                                                            NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                ____________

                               Nos. 13-4326 and 13-4426
                                    ____________

                      FOOD TEAM INTERNATIONAL, LTD.

                                          v.

                    UNILINK, LLC; GARY GREGORY;
                   AKBAR BOUTARABI; MIKE MOORE;
            PENNSYLVANIA FOOD GROUP, LLC; MARC BEHAEGEL

            Unilink LLC, Akbar Boutarabi, Gary Gregory, Marc Behaegel,
                                           Appellants in case no. 13-4326

                            Food Team International, Ltd.,
                                           Appellant in case no. 13-4426


                   On Appeal from the United States District Court
                       for the Eastern District of Pennsylvania
                          (District Court No.: 5:10-cv-3584)
                   District Judge: Honorable James Knoll Gardner


                           Argued on November 20, 2014

      Before: MCKEE, Chief Judge, RENDELL and SLOVITER, Circuit Judges


                          (Opinion filed: December 17, 2014)
Michael J. Keaton, Esquire (Argued)
Keaton Law Firm, P.C.
707 Lake Cook Road, Suite 300
Deerfield, IL 60015

Leslie Beth Baskin, Esquire
Spector, Gadon & Rosen, P.C.
1635 Market Street, 7th Floor
Philadelphia, PA 19103

                     Counsel for Appellee/Cross-Appellant


Mark C. H. Mandell, Esquire (Argued)
42 Herman Thau Road
Annadale, NJ 08801

                     Counsel for Appellants/Cross-Appellees



                                       O P I N I O N*


RENDELL, Circuit Judge:

       Unilink LLC (“Unilink”) and three of its officers, Gary Gregory, Marc Behaegel,

and Akbar Boutarabi (“Defendant-Officers”; together, “Defendants”) appeal the District

Court’s summary judgment order and its judgment after a bench trial. Unilink and

Defendant-Officers challenge the District Court’s finding that they are liable to Food

Team International Ltd (“Food Team”) under the Perishable Agricultural Commodities

Act (“PACA”). Food Team cross-appeals, seeking sanctions and attorneys’ fees. We

will reverse the District Court’s judgment against Defendant-Officers, remand for further

consideration of sanctions, and affirm in all other respects.

                                   I. BACKGROUND

       Unilink and Food Team entered into installment contracts for Unilink to buy

vegetables from Food Team. Subsequently, Unilink unilaterally canceled the contracts

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
                                              2
and refused to pay the full amount owed, because Food Team’s vegetables were

supposedly contaminated. On July 21, 2010, Food Team filed a complaint against

Defendants for the amounts due. Unilink then sold all its assets to a third party and

transferred the proceeds to Pennsylvania Food Group LLC (“PFG”), Unilink’s parent.

On summary judgment, the District Court held Unilink and Defendant-Officers jointly

and severally liable for certain vegetable shipments, and Unilink separately liable for

other shipments. After a bench trial, the District Court held Unilink liable for additional

shipments and found that the vegetables were not contaminated. The District Court did

not consider the imposition of sanctions under Rule 26 for Defendants’ failure to notify

Food Team that there was insurance coverages for the losses, but it did consider—and

disallow—Food Team’s request for attorneys’ fees.

                                    II. DISCUSSION

       A. Unilink’s Liability

       PACA provides that it shall be unlawful, inter alia, “[f]or any commission

merchant, dealer, or broker . . . to fail or refuse truly and correctly to account and make

full payment promptly in respect of any transaction in any such commodity to the person

with whom such transaction is had.” 7 U.S.C. § 499b(4). Unilink is liable under

§ 499b(4) for failure to “make full payment promptly.” Id. The District Court properly

considered whether Unilink had paid Food Team in accordance with the contracts for the




                                              3
shipments it had accepted. Because Unilink did not do so, Unilink is liable under PACA

for its breach of contract, and the District Court’s ruling to this effect was appropriate.1

       B. Defendant-Officers’ Liability

       PACA also allows for a non-segregated trust for the protection of producers and

growers. Id. § 499e(c)(2). If an unpaid supplier, seller, or agent gives written notice of

its intent to preserve the benefits of the trust, id. § 499e(c)(3), then the commission

merchant, dealer, or broker shall hold any perishable agricultural commodities received,

or proceeds resulting therefrom, “in trust for the benefit of all unpaid suppliers or sellers

of such commodities or agents involved in the transaction, until full payment of the sums

owing in connection with such transactions has been received by such unpaid suppliers,

sellers, or agents,” id. § 499e(c)(2).

       “[O]fficers and shareholders, in certain circumstances, may be held individually

liable for breaching their fiduciary duties under [the PACA trust].” Weis-Buy Servs., Inc.

v. Paglia, 411 F.3d 415, 421 (3d Cir. 2005). “Individual liability in the PACA context is

not derived from the statutory language, but from common law breach of trust

principles.” Id. In assessing individual liability, a court must (1) “determine whether an

individual holds a position that suggests a possible fiduciary duty to preserve the PACA

trust assets (e.g., officer, director, and/or controlling shareholder)”; and (2) “assess

whether that individual’s involvement with the corporation establishes that she was

actually able to control the PACA trust assets at issue.” Bear Mountain Orchards, Inc. v.

1
  To the extent that Defendants challenge the calculation of Unilink’s damages, Unilink
has failed to show that the District Court’s calculation was “clearly erroneous.” Lerman
v. Joyce Int’l, Inc., 10 F.3d 106, 113 (3d Cir. 1993).
                                               4
Mich-Kim, Inc., 623 F.3d 163, 172 (3d Cir. 2010). In addition, an individual is not liable

unless the “‘individual . . . does not preserve [the trust assets] for the beneficiaries.’”

Weis-Buy, 411 F.3d at 421 (emphasis added) (quoting Morris Okun, Inc. v. Harry

Zimmerman, Inc., 814 F. Supp. 346, 348 (S.D.N.Y. 1993)).

         Here, all Defendant-Officers held positions suggesting a possible fiduciary duty to

preserve the PACA trust assets. Gregory was Unilink’s president; Behaegel was a vice

president; and Boutarabi was the plant manager/supervisor. They were three of the seven

stockholders of Unilink’s parent, PFG.

         However, Food Team did not meet its burden to show that Defendant-Officers

were actually able to control the PACA trust assets. The District Court concluded that

they had control based on Unilink’s admission that Defendant-Officers “were, during the

time of the transactions in issue, officers and persons with discretionary control of

Unilink.” (App. 45, 216.) But having discretionary control of Unilink is not synonymous

with being actually able to control the PACA trust assets, especially considering that, as

the District Court found, “nothing of record establishes the involvement of Mr. Behaegal

[sic], [or] Mr. Boutarabi . . . in the operations of Unilink or how they were able to

actually exercise control of the PACA trust assets at issue in this matter.”2 (Id. at 44

n.36.)

         Food Team has also failed to show that, individually, Defendant-Officers did

anything resulting in the trust assets not being preserved. Granted, when Unilink sold its

2
 The District Court distinguished the record evidence for Gregory because Gregory had
admitted that “he negotiated the contracts at issue.” (App. 44.) But Gregory’s contract
negotiations do not show that he was actually able to control the PACA trust assets.
                                               5
assets, PACA required Unilink to retain, until the resolution of the dispute, enough of the

sale proceeds to cover Food Team’s PACA trust claims, instead of disbursing the entire

amount to PFG (as Unilink did). However, there is no evidence of Defendant-Officers’

role in the decision to disburse the proceeds. Without some evidence of what role

Defendant-Officers played, they cannot be held liable.3 Accordingly, we will reverse the

District Court’s ruling imposing liability on Defendant-Officers.

       C. Attorneys’ Fees Provision

       The parties dispute whether Food Team’s attorneys’ fees provision was

incorporated into the parties’ contracts. This provision appeared only in the last two of

Food Team’s thirty invoices to Unilink, and those two invoices were sent after the

parties’ relationship had soured. On summary judgment, the District Court determined

that the provision did not become part of the contracts.

       Under Pennsylvania law, additional terms become part of a contract between

merchants unless: “(1) the offer expressly limits acceptance to the terms of the offer; (2)

they materially alter it; or (3) notification of objection to them has already been given or

is given within a reasonable time after notice of them is received.” 13 Pa. Cons. Stat.

§ 2207(b). The parties dispute only whether the provision “materially alters” the

contracts. “A material alteration is one that would ‘result in surprise or hardship if

incorporated without express awareness by the other party.’” Standard Bent Glass Corp.




3
Given that Defendant-Officers are not liable, we need not discuss whether the District
Court should have applied certain offsets to their liability.
                                              6
v. Glassrobots Oy, 333 F.3d 440, 448 n.12 (3d Cir. 2003) (quoting Aceros Prefabricados,

S.A. v. Tradearbed, Inc., 282 F.3d 92, 100 (2d Cir. 2002)).

       Pennsylvania law generally treats attorneys’ fees provisions as materially altering

a contract. See Herzog Oil Field Serv., Inc. v. Otto Torpedo Co., 570 A.2d 549, 551-52

(Pa. Super. Ct. 1990). Although Herzog was not decided on summary judgment, id. at

549, “summary judgment may be appropriate when the parties cannot honestly dispute

that a term would result in surprise or undue hardship,” Trans-Aire Int’l, Inc. v. N.

Adhesive Co., 882 F.2d 1254, 1261 (7th Cir. 1989). Even if an attorneys’ fees provision

is sometimes “standard practice” in the industry, it was not standard practice here, as

Food Team’s first twenty-eight invoices did not contain such a provision. Moreover,

here the attorneys’ fees provision is overly broad and therefore particularly surprising: it

applies to “‘all attorneys’ fees’ in connection with collection of past due invoices,” not

just reasonable fees and not just the fees relating to the two invoices containing the

provision. (App. 38.) Accordingly, Food Team has failed to establish that the attorneys’

fees provision became part of the contracts, and we will affirm this aspect of the District

Court’s ruling.4

       D. Rule 26 Sanctions

       The parties dispute whether the District Court should have sanctioned Defendants

and their counsel for their failure to disclose Unilink’s insurance policy. Rule 26(a)


4
  Food Team argues that Gregory conceded that the attorneys’ fees provision was not
surprising, but there is no evidence of this concession in the record. At summary
judgment, the District Court noted that Food Team had failed to offer any evidence that
Gregory made this concession, and this problem persists on appeal.
                                              7
provides that, except in certain situations that do not apply here, “a party must . . .

provide to the other parties: . . . any insurance agreement under which an insurance

business may be liable to satisfy all or part of a possible judgment in the action or to

indemnify or reimburse for payments made to satisfy the judgment.” Fed. R. Civ. P.

26(a)(1)(A)(iv). Defendants urge that Food Team waived this issue by not raising it in

the District Court and that Food Team loses on the merits.

       Rule 26(g) provides that, in the event of a Rule 26 violation, “the court, on motion

or on its own, must impose an appropriate sanction on the signer, the party on whose

behalf the signer was acting, or both.” Fed. R. Civ. P. 26(g)(3) (emphasis added). This

mandatory language means “[t]here is no requirement that the [parties] have asked for the

imposition of sanctions,” as district courts have the “duty . . . to determine whether to

impose sanctions even if the [parties] had not invited [their] attention to the issue.” City

of Livonia Emps.’ Ret. Sys. v. Boeing Co., 711 F.3d 754, 761 (7th Cir. 2013) (interpreting

15 U.S.C. § 78u-4(c), which also gives district courts an obligation to impose sanctions

regardless of whether the parties raise the issue). The District Court’s “failure to do so

made the final judgment—an appealable order, of course—vulnerable to challenge.” Id.

at 761-62. Thus, the District Court had an independent duty to consider sanctions, and

Food Team’s failure to request sanctions did not result in waiver.

       As for the merits, Defendants should have disclosed the insurance policy.

Unilink’s insurance company, Philadelphia Indemnity Insurance Company (“PIIC”),

notified Unilink that it would provide coverage for the litigation. PIIC acknowledged

that it “shall pay on behalf of the Individual Insured . . . for D&O Wrongful Acts, except

                                               8
to the extent the Private Company has indemnified the Individual Insured.” (Defs. Opp.

to Mot. To File Suppl. App., Ex. B, at 2.) “D&O Wrongful Acts” include claims for

“breach of duty.” (Id. at 3.) Count Six of Food Team’s complaint asserted that

Defendant-Officers breached their fiduciary duties, making this policy directly relevant.

Thus, this policy should have been disclosed.5 However, we offer no opinion as to

whether Defendants’ failure to disclose the insurance policy was done without substantial

justification, and we will remand for further consideration. See Grider v. Keystone

Health Plan Cent., Inc., 580 F.3d 119, 140 (3d Cir. 2009).6

                                  III. CONCLUSION

       We will reverse the judgment against Defendant-Officers, affirm the judgment

against Unilink and the District Court’s ruling denying attorneys’ fees, and remand for

consideration of Rule 26 sanctions.




5
  Further, the insurance policy covers “claims first made during the policy period,” and
does not require claims to have accrued during the policy period. (Defs. Opp. to Mot. To
File Suppl. App., Ex. B, at 2 (emphasis added).)
6
  Given that Food Team has shown that remand is appropriate, we will deny Defendants’
motion for appellate sanctions for Food Team’s decision to appeal this issue.
                                            9
