A federal judge has ruled in favor of a family-owned Wisconsin grower-shipper in the Allens Inc. bankruptcy case, awarding more than $8 million under the Perishable Agricultural Commodities Act.
Hartung Brothers Inc., Madison, Wis., was one of 52 PACA creditors to file claims against Allens Inc. when the Siloam Springs, Ark., company filed bankruptcy in October 2013. Allens has since been purchased and is now known as All Veg LLC, but the PACA and bankruptcy proceedings continue.
Chicago attorney Jason Klinowski, representing Allens, filed objections to $18.3 million of the more than $19 million in PACA claims against the company. In his 54-page objection, Klinowski used what he described as a rarely used exception to the general rule related to transportation costs and other ancillary expenses.
If a produce seller wants to recover such costs as part of a PACA trust claim, Klinowski contends there are two options.
“They can either specifically ask for those costs in a contract, or decline to enter into a pre-transaction agreement, and thus use invoices only to document the transaction,” Klinowski said.
Most PACA claims are based on invoices, Klinowski said Oct. 14, but the Hartung Brothers claim involves a pre-transaction agreement.
Several Allens suppliers are challenging Klinowski’s argument. In one challenge, Bankruptcy Judge Ben Barry already ruled against Klinowski’s interpretation. That was a $2 million claim from D&E Farms, Spring Grove, Pa., which also involved a pre-transaction agreement, Klinowski said. Allens has appealed that ruling.
The appeal contends that Judge Barry erroneously changed a word in the PACA statute in his order. Klinowski contends that by changing the phrase “the sums owing” to “all sums owing” the judge bungled the ruling.
Klinowski said when the actual PACA language of “the sums owing” is applied, it leaves open to debate certain charges such as transportation costs in cases that involve pre-transaction agreements.
“We have always said there are some charges we (Allens) definitely owe, like interest,” Klinowski said, but he added that some other charges are not owed in some claims.
Representing Hartung Brothers, attorney Greg Brown disagrees with Klinowski’s application of the law, as did Judge Barry in an Oct. 9 ruling in favor of Hartung Brothers. The judge incorporated his D&E ruling in the Hartung ruling, thus making the same “the” versus “all” mistake, Klinowski said.
Brown said as of the most recent tabulation, in December, Allens owed Hartung slightly more than $8 million. However, with additional interest and fees, he said he expects the total owed to be about $9 million.
Klinowski said Allens has until Oct. 23 to decide whether to appeal the Hartung ruling.
Brown does not expect the appeals court to overturn the D&E or Hartung rulings, if an appeal is filed against it.
“If debtors’ counsel, Jason Klinowski, can convince the appellate court to reverse the bankruptcy court’s decision, the effect could be to reduce the amount that can be recovered by PACA creditors in the future as ‘sums owing’ in connection with PACA transactions. But we think that is unlikely,” Brown said.