Wednesday, November 6, 2019

Shareholders and Officers of Business Corporation Personally Liable for Violation of PACA

Shareholders and Officers of Business Corporation Personally Liable for Violation of PACA

In a recent decision from Georgia, the court held that certain officers and shareholders of a corporation could be held personally liable for violations of the Perishable Agricultural Commodities Act of 1930 (“PACA”). Baker & Murakami Produce Company LLLP v. Weng Farms Inc., Case No. CV 418-0252, 2019 WL 5491895 (S.D. Ga. Oct. 24, 2019).

The plaintiffs alleged that they had sold produce to the defendant Weng Farms, Inc., but had not been paid. The amounts due and owing were $302,078.25. The plaintiffs sought to hold Lea Weng and William Foster, owners and officers of Weng Farms, personally liable on those claims. Normally, that would not be possible because the shareholders and officers of business corporations are not personally liable for its debts and obligations. In this instance, all else was not equal. Rather, the product that had been sold was agricultural produce and, under PACA, assuming certain notices requirements are satisfied (they were in this case), there is imposed upon the purchaser of produce a statutory trust for the proceeds from which the seller would be paid.

Weng Farms never answered the complaint. In this decision awarding a default judgment against the individual defendants (default was not sought against Weng Farms itself), that default judgment was justified on the basis that:

Individual defendants are subject to personal liability under the PACA when they “are in a position to control PACA trust assets,” such as officers, directors, and shareholders “and fail to maintain the assets.” 2019 WL 5491895, *4 (citations omitted).

The court went on to find that the claim for attorney’s fees incurred in connection with the action were due and owing and were likewise subject to the PACA trust.

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