Midwest Marketing Co. v. Quality Produce Suppliers, Inc.

Citations: 6 F. Supp. 3d 843; 2013 WL 6691213; 2013 U.S. Dist. LEXIS 178388Docket: No. 11 CV 7786

Court: District Court, N.D. Illinois; December 18, 2013; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs, consisting of various agricultural produce suppliers including Midwest Marketing Company, Ruby Robinson Co., Bushmans Inc., H.C. Schmieding Produce Co., and Great Lakes Produce Marketing, along with Leathers Melon Company, initiated a legal action against Richard D. Srum and his company, Quality Produce Suppliers, Inc., to enforce payment under the Perishable Agricultural Commodities Act (PACA). The case, filed on November 2, 2011, involves cross motions for summary judgment. The court granted Plaintiffs' motion for summary judgment against Quality and Richard Srum due to their roles in managing PACA trust assets. Conversely, the court denied motions for summary judgment related to personal liability against Patsy Srum, as material facts regarding her involvement were disputed. Patsy Srum, who served as a part-time bookkeeper for Quality and had limited decision-making authority, was involved in administrative tasks such as invoicing and payroll but did not control vendor payment decisions. Despite being a signatory on a bank account and issuing numerous checks, her role did not equate to active management of the company's financial obligations under PACA.

From June to November 2011, Plaintiffs sold wholesale produce to Defendant Quality in Chicago, maintaining their trust beneficiary status under PACA. On November 4, 2011, Plaintiffs Midwest and Ruby sought a temporary restraining order and preliminary injunction to protect trust assets. The court granted a Stipulation and Order on November 15, establishing Midwest as a trust creditor owed $183,863.76 plus 5% interest, and Ruby owed $14,079.75 plus 18% contract interest and $3,500 in attorney fees, along with a repayment schedule. Following a default by Quality and Richard Srum, the court issued a Consent Injunction on November 29, 2011, prohibiting the dissipation of Quality's assets and mandating that liquid assets be deposited into the court's registry. The case was consolidated with another action involving Plaintiff Leathers.

Intervenors Bushmans, Schmieding, and Great Lakes filed a complaint on January 16, 2012. The PACA Procedure Order led to disbursements of $37,994.67 on April 18, 2012, and $14,108.30 on September 6, 2012, leaving a shortfall of $431,641.56 in trust assets as of August 2013. Midwest is owed $165,963.58 plus $8,161.77 in interest; Ruby is owed $13,524.20 plus $2,394.34; Bushmans $21,745.97 plus $3,849.93; Schmieding $14,509.81 plus $2,568.83; and Great Lakes $44,754.43 plus $5,282.25 in interest, all calculated through August 31, 2013.

On September 7, 2012, Plaintiffs amended their complaints to include Patsy Srum as a defendant, asserting six counts against Quality, Richard Srum, and Patsy Srum for violations related to PACA trust assets. Richard Srum has not responded to the complaints, raising concerns about Patsy Srum's personal liability for the trust debt.

Summary judgment is warranted when the available evidence, including pleadings and affidavits, demonstrates that no genuine issue exists regarding any material fact, thus entitling the moving party to a legal judgment. Evidence must be viewed favorably towards the nonmoving party, which bears the burden to counter with specific facts beyond mere allegations to demonstrate a genuine trial issue. In relation to the Perishable Agricultural Commodities Act (PACA), the Act aims to eliminate unfair practices in the produce market, mandating that dealers promptly pay for produce. A statutory trust is established on all produce-related assets, which must be maintained for the benefit of unpaid suppliers until full payment is made. This trust, which is a non-segregated "floating" trust, applies immediately upon the receipt of produce and lasts throughout the buyer's business operations. Suppliers must notify buyers of their intent to preserve trust benefits, typically through specific language on invoices. Agricultural dealers must ensure that trust assets are accessible to meet outstanding obligations to sellers; failure to do so is unlawful. To establish liability under PACA, a plaintiff must show it qualifies as a produce supplier, provided the necessary notice to preserve trust interests, and that the defendant failed to maintain the trust. It is established that the Midwest Plaintiffs, as licensed suppliers, qualify under PACA and properly notified Quality of their trust interests. Quality's failure to maintain trust assets and fulfill obligations renders it liable to the Midwest Plaintiffs for the amount previously determined by the Court.

Personal liability under the Perishable Agricultural Commodities Act (PACA) arises when an individual responsible for managing PACA trust assets fails to protect those assets for the beneficiaries, constituting a breach of fiduciary duty. Courts assess liability not solely based on formal titles but by evaluating the individual's actual control over trust assets. Factors considered include involvement in causing a breach, control of daily operations, management activity, signing authority for company accounts, and direct responsibility for non-payment under PACA. In the case of Bear Mountain Orchards, the Third Circuit determined that the defendant lacked sufficient involvement to be held liable, as she was not engaged in key business decisions and was primarily performing basic clerical tasks under supervision. This ruling emphasizes the importance of actual control over PACA assets, rather than mere title or ownership. Subsequent courts, including those in the Seventh Circuit, have referenced this analysis in similar cases.

The Court in Harris N.A. determined that the defendant, despite being an officer with titles of vice president and secretary, a shareholder, and a signatory on the company’s bank account, did not have control over PACA trust assets. Evidence indicated that the defendant lacked the authority to make management decisions, hire or fire employees, or supervise staff. His access to company financial information and ability to extend lines of credit were restricted, and he could not issue checks unilaterally, having signed only one check at the bookkeeper's direction while the president was away. 

In Sato Co., the court similarly found a defendant not individually liable, despite having signing authority on the company’s checking account, since he could only execute checks when directed by the company’s leader. This defendant had turned over operational control to his partner and was minimally involved in the company’s affairs, not attending board meetings or managing day-to-day operations, and lacked knowledge of business transactions.

Contrastingly, in Anthony Marano Co., the court found a night manager and one-third shareholder to have control over trust assets. Although his day-to-day involvement was limited, he was an active signatory on both payroll and operating accounts, authorized to unilaterally issue payroll checks and sign certain creditor checks. The decisions in these cases suggest that the extent of an individual's activities and signing authority on a company’s operating bank account is crucial in assessing personal liability under PACA.

A material factual dispute exists regarding the personal liability of Defendant Patsy Srum under PACA. Although she was listed as Quality’s corporate secretary and had access to the company's financial records, the key issue is whether she had the authority to manage PACA trust assets. Plaintiffs argue that her routine use of Quality’s corporate bank account and her role as a signatory allowed her to control the trust, evidenced by her issuance of over ninety checks totaling over $86,000. However, Patsy Srum contends that her involvement was minimal and that she required direct authority from Richard Srum to issue checks, disputing her level of control over the company's financial decisions. This disagreement constitutes a material fact that cannot be resolved through summary judgment.

In contrast, Richard Srum’s personal liability is clear, as he was actively involved in Quality's operations and management, served as president, and was a signatory on bank accounts. He had the authority to control PACA trust assets and failed to preserve them, resulting in a breach of his fiduciary duty.

In conclusion, the court grants summary judgment against Defendants Quality and Richard Srum, while denying it for Patsy Srum due to the unresolved factual dispute regarding her authority.