In Re: NATHAN AARON FORREST, MARSHA WEIDMAN FORREST

Case Type:
Business
Case Status:
Affirmed
Citation:
21-12133 (11th Circuit, Aug 31,2022) Published
Tag(s):
Ruling:
The U.S. Court of Appeals for the Eleventh Circuit affirmed a bankruptcy court order dismissing a creditor's amended pleading upon concluding that § 523(a)(4) does not except debts of a trustee under the Perishable Agricultural Commodities Act (PACA), adopting a 3-part test for when a debtor is acting in a "fiduciary capacity" under subsection: relationship must have (1) a trustee, identifiable res, and identifiable beneficiaries, and (2) impose trust-like duties adequate to create a technical trust; and (3) debtor must be acting as a fiduciary prior to the debt-creating fraud or defalcation.
Procedural context:
On May 15, 2020, Nathan and Marsha Forrest (Forrests or DRs), filed a chapter 7 petition in the U.S. Bankruptcy Court for the Middle District of Florida (BC). Spring Valley Produce, Inc. (SVP), which had sold their business--Central Market of FL, Inc. (Central Market)--produce to Central Market, was one of their unpaid prepetition creditors. In filing, the DRs hoped to discharge all of their business debts, including the debt owed to SVP. The order before the U.S. Court of Appeals for the Eleventh Circuit (Circuit), appealed by SVP, ended the adversary it had commenced on August 14, 2020. In its first and amended complaints, SVP sought a declaration that the debt is nondischargeable under § 523(a)(4). Specifically, citing to PACA (see factual summary), SVP argued that: (1) Central Market had incurred the debt "while acting in a fiduciary capacity" because it served as a PACA trustee at the time it failed to pay the required sums, and (2) as the DRs were the principals of Central Market, they were personally liable for that PACA-related debt. The DRs moved to dismiss SVP's second pleading, their primary, if not necessarily sole, attack focusing on one argument: that, because PACA does not require segregation of trust assets nor prohibit use of trust assets for non-trust purposes, § 523(a)(4) does not apply to PACA-related debts, Concluding that a PACA trust lacks the crucial element of a segregated trust res, the BC granted the DRs' motion. "Given the importance of this issue and the split of authority within th[e Eleventh C]ircuit," however, the BC the certified its order for direct appeal to the Circuit pursuant to 28 U.S.C. § 158(d).
Facts:
The Forrests are owners and officers of Central Market of FL, Inc. (Central Market), which buys and sells produce. SVP sold $261,504.15 worth of produce to Central Market for which Central Market never paid. During the transactions at issue, SVP and Central Market were licensed under PACA. SVP preserved its right as a PACA trust beneficiary by including the required statutory statement on its invoices to Central Market. Upon receiving and accepting SVP’s produce shipments, Central Market became a PACA trustee of a trust res consisting of that produce.
Judge(s):
Charles R. Wilson; Elizabeth L. Branch; and Barbara Lagoa

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