
  may be used for both interstate and intrastate
  shipping; imagine a little raft put into the
  Mississippi River at Hannibal, Mo., among the big
  barges bound for Memphis, New Orleans and ports
  beyond, with St. Louis as the rafter's modest
  destination. On this view, a shipment of
  strawberries can enter the current of ...

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