Produce Alliance, L.L.C. v. Sheppard Produce, Inc.

Filing 169

MEMORANDUM DECISION. The Court will grant the motion for first interimdistribution and the motions to amend and substitute. The Court will issue a separate Order as the distribution is somewhat detailed. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by cjm)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
PRODUCE ALLIANCE, L.L.C.,
Plaintiff,

Case No. 1:CV 11-243-BLW

v.

MEMORANDUM DECISION

SHEPPARD PRODUCE, INC.
D/B/A S&G PRODUCE COMPANY,
et al.,
Defendants.

INTRODUCTION
The Court has before it a motion for first interim distribution and a motion to
amend filed by the plaintiffs. The motions are fully briefed and at issue. The Court will
grant both motions in a separate Order for the reasons expressed below.
LITIGATION BACKGROUND
On May 23, 2011, plaintiff Produce Alliance filed this action under the Perishable
Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499e(c), claiming that defendant
Sheppard Produce failed to pay for produce delivered by Produce Alliance. On June 15,
2011, this Court entered a Consent Injunction establishing a PACA Trust Claims
Procedure (“Claims Order”). The Claims Order sets forth a procedure to determine and
distribute PACA claims to the liquidated assets of Sheppard Produce.

Memorandum Decision - 1

Pursuant to the Claims Order, Andrew & Williamson intervened as a plaintiff in
this action on July 26, 2011, and asserted a PACA claim of $11,963.74. The original
plaintiff, Produce Alliance, asserted a PACA claim of $915,020.60.
The Claims Order required parties to file objections to any PACA claims by
August 26, 2011. See Claims Order (Dkt. No. 25) at ¶ 13. The Claims Order further
required claimants receiving an objection to their claims to file and serve responses to
said objections by September 9, 2011. Id. at ¶ 13.
ANALYSIS
Claim Objections
No objection was filed to Andrew & Williamson’s claim. Sheppard Produce
objected to Produce Alliance’s claim and requested that the claim be reduced in the
amount of $9,627.32 on the ground that Sheppard Produce’s accounts payable showed an
amount due reduced by this sum. Sheppard Produce has failed to support its assertion
with any affidavit or other filing even though the Claims Order required that the PACA
claims “must set forth in detail the legal and factual basis for the objection.” In contrast,
Produce Alliance set forth in two detailed declarations of Robert Feldgreber the sums
owed, including the $9,627.32 in issue. The Court will therefore reject the objection of
Sheppard Produce on this issue.
Two employees have filed claims for past due wages. Under PACA, the PACA
trust funds are held entirely for the benefit of unpaid sellers of perishable agricultural
commodities. See 7 U.S.C. § 499(e)(c). The PACA Trustee is authorized to use the trust
Memorandum Decision - 2

assets of a PACA trust to pay employee wages but only so long as the Trustee is sure that
enough funds remain in the trust to pay all PACA claims. See D.M. Rothman & Co., Inc.
v. Korea Commercial Bank of New York, 411 F.3d 90 (2nd Cir. 2005). Here, the PACA
claims total $1,663,010.92 but there is currently only about $540,743.91 in the Trust.
Thus, the wage claims cannot be paid at this time.
However, as discussed further below, the plaintiffs are pursuing additional claims
in this case to increase the funds in the Trust. It is not clear how much plaintiffs are
seeking, and thus even if the claims are successful, it is not clear if the Trust will ever
have enough money to pay all PACA claims. But it is clear that the Trust currently
cannot pay both types of claims, and thus the Court will reject payment of the wage
claims in this first interim distribution, which will go entirely to PACA claimants. The
Court will leave for a later decision whether sufficient funds exist to pay all PACA
claims, a necessary requirement for the wage claims to be paid.
First Interim Claim Distribution
Now that the objections have been resolved, the claims are deemed valid under
PACA. The plaintiffs have submitted a proposed Order that directs the Trustee of the
PACA Trust to make a first interim distribution to certain claimants. There is no
objection filed to that proposed Order. The Court will therefore enter that Order as a
separate document.
Motion to Amend Complaint and Substitute Party
Plaintiffs seek to amend their complaint to add claims that D.L. Evans Bank and
Memorandum Decision - 3

Sheppard Transportation LLC improperly received assets from the PACA trust. Plaintiffs
also notify the Court that defendant Marilyn Sheppard has passed away, and so they seek
to substitute Stan R. Sheppard, in his capacity as Personal Representative of the Estate of
Marilyn C. Sheppard, as a party defendant for Marilyn Sheppard. No objections having
been received, the Court will grant both the motion to amend the complaint and the
motion to substitute the party.
Many of the other claimants have filed similar motions to amend, and the Court
will grant each of them.
Conclusion
For the reasons expressed above, the Court will grant the motion for first interim
distribution and the motions to amend and substitute. The Court will issue a separate
Order as the distribution is somewhat detailed.

DATED: February 1, 2012

Honorable B. Lynn Winmill
Chief U. S. District Judge

Memorandum Decision - 4