PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 09-2041
BEAR MOUNTAIN ORCHARDS, INC.; DEBRUYN
PRODUCE CO.; CALIFORNIA CITRUS SELECTORS
INC., d/b/a Voita West; MILLS FAMILY FARMS, INC.;
RIGBY PRODUCE, INC.;
JERRY SHULMAN PRODUCE SHIPPER, INC.;
GF MARKETING, INC.; TAYLOR FARMS
MARYLAND, INC.;
INTRADE INDUSTRIES.; SUN VALLEY POTATO
GROWER; PHILADELPHIA PRODUCE CREDIT
BUREAU; FABULOUS FRESH PRODUCE CORP.;
HARVEST FOODS CO., LTD.; MADLYN GEORGE
PRODUCE; TOM LANGE CO.; PETER RABBIT FARMS;
HYT INTERNATIONAL, INC.; MEREX FOOD CORP.
TEAMSTERS HEALTH AND WELFARE FUND
OF PHILADELPHIA
AND VICINITY; TEAMSTERS PENSION TRUST FUND
OF PHILADELPHIA AND VICINITY; TEAMSTERS
LOCAL 939 SUPPLEMENTAL INCOME FUND;
TEAMSTERS LOCAL 929,
Intervenor Plaintiffs in D.C.
v.
MICH-KIM, INC., t/a ELLIS FLEISHER
PRODUCE CO. t/a DICHTER BROS.
& GLASS, INC; ELLIS FLEISHER; JACQUELINE
FLEISHER; JEROME N. KLINE
DeBruyn Produce Co.; California
Citrus Selectors, Inc. d/b/a Voita
West; Mills Family Farms, Inc.;
Sun Valley Potato Grower;
Philadelphia Produce Credit
Bureau; Fabulous Fresh Produce
Corp.; Harvest Foods Co., Ltd.;
Madlyn George Produce; Tom
Lange Co.; Peter Rabbit Farms;
HYT International, Inc.; Merex
Food Corp.; Jerry Shulman
Produce Shipper, Inc.,
Appellants
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-07-cv-00853)
District Judge: Honorable Michael M. Baylson
Argued March 11, 2010
2
Before: AMBRO, SMITH and ALDISERT, Circuit Judges
(Opinion filed: October 13, 2010 )
Louis W. Diess, III, Esquire (Argued)
Maria C. Simon, Esquire
McCarron & Diess
4900 Massachusetts Avenue, N.W., Suite 310
Washington, DC 20016-0000
Kenneth D. Federman, Esquire
Melvin C. McDowell, Esquire
Rothberg & Federman
3103 Hulmeville Road, Suite 200
Bensalem, PA 19020-0000
Howard Rabin, Esquire
Howard Rabin PC
585 Stewart Avenue, Suite 440
Garden City, NY 11530
David B. Sherman, Esquire
Solomon, Sherman & Gabay
1628 John F. Kennedy Boulevard, Suite 2200
Philadelphia, PA 19107-0000
Steven E. Nurenberg, Esquire
Meuers Law Firm
5395 Park Central Court
Naples, FL 34109-0000
Counsel for Appellants
3
Eugene J. Malady, Esquire (Argued)
Suite 309
200 East State Street
Media, PA 19063-0000
Hristo K. Bijev, Esquire
2100 Tulare Street, Suite 407
Fresno, CA 93721
Counsel for Appellees
OPINION OF THE COURT
AMBRO, Circuit Judge
We consider the scope of individual liability under the
trust provision of the Perishable Agricultural Commodities Act
(“PACA”), 7 U.S.C. § 499e(c)(2). Appellants, producers of
perishable agricultural commodities, argue that, as an officer of
Ellis Fleisher Produce Co. (“Fleisher Produce”), Jacqueline
Fleisher is individually liable to them under PACA for money
owed by the corporation.1 The District Court disagreed, holding
1
The corporation has also been called “Mich-Kim, Inc.,”
named after the Fleishers’ daughters, Michele and Kim. For
simplicity’s sake, we refer to it as “Fleisher Produce.”
Appellants are DeBruyn Produce Co., California Citrus
4
that Mrs. Fleisher was not secondarily liable to trust creditors
under PACA because she was not actively involved in running
the corporation. For the reasons that follow, we affirm the
judgment of no liability.
I. PACA
In 1930, PACA was enacted “to deter unfair business
practices and promote financial responsibility in the perishable
agricultural goods market.” Weis-Buy Servs., Inc. v. Paglia, 411
F.3d 415, 419 (3d Cir. 2005). It provided that “no person shall
at any time carry on the business of a commission merchant,
dealer, or broker without a license valid and effective at such
time.” 2 7 U.S.C. § 499c(a). In 1984, PACA was amended “to
Selectors, Inc., Mills Family Farms, Inc., Sun Valley Potato
Grower, Philadelphia Produce Credit Bureau, Fabulous Fresh
Produce Corp., Harvest Foods Co., Ltd., Madlyn George
Produce, Tom Lange Co., Peter Rabbit Farms, HYT
International, Inc., Merex Food Corp., and Jerry Shulman
Produce Shipper, Inc. The Bear Mountain plaintiff group is not
a party to this appeal.
2
Under PACA, a “commission merchant” is “any person
engaged in the business of receiving in interstate or foreign
commerce any perishable agricultural commodity for sale, on
commission, or for or on behalf of another.” 7 U.S.C.
§ 499a(5). A “dealer” is defined as “any person engaged in the
business of buying or selling in wholesale or jobbing quantities
. . . any perishable agricultural commodity in interstate or
5
allow for a non-segregated floating trust for the protection of
producers and growers.” Id. at 420.3 The trust provision
foreign commerce,” subject to certain enumerated exceptions,
including that “no producer shall be considered as a ‘dealer’ in
respect to sales of any such commodity of his own raising.” Id.
§ 499a(6). A “broker” is “any person engaged in the business
of negotiating sales and purchases of any perishable agricultural
commodity in interstate or foreign commerce for or on behalf of
the vendor or the purchaser,” subject to certain exceptions. Id.
§ 499a(7). Collectively, we shall refer to commission
merchants, dealers, and brokers as “produce purchasers.”
3
This new provision was enacted in light of the following
congressional finding:
It is hereby found that a burden on commerce in
perishable agricultural commodities is caused by
financing arrangements under which commission
merchants, dealers, or brokers, who have not
made payment for perishable agricultural
commodities purchased, contracted to be
purchased, or otherwise handled by them on
behalf of another person, encumber or give
lenders a security interest in, such commodities,
or on inventories of food or other products
derived from such commodities, and any
receivables or proceeds from the sale of such
commodities or products, and that such
arrangements are contrary to the public interest.
6
provided as follows:
Perishable agricultural commodities received by
a commission merchant, dealer, or broker in all
transactions, and all inventories of food or other
products derived from perishable agricultural
commodities, and any receivables or proceeds
from the sale of such commodities or products,
shall be held by such commission merchant,
dealer, or broker in trust for the benefit of all
unpaid suppliers or sellers of such commodities or
agents involved in the transaction, until full
payment of the sums owing in connection with
such transactions has been received by such
unpaid suppliers, sellers, or agents.
7 U.S.C. § 499e(c)(2). This provision seeks to protect “sellers
of fresh fruits and vegetables” who were “‘unsecured creditors
and receive[d] little protection in any suit for recovery of
damages where a buyer ha[d] failed to make payment as
required by the contract.’” Weis-Buy, 411 F.3d at 420 (quoting
H.R. Rep. No. 98-543 (1983), reprinted in 1984 U.S.C.C.A.N.
405, 406–07). The 1984 amendment “‘provide[d] a remedy by
impressing a trust in favor of the unpaid seller . . . on the
inventories of commodities and products derived therefrom and
on the proceeds of sale of such commodities and products in the
7 U.S.C. § 499e(c)(1).
7
hands of the commission merchant, dealer[,] or broker.’” Id.
(quoting H.R. Rep. No. 98-543). The produce purchasers are
“require[d] . . . to hold sufficient PACA trust assets in trust to
pay all suppliers.” Consumers Produce Co. v. Volante
Wholesale Produce, Inc., 16 F.3d 1374, 1379 (3d Cir. 1994). In
order to preserve trust benefits, “[a]n unpaid produce supplier or
seller must give written notice of its intent to preserve . . . to the
produce dealer, broker, or commission merchant.” Id. at 1378
(citing 7 U.S.C. § 499e(c)(3)).
“[T]he trust provision . . . provides unpaid suppliers with
priority over secured lenders with regard to PACA trust assets
held in trust by produce purchasers.” Id. at 1379 (emphasis in
original). Federal district courts are “vested with jurisdiction
specifically to entertain (i) actions by trust beneficiaries to
enforce payment from the trust, and (ii) actions by the Secretary
[of Agriculture] to prevent and restrain dissipation of the trust.”
7 U.S.C. § 499e(c)(5).
The theme of the PACA trust devolves to this: to benefit
producers of perishable agricultural items sold nationally to
consumers, PACA places duties on those entrusted with such
items for sale—the licensed sellers, or “middlemen” between
producers and consumers—to prefer the producers over others.
In the event of a breach of those duties, “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 . . . .” Shepard v. K.B. Fruit &
Vegetable, Inc., 868 F. Supp. 703, 706 (E.D. Pa. 1994); see also
8
Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d
348, 351 (5th Cir. 2000) (same); Sunkist Growers, Inc. v. Fisher,
104 F.3d 280, 283 (9th Cir. 1997) (same).
“Individual liability . . . is not derived from the statutory
language, but from common law breach of trust principles.”
Weis-Buy, 411 F.3d at 421; see also Nickey Gregory Co., LLC
v. Agricap, LLC, 597 F.3d 591, 595 (4th Cir. 2010) (“General
trust principles govern PACA trusts unless the principle
conflicts with PACA.”); Sunkist, 104 F.3d at 282 (“Ordinary
principles of trust law apply to trusts created under PACA
. . . .”). “‘Under the common law, the trustee of a trust is under
a duty to the beneficiary in administering the trust to exercise
such care and skill as a man of ordinary prudence would
exercise in dealing with his own property.’” Weis-Buy, 411 F.3d
at 421 (quoting Shepard, 868 F. Supp. at 706). Following these
basic trust principles, “‘[a]n individual who is in the position to
control the [PACA] trust assets and who does not preserve them
for the beneficiaries has breached a fiduciary duty, and is
personally liable for that tortious act.’” Id. (quoting Morris
Okun, Inc. v. Harry Zimmerman, Inc., 814 F. Supp. 346, 348
(S.D.N.Y. 1993) (second alteration in original)); see also Austin
Wakeman Scott, William Franklin Fratcher & Mark L. Ascher,
Scott and Ascher on Trusts § 24.2.1 (2007) (“[I]f the trustee has
misappropriated trust funds due to a beneficiary, the trustee is
liable in an action at law.”).
9
II. FACTS & PROCEDURAL HISTORY
Fleisher Produce was a wholesale produce dealer in
Philadelphia. From 1982 through February 2007, the
corporation was operated (at least on paper) by a husband and
wife team (Ellis and Jacqueline Fleisher). Fleisher Produce then
went out of business. When it did so, it owed appellants
payments for produce supplied between May 2006 and March
2007.
Under PACA, appellants became beneficiaries of a
statutory trust consisting of all of the corporation’s produce-
related assets. They properly preserved their status as trust
beneficiaries under PACA. After Fleisher Produce failed to pay
appellants for their produce, they filed this action to enforce
Fleisher Produce’s trust obligations. Not only did they sue
Fleisher Produce, but Ellis and Jacqueline Fleisher as well.
In March 2007, the District Court entered an order for a
preliminary injunction. This provided all related creditors with
an opportunity to intervene in this action and assert their
respective claims. In October 2007, the Court ordered pro rata
distribution of the available trust assets to the valid PACA trust
creditors. It found that Fleisher Produce (jointly and severally
with other responsible parties) owed appellants approximately
$800,000. At the same time, Fleisher Produce had only $27,500
in trust assets remaining. It then sold its warehouse, which
netted around $80,000. There was thus no dispute that Fleisher
Produce’s corporate assets were insufficient to meet all
10
outstanding PACA trust claims.
The District Court granted summary judgment against
Fleisher Produce and Ellis Fleisher, holding both liable for the
PACA shortfalls. At the same time, the Court denied
appellants’ motion for summary judgment against Jacqueline
Fleisher. In its order, the Court began by conceding that we (the
Third Circuit Court) “ha[d] not produced a clear, bright-line rule
for determining when liability attache[d]” under PACA.
Nevertheless, it concluded that related precedent from our
Court, as well as from our sister Courts of Appeals,
“consistently expressed concern that liability only be imposed
where involvement with the corporation is sufficient to establish
some significant relationship between the individual and the
corporation.” It added that “[o]nly if the plaintiff can
demonstrate that such a relationship existed through evidence of
active involvement, not simply evidence that the defendant was
in a position of control, can the individual be held legally
responsible for acting on behalf of the corporation.” (Emphases
added.)
The District Court then held a bench trial on the issue of
Mrs. Fleisher’s individual liability under PACA, describing the
“main issue” as “whether . . . Jacqueline Fleisher is secondarily
liable for Plaintiffs’ claims . . . under [PACA].” Following the
11
trial (and an additional round of briefing),4 the Court concluded
that, “although Mrs. Fleisher was an employee of the company
for a time, the facts showed that she was not involved in any of
the fundamental business decisions, and [that] there was no
evidence that she had any managerial role in the operation of the
company.” It added that, “even assuming that Mrs. Fleisher was
a director and/or officer during the relevant periods of time, . . .
there is no evidence that [she] was actively involved in running
the corporation.” In this context, she was not secondarily liable
under PACA.
Appellants then filed a timely notice of appeal.5 In that
appeal, they focus solely on Mrs. Fleisher’s status as an officer,
and not on any claim relating to whether she was a director of
Fleisher Produce.
III. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction under 7 U.S.C.
4
The District Court “gave Plaintiffs’ counsel the
opportunity to brief several issues, including: (1) whether Mr.
Fleisher had succeeded in removing Mrs. Fleisher as officer and
director under Pennsylvania law; and (2) whether Mrs.
Fleisher’s involvement with the company was sufficient under
[PACA] to impose liability on her.”
5
Fleisher Produce and Mr. Fleisher did not appeal the
summary judgment order against them.
12
§ 499e(c)(5)(i). We have jurisdiction under 28 U.S.C. § 1291.
To the extent that the issues on appeal involve questions
of law, we exercise de novo review. Tracinda Corp. v.
DaimlerChrysler AG, 502 F.3d 212, 230 (3d Cir. 2007). To the
extent that the District Court made findings of fact, we review
them for clear error. Id.
IV. ANALYSIS
Whether Jacqueline Fleisher is individually liable under
PACA turns not on whether she nominally held an officer (or,
if argued, director) position, nor even the size of her
shareholding, but whether she had the authority to direct the
control of (i.e., manage) PACA assets held in trust for the
producers. If so, she is secondarily liable for breaching the duty
to preserve the PACA trust. If not, then only the corporation
itself and Mr. Fleisher were responsible for the breach and
therefore liable for the shortfall under PACA. The test for
individual liability thus continues un-brightlined, as each case
depends on facts found by the trier at trial (or the District Court
at summary judgment when there is no genuine issue of material
fact).
Mrs. Fleisher’s involvement with the corporation is a
matter of considerable dispute. Indeed, the parties cannot even
agree on whether Mrs. Fleisher was an officer of the corporation
during the relevant time period, to say nothing of the legal
analysis that should follow once her formal status is settled.
13
Appellants argue that Mrs. Fleisher was an officer throughout
the relevant time period and that, as a corporate officer, she was
necessarily in a position to control the PACA trust assets.
Indeed, when Mr. and Mrs. Fleisher set up the corporation’s
bank signature cards, she signed as Fleisher Produce’s Vice
President6 (to say nothing of other documents that list her as its
Secretary and Treasurer). Mrs. Fleisher counters that she was an
officer only until June 20, 2005. In addition, she contends that,
regardless of her formal title, she was not in a position to control
the PACA trust assets during the relevant time period.
We conclude that, no matter Mrs. Fleisher’s title(s) or
ownership status during the relevant time period, the evidence
presented at trial established that she did not possess the power
to manage plaintiffs’ PACA assets. Supporting this conclusion
is that, among other things, the District Court found that all
management decisions were made by Mr. Fleisher, aided by his
office manager (Estelle Matsinger). In this context, we hold that
Mrs. Fleisher is not secondarily liable for the remaining shortfall
under PACA.7
6
Mr. Fleisher did not dispute this evidence. When asked
by opposing counsel whether the “signature card indicate[d] that
Jacqueline Fleisher [wa]s the [V]ice [P]resident,” Mr. Fleisher
responded as follows: “Yeah, I guess that day I decided to make
her [V]ice [P]resident.”
7
We stress at the outset the narrowness of our holding.
It turns on facts that were established at trial—facts that leave us
14
A. PACA Trust Liability and the “Position of Control”
Test
We have only addressed individual liability under the
PACA trust provision in one previous opinion—Weis-Buy.
There, the PACA creditors sued an individual officer and
shareholder for allegedly “breach[ing] his fiduciary duty” under
the PACA trust provision. Weis-Buy, 411 F.3d at 418.8 We
began our analysis by acknowledging that “[w]e ha[d] not
previously decided whether an individual corporate officer can
be held liable for breaching his or her fiduciary duty to protect
PACA trust assets.” Id. at 420–21. From there, we explained
that the other Courts of Appeals to have “considered this issue
. . . concluded that individual liability does exist in certain
circumstances.” Id. at 421 (emphasis added). We then agreed
to follow those Courts, and “h[e]ld that individual officers and
shareholders, in certain circumstances, may be held individually
liable for breaching their fiduciary duties under PACA.” Id. At
with little doubt about Mrs. Fleisher’s limited responsibilities
and authority within the corporation. Indeed, she was at all
times subordinate to her husband and his office manager.
Absent similar factual findings, we would have little trouble
holding against Mrs. Fleisher.
8
We ultimately dismissed the PACA creditors’ claims as
untimely. Thus, we did not address the defendant’s argument
that “the District Court erred in finding him personally liable.”
Id. at 419.
15
the same time, we did not specify what those “certain
circumstances” might be.9
This appeal affords us the opportunity to consider one
such “circumstance”—when an officer (also a shareholder) is
found not to have actual control over the management by the
corporation of PACA products. Since Weis-Buy offers us few
clues on how to address such a circumstance, we turn to the
guidance available from other Courts of Appeals. See
Coosemans Specialties, Inc. v. Gargiulo, 485 F.3d 701 (2d Cir.
2007); Patterson Frozen Foods, Inc. v. Crown Foods Int’l, Inc.,
307 F.3d 666 (7th Cir. 2002); Golman-Hayden, 217 F.3d 348;
Hiller Cranberry Prods., Inc. v. Koplovsky, 165 F.3d 1 (1st Cir.
1999); Sunkist Growers, 104 F.3d 280.10 Although they have
9
Similarly, in Patterson, the Seventh Circuit Court noted
that “[u]nder certain circumstances, PACA allows produce
sellers to establish a constructive trust over funds owed for sales
on short-term credit and to recover against a responsible
shareholder of the debtor company.” Patterson Frozen Foods,
Inc. v. Crown Foods Int’l, Inc., 307 F.3d 666, 667–68 (7th Cir.
2002). The Court did not define what those “circumstances”
were, instead reversing the judgment against the sole
shareholder on alternative grounds.
10
There have been similar decisions by various District
Courts. See, e.g., Red’s Mkt. v. Cape Canaveral Cruise Line,
Inc., 181 F. Supp. 2d 1339 (M.D. Fla. 2002); Mid-Valley
Produce Corp. v. 4-XXX Produce Corp., 819 F. Supp. 209
(E.D.N.Y. 1993); Morris Okun, Inc. v. Harry Zimmerman, Inc.,
16
not addressed a circumstance precisely like ours, they have each
adopted a similar rule for assessing generally claims of
secondary liability under PACA: “[I]ndividual shareholders,
officers, or directors of a corporation who are in a position to
control trust assets, and who breach their fiduciary duty to
preserve those assets, may be held personally liable under
PACA.” Golman-Hayden, 217 F.3d at 351 (emphasis added);
see also Coosemans, 485 F.3d at 705–06 (similar test); Sunkist
Growers, 104 F.3d at 283 (same).
This case also presents the imprecision of a position-to-
control test: an individual held one (or more) officer titles and
was a 50% shareholder, but the evidence indicates she had no
actual control over PACA trust assets. Appellants argue for a
bright-line rule: If an individual is an officer, director, or
shareholder of a corporation, then she is by that fact in a position
to control the PACA trust assets. On this view, “position” is to
be understood as meaning just that—one’s formal position
within the corporation. Context should not matter.
Needless to say, this is a temptingly simple approach.
Yet we choose to reject it in favor of an approach that is more
sensitive to how each corporation is actually managed, as we
conclude that context should matter in these circumstances.
Importantly, such a contextual approach finds support in the
814 F. Supp. 346 (S.D.N.Y. 1993).
17
decisions of other Courts of Appeals.11
11
The parties spend considerable time arguing over the
meaning of an early District Court case, Shepard. There, three
individuals (the Kalecks) owned 100% of the stock of the
corporate defendant, K.B. Fruit and Vegetables, Inc. (“KB”).
They delegated the management of KB to the nephew of one of
the defendants (Blumberg). The Kalecks “entered into the
agreements [to set up the company], were signatories of [the
company’s] commercial banking agreement with Mellon Bank,
applied for [the company’s] business tax identification number,
paid rent to the Terminal Corporation after Blumberg’s
operation ceased, and stored some of their produce in [the
company’s] stalls.” 868 F. Supp. at 705. At the same time, they
argued that “they were not actively involved in the operation of
[the company]; that [Blumberg] was the true operator of [the
company] during the period in question.” Id.
The District Court rejected the Kalecks’ argument, noting
that they “were not merely uninvolved ‘silent’ corporate officers
or shareholders, but rather established the business, albeit for
Blumberg’s sake, used the premises[,] and took action to
continue the business after Blumberg abandoned it.” Id. at 706.
Interestingly, the Court explained that “the Kalecks [we]re not
secondarily liable merely because they served as corporate
officers or shareholders.” Id. Indeed, it added that “there may
be many small corporations in which an individual may hold
corporate office or shares, for entirely legitimate purposes, and
not exercise any day-to-day control over the company’s affairs.”
Id.
The Kalecks’ position is distinguishable from that of Mrs.
Fleisher, as the evidence presented at trial established her lack
18
Take, for instance, the Ninth Circuit Court’s decision in
Sunkist Growers. There, a husband and wife were a
corporation’s “officers, directors, and sole shareholders” who
allegedly “controlled its operations.” Sunkist Growers, 104 F.3d
at 281. A citrus producer brought a federal action “claim[ing]
. . . that the [husband and wife], as fiduciaries, had breached
their duties to maintain the [PACA] trust assets and pay [the
producer].” Id. The Ninth Circuit Court concluded that the
defendants may be individually liable under PACA, but not
because of their formal titles. Instead, it explained that “[a]
court considering the liability of [an] individual [under PACA]
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 283 (quoting Frio
Ice v. SunFruit, Inc., 724 F. Supp. 1373, 1382 (S.D. Fla. 1989)).
It then remanded to the District Court to apply the appropriate
test in the first instance. Context mattered.
Similarly, in Hiller Cranberry Products, the First Circuit
Court noted that PACA imposes liability on “‘a controlling
person of th[e] corporation, who uses the trust assets for any
purpose other than repayment of the supplier.’” 165 F.3d at 9
(quoting Morris Okun, 814 F. Supp. at 348 (emphasis added)).
This case involved a suit against an individual who was “the
of power within the corporation to manage PACA assets. She
was a corporate officer in a small corporation, and she, “for
entirely legitimate purposes, . . . [did] not exercise any day-to-
day control over the company’s affairs.” Id.
19
president and sole shareholder” of the produce dealer. Id. at 2.
It resulted in a remand to the District Court to assess the
potential liability of the individual defendant. Context again
came into play.
The Fifth Circuit Court’s decision in Golman-Hayden is
not to the contrary. There, the Court concluded that the
defendant’s sole shareholder was liable under PACA because
he “manifestly had absolute control of the corporation.”
Golman-Hayden, 217 F.3d at 351. Though the defendant
“maintain[ed] that he was a passive shareholder,” his position as
the sole shareholder meant that he could “not escape liability
based on a real or claimed failure to exercise his right and
obligation to control the company.” Id. Given his position, the
defendant’s “refusal or failure to exercise any appreciable
oversight of the corporation’s management was a breach of his
fiduciary duty to preserve the trust assets.” Id. Context once
again mattered—the individual defendant three was necessarily
responsible for “oversight of the corporation’s management.”
Id. He could control entrusted assets.12
Taken together, these cases suggest a test (whether
ascribed as “position of control” or otherwise) that takes into
account formal position(s) but relies primarily on context. It
12
In contrast, Mrs. Fleisher could not. Moreover, she was
never the sole shareholder of Fleisher Produce. Instead, for a
time, she was a 50% shareholder in a corporation that was
controlled by the other shareholder, her husband.
20
calls on courts to: 1) determine whether an individual holds a
position that suggests a possible fiduciary duty to preserve the
PACA trust assets (e.g., officer, director, and/or controlling
shareholder); and 2) assess whether that individual’s
involvement with the corporation establishes that she was
actually able to control the PACA trust assets at issue.13 The
ability to control is core. A formal title alone is
insufficient—especially when faced with a small, “mom and
pop” corporation such as Fleisher Produce, where formalities
may be less meaningful.
We turn now to Mrs. Fleisher’s involvement with
Fleisher Produce and apply this test shorn only of its possibly
misleading name.
B. Applying the Test to Mrs. Fleisher
Mrs. Fleisher’s situation presents a close question under
this contextual approach. Although there is some dispute
whether she was an officer of the corporation, we assume
13
Appellants argue that the District Court applied the
wrong rule in this case. This criticism is overstated. It is true
that the Court focused more on the broader question of Mrs.
Fleisher’s “active involvement” in the corporation than on the
narrower (and more limited) question of her ability to control
the PACA trust assets. Nonetheless, its analysis is consistent
with the test we state here, as the level of active involvement in
the relevant business may inform the ability-to-control inquiry.
21
without deciding that she was during the relevant 10-month time
period in 2006–’07.14 This permits us to turn immediately to
whether Mrs. Fleisher actually had the power to control the
PACA trust assets at that time.
At the outset, we concede that there is evidence
suggesting on the surface that Mrs. Fleisher was involved in
operating the corporation and, therefore, may have given the
14
Pennsylvania law has specific provisions for the
removal of officers of a corporation. See 15 Pa. Const. Stat.
Ann. §§ 1726(a)(1), 1733. Mr. Fleisher claims that he
“resigned” his wife of her corporate titles and took away her
shares in the corporation (whatever that means). In 2004 he sent
a letter to the federal Department of Agriculture asking that she
be removed from the PACA license as a shareholder and
Treasurer. The District Court also considered handwritten
minutes of an annual board meeting in 2005, where Mr. Fleisher
accepted his wife’s resignation as an officer.
In spite of these purported actions, it does not appear that
Mrs. Fleisher was ever officially removed as an officer under
Pennsylvania law. In September 1982, the Articles of
Incorporation identified Mrs. Fleisher as the corporation’s
Secretary and Treasurer. When the company closed in 2007, the
Pennsylvania Department of State’s Corporation Bureau still
listed Mrs. Fleisher as the corporation’s Secretary. We need not
resolve this issue (or, as noted above, whether she was a Vice
President during that period), however, as we believe that,
regardless of her formal title(s), Mrs. Fleisher did not actually
have the power to control the PACA trust assets.
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perception that she could control the PACA trust assets.15 Based
on this evidence, appellants argue that Mrs. Fleisher controlled
important aspects of the corporation’s finances between May
2006 and March 2007 and, therefore, must be held individually
liable for any breach of the PACA trust.
15
For instance, on Fleisher Produce’s 2004 and 2005
corporate tax returns, Mrs. Fleisher was listed as a 50%
shareholder and a compensated officer. She also included a
Form 6198 with her 2005 and 2006 individual federal tax
returns, which is “filed by individuals and corporations
participating in at-risk activities.” In addition, she participated
in certain business transactions as a corporate officer. When
Fleisher Produce sold its warehouse, Mrs. Fleisher signed the
real estate listing agreement as the corporation’s Secretary
(though typically we think of a corporate Secretary as one who
attests the acts of others rather than binds the corporation).
When Fleisher Produce entered into a loan modification
agreement with Liberty Foods, Mrs. Fleisher signed it as the
Fleisher Produce’s Secretary. She also signed an incumbency
certificate in connection with this loan in May 2006. Finally, in
1998, Mrs. Fleisher set up bank signature cards, listed herself as
the corporation’s Vice President, and signed several corporate
checks based on her authority with respect to the bank account.
For instance, in May 2006, a month that the parties stipulated as
“representative of all other months,” Mrs. Fleisher signed 12 of
the 245 checks from Fleisher Produce’s account. She contends
that each of these actions was taken at the direction of her
husband or Matsinger.
23
However, appellants’ evidence must be read in light of
the facts that were established at trial about the internal
operations of Fleisher Produce. These factual findings, which
are supported by the record, establish Mrs. Fleisher’s very
limited role in operating the corporation and lead us to conclude
that, regardless of any formal title(s) or stock holdings, she did
not have the ability to control PACA trust assets during the
relevant time period.
Importantly, Mrs. Fleisher testified that she was not
involved in any of Fleisher Produce’s major business decisions
and was never involved in the day-to-day management of the
corporation. This assessment was confirmed by Mr. Fleisher’s
office manager (Matsinger) and by Mr. Fleisher himself, all in
testimony that the District Court found credible. For instance,
Matsinger testified that she supervised Mrs. Fleisher’s work.
Mrs. Fleisher worked only two to three days per week from 9:00
A.M. to 2:00 P.M for a weekly salary of $200. In that role, she
performed “basic clerk level”—operational, as opposed to
managerial—tasks, such as collecting tickets, writing checks (at
the direction of Matsinger or her husband), and preparing
payrolls. Mrs. Fleisher never supervised any Fleisher Produce
employee.
Mr. Fleisher confirmed his wife’s restricted and
controlled operational role within the corporation. From May
2006 through March 2007, when Fleisher Produce paid out over
$8 million, Mr. Fleisher testified that he never consulted with
his wife about these payments. In fact, he explained that, in the
24
three decades that he ran Fleisher Produce, he never involved his
wife in any business decisions. Instead, she remained his
subordinate, taking directions from him (or Matsinger) on a
daily basis.16 In this role, Mrs. Fleisher never made suggestions
to her husband about how to organize or manage the business.
Operationally, Mr. Fleisher and Matsinger instructed Mrs.
Fleisher on which checks to write or loan documents to sign.
When Mr. Fleisher was traveling, Matsinger either made
important business decisions on her own or received instructions
from Mr. Fleisher. Neither relied on Mrs. Fleisher’s judgment.
When Fleisher Produce was forced to close, Mr. Fleisher did not
consult with his wife before closing the business; he simply told
her after the fact.
Mrs. Fleisher corroborated her husband’s testimony as
well as that of Matsinger. She confirmed that she never wrote
checks on her own, but only when instructed to do so by her
husband or Matsinger. She also did not review any corporate
documents that her husband told her to sign; she simply signed
them. In addition, she explained that there were no employees
who were responsible to her, that she never examined the
corporation’s tax returns, and that she never directed another
employee to pay a vendor. And, not to gild the lily, she worked
only part-time. Collectively, this testimony supports the finding
16
For example, Mr. Fleisher testified that Matsinger
would tell Mrs. Fleisher to call debtors to collect accounts
receivable. She was given this responsibility because of her
“great personality.”
25
that she had no actual ability to manage the corporation, and
hence no power to control its use of PACA trust assets.
Appellants argue that, in spite of this evidence, Mrs.
Fleisher should be held personally liable to the PACA trust
creditors. They contend that the evidence establishes that she
was a corporate officer of Fleisher Produce throughout its
existence. Further, as a corporate officer, she had the apparent
authority to sign checks and other documents that disposed of
the corporation’s assets. Given this, she was necessarily in a
position to control the trust assets and must be held individually
liable for failing to preserve them.
We disagree. The evidence presented at trial, and the
District Court’s findings of fact, support its conclusion that Mrs.
Fleisher was not in a position to manage Fleisher Produce
generally, and the trust assets specifically, in any meaningful
way.
* * * * *
Fleisher Produce was a “mom and pop” corporation in
which “pop” had essentially all the power (and what he did not
have was exercised by his office manager). At all times, Mrs.
Fleisher was a mere subordinate lacking the ability to manage
the entity or the PACA assets it held as a fiduciary—whether
she was (formally) a corporate officer or not and regardless of
the stock she may have held. This was established at trial, and
we see no clear error that would require us to overturn the
26
District Court’s factual findings. Therefore, we conclude that
Mrs. Fleisher is not individually liable for breaching the
corporation’s fiduciary duties to the PACA trust because she did
not have the actual ability to control its trust assets. We thus
affirm.
27