Weis Buy Serv Inc v. Paglia , 411 F.3d 415 ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
6-14-2005
Weis Buy Serv Inc v. Paglia
Precedential or Non-Precedential: Precedential
Docket No. 04-1890
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
NO. 04-1890
___________
WEIS-BUY SERVICES, INC.;
BRIGOTTA’S PRODUCE & GARDEN CENTER
v.
RALPH PAGLIA, JR.,
in his individual capacity;
AUGUST J. SCOLIO, JR.,
in his individual capacity
August J. Scolio, Jr.,
in his official capacity
Appellant
___________
On Appeal from the United States District Court for the
Western District of Pennsylvania
(Civil No. 00-cv-0121)
District Judge: Honorable Maurice B. Cohill, Jr.
___________
Argued May 3, 2005
BEFORE: McKEE, VAN ANTWERPEN, and WEIS, Circuit
Judges
(Filed: June 14, 2005)
Arthur D. Martinucci (Argued)
Kenneth W. Wargo
Quinn Buseck Leemhuis Toohey & Kroto, Inc.
2222 West Grandview Boulevard
Erie, PA 16506
Counsel for Appellant
Michael J. Keaton (Argued)
Keaton & Associates, P.C.
1278 West Northwest Highway
Suite 903
Palatine, IL 60067
Counsel for Appellee
___________
OPINION OF THE COURT
___________
VAN ANTWERPEN, Circuit Judge
In 1997 and 1998, Appellees Weis-Buy Services, Inc.
(“Weis-Buy”) and Brigiotta’s Produce & Garden Center
2
(“Brigiotta’s”) (collectively “Sellers” or “Appellees”) each
sold several shipments of fruit to Appellant United Fruit &
Produce Company (“United Fruit”), but never received
payment.1 United Fruit filed for bankruptcy on December 9,
1997. On December 29, 1999, the Bankruptcy court
authorized a partial distribution of United Fruit’s assets to the
Sellers. Seeking recoupment of the balance of the money
owed to them by United Fruit, Sellers then filed suit on April
26, 2000, against August J. Scolio, Jr., an officer and
shareholder of United Fruit, alleging that he had breached his
fiduciary duty under the Perishable Agricultural Commodities
Act of 1930, as amended, 7 U.S.C. §§ 499a-499s (“PACA”).
I. FACTUAL BACKGROUND AND PROCEDURAL
HISTORY
United Fruit was started by Scolio’s father in 1914.
Scolio became involved with the company in 1949 and was a
partner by 1960. In 1965, Scolio’s father died and Scolio
became the sole proprietor of the business until 1986, when
he sold United Fruit to John Tarantino, Irvin Rovner, and
Larry Altman. In 1988, the owners brought in Ralph Paglia to
manage the company. Scolio remained an employee of
United Fruit, and was responsible for paying bills and
calculating the employees’ pay.
1. Our recitation of the facts is drawn from the opinion of the
District Court. See Weis-Buy Servs. v. Paglia, 307 F. Supp.
2d 682, 685-87 (W.D. Pa. 2004)
3
In 1994, Tarantino and Altman sold their shares,
leaving ownership of United Fruit in the hands of Paglia
(50%), Rover (25%), and Scolio (25%). According to Scolio,
he purchased shares for the benefit of Paglia who could not
afford to buy all the shares that he wanted. Although Scolio
claims that he eventually intended to sell his interest to Paglia,
he never did so, and thus Scolio remained a shareholder at the
time of United Fruit’s bankruptcy.
Not only was Scolio a shareholder and employee of
United Fruit, but company policy required his and Paglia’s
signature for disbursement of United Fruit checks. To assist
him in this endeavor, Scolio had a signature stamp created to
use when issuing United Fruit’s checks.
In June 1997, Paglia asked Scolio to retire, but
encouraged him to remain active in the directorship of the
company. Scolio ceased working for United Fruit, but
retained his stake in the company, his position as officer, and
his title as vice-president. Scolio also remained a signatory on
United Fruit’s bank accounts and United Fruit continued to
use Scolio’s signature stamp after his retirement.
Furthermore, Scolio acted as a guarantor on transactions
between United Fruit and Dollar Bank Leasing and possibly
First Western Bank.
Soon after Scolio retired, United Fruit began doing
business with Weis-Buy and Brigiotta’s. From July 9, 1997
through September 23, 1997, Weis-Buy sent five shipments of
produce to United Fruit, with payment on each shipment due
within ten days. October 3, 1997 was the latest date on which
4
payment was due for any of the Weis-Buy invoices.
Brigiotta’s provided produce in numerous shipments to
United Fruit from August 23, 1997 through February 22,
1998. Again, payments were due within ten days of the date
of each invoice, and March 4, 1998 was the latest date on
which payment was due on any of the Brigiotta’s invoices.
Neither Seller received any payment for the produce it
provided.
United Fruit filed for bankruptcy under Chapter 11 of
the Bankruptcy Code on December 9, 1997. The company
ceased operations in March 1998. Sellers’ claims were
determined to be qualified valid PACA claims by the
Bankruptcy Court and each received a partial distribution
from United Fruit’s remaining assets.
Seeking the rest of the money owed to them, Sellers
filed suit against Scolio in the United States District Court for
the Western District of Pennsylvania on April 26, 2000. In
their complaint, Sellers alleged that Scolio breached his
fiduciary duty owed to them under PACA. A bench trial was
held on March 19, 2003, and the District Court found Scolio
liable and ordered judgment in favor of the Sellers. The
District Court also awarded interest and attorneys’ fees.
Scolio timely appealed.
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction over this matter
5
pursuant to 7 U.S.C. § 499e(c)(5)(i)2 and 28 U.S.C. § 1367.
We have jurisdiction over the final decision of the District
Court pursuant to 28 U.S.C. § 1291.
We exercise plenary review of the District Court’s
refusal to dismiss the case on statute of limitations grounds.
Lake v. Arnold, 232 F.3d 360, 365 (3d Cir. 2000). We review
the award of attorneys’ fees and interest for abuse of
discretion. In re Rite Aid Corp. Securities Litig., 396 F.3d
294, 299 (3d Cir. 2005); Anthuis v. Colt Indus. Operating
Corp., 971 F.2d 999, 1002 (3d Cir. 1992).
III. ANALYSIS
Scolio raises three issues on appeal. First, he argues
that the District Court erred when it failed to dismiss the case
on statute of limitations grounds. Second, he claims that the
District Court erred in finding him personally liable. Finally,
Scolio challenges the District Court’s award of attorneys’ fees
and interest. Because we conclude that Sellers’ claims were
not timely, we do not address Scolio’s other arguments.
2
“The several district courts of the United States are
vested with jurisdiction specifically to entertain (i) actions by
trust beneficiaries to enforce payment from the trust, and (ii)
actions by the Secretary to prevent and restrain dissipation of the
trust.”
7 U.S.C. § 499e(c)(5).
6
A. PACA
This Court has had few opportunities to examine
PACA, thus we begin by examining the history and purpose
of the statute. Congress enacted PACA in 1930 to deter
unfair business practices and promote financial responsibility
in the perishable agricultural goods market. Sunkist Growers
v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997) (quoting Farley
and Calfee, Inc. v. United States Dep't of Agric., 941 F.2d
964, 966 (9th Cir. 1991)). “The Act was ‘designed primarily
for the protection of the producers of perishable agricultural
products--most of whom must entrust their products to a
buyer or commission merchant who may be thousands of
miles away, and depend for their payment upon his business
acumen and fair dealing.’” Tom Lange Co. v. Kornblum &
Co., 81 F.3d 280, 283 (2d Cir. 1996) (quoting H.R. Rep. No.
84-1196 (1955), reprinted in 1956 U.S.C.C.A.N. 3701,
3701).
In 1984 Congress amended PACA to allow for a non-
segregated floating trust for the protection of producers and
growers. H.R. Rep. No. 98-543 (1983), reprinted in 1984
U.S.C.C.A.N. 405, 406. Congress recognized that these
producers and growers tend to be small businesses in a high
cost/high risk industry. Id. They generally have capital tied
up in land and machinery and their survival depends on
timely returns on the sale of their products. Id. Congress
explained:
Many commission merchants, dealers, or
brokers, in the normal course of their business
7
transactions, operate on bank loans secured by the
inventories, proceeds or assigned receivables
from sales of perishable agricultural commodities,
giving the lender a secured position in the case of
insolvency. Under present law, sellers of fresh
fruits and vegetables are unsecured creditors and
receive little protection in any suit for recovery of
damages where a buyer has failed to make
payment as required by the contract.
This legislation would provide a remedy
by impressing a trust in favor of the unpaid seller
or supplier on the inventories of commodities and
products derived therefrom and on the proceeds
of sale of such commodities and products in the
hands of the commission merchant, dealer or
broker in the same manner that has been provided
by ‘trust’ amendments to the Packers and
Stockyards Act adopted in 1976. The trust
provisions of that act have operated very
successfully without imposing a regulatory
burden on the industry.
The trust impression by section 5(c)(2) of
this act is made up of a firm's commodity related
liquid assets, and is a nonsegregated ‘floating
trust’, which permits the commingling of trust
assets. In the view of the committee it provides
the protection needed by the trust beneficiaries
without creating an undue hardship to any person.
8
The committee believes that the statutory
trust requirements will not be a burden to the
lending institutions. They will be known to and
considered by prospective lenders in extending
credit. The assurance the trust provision gives
that raw products will be paid for promptly and
that there is a monitoring system provided for
under the act will protect the interests of the
borrower, the money lender, and the fruit and
vegetable industry. Prompt payments should
generate trade confidence and new business
which yields increased cash and receivables, the
prime security factors to the money lender.
These amendments would give the
industry and department effective new tools to
overcome the payment problems.
Id. at 406-07. It is clear that Congress intended to create a
system by which producers and growers would be secured in
their transaction with buyers, and in return they were expected
to make prompt claims when the buyers failed to pay. With
this background, we now turn to the claims against Scolio.
B. Individual Liability
We have not previously decided whether an individual
corporate officer can be held liable for breaching his or her
fiduciary duty to protect PACA trust assets. We have
guidance from our sister circuits, however, and several have
considered this issue and have concluded that individual
9
liability does exist in certain circumstances. See Patterson
Frozen Foods v. Crown Foods Int’l, 307 F.3d 666, 669 (7th
Cir. 2002) (recognizing that PACA permits recovery against
both the corporation and its controlling officers.);
Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d
348, 351 (5th Cir. 2000) (holding that shareholders, officers,
or directors who control assets may be held liable under
PACA.); Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 283
(9th Cir. 1997) (same).
In Sunkist Growers, 104 F.3d at 283, the Ninth Circuit
examined the decisions of several district courts and
concluded that “individual shareholders, officers, or directors
of a corporation who are in a position to control PACA trust
assets, and who breach their fiduciary duty to preserve those
assets, may be held personally liable under the Act.” In
Golman-Hayden, the Fifth Circuit expressed its agreement
with Sunkist Growers and further explained:
PACA is a “tough law”. In addition to
protecting consumers, Congress expressly
designed it to protect the producers of perishable
agricultural products, most of whom must entrust
their products to a buyer who may be thousands of
miles away, and depend for their payment upon
his business acumen and fair dealing. An investor
in a perishable commodities corporation “should
know at the beginning of his association with
such a corporation that he is ‘buying into’ a
corporation which is strictly regulated by the
federal government through PACA.”
10
217 F.3d 348, 351 (internal citations and footnotes omitted).
Individual liability in the PACA context is not derived
from the statutory language, but from common law breach of
trust principles. Sunkist Growers, 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.” Shepard v. K.B.
Fruit & Vegetable, 868 F. Supp. 703, 706 (E.D. Pa. 1994).
Liability arising from this duty is distinct from the liability
that arises when the corporate veil is pierced:
An 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. This legal framework is to be
distinguished from the piercing the veil doctrine,
where the corporate form is disregarded because
the individual has either committed a fraud, or
because the corporation is a “shell” being used by
the individual shareholders to advance their own
purely personal rather than corporate ends.
Morris Okun, Inc. v. Harry Zimmerman, Inc., 814 F. Supp.
346, 348 (S.D.N.Y. 1993).
11
We join those circuits that have already addressed this
issue and hold that individual officers and shareholders, in
certain circumstances, may be held individually liable for
breaching their fiduciary duties under PACA. See Patterson
Frozen Foods, 307 F.3d at 669; Golman-Hayden Co., 217
F.3d at 351; Hiller Cranberry Prods. v. Koplovsky, 165 F.3d
1, 9 (1st Cir. 1999); Sunkist Growers, Inc., 104 F.3d at 283.
That said, before we determine whether Scolio himself was
properly held liable here, we must determine whether Sellers
brought this action within the applicable statute of limitations
period.
C. Statute of Limitations
The District Court declined to determine whether there
was a limitations period applicable to the Sellers’ claims,
holding instead that the action either did not accrue, or was
tolled until December 29, 1999, the date the Bankruptcy court
authorized a partial distribution from United Fruit’s assets.
We believe a more thorough analysis is necessary, and we
begin by identifying the appropriate statute of limitations.
“Determining the statute of limitations period for
activity governed by a federal statute is a question of federal
law.” KingVision Pay-Per-View, Corp. v. 898 Belmont, Inc.,
366 F.3d 217, 220 (3d Cir. 2004). However, when a federal
law provides the basis for the cause of action, but fails to
supply a statute of limitations, we must borrow an appropriate
statute of limitations from the law of the forum state. Id.; see
also North Star Steel Co. v. Thomas, 515 U.S. 29, 34 (1995).
We also incorporate relevant state tolling rules. Hardin v.
12
Straub, 490 U.S. 536, 539 (1989); Lake v. Arnold, 232 F.3d
360, 368 (3d Cir. 2000).
Because PACA does not set forth a limitations period
for breach of fiduciary duty claims, we look to Pennsylvania
law, which provides that such claims must be brought within
two years of the date the claim accrues. 42 Pa. C.S.A. §
5524(7);3 see also In re Mushroom Transp. Co., 382 F.3d 325,
336 (3d Cir. 2004) (recognizing a two-year statute of
limitations for breach of fiduciary duty claims); Maillie v.
Greater Del. Valley Health Care, Inc., 628 A.2d 528, 532 (Pa.
Commw. Ct. 1993) (acknowledging that 42 Pa.C.S. § 5524(7)
is the applicable statute for proceedings based upon breach of
a fiduciary duty). Therefore, Sellers claims will only be
timely if the Sellers brought them within two years of accrual,
or if the statute of limitations was tolled.
3
This section prescribes a two-year statute of limitations
for:
Any other action or proceeding to recover damages
for injury to person or property which is founded on
negligent, intentional, or otherwise tortious conduct
or any other action or proceeding sounding in
trespass, including deceit or fraud, except an action or
proceeding subject to another limitation specified in
this subchapter.
42 Pa. C.S.A. § 5524(7).
13
1. Accrual
Generally, the statute of limitations begins to run on a
breach of fiduciary duty claim when the trustee openly and
unequivocally violates his duties. Philippi v. Philippe, 115
U.S. 151, 157 (1885) (“[T]he statute of limitations will begin
to run from the time such repudiation and claim came to the
knowledge of the beneficiary.”); United States v. Rose, 346
F.2d 985, 989-990 (3d Cir. 1965) (“The statute of limitations
begins to run against the trust beneficiary with respect to a
suit against the express trustee, if at all, when he knows the
trust has been repudiated or reasonably should have known
it.”). Applying this reasoning, Scolio argues that the claims
against him accrued on the date that the Seller’s invoices
became overdue. The District Court rejected this rationale,
and concluded that because of the continuing nature of the
PACA trust, United Fruit’s failure to pay the Sellers’ invoices
amounted to a “continuing violation.”
We have previously addressed the contours of the
continuing violations doctrine in Cowell v. Palmer Tp., 263
F.3d 286, 293 (3d Cir. 2001). In Cowell, plaintiffs alleged
that a township violated their Fourteenth Amendment due
process rights by imposing two liens on their properties. Id. at
291. Although the statute of limitations had run since the
initial imposition of the liens, the plaintiffs argued that the
liens amounted to a continuing violation until they were lifted
or expunged. Id. at 293. We disagreed, explaining that “[t]he
focus of the continuing violations doctrine is on affirmative
acts of the defendants.” Id. Adopting the view of the Fourth
Circuit, we stated that “‘[a] continuing violation is occasioned
14
by continual unlawful acts, not continual ill effects from an
original violation.’” Id. (quoting Ocean Acres Ltd. v. Dare
County Bd. of Health, 707 F.2d 103, 106 (4th Cir.1983)).
We find that reasoning equally applicable to claims
arising from a trust relationship and conclude that once
United Fruit and its officers failed to pay Sellers for the good
received, Sellers were on notice that the trustees were in
breach of their fiduciary duties. Nor are we persuaded that
the unique nature of the PACA trust changes our analysis.
We recognize that the trust created by PACA exists until a
seller is paid, 7 U.S.C. § 499e(c)(2), and “[p]articipants who
preserve their rights to benefits . . . remain beneficiaries until
they are paid in full,” 7 C.F.R. 46.46(c)(2). However, when
Sellers are not suing to enforce the trust obligations or to
preserve their shares of the trust res, but instead are suing the
trustee in tort for damages resulting from a breach of his
fiduciary duties, we believe that the statute of limitations must
accrue from the time that the trustee openly repudiates those
duties.4
We likewise reject the contention that the claims
against Scolio did not accrue until Sellers exhausted their
remedies as against United Fruit. Under the District Court’s
theory, the statute of limitations for bringing PACA claims
against Scolio did not accrue until December 29, 1999,
because it was only then that the Sellers “were on notice that
4
We emphasize that the statute of limitations applies to
actions against the trustee for breach of fiduciary duty.
15
United Fruits’s assets were insufficient to satisfy liability.”
Weis-Buy, 307 F. Supp. 2d at 691. However, Sellers were on
notice that the United Fruit’s assets may not be sufficient
when United Fruit first failed to pay its bills, and at the very
least, they were on notice that United Fruit might come up
short when it filed for bankruptcy protection in 1997.
Furthermore, because Sellers are suing Scolio in his
trustee capacity, it is irrelevant that they did not know whether
United Fruit would be able to satisfy Sellers claims. In
Donsco, Inc. v. Casper Corp., we explained that:
[a] corporate officer is individually liable
for the torts he personally commits and cannot
shield himself behind a corporation when he is an
actual participant in the tort. . . . His liability is in
no way dependent on a finding that [the
corporation] is inadequately capitalized, that the
corporation is a mere alter ego of [the officer],
that the corporate form is being used to perpetrate
a fraud, or that corporate formalities have not
been properly complied with. . . . The only
crucial predicate to [the officer]’s liability is his
participation in the wrongful acts.
587 F.2d 602, 606 (3d Cir. 1978). As Scolio’s liability is
wholly separate from the corporation’s liability, there is no
reason to require Sellers to first bring claims against the
16
corporation before pursuing claims against Scolio.5 Sellers
could have brought suit simultaneously, as the parties did in
Golman-Hayden Co., 217 F.3d at 349, or they simply could
have sued Scolio directly for breaching his duties.
2. Tolling
In the alternative, the District Court reasoned that if the
claims accrued when the invoices became overdue, “then the
5
Admittedly, some courts have suggested that individual
officer liability is determinable only after the plaintiff has shown
that the corporate assets are insufficient to satisfy the obligation.
For instance, in Golman-Hayden Co., the Fifth Circuit
explained:
PACA liability attaches first to the licensed
commission merchant, dealer, or broker of perishable
agricultural commodities. If, however, the assets of
the licensed commission merchant, dealer, or broker
are insufficient to satisfy the PACA liability, then
others may be held secondarily liable if they had
some role in causing the corporate trustee to commit
the breach of trust.
217 F.3d at 351 (footnotes omitted.). We do not read this
interpretation of PACA liability to mean that the injured party
cannot seek relief from the individual who is secondarily liable
until he has a judgment from the corporation that is primarily
liable, rather that the seller may only be on notice of the breach
of duty after first suing the corporation and discovering that the
assets were not preserved.
17
limitations period for bringing PACA claims against Mr.
Scolio would have been tolled while Plaintiffs first sought
relief from United Fruit. Under this scenario, the tolling
period would have ended on December 29, 1999, when
Plaintiffs learned that United Fruit’s assets were insufficient.”
Weis-Buy, 307 F. Supp. 2d at 691. Again, we see no
justification for tolling the statute of limitations.
“Equitable tolling functions to stop the statute of
limitations from running where the claim’s accrual date has
already passed.” Oshiver v. Levin, Fishbein, Sedran &
Berman, 38 F.3d 1380, 1387 (3d Cir. 1994). Generally,
“equitable tolling may be appropriate: (1) where the defendant
has actively misled the plaintiff respecting the plaintiff’s
cause of action; (2) where the plaintiff in some extraordinary
way has been prevented from asserting his or her rights; or (3)
where the plaintiff has timely asserted his or her rights
mistakenly in the wrong forum.” Id. None of these situations
is present here, and Appellees have offered no justification for
tolling the statute of limitations.
As explained infra, Sellers were not required to file
suit against United Fruit before pursuing an independent
action against Scolio. When Sellers were not timely paid,
they were on notice that United Fruit, and the responsible
parties inside United Fruit, had breached their trustee
obligations. At this point the Sellers should have attempted to
discover why payment was not forthcoming and who was
responsible. Instead, the Sellers sat on their hands, and even
after United Fruit filed for Bankruptcy protection in
December 1997, they did not file suit. Sellers were under no
18
misapprehension that their money was safe, nor could they
assume that no one inside United Fruit was liable for their
loss. Consequently, the statute of limitations was not tolled.
IV. CONCLUSION
Weis-Buy’s last invoice came due on October 3, 1997,
and Brigiotta’s last invoice came due on March 4, 1998.
Neither seller filed suit until April 26, 2000, a date plainly
later than two years after any of their invoices had come due
and more than two years after United Fruit originally filed for
bankruptcy. Because we conclude that the statute of
limitations had run on these claims before the actions were
filed, we need not determine Scolio’s individual liability, nor
determine whether the award of interest or attorneys’ fees
were appropriate.6 Instead, we remand to the District Court
for entry of judgment in favor of the Appellant.
6
While we have indicated our agreement that there are
circumstances under which officers may be held individually
liable for breaching their fiduciary duties arising from a PACA
trust, we express no opinion about the correctness of the District
Court’s conclusion that Scolio’s activities were enough to
establish individual liability under the facts in this case.
19