A Pennsylvania produce broker has succeeded in defending its billing for $2 million in a case against Allens Inc. that includes more than $19 million in claims under the Perishable Agricultural Commodities Act.
D&E Farms Inc., Spring Grove, Pa., is one of 52 PACA creditors seeking payment from the bankrupt Siloam Springs, Ark., canned food company. The company declared bankruptcy in October 2013. In January Allens Inc. filed objections to 50 of the PACA claims totaling $18.3 million.
Many of the objections filed by Chicago lawyer Jason Klinowski on behalf of Allens Inc. — including the objection to D&E’s claim of $2,033,837 — involve billing procedures.
U.S. Bankruptcy Judge Ben Barry heard arguments on the objections in May. He ruled July 30 that D&E’s claims should be paid.
Gregory Brown, the attorney for D&E, estimates the final amount Allens Inc. will be ordered to pay the Pennsylvania company will be $2.25 million, including attorney fees.
“I think it’s important to note that the court rejected the debtors’ argument that ancillary expenses described in a pre-transaction agreement for the sale of produce are not covered by PACA,” Brown said.
“The court specifically held that D&E’s freight and fuel charges — the type of ancillary expenses debtors argued were not covered by PACA — are sums owing in connection with D&E’s PACA claim, and must be paid by debtors.”
Based on Judge Barry’s order, Brown speculated that more than half of the $18.3 million Allens objected to will have to be paid.
“Approximately $11 million of the total PACA claims were objected to by debtors based on this discredited legal argument,” Brown said. “We expect that all the decisions on the relevant claims will be decided the same way.”
Klinowski said the ruling was more about how the U.S. Department of Agriculture has approached PACA enforcement than it was about the interpretation of the law that he used to object to the claims from D&E Farms and other creditors.
“Judge Barry said that my view is grammatically correct, but the result of my otherwise correct interpretation contradicts the statute,” Klinowski said.
“ … As a result, the court elected to make findings about the rule itself and elected not to follow the rule at all. This opened the door for the court to overrule my objection because it no longer mattered how the debtors interpreted a rule the court declined to follow.”
Klinowski did prevail on Allens behalf related to interest charges claimed by D&E Farms. The produce supplier was seeking 18% interest, but Arkansas state law only allows 17%. The judge’s order states that the state law prevails under the circumstances of the case.