Kingdom Fresh Products, Inc. et al v. Bexar County, et al

Filing 42

ORDER TERMINATING 24 Motion for Hearing; DENYING 24 Motion for Reconsideration. Signed by Judge David A. Ezra. (wg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION

In re:

)
)
DELTA PRODUCE, LP, et al.,
)
)
Debtors,
)
________________________________ )
)
KINGDOM FRESH PRODUCE, et al., )
)
Appellants,
)
vs.
)
)
BEXAR COUNTY, et al.,
)
)
Appellees.
)
________________________________ )

CV. NO. 5:12-CV-1127-DAE
Bankr. No. 12-50073-a998

ORDER DENYING MOTION FOR RECONSIDERATION
On June 17, 2014, the Court heard oral argument on a Motion for
Reconsideration of this Court’s Order Affirming In Part and Vacating In Part the
Bankruptcy Court’s Order Granting Special Counsel’s First Fee Application filed
by Special PACA Counsel Craig A. Stokes (“Special Counsel”). (Dkt. # 24.)
Craig A. Stokes, Esq., represented himself as Special Counsel; Scott E. Hillison,
Esq., represented Appellants Kingdom Fresh Produce, Inc., I. Kunik Company,
Inc., Five Brothers Jalisco Produce Co. Inc. d/b/a Bonanza 2001, Rio Bravo
1

Produce Limited, LLC, and G.R. Produce, Inc. (collectively, “Kingdom Fresh”).
Thomas McKenzie, Esq., appeared on behalf of the Trustee for Debtor Delta
Produce. After careful consideration of the memoranda supporting and opposing
the motion, as well as the arguments presented at the hearing, the Court DENIES
Special Counsel’s Motion for Reconsideration.
BACKGROUND
This matter arises from the appointment of a Special Counsel to
adjudicate claims made pursuant to the Perishable Agricultural Commodities Act
of 1930 (“PACA”), 7 U.S.C. § 499(a)–(t). Before discussing this case’s procedural
history, the Court will set out the legal landscape for PACA claims generally.
I.

The Perishable Agricultural Commodities Act (“PACA”)
Congress designed PACA to regulate the produce industry and

promote fair dealings in transactions involving fruits and vegetables. GolmanHayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 350 (5th Cir. 2000). As
stated in the House Report to the 1984 amendments to the Act, PACA was enacted
to encourage fair trading practices in the marketing of perishable
commodities by suppressing unfair and fraudulent business practices
in marking of fresh and frozen fruits and vegetables . . . and providing
for collecting damages from any buyer or seller who fails to live up to
his contractual obligations.
H.R. Rep. No. 543, 98th Cong., 2d Sess. 3 (1983); see also Pac. Intern. Mktg., Inc.
v. A & B Produce, Inc., 462 F.3d 279, 282 (3d Cir. 2006) (“Congress intended
2

PACA to protect small farmers and growers who were vulnerable to the practices
of financially irresponsible buyers.”). To this end, PACA requires buyers of
produce to make “full payment promptly,” Bocchi Americas Assocs. Inc. v.
Commerce Fresh Mktg. Inc., 515 F.3d 383, 387–88 (5th Cir. 2008) (quoting 7
U.S.C. § 499b(4)), and if a buyer fails to tender prompt payment, the seller may
file a complaint with the United States Department of Agriculture or file a civil suit
against the buyer, id. (citing 7 U.S.C. § 499e(a)–(b)).
Congress added two powerful tools to address buyers’ proclivity to
default before tendering full payment to sellers. First, PACA establishes a scheme
in which a buyer of produce on credit is required to hold the produce and its
derivatives and/or proceeds in trust for the unpaid seller. 7 U.S.C. § 499e(c)(2);
Endico Potatoes v. CIT Group/Factoring, 67 F.3d 1063, 1067 (2d Cir. 1995)
(holding that PACA incorporates ordinary principles of trust law so that a buyer
holds legal title to the produce and its derivatives, but the seller retains an equitable
interest in the trust property pending payment); see also Reaves Brokerage Co.,
Inc. v. Sunbelt Fruit & Vegetable Co., Inc., 336 F.3d 410, 413 (5th Cir. 2003)
(holding that § 499e(c)(2) creates, “immediately upon delivery, a nonsegregated
‘floating’ trust in favor of sellers on the perishable commodities sold and the
products and proceeds derived from the commodities”). “Congress provided this
remedy because ‘prior to this amendment, unpaid produce suppliers were
3

unsecured creditors vulnerable to the buyers’ practice of granting other creditors a
security interest in their inventory and accounts receivable.” Pac. Intern. Mktg.,
462 F.3d at 282 (quoting Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197,
199 (3d Cir. 1998)).
Second, “if the seller is not paid promptly, the buyer must preserve
trust assets, and the seller has a ‘superpriority’ right that trumps the rights of the
buyer’s other secured and unsecured creditors.” Bocchi Americas Assocs. Inc.,
515 F.3d at 388; accord 7 U.S.C. § 499e(c)(1); see also Gargiulo v. G.M. Sales,
Inc., 131 F.3d 995, 999 (11th Cir. 1997) (“The PACA grants the sellers of such
commodities the right to recover against the purchasers and puts the sellers in a
position superior to all other creditors.”).
Sellers are only entitled to the trust assets and “superpriority” status if
they comply with certain procedural requirements. An unpaid seller must
demonstrate that:
(1) the commodities sold were perishable agricultural commodities;
(2) the purchaser of the perishable agricultural commodities was a
commission merchant, dealer or broker;
(3) the transaction occurred in interstate or foreign commerce;
(4) the seller has not received full payment on the transaction; and
(5) the seller preserved its trust rights by giving written notice to the
purchaser within the time provided by law.
7 U.S.C. § 499e. If a seller satisfies § 499e’s requirements, however, a trust
automatically arises in favor of the seller until full payment has been received. Id.
4

§ 499e(c)(2); see also In Re Milton Poulos, Inc., 947 F.2d 1351, 1352 (9th Cir.
1991).
Because trust principles apply and the debtor only holds legal—not
equitable—title, if the debtor files for bankruptcy, the PACA trust assets are
excluded from the bankruptcy estate. See, e.g., 11 U.S.C. § 541(d) (“Property in
which the debtor holds, as of the commencement of the case, only legal title and
not an equitable interest, . . . becomes property of the estate . . . only to the extent
of the debtor’s legal title to such property, but not to the extent of any equitable
interest in such property that the debtor does not hold.”); Ruby Robinson Co., Inc.
v. Herr, 453 F. App’x 463, 465 (5th Cir. 2011) (“Ordinary principles of trust law
apply to trusts created under PACA, so that for instance the trust assets are
excluded from the estate should the dealer go bankrupt.” (quoting Sunkist
Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997))).
II.

Procedural Background
This matter incorporates three PACA lawsuits that were filed in the

United States District Court for the Western District of Texas against Delta
Produce LP (“Delta Produce”), a local produce company.
On January 3, 2012, Delta Produce filed for bankruptcy under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court for

5

the Western District of Texas. (Bankr. Dkt. # 1.)1 Delta then moved to impose an
automatic stay of the three lawsuits pending in district court under 11 U.S.C.
§ 362. (Case No. 1:11-cv-01114-SS, Dkt. ## 24, 26.) Two days later, Delta
Produce asked the district court to abate its proceedings and allow various
creditors, including PACA creditors, to assert their claims before the Bankruptcy
Court in San Antonio. (Id.) Upon receipt of Delta Produce’s motion and several
PACA claimants’ consent, the district court referred the case to the bankruptcy
court in San Antonio, noting that “the parties apparently agree that the Bankruptcy
Court would be the appropriate and preferable place to adjudicate the claims
presented in this case.” (Case No. 5:12-cv-00046-XR, Dkt. # 28.)
After the PACA claims were referred to the bankruptcy court, Delta
Produce filed a proposed PACA Claim Procedure in bankruptcy court, which
included the appointment of Special Counsel Craig A. Stokes (“Special Counsel”)
to adjudicate PACA claims. (Bankr. Dkt. # 31.) Several PACA claimants—but
not Appellants here—agreed to the motion. 2 On January 24, 2012, the bankruptcy
court held a hearing to consider a Motion for Orders Establishing a Deadline to
1

Except as otherwise noted, all citations are to the bankruptcy docket in Case No.
SA:12-BK-50073-LMC.
2

The PACA Claimants that did agree to the motion include: Wilson Davis Co.;
Averrit Brokerage Co., Inc.; A&A concepts, LLC; Greenhouse Produce Company,
LLC; Juniper Tomato Grower, Inc.; Mecca Family Farms, Ltd.; London Fruit, Inc.;
Triple H Produce, LLC; and The Pumpkin Patch, LLP. (Bankr. Dkt. # 31 at 9.)
6

File PACA Trust Claims and for Procedures to Resolve those Claims and for the
Appointment of Special Counsel. (See Special Counsel Appointment Hr’g, Jan.
24, 2012, Dkt. # 31.) Kingdom Fresh was present at that hearing, but did not
address the bankruptcy court.
The following day, the bankruptcy court issued an order establishing a
deadline to file PACA trust claims, for procedures to resolve those claims, and for
the appointment of Special PACA Counsel (the “PACA Order”). (Bankr. Dkt.
# 52.) The PACA Order specifically directed Special Counsel to inform all of
Delta Produce’s creditors that had not already joined the litigation of the PACA
claims procedure. (Id. at 2 (“On or before February 11, 2012, the Court-appointed
Special PACA Counsel for the Debtor, Craig A. Stokes (‘Special PACA Counsel’),
shall mail a copy of this Order by certified mail, return receipt requested, to all
entities listed on DELTA’s Accounts payable schedule.”).) Special Counsel was
also tasked with preserving and collecting PACA trust assets, negotiating and
compromising debts owed by an account holder of Delta Produce, considering and
reviewing claims asserted under the PACA trust, and providing status reports to
PACA creditors. (Id. at 8–10.) With regard to attorney’s fees, Paragraph 15(b) of
the order specified:
Special PACA Counsel shall be “entitled” to paid attorney’s fees and
costs from the PACA trust funds for the services rendered pursuant to
this Order. The Court will determine the reasonable “amount” of such
7

attorney’s fees and costs. To be paid, Special PACA Counsel shall
file a motion(s) for attorney’s fees and costs, [and] should attach time
sheets that have reasonably detailed time entries and which reflect
time in increments of “.1” of an hour. Stokes may file interim
motions for attorney’s fees and costs.
(Id. at 10–11 (emphasis added).) No party objected to the PACA Order.
After the PACA Order established the timeline for adjudicating
PACA claims, Delta Produce informed potential PACA creditors of the pending
PACA claim procedure. From January to March 2012, PACA Creditors filed
claims against Delta Produce totaling $1,676,015.25. Special Counsel negotiated
PACA claims with Delta Produce and its PACA creditors.
On August 14, 2012, Special Counsel filed its First Interim
Application for attorney fees. (Bankr. Dkt. # 284.) He sought $95,978.00 in
attorney fees and $2,492.97 in expenses for work completed between January 3,
2012, and August 7, 2012, to be paid from the PACA trust. (Id.)
PACA Claimant Kingdom Fresh objected to Special Counsel’s First
Interim Application on the ground that the PACA trust funds should not be used to
pay Special Counsel’s fees. (Bankr. Dkt. # 294.) Kingdom Fresh argued that
(1) the Bankruptcy Court lacked subject-matter jurisdiction to use non-estate assets
beyond the reach of bankruptcy powers to satisfy the administrative expense
claims against the bankruptcy estate, (2) the PACA trust assets that Delta Produce
held could not be used to pay Special Counsel’s fees (nor Delta Produce’s
8

attorney’s fees), and (3) Delta Produce’s Counsel already had a pre-existing duty to
collect the Debtors’ accounts receivable and thus Special Counsel could not be
paid with PACA trust funds. (Id.)
On September 21, 2012, the bankruptcy court held a hearing to
consider Special Counsel’s First Interim Application for attorney fees. (See “First
Interim Fee Hr’g, Sept. 21, 2012,” Bankr. Dkt. # 381.) Over Kingdom Fresh’s
objections, the bankruptcy court granted Special Counsel’s First Interim
Application for attorney fees. (Bankr. Dkt. # 320.) Kingdom Fresh timely filed an
appeal, arguing that the bankruptcy court lacked jurisdiction to award Special
Counsel’s fees and PACA proscribed paying such fees from PACA trust funds.
(Bankr. Dkt. # 340; Dkt. # 1.)
On September 27, 2013, this Court affirmed in part and vacated in
part the bankruptcy court’s award of fees to Special Counsel. (“Order,” Dkt. # 23.)
The court held that the bankruptcy court did have jurisdiction and adjudicative
authority to award Special Counsel his attorney’s fees. (Id. at 9–19.) However,
the bankruptcy court erred in granting his fees because PACA does not authorize
paying such fees until all PACA trust beneficiaries, as holders of a “superpriority”
status, have been paid, and in this case, it was undisputed that paying Special
Counsel’s fees would result in PACA beneficiaries not receiving full payment of
their PACA claims. (Id. at 21–26.)
9

On October 11, 2013, Special Counsel filed the instant Motion for
Reconsideration and requested an oral hearing.3 (“Mot.,” Dkt. # 24.) Kingdom
Fresh filed a Response. (“Resp.,” Dkt. # 26.) On November 14, 2013, Special
Counsel filed his Reply. (“Reply,” Dkt. # 30.)
On May 28, 2014, Amicus Curiae Randolph N. Osherow (“Amicus”)
submitted an Amicus Brief in support of Special PACA Counsel’s Motion for
Reconsideration. (“Amicus Br.,” Dkt. # 35.) On June 11, 2014, Kingdom Fresh
filed its Response to Amicus Curiae’s brief. (“Resp. Amicus Br.,” Dkt. # 37.)
LEGAL STANDARD
While the Federal Rules of Civil Procedure do not expressly provide
for a “motion for reconsideration,” such a motion is usually construed as either a
Rule 59(e) motion to alter or amend the judgment or a Rule 60(b) motion for relief
from a final judgment or order. Shepherd v. Int’l Paper Co., 372 F.3d 326, 328 n.1
(5th Cir. 2004). Because Special Counsel’s Motion was filed more than
twenty-eight days after the entry of the judgment, it is untimely under Rule 59(e).
See Fed. R. Civ. P. 59(e) (requiring such a motion to be filed “no later than 28 days

3

Although Special Counsel filed a Motion for Reconsideration of the Court’s
Order, he averred that the issues discussed in his Motion are largely moot because
89% of the PACA claimants have “expressly waived rights to challenge Special
Counsel’s fees and waived any claim for disgorgement for fees to Special
Counsel.” (Mot. at 9.) However, because 100% of all PACA claimants have not
agreed, there remains a monetary dispute and the matter is not moot.
10

after the entry of the judgment”). Accordingly, the Court construes Special
Counsel’s Motion as a Rule 60(b) motion for relief from a final judgment or order.
See Fed. R. Civ. P. 60(c) (requiring Rule 60(b) motions to be filed “within a
reasonable period of time” and, when the motion is based on certain grounds, “no
more than a year after the entry of judgment”).
Rule 60(b) sets out six grounds for granting relief from a final
judgment:
(1) mistake, inadvertence, surprise, or excusable neglect; (2) newly
discovered evidence which by due diligence could not have been
discovered in time to move for a new trial under rule 59(b); (3) fraud
(whether heretofore denominated intrinsic or extrinsic),
misrepresentation, or other misconduct of an adverse party; (4) the
judgment is void; (5) the judgment has been satisfied, released, or
discharged, or a prior judgment upon which it is based has been
reversed or otherwise vacated, or it is no longer equitable that the
judgment should have prospective application; or (6) any other reason
justifying relief from operation of the judgment.
Fed. R. Civ. P. 60(b). Relief under Rule 60(b)(6) is granted only when
“extraordinary circumstances” not covered by the five enumerated grounds are
present. Batts v. Tow-Motor Forklift Co., 66 F.3d 743, 747 (5th Cir. 1995)
(citations omitted). “The district court enjoys considerable discretion when
determining whether the movant has satisfied any of these Rule 60(b) standards.”
Teal v. Eagle Fleet, Inc., 933 F.2d 341, 347 (5th Cir. 1991).
DISCUSSION
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Special Counsel makes two arguments in support of his Motion for
Reconsideration: (1) the Court’s reliance on C.H. Robinson v. Alanco, 239 F.3d
483 (2d Cir. 2001) was misplaced, and (2) Kingdom Fresh’s silence at a hearing
indicates that it consented to the PACA Order providing for Special Counsel’s
fees, thereby equitably estopping Kingdom Fresh from subsequently challenging
such fees. (Mot. at 2.)
I.

C.H. Robinson
The Court’s Order denying Special Counsel his attorney’s fees

predominantly relied on C.H. Robinson. (Order at 22.) In support of his Motion
for Reconsideration, Special Counsel now argues that the facts of that case make it
inapplicable to the present scenario. (Mot. at 2.)
In C.H. Robinson, Robinson, a produce seller, filed a PACA claim to
recover more than $200,000 in unpaid produce purchases from the bankrupt
Alanco Corp., a produce buyer. 239 F.3d at 485. When Robinson settled its
PACA trust claim with Alanco, Mark Mandell, acting as trustee for the PACA
trust, turned over the remaining proceeds Alanco had left to Robinson, but
withheld $18,960.57. Id. Mandell then applied to the district court to enforce an
attorney’s lien on the $18,960.57. Id. The district court denied Mandell’s motion.
Id.
On appeal to the Second Circuit, Mandell argued that he was entitled
12

to the $18,960.57 sum as payment for fees he earned performing necessary
services to collect Alanco’s accounts receivable, which had been held in trust for
the benefit of Robinson under PACA. Id. at 486. He also contended that his
services were in fulfillment of Alanco’s duty to the PACA trust beneficiaries and
solely for their benefit and that therefore he was entitled to be paid out of the trust
res under general principles of trust law. Id.
The Second Circuit disagreed. The court acknowledged that “blackletter trust law” provides that a “trustee can properly incur expenses which are
necessary and appropriate to carry out the purposes of the trust and are not
forbidden by the terms of the trust.” Id. (quoting Restatement of Trusts (Second)
§ 188 (1957)). But the court considered PACA meaningfully different, finding that
“[t]rusts created under PACA are statutory trusts, and common law trust principles
are not applicable if they conflict with the language of the statute, the clear intent
of Congress in enacting the statute, or the accompanying regulations.” Id. at 487.
In fact, the only reason Congress labeled PACA claims as “trusts,” the court
reminded, was to strengthen a produce seller’s contractual rights in a defunct
buyer’s bankruptcy proceeding. Id. (citing H.R. Rep. No. 543, 98th Cong. 2d Sess.
3 (1983) (explaining that given the proclivity for buyers to enter bankruptcy,
PACA was intended to “increase the legal protection for unpaid sellers and
suppliers of perishable agricultural commodities” in bankruptcy proceedings)).
13

The court also relied on PACA’s accompanying regulations, which
directed that PACA trustees have a duty under PACA to pay the full amount of the
debt owed to PACA claimants before paying any other creditors (i.e., attorneys).
Id. at 487–88. The court first referenced 7 C.F.R. § 46.46(a)(2), which defined
“dissipation” of trust assets as “any act or failure to act which could result in the
diversion of trust assets or which could prejudice or impair the ability of unpaid
[sellers] to recover money owed in connection with produce transactions.” The
court then cited 7 C.F.R. § 46.46(d), which stated that “[c]ommission merchants,
dealers, and brokers are required to maintain trust assets in a manner that such
assets are freely available to satisfy outstanding obligations of perishable
agricultural commodities.” Id. at 488.
The court concluded that because Mandell’s withholding of the
$18,690.57 in attorney’s fees left Alanco unable to satisfy the remainder of
Robinson’s PACA claim, he impaired Robinson’s ability to recover the money it
had been owed under PACA. Id. In other words, the court explained, “[a]llowing
a defunct PACA trustee to pay other creditors [i.e., their attorneys] with PACA
funds before the seller [PACA claimant] is paid in full would frustrate
[Congress’s] purpose, and would be contrary to the language of PACA and its
accompanying regulations.” Id. Mandell, as the PACA trustee, was not able to use
PACA funds to pay himself attorney fees incurred in collecting accounts receivable
14

held in trust for Robinson. Id. at 488–89.
This Court’s Order analogized Special Counsel’s role in the instant
litigation to that of Mandell in C.H. Robinson. (Order at 25.) Recognizing that “a
trustee’s duties are to covert to cash all debts and securities that are not qualified
legal investments[,] to protect and preserve trust property, and to ensure that it is
employed solely for the beneficiary,” (id. at 26 (quoting Black’s Law Dictionary
9th ed. 2009)), the Court found that Special Counsel functioned as a trustee for the
PACA trust because the bankruptcy court tasked Special Counsel with “tak[ing]
those steps reasonably necessary to preserve and collect the PACA trust assets”
and “facilitat[ing] the distribution of the collected PACA trust assets,” (id. at 25
(quoting Bankr. Dkt. # 52 at 8–9)).
Accordingly, the Court found that
Under the reasoning in C.H. Robinson, Special Counsel, acting as a
trustee of the PACA trust, is not entitled to attorney fees paid out of
the PACA trust. Special Counsel “has a fiduciary obligation under
PACA to repay the full amount of the debt owed to the PACA
beneficiary.” See C.H. Robinson, 239 F.3d at 488. Here, PACA trust
beneficiaries had not received full payment when the bankruptcy court
granted Special Counsel’s First Interim Application for attorney fees.
Only when PACA trust beneficiaries receive full payment may a
PACA trustee use the remaining PACA trust funds to pay the trustee’s
attorney fees. Any action before PACA trust beneficiaries receive full
payment would directly violate the language of PACA and its
regulations.
(Id. at 26 (footnote omitted).)
15

Special Counsel now argues that this Court’s reliance on C.H.
Robinson was misplaced because the facts in that case are distinguishable. (Mot.
at 2.) He advances two arguments: (1) unlike Mandell, he was appointed by the
bankruptcy court, and (2) unlike Mandell, he was not a PACA trustee.
Additionally, Amicus, a Chapter 7 Trustee, argues that applying C.H. Robinson
was in error because it has produced dire consequences for adjudicating PACA
claims in bankruptcy court.
A.

Appointment by the Bankruptcy Court
Special Counsel contends that because he was appointed by the

bankruptcy court, his fee application is meaningfully different from Mandell in
C.H. Robinson. Special Counsel cites the trial court order in C.H. Robinson, as
that court noted the possibility of compensating Mandell if Robinson had agreed:
Mandell’s claim that Robinson’s counsel did not seek to take over the
representation of Alanco and did not object to Mandell’s statement
that he would take his fee from the PACA trust assets, are insufficient
to overcome the policies behind the PACA trust. Mandell is now
asking that Robinson’s money be spent on his fee; but if Robinson
wanted to retain him to collect Alanco’s PACA funds for Robinson’s
benefit, it would have done so. Robinson’s counsel silence did not
amount to a promise to allow Mandell to recover his fees from the
Robinson’s PACA trust. Moreover, if Mandell really had been
concerned at whether he would be paid from Alanco’s PACA trust
funds, he could have moved early in these cases, rather than at their
conclusion for a ruling on the attorney fee lien issue.
(Id. at 3 (emphasis in Motion) (citing C.H. Robinson Co. v. Alanco Corp., 97 CIV.
16

6018 (AJP), 2000 WL 101238, at *4 (S.D.N.Y. Jan. 28, 2000), aff’d, 239 F.3d 483
(2d Cir. 2001)).) Special Counsel asserts that he (as well as Debtor’s counsel and
PACA trust creditors) did “exactly what the district court in C.H. Robinson said
must be done to avoid loss of counsel fees,” namely filing a motion for
appointment of Special PACA Trust Counsel, giving notice to “all creditors,” and
obtaining a court order approving the appointment and payment of such counsel
from PACA trust funds. (Id.) He maintains that “[n]owhere in the Second
Circuit’s opinion in C.H. Robinson does that court foreclose a debtor and
petitioning creditors from expressly seeking court permission to hire counsel to
collect PACA receivables, a distinguishing factor recognized by the trial court in
that same case.” (Id. at 3–4.)
There are several problems with Special Counsel’s argument. First,
and most obviously, the trial court in C.H. Robinson did not hold that if Mandell
would have moved early on in the case, he would have been entitled to attorney’s
fees. Quite the contrary, the passage Special Counsel cites makes clear that the
trial court only suggested that Mandell could have moved earlier to assuage his
concerns over his fees. See C.H. Robinson Co., 2000 WL 101238, at *4
(“Moreover, if Mandell really had been concerned at whether he would be paid
from Alanco’s PACA trust funds, he could have moved early in these cases, rather
than at their conclusion for a ruling on the attorney fee lien issue.” (emphases
17

added)). Special Counsel is essentially extrapolating one sentence from the trial
court’s opinion to mean that moving for attorney’s fees early in the case ensures
payment; such a reading, however, is overly generous.
Second, although the Second Circuit affirmed the trial court’s denial
of fees to Mandell, the Second Circuit did not credit the passage cited by Special
Counsel, nor did the circuit court even hint at the possibility of an early motion to
secure attorney’s fees. Instead, the court explained why the statute’s text, purpose,
and accompanying regulations prohibited using PACA trust funds to pay attorney’s
fees incurred in the collective accounts receivable held in trust for the beneficiary
sellers. See C.H. Robinson, 239 F.3d at 488 (“Allowing a defunct PACA trustee to
pay other creditors with PACA funds before the seller is paid in full would
frustrate [Congress’s] purpose.”).
In an effort to nullify this Court’s reliance on C.H. Robinson, Special
Counsel alternatively asserts that “the Second Circuit has [later] held that its
decision in C.H. Robinson v. Alanco Corp. does not apply to payments from
PACA trust assets that are authorized by the court.” (Reply at 1 (citing “R” Best
Produce, Inc. v. Shulman-Rabin Mktg., Corp., 467 F.3d 238 (2d Cir. 2006)).) He
posits that “R” Best “noted that counsel who was court-appointed, and acting for
the benefit of PACA trust creditors, unlike a trustee, can be paid by PACA trust
assets.” (Id. at 2 (citing “R” Best, 467 F.3d at 243).) There are serious flaws in
18

Special Counsel’s arguments with respect to “R” Best. Chief among the flaws is
the contention that “R” Best held that a court-appointed “special counsel” or
“special master” can be paid by PACA trust assets. Once again, Special Counsel’s
argument wholly misconstrues a court’s opinion.
In “R” Best, a railroad company transported perishable agricultural
goods from various suppliers to P.J. Produce. 467 F.3d at 240. P.J. Produce
eventually defaulted on payments to suppliers and the railroad. Id. As a result, the
railroad sued P.J. Produce to attempt to enforce the trust provisions of PACA. Id.
The Second Circuit first found that the railroad did not qualify as a PACA trust
beneficiary because it was not a “seller of perishable agricultural commodities,”
only a transporter. Id. at 241–42. The court next considered the railroad’s
common-law trust argument that administrative expenses should be paid from
PACA trust funds:
Union Pacific primarily relies on two lower court decisions that
allowed certain administrative expenses to be paid from PACA trust
funds. See Six L’s Packing Co., Inc. v. Post & Taback, Inc., 132 F.
Supp. 2d 306, 309 (S.D.N.Y. 2001) (allowing a court-appointed
Special Master’s fees and expenses to be paid out of PACA trust
funds).
Id. at 242–43. The court held that the railroad could not rely on Six L’s Packing
because it was not performing quasi-judicial duties. Id. at 243. The court noted
that “[t]he trust funds could be used to pay the Special Master’s fees [in Six L’s
19

Packing], in contrast, because the Special Master would be ‘acting on the Court’s
behalf in performing quasi-judicial duties and for the joint benefit of all . . . PACA
creditors.” Id. The court found that “Union Pacific’s position does not resemble
that of a Special Master or a trustee in bankruptcy. It provided its services directly
to P.J. Produce, and did not act at the court’s direction or for the exclusive benefit
of the PACA beneficiaries.” Id. (internal citations omitted)).
While the “R” Best court did hint at the approval of Six L’s Packing’s
decision to allow a Special Master to be paid with PACA trust funds, the court’s
distinguishing treatment of Six L’s Packing is a far cry from the wholesale
adoption that Special Counsel advances. 4 Instead, the court went to great lengths
to emphasize “Congress’s intent to protect sellers as the exclusive beneficiaries of
the PACA trust.” Id.; see also id. at 242 (“[T]he legislative history and the text of
the statute as well as the implementing regulations all make clear that trust assets
are intended exclusively to benefit produce suppliers.”).
And even if “R” Best did rely on Six L’s Packing, such reliance would
be highly suspect because Six L’s Packing did not give any reasoned opinion as to
how or why the court allowed a special master to be paid from PACA trust funds.
There, the Southern District of New York appointed James Niss, Esq., as a
“Special Master” to assist the court in evaluating the PACA claims. 132 F. Supp.
4

Even West Publishing notes that “R” Best distinguished Six L’s Packing.
20

2d at 309. The court only stated that “[b]ecause the Special Master will be acting
on the Court’s behalf in performing quasi-judicial duties and for the joint benefit of
all Post & Taback PACA creditors, his reasonable fees and expenses shall be paid
from Post & Taback’s PACA trust funds.” Id. The court did not provide any legal
authority for authorizing such compensation from PACA trust funds. 5
Accordingly, neither the trial court order in C.H. Robinson, nor the
Second Circuit’s opinion in “R” Best warrants a different decision.
B.

Trustee Status
Special Counsel next argues that this Court’s reliance on the Second

Circuit’s opinion in C.H. Robinson is misplaced because he was not a “trustee”
like Mandell. (Mot. at 4.) Special Counsel is correct that Mandell functioned as
the attorney of the defunct buyer, Alanco, and therefore was characterized as a
“trustee.” See C.H. Robinson, 239 F.3d at 486 (describing Alanco, and therefore
Mandell as Alanco’s attorney, as the PACA trustee because 7 U.S.C. § 499e(c)(2)
requires a buyer to hold produce and its derivatives in trust for the unpaid sellers). 6
Special Counsel is also correct that he was not technically the PACA Trustee
because 7 U.S.C. § 499e(c)(2) provides that the defunct buyer, Delta Produce, is

5

The Six L’s Packing court only cited to Federal Rule of Civil Procedure 53(a),
which authorizes a court to appoint a special master. The court did not discuss any
authority for compensating the special master with PACA trust funds.
21

the trustee, and therefore Delta Produce’s lawyer functions as the “trustee” by
holding legal title to the goods for the benefit of the sellers, like Kingdom Fresh
and other PACA Claimants.
Although Special Counsel was not a “trustee” per se, the Court finds
that its reliance on C.H. Robinson was appropriate given that Special Counsel was
tasked with many of the same duties that a trustee would perform, including:
“tak[ing] those steps reasonably necessary to preserve and collect the PACA trust
assets” and “facilitat[ing] the distribution of the collected PACA trust assets” by
“(a) attempting to determine the extent to which assets are PACA trust assets,
including filing or defending adversary proceedings including declaratory
judgment actions, (b) examining PACA trust claims filed by alleged PACA trust
beneficiaries, and objecting to those claims where appropriate, (c) collecting the
Debtors’ accounts receivables, including filing adversary actions, and (d)
liquidating PACA trust assets other than the accounts receivables into cash.”
(Bankr. Dkt. # 52 at 8–9.)
In fact, Kingdom Fresh argues that Special Counsel was—for all
intents and purposes—working on behalf of Trustee Delta Produce. (Resp. at 4.)

6

To be clear, once a buyer receives goods from a seller, the buyer holds the goods
(or their derivatives) “in trust” for the benefit of the seller until the buyer tenders
payment to the seller. Therefore, the buyer is the trustee of the goods and their
derivatives for the benefit of the seller.
22

Kingdom Fresh points out that Special Counsel was employed by Delta Produce as
their § 327(e)7 special litigation counsel. (Id. (citing Bankr. Dkt. # 118).) The
motion to appoint Special Counsel as a § 327(e) counsel states, “[I]t is clearly in
the best interest of the Debtor and the Debtors’ estates for Mr. Stokes [Special
Counsel] to continue representation of Debtors and affiliates in this matter. Mr.
Stokes is an expert in PACA.” (Bankr. Dkt. # 118 at 2.) Delta Produce paid
Special Counsel a retainer of $33,000 for his work as a § 327(e) counsel. (Id. at 6.)
Nevertheless, regardless of whether Special Counsel was the trustee,
functioned like a trustee, or was simply an independent, court-appointed special
master, the logic of C.H. Robinson still holds true. The Second Circuit’s reasoning
did not rely on Mandell’s trustee-status. Rather, the court looked to “the language
of the [PACA] statute itself,” noting:
The trust provision of PACA requires a produce buyer to hold the
produce and its proceeds and derivatives in trust for the benefit of the
seller “until full payment of the sums owing in connection with such
7

Section 327(e) provides for appointment of special counsel under certain criteria:
The trustee, with the court’s approval, may employ, for a specified
special purpose, other than to represent the trustee in conducting the
case, an attorney that has represented the debtor, if in the best interest
of the estate, and if such an attorney does not represent or hold any
interest adverse to the debtor or to the debtor’s estate with respect to
the matter on which such attorney is to be employed.

11 U.S.C. § 327(e).
23

transactions has been received” by the unpaid seller. 7 U.S.C.
§ 499e(c)(2). It is clear from the language of PACA that beneficiaries
are entitled to full payment of the contract price for the sale of
produce. Unlike most common law trusts, a PACA trust entitles the
trust beneficiary to a sum certain. The trust requirement is intended to
supplement the seller’s contract rights.
239 F.3d at 487 (emphases added). Mandell’s trustee-status was not dispositive.
The court made clear that PACA intended the beneficiaries (or sellers) to fully
recover before the debtor (buyer), as the PACA trustee, paid any other creditors.
See id. at 488 (“Allowing a defunct PACA trustee to pay other creditors with
PACA funds before the seller is paid in full would frustrate this purpose, and
would be contrary to the language of PACA and its accompanying regulations.
PACA trust beneficiaries are entitled to full payment before trustees may lawfully
use trust funds to pay other creditors.”). In other words, the status of any other
individual seeking PACA trust funds is irrelevant; PACA trust beneficiaries must
be paid first before any other creditors can be paid.
C.

Policy Concerns with applying C.H. Robinson
In support of Special Counsel’s Motion for Reconsideration, Amicus

otherwise argues that this Court’s previous order has “real and serious
consequences for the administration of these cases resulting in losses for PACA
trust creditors.” (Amicus Br. at 1.) Essentially Amicus posits that because the
Court prohibits trustees and/or special counsels from receiving any payment in
24

PACA cases and in most cases the PACA trust payables exceed the PACA trust
receivables, trustees and/or special counsels are left between “a rock and a hard
place”: he or she can either “abandon the PACA trust assets, thereby leaving each
creditor to fend for itself and creating a multiplicity of litigation or attempt to
collect the PACA receivables with the attendant risk that the attorney’s fees and
expenses expended may be unrecoverable.” (Id. at 3.) Amicus then provides a
“parade of horribles” that will result if this Court does not vacate its earlier
opinion:
Instead of protecting PACA trust creditors, the Order has resulted in a
paralysis of the collection efforts in these bankruptcy proceedings to
the detriment of both the PACA debtors and their PACA creditors.
By making the PACA receivables of a Debtor uncollectable, it
prevents the PACA creditors from realizing any value from the
collection of their PACA trust receivables because even a court
authorized collector acts at his financial peril. This enables
unscrupulous downstream parties to slow pay the PACA debtor,
possibly even create or force the debtor into bankruptcy and reap a
windfall because there is no ability of the debtor to collect its
receivables.
(Id.)
Amicus and Special Counsel direct the Court’s attention to several
cases wherein courts have relied on common-law trust principles to allow for the
payment of certain administrative expenses, such as attorneys’ fees or fees for
services rendered in collecting receivables for the benefit of the PACA trust, to be
paid from the corpus of the PACA trust prior to its distribution to the statutory
25

beneficiaries. See, e.g., In re Milton Poulos, Inc., 947 F.2d 1351, 1353 (9th Cir.
1991); In re Southland + Keystone, 132 B.R. 632, 643 (9th Cir. BAP 1991); In re
United Fruit & Produce Co., 119 B.R. 10, 13 (Bankr. D. Conn. 1990) (“[W]ellsettled trust law furnishes the basis for compensating a trustee, unless [PACA]
otherwise provides.”). However, these cases are distinguishable as they generally
require the claimant to demonstrate that its efforts and resultant expenses were
“directly responsible for the availability of the funds from the [PACA] trust.” See,
e.g., Milton Poulos, 947 F.2d at 1353.
For example, in Milton Poulos the Court of Appeals for the Ninth
Circuit awarded attorneys’ fees to the attorneys for a produce supplier because,
“[t]hrough their efforts, the bankruptcy court declared the trust valid and
enforceable, thereby permitting the funds to be [disbursed] among the trust
[beneficiaries.]” Id. at 1353. The court further explained that “the efforts of these
attorneys resulted in a common fund for the group.” Id.
Similarly, in United Fruit the bankruptcy court relied on common-law
trust principles as well as 11 U.S.C. § 506, in compensating a bankruptcy trustee
for its “necessary” services from the PACA trust funds prior to their distribution.
119 B.R. at 13 & n.5. The court explained that “[t]he bankruptcy trustee of the
debtor’s estate . . . rendered substantial services in collecting the PACA receivable
for the benefit of the PACA beneficiaries and in contesting [a seller’s] claim that it
26

is entitled to a priority payment from [the PACA trust.]” Id. at 13. The court
further explained that “[t]he non-PACA creditors should not pay for these services
and the trustee should not be forced to donate them.” Id.
Finally, the court in Southland + Keystone, in harmony with the court
in United Fruit, similarly allowed the trustee “to offset [from PACA trust fund
monies] its collection costs.” 132 B.R. at 643. The court, however, limited the
amount of the offset “to the ‘hard’ costs of collection such as outside attorney’s
fees and expenses that were necessary to the collection effort,” and stated that costs
such as “overhead expenses are not recoverable.” Id.
The Fifth Circuit has not decided whether or not the common-law
trust principles would permit the recovery of attorney’s fees as in the
aforementioned three cases. For example, in Golman-Hayden Co., the court noted
that “[a] party may be entitled to attorney’s fees from a common fund when acting
to either protect the trust from destruction or to restore it to its purpose.” 217 F.3d
at 352–53. However, because the litigation did not result in the establishment of a
common fund, the Fifth Circuit concluded that the district court erred in awarding
attorney’s fees under the common fund exception. The court “expressed no
opinion as to whether the common fund exception would permit the recovery of
attorney’s fees under PACA if a common fund was established. That decision
remains for another day.” Id. at 353.
27

But even in the absence of any Fifth Circuit explicit guidance, the
aforementioned three cases permitting a special counsel’s attorney’s fees are easily
distinguishable in light of the fact that PACA is a statutory trust, and as such,
common law trust principles, like those relied upon in United Fruit, are not
applicable if they conflict with the language of the statute. C.H. Robinson, 239
F.3d at 487 (“[C]ommon law trust principles are not applicable if they conflict with
the language of the statute, the clear intent of Congress in enacting the statute, or
the accompanying regulations.”); accord “R” Best Produce, Inc., 467 F.3d at 242;
Pac. Intern. Mktg, Inc., 462 F.3d at 285; Boulder Fruit Exp. & Heger Organic Farm
Sales v. Trans. Factoring, Inc., 251 F.3d 1268, 1271 (9th Cir. 2001). Here, because
PACA’s § 499e(c)(2) unambiguously entitles PACA beneficiaries to full payment
(i.e., a sum certain) before payment of any other creditor, United Fruit’s reliance
on common-law trust principles to pay the individual charged with administering
the PACA trust funds ahead of the PACA beneficiaries is misplaced. While it is
understandable that “non-PACA creditors of the estate should not pay for [PACA
administration] services” and individuals adjudicating such claims “should not be
forced to donate them,” United Fruit, 119 B.R. at 10, the language of PACA
requires tendering “full payment” to PACA beneficiaries before paying any other
creditor, even a creditor charged with administering the PACA trust like Special
Counsel, see C.H. Robinson, 239 F.3d at 488 (“PACA trust beneficiaries are
28

entitled to full payment before trustees may lawfully use trust funds to pay other
creditors.”).
Moreover, while these cases’ holdings are aimed at the equities that
Amicus highlights, this Court finds that the aforementioned cases’ holdings are
inconsistent with the statutory text of PACA and that the text controls this Court’s
inquiry. Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004) (“It is well established that
‘when the statute’s language is plain, the sole function of the courts—at least
where the disposition required by the text is not absurd—is to enforce it according
to its terms.’” (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank,
N.A., 530 U.S. 1, 6 (2000))). Title 7 U.S.C. § 499e(c)(2) unequivocally requires
that suppliers must receive full payment:
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) (emphasis added). “It is clear from the language of PACA
that beneficiaries are entitled to full payment of the contract price for the sale of
produce. Unlike most common law trusts, a PACA trust entitles the trust
beneficiary to a sum certain.” C.H. Robinson, 239 F.3d at 487; see also Chiquita
29

Fresh N. Am., LLC v. Long Island Banana Corp., 14-CV-982 ADS AKT, 2014
WL 2854483, at *3 (E.D.N.Y. June 23, 2014) (holding that a PACA trust “is
continuous and exists from the moment produce is received until all suppliers are
paid in full” (emphasis added) (quoting Ger–Nis Int’l, LLC v. FJB, Inc., 07–cv–
898 (CM), 2008 WL 2600074, at *4 (S.D.N.Y. June 25, 2008))); J.A. Besteman
Co. v. Carter’s, Inc., 439 F. Supp. 2d 774, 778 (W.D. Mich. 2006) (“[A] PACA
trust arises when the first PACA debt is incurred and continues thereafter until all
sellers are paid in full.” (emphasis added)).
While § 499e(c)(2)’s “full payment” requirement may seem
unforgiving as Amicus advances, it was purposeful. In the early 1980s, Congress
recognized a more significant payment problem in the produce industry. 1984
U.S.C.C.A.N. at 406; see also Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154, 156
(11th Cir. 1990) (“In the early 1980s, Congress determined that the increase in
non-payment and delinquent payment by produce dealers threatened the financial
stability of produce growers.”). Congress recognized that “due to the need to sell
perishable commodities quickly, sellers of perishable commodities are often placed
in the position of being unsecured creditors of companies whose creditworthiness
the seller is unable to verify.” Endico Potatoes, 67 F.3d at 1067; see also Middle
Mountain Land and Produce Inc. v. Sound Commodities Inc., 307 F.3d 1220, 1223
(9th Cir. 2002) (“Unfortunately, PACA as originally drafted was unable to provide
30

complete protection to sellers. . . . If the buyer then declared bankruptcy, the seller
would have ‘no meaningful possibility’ of receiving its contractual right to
payment.”).
To remedy this problem, in 1984, Congress amended PACA by
creating a statutory trust “to increase the legal protection for unpaid sellers and
suppliers of perishable agricultural commodities until full payment of sums due
have been received by them.” 1984 U.S.C.C.A.N. at 406. The 1984 PACA
Amendments further provided that the failure to maintain the PACA Trust and
make full payment promptly to the trust beneficiary is unlawful, 7 U.S.C.
§ 499b(4), and PACA buyers were then “required to maintain trust assets in a
manner that such assets are freely available to satisfy outstanding obligations to
sellers of perishable agricultural commodities,” and any act or omission
inconsistent with this responsibility, including dissipation of trust assets, is
proscribed, 7 C.F.R. § 46.46(d)(1). In short, PACA’s statutory text unequivocally
requires that PACA Trust assets must be used to pay the sellers of PACA goods
ahead of all other creditors.
Furthermore, Amicus’ equitable argument is not new. In In re Super
Spud, Inc., 77 B.R. 930 (Bankr. M.D. Fla. 1987), the court considered a nearly
identical contention:
Because the claims of PACA creditors far exceed the amount of assets
31

in the estate, the trustee has argued that the position this court has
taken is unfair in that it fails to compensate the trustee for his efforts
in collecting the estate’s assets. This, he argues, obligates him to
collect the estate’s assets for the benefit of the PACA trust
beneficiaries with no reimbursement for his own expenses.
Id. at 932. In rejecting the trustee’s argument, the court acknowledged the
perceived “injustice,” but reminded that it is bound by the law as written:
“While this result is unfortunate, this court can find no support for the trustee’s
argument that the PACA claims be subordinated to that of the trustee. Perhaps this
is something Congress should address in the future.” Id.
The logical question that likely follows from Amicus’s concern is:
who should pay to adjudicate the PACA beneficiaries’ claims? Again, there
admittedly is some logic in United Fruit’s equitable holding that “[t]he non-PACA
creditors of [the bankruptcy] estate should not pay for these services and the trustee
should not be forced to donate them.” 119 B.R. at 13. At first blush, it does seem
inequitable to make non-PACA creditors of the estate “pay” for legal services
rendered in adjudicating PACA claims. However, if the buyer were not in
bankruptcy, the buyer would certainly use its own assets to pay for the services
rendered in adjudicating PACA claims and tendering full payment to the sellers
(PACA beneficiaries)—which if the buyer were in bankruptcy, those assets would
be used to pay bankruptcy estate creditors. Given that PACA is not a bankruptcy
statute, and indeed functions as the controlling statute should there be a conflict
32

with the Bankruptcy Code, see In re Superior Tomato-Avocado, 481 B.R. 866, 872
(Bankr. W.D. Tex. 2012), it makes little sense to change how buyers pay for
services rendered in paying out PACA claims simply because the buyer is in
bankruptcy.
The Court also reminds that Special Counsel can be paid from the
PACA trust res, but only after PACA trust beneficiaries receive full payment. See
C.H. Robinson, 239 F.3d at 488 (“PACA trust beneficiaries are entitled to full
payment before trustees may lawfully use trust funds to pay other creditors.”); see
also id. (“A PACA trustee may use trust assets to pay ordinary business expenses
as long as it does not do so at the expense of its PACA beneficiaries, or in any way
impair the ability of the beneficiaries to collect money owed in connection with
produce sales.”).
Thus, Amicus’ and Special Counsel’s argument that this Court’s
holding would somehow sabotage the adjudication of PACA claims is not as
compelling as they would have the Court believe. PACA contemplates two
options for Special Counsel to receive payment (or for a trustee to receive
payment): (1) he can seek payment from the buyer/debtor, or (2) he can seek
payment from the PACA trust, but only after all PACA beneficiaries have received
full payment.
In this case, Special Counsel could seek his attorney’s fees from Delta
33

Produce because it was Delta Produce’s task, as the PACA trustee, to tender “full
payment” to the PACA beneficiaries. The fact that Special Counsel assumed Delta
Produce’s role and expended valuable time and resources to do so warrants Delta
Produce paying for Special Counsel’s services. Alternatively, assuming there are
additional funds in the PACA trust res, an unlikely, but not impossible scenario,
Special Counsel could receive his payment from those excess funds.
II.

Judicial Estoppel
Special Counsel also argues that the Court’s judicial-estoppel analysis

erred because Kingdom Fresh “expressly consented” to the bankruptcy court’s
order appointing Special Counsel and authorizing his fees. (Mot. at 5–9.) The
Order found that the second-prong of a judicial estoppel inquiry—namely that the
bankruptcy court must have accepted Kingdom Fresh’s earlier position—was not
present because “there [was] no evidence in the record that the bankruptcy court’s
January 25 Order permitting Special Counsel’s fee to be paid out of the PACA
trust ‘accepted,’ or relied on, Kingdom Fresh’s earlier ‘position.’” (Order at 20.)
Special Counsel now argues that because Kingdom Fresh was “served with the
motion to establish the PACA Order via ECF,” “participated in the negotiations of
the PACA Order,” and “made an appearance at the hearing on the PACA Order,” it
expressly consented to the use of PACA trust funds to pay Special Counsel. (Mot.
at 5–6.)
34

Special Counsel’s argument suffers from several flaws. Express
consent is “consent that is clearly and unmistakably stated.” Black’s Law
Dictionary (9th ed. 2009). The three situations Special Counsel advances fall short
of express consent. First, being served with a motion plainly does not constitute
express consent. Second, although Special Counsel contends that Kingdom Fresh
“participated in the negotiations of the PACA Order,” this statement is an
inaccurate reflection of the record. Kingdom Fresh and the other PACA claimant
Appellants were not parties to Delta Produce’s Motion to Appoint Special Counsel
and did not affirmatively state their consent to the PACA Order authorizing the
payment of Special Counsel’s fees from PACA trust funds. Special Counsel likely
acknowledges such as he cites the transcript of the September 21, 2012 hearing,
which discussed Special Counsel’s First Fee Application—not the underlying
January 24, 2012 hearing on the PACA Order. (Mot. at 5.) Third, making an
appearance at the hearing and failing to object does not equate to express consent.
Even the trial court in C.H. Robinson, which Special Counsel principally relies on,
affirmed that “Robinson’s counsel’s silence did not amount to a promise to allow
[debtor’s counsel as trustee] to recover his fees from the PACA trust.” C.H.
Robinson, 2000 WL 101238, at *6.
Special Counsel otherwise argues that Kingdom Fresh impliedly
consented to paying his fees from PACA trust funds thereby satisfying the “court
35

acceptance” prong for judicial estoppel relief. He relies on the bankruptcy court’s
comments that it would have expected “vociferous objection” and “relief from this
appellate court” if Kingdom Fresh had opposed the PACA Order. (Mot. at 6
(citing First Interim Fee Hr’g 40:17–19 (September 21, 2012 transcript)).) He also
relies on the court stating, “[I]f there were aggr[eived] parties . . . it was incumbent
on those parties to speak up . . . .” (Id. (citing First Interim Fee Hr’g 41:11–14))
First, even when these comments were made at the September 21,
2012 hearing, they do not appear to be directed at whether Kingdom Fresh had
impliedly consented to Special Counsel’s appointment or paying his fees from
PACA trust funds. Rather, they reflect the bankruptcy court’s concern regarding
whether Kingdom Fresh had impliedly consented to the bankruptcy court’s
adjudicative authority. The entire passage containing Special Counsel’s cited
provisions reads:
Similarly, this Court entered an order, pursuant to the district court’s
order of reference, believing itself duly entrusted with the necessary
judicial power to do so by the district court’s orders of reference. And
this Court, in reliance on those orders, said, well, then it’s my job, and
as I say, I don’t have the authority to say no, so I’m going to do my
job. And once again, if there were aggrieved parties who believed
that, in doing my job, I was doing something wrong, once again, I
think it was incumbent on those parties to speak up and say so, lest we
get down the road and find, after we’d done all that work and spent all
that time and money, that we’d have to do it all over again, in another
court.
(First Interim Fee Hr’g 41:4–18 (emphases added).)
36

Second, Special Counsel deceptively characterizes these statements as
having occurred “at the time of the [PACA] Order”—implying that the bankruptcy
court made these caveats before Special Counsel’s initial appointment and
Kingdom Fresh must have impliedly consented by not objecting to paying Special
Counsel’s fees with PACA trust funds. (Mot. at 7.) However, the passages that
Special Counsel cites are from the September 21, 2012 hearing on his First Interim
Application for Fees—not the original January 24, 2012 hearing on the PACA
Order authorizing his appointment and fee structure. The transcript for the January
24, 2012 hearing does not contain any affirmative warning to Kingdom Fresh
present in the courtroom at the January 24, 2012 hearing appointing Special
Counsel and his fee structure. Therefore, Special Counsel’s arguments that
Kingdom Fresh impliedly consented to paying his fees out of the PACA trust and
that the bankruptcy court must have accepted such implied consent are
unpersuasive, if not entirely misleading.
But even if the bankruptcy court had suggested that PACA claimants,
such as Kingdom Fresh, should “speak up or forever hold their peace” before
equitably estopping Kingdom Fresh from challenging Special Counsel’s fees, that
admonition is irrelevant in the context of PACA because Kingdom Fresh’s
attorneys could not have waived Kingdom Fresh’s PACA “sum certain” trust rights
without Kingdom Fresh’s express written consent. To illustrate, Congress enacted
37

PACA to “provide unpaid produce sellers with greater protection from the risk of
default by buyers.” C.H. Robinson, 239 F.3d at 488. PACA “was established by
Congress to protect sellers and suppliers of perishable agricultural commodities
until full payment of sums due have been received.” In re Southland + Keystone,
132 B.R. at 639. Because PACA claimants maintain a “superpriority” status, an
agent for a PACA claimant cannot waive a PACA claimant’s rights absent an
express written waiver by the PACA claimant clearly showing the PACA claimant
intended to waive its rights under the PACA. See In re Cafeteria Operators, L.P.,
299 B.R. 411, 419 (N.D. Tex. 2003) (“The regulations under PACA are clearly
intended to prevent an agent from doing any act that would waive its principal’s
rights under PACA without an express written waiver by the principal clearly
showing the principal’s intent to waive its rights under PACA.”). As § 46.46(c)(2)
makes clear,
Persons acting as agents also have the responsibility to negotiate
contracts which entitle their principals to the protection of the trust
provisions: Provided, that a principal may elect to waive its right to
trust protection. To be effective, the waiver must be in writing and
separate and distinct from any agency contract, must be signed by the
principal prior to the time affected transactions occur, must clearly
state the principal’s intent to waive its right to become a trust
beneficiary on a given transaction, or a series of transactions, and
must include the date the agent’s authority to act on the principal’s
behalf expires.
7 C.F.R. § 46.46(c)(2). Further, under § 46.46(d)(2),
38

Agents who sell perishable agricultural commodities on behalf of a
principal are required to preserve the principal’s rights as a trust
beneficiary as set forth in § 46.2(z), (aa) and paragraphs (d), (f), and
(g) of this section. Any act or omission which is inconsistent with this
responsibility, including failure to give timely notice of intent to
preserve trust benefits, is unlawful and in violation of Section 2 of the
Act, (7 U.S.C. § 499b).
Id. § 46.46(d)(2).
Pursuant to these regulations, any “implied consent” that Kingdom
Fresh’s attorneys gave by failing to object to the bankruptcy court’s order
authorizing payment of Special Counsel’s fees from PACA trust funds is irrelevant
because the regulations clearly require PACA claimants to give express, written
consent before abdicating PACA trust rights. In the absence of written consent
from PACA claimants themselves, their agents and/or attorneys were unable to
waive PACA claimants’ “sum certain” trust rights by impliedly agreeing to pay
Special Counsel’s fees out of PACA trust funds.
CONCLUSION
For the aforementioned reasons, the Court DENIES Special
Counsel’s Motion for Reconsideration (Dkt. # 24).
IT IS SO ORDERED.
DATED: San Antonio, Texas, September 9, 2014.

_____________________________________
David Alan Ezra
Senior United States Distict Judge

39