The PACA Trust Creditors v. Genecco Produce Inc.

Second Circuit interprets PACA to preclude setting off debts and credits from the sale of perishable agricultural commodities.

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Case Type:
Case Status:
17-1949-cv, 17-2051-cv (2nd Circuit, Jan 09,2019) Published
Defendant in PACA action, which was both a supplier to, and a buyer of, produce from the debtor, was not entitled to a complete offset of such mutual obligations existing on the bankruptcy filing date because PACA assets (i.e., the right to amounts owed to the debtor) were held in trust for the benefit of the debtor's unpaid produce suppliers generally and never became property of the debtor's bankruptcy estate. Only defendant's pro rata share of assets subject to the PACA trust was eligible for offset, and defendant's claim was valid under circumstances even though it had not filed a claim.
Procedural context:
In adversary proceeding brought in chapter 7 case, the United States District Court for the Western District of New York (William M. Skretny, Judge) entered summary judgment in favor of plaintiffs, adopting the bankruptcy judge's report and recommendation. That decision was appealed to the Court of Appeals for the Second Circuit.
Defendant GPI and debtor LPP sold produce subject to the Perishable Agricultural Commodities Act ("PACA") to each other in the ordinary course. As of the date of LPP's chapter 7 filing, GPI owed LPP approximately $205,000, and LPP owed GPI approximately $263,000. Plaintiffs, unpaid sellers of PACA produce brought an adversary proceeding in the bankruptcy court against GPI. They argued that the $205,000 owed by GPI to LPP constituted assets of a trust that arose for their benefit under PACA, and GPI argued that it was entitled to a complete offset of any amounts otherwise constituting trust assets by virtue of the greater amount due GPI from LPP.
Sack, Raggi, and Chin, Circuit Judges

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