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John B. Ordille, Inc., et al v. Lenny Perry's Produce

November 10, 2012


The opinion of the court was delivered by: William M. Skretny Chief Judge United States District Court



This matter, involving PACA*fn1 trust claims, was referred to United States Bankruptcy Judge Michael J. Kaplan, pursuant to 28 U.S.C. § 157(a). On August 14, 2012, Judge Kaplan issued Findings of Fact and a Report and Recommendation relating to Debtor/Defendant Lenny Perry Produce's objections to various creditor claims, and Creditor Weis-Buy's motion for judgment.

Presently before this Court are objections by creditors Wendell Roberson Farms, Inc. (Docket No. 3), and Weis-Buy (Docket No. 5), to the Report and Recommendation. The objections are fully briefed, and the matter is now before this Court for review. For the reasons stated below, the Court concurs with the findings and recommendations contained in the Report and Recommendation.


By Order dated September 16, 2009, this Court established a PACA Trust Claims Procedure to, inter alia, allow PACA claimants to establish their rights as qualified PACA creditors. No. 09-MC-56S, Dkt. No. 3.

Wendell Roberson Farms and Weis-Buy each filed, with the Bankruptcy Court, a PACA Proof of Claim, No. 09-AP-1015, Dkt. No. 27 (Wendell); No. 09-BK-10297, Clm. No. 67 (Weis-Buy), to which Defendant objected. Judge Kaplan recommends that Defendant's objection as to Wendell Roberson Farms be sustained and its claim stricken in its entirety, and that Weis-Buy's claim be denied insofar as it seeks attorneys' fees and collection costs.

A district court reviews those portions of a report and recommendation to which a party has timely objected under a de novo standard of review. 28 U.S.C. § 157(c)(1). Each claimant's objection will be examined, in turn.


A. PACA's Purpose and Requirements

PACA was enacted in 1930 to regulate the sale and marketing of produce in interstate commerce. American Banana Co., Inc. v. Republic Nat'l Bank of N.Y., 362 F.3d 33, 36 (2d Cir. 2004); Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Vegetable Co., Inc., 336 F.3d 410, 413 (5th Cir. 2003). In the early 1980s, Congress expressed concern for farmers and growers of perishable commodities, who, because of the need to sell their products quickly, were vulnerable to buyers whose creditworthiness was difficult to evaluate prior to a sale. H.R. REP. NO. 98-543, at 3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 406-407; Reaves, 336 F.3d at 413 (citing Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1066 (2d Cir. 1995)). Congress amended PACA in 1984 to create a statutory trust in favor of produce sellers. 7 U.S.C. § 499e(c). Under the 1984 provision, immediately upon a seller's delivery of perishable commodities, the commodities, products derived from the commodities, and the proceeds from their sale are to be held by the buyer in a nonsegregated "floating" trust for the benefit of unpaid suppliers who meet the applicable statutory requirements. American Banana, 362 F.3d at 38. If entitled to PACA protection, a seller's interest in the commodities and sales proceeds is superior to that of other creditors, including secured creditors. Id. at 37.

To obtain the extraordinary protection of the trust provision, a seller must ordinarily require payment for the produce "within 10 days after the day on which the produce is accepted." 7 C.F.R. § 46.2(aa)(5). "The maximum time for payment for a shipment to which a seller, supplier, or agent can agree, prior to the transaction, and still qualify for coverage under the trust is 30 days after receipt and acceptance of the commodities." Id., § 46.46(e)(2) (emphasis added). In addition to selling on the basis of cash or short-term credit, a seller must also give the buyer written notice of its intent to preserve its trust benefits. The seller may do so in one of two ways: (1) provide written notice of intent to preserve the trust to the trustee within thirty calendar days after payment must be made, 7 U.S.C. § 499e(c), or (2) include on its ordinary and usual invoices the statement: "The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 [ ]. The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.", 7 U.S.C. § 499e(d).

A buyer who does not make a "full payment promptly"-i.e., within a prescribed statutory period or a validly agreed to period-commits a ...

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