Future recovery rights at heart of PACA case

05/18/2012 04:28:00 PM
Coral Beach

For related coverage see "Adams bankrputcy deal could hamper PACA creditors"

With opposing lawyers describing each other as “rabble rousers” and “pontificators,” the multi-million dollar bankruptcy case and related Perishable Agricultural Commodities Act claims of more than $10 million against Adams Produce comes down to a question of who is willing to sign away future rights to pursue full payment.

Attorney Larry Meuers, who said he is a fourth-generation produce person, is representing 18 of the PACA creditors in the case, including Pro*Act LLC, which has the largest single claim against Adams at about $5 million. He and lawyers for PNC Bank, which was the bank for Adams Produce, Birmingham, Ala., and lawyers for other financial holding institutions involved in the case, are pushing for a compromise settlement.

A hearing on the compromise and other motions is set May 21 in the U.S. Bankruptcy Court in Birmingham.

Meuers said May 18 the compromise is the best option for all involved. It would provide back pay to about 400 Adams Produce employees and give PACA creditors between 80% and 100% payment, Meuers said.

“I’ve got clients who without this settlement are going to get creamed,” Meuers said. “I believe it’s a win-win situation.”

However, the compromise includes clauses that would bar PACA creditors from seeking full reimbursement in the future for outstanding balances, according to attorneys Jason Klinowski and Steve Leara, who are representing three of the PACA creditors.

Leara represents Alex Kontos Fruit Co. Inc., Birmingham, which is owed about $1 million in PACA claims. He said the compromise settlement probably would have been acceptable if it did not require PACA claimants to sign the wide-reaching waivers and releases.

Leara and Klinowski, who represents Grover Bailey Tomato House Inc., Pensacola, Fla., and Lee’s Produce, Thomasville, Ga., both said another huge problem with the proposed settlement is that no one knows what kind of PACA assets Adams Produce had or has because the company has not yet filed financial statements required in bankruptcy cases.

Bankruptcy Judge Tamara Mitchell granted Adams an extension until May 28 to file its financial statements.

Follow the money

“We want to know who the parties are, where the money is and how much there is,” Leara said May 18.

Meuers said if Leara and Klinowski had not “refused to OK a plan for a seven-day budget” so Adams could close up shop in an organized fashion, the financial statements would have been filed long ago.

Both Leara and Klinowski flatly denied having opposed such a plan.

“No PACA creditor has done more to move this case along than John Kontos,” Leara said. “He provided lines of credit to get four of the distribution centers back open, which put about 200 of the Adams employees back to work. He also hired five or six of the employees to work for him.”

Meuers said the people opposing the proposed compromise settlement “have not been intimately involved” in the proceedings or in the work on the settlement. He said he drafted the settlement along with lawyers representing PNC Bank and other parties in the case.

Klinowski agreed that he had not been involved, but only because he had not been invited to the negotiation table.

“If anyone would have said you can have 80 cents to a dollar on your claims without the liability release required, we would have said yes,” Klinowski said.

Leara was invited to the negotiations, and would be one of attorneys representing the three largest PACA claimants on a proposed PACA Beneficiary Committee under the proposed compromise. But, he said he isn’t interested in participating and maintains objections to the proposal.

He said until all of Adams’ financial information is available and requirements for his clients to sign away future rights to recover any outstanding balances are off the table he will not support the settlement.

In an adversary complaint opposing the proposed settlement Leara and Klinowski contend that PNC Bank and other entities in the case have illegally taken possession of PACA trust assets. They want the bankruptcy proceedings put on hold until a U.S. District Court can rule on the status of those assets.



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