July 2020 - 10

PACA offers trust help from buyer default, bankruptcy
By Dean Peterson
VGN Correspondent
The 1984 amendments to the Perishable
Agricultural Commodities Act (PACA)
established a trust to protect fruit and
vegetable growers who weren't paid for
their product.
Does the trust fund reflect current
market practices? Is the process for using
the trust fund adequate? These are good
questions, but PACA is still law and the
trust fund still offers protections.
The PACA trust provisions give
sellers of fresh and frozen fruits and
vegetables priority in obtaining unpaid
money if buyers become insolvent or
file for bankruptcy.
" There is always a long line of
creditors when a company goes
bankrupt, " said Elizabeth Rumley,
senior staff attorney with The National
Agricultural Law Center. " The PACA
trust can provide sellers with priority
on money that's available. "
Rumley spoke on PACA at the Great
Lakes Fruit, Vegetable and Farm Market
EXPO in Grand Rapids, Michigan.
The National Agricultural Law Center
is a unit of the University of Arkansas
Division of Agriculture and is a leading
source for agricultural and food law
research and information.
Under PACA, growers who sell produce
to many types of buyers are eligible to
participate in the trust. Buyers must
maintain the trust funds for fruits and
vegetables received but not yet paid for. If
there is a business failure or bankruptcy,
the buyer's assets are not available to other
creditors until all valid trust claims have
been satisfied.
PACA requires anyone who buys or
sells more than 2,000 pounds of fresh or
Elizabeth Rumley, senior staff attorney
with The National Agricultural Law
Center. Photo: Dean Peterson.
frozen fruits and vegetables in any day to
be licensed. A person who negotiates the
sale of fruits and vegetables on behalf of
another person must also be licensed. A
retailer whose after-invoice costs of fresh
and frozen fruits and vegetable purchases
exceed $230,000 in a calendar year or a
seller whose sales exceed $230,000 of fresh
and frozen fruits and vegetable in a year
must both be licensed.
The USDA's Agricultural Marketing
Service (USDA/AMS) implements PACA.
Licenses are available from the USDA at
www.ams.usda.gov.
Growers can choose to be licensed
even if not required to be. In order to take
advantage of PACA trust protections,
Rumley said, " if sellers are required to be
licensed or choose to be licensed they must
have this language on their invoice:
" The perishable agricultural
commodities listed on this invoice are sold
subject to the statutory trust authorized by
section 5(c) of the Perishable Agricultural
Commodities Act. 1930 (7 U.S.C. 499(c)).
The seller of these commodities retains
a trust claim over these commodities,
all inventories of food or other products
derived from these commodities, and
any receivables or proceeds from the sale
of these commodities until full payment
is received. "
Non-licensed growers must also take
steps to preserve their rights as trust
beneficiaries. " If you're not licensed, you
can still be protected but it's a little trickier, "
Rumley said.
Non-licensed growers must provide
a written notice to the buyer. It must
include a statement that it's a " notice of
intent to preserve trust benefits " and
include the names and addresses of the
seller, commission merchant, or agent,
and the debtor. The written notice must
include the transaction date, commodity,
invoice price, payment terms, and
amount past due and unpaid. Notification
must be given within 30 days from the
day payment was due or 30 days from
being notified a submitted payment was
returned for insufficient funds.
Both licensed and unlicensed growers
must agree to payment terms - if the
terms are different from PACA's prompt
payment terms (usually 10 days) - in
writing with the buyer before entering
into the transaction. Payment terms
cannot exceed 30 days from the product
acceptance date, or the trust protections
will no longer apply.
Attorney fees and finance charges can be
part of a PACA trust claim if they are part
of the contract between buyer and seller.
" You can receive the cost of that product
and can also receive the cost of interest and
lawyer fees, " Rumley said.
PACA trust beneficiaries have
significantly more protections in
general, debt-recovery cases than other
creditors. These protections prevent a
buyer from further transferring PACA
trust assets and allow beneficiaries to
apply for temporary restraining orders
to freeze debtor assets. Beneficiaries can
also recover trust assets transferred to
third parties.
PACA trust beneficiaries can also hold
the buyer's principals or shareholders
personally liable for any shortfall in
the PACA trust. In a bankruptcy, what
beneficiaries are owed can be withheld
from the bankruptcy estate which
means faster payment. After bankruptcy
judgment is entered, trust beneficiaries
have a superior claim to trust assets over
other creditors including the IRS.
Not all attorneys are familiar with
PACA and it's important to remember
these are perishable commodities. " Time
is important, " Rumley said. " Establishing
a relationship with an attorney is
important so you can get advice quickly. "
The USDA/AMS has established a
dispute resolution component in PACA.
" Disputes regarding the quality, grade or
condition of product are frequently resolved
with a USDA inspector, " Rumley said.
The PACA Division of USDA/AMS can
investigate potential PACA violations.
" Anyone can submit a complaint, "
Rumley said.
Several states have also passed their
own PACA-type legislation. " If you buy
produce or grow and sell produce in
these states, there are other rules as well, "
Rumley said. The list of states includes
Florida, Georgia, Idaho, Minnesota, New
Jersey, New York, Oregon, Texas, Utah
and Washington.
More information on PACA is available at
http://nationalaglawcenter.org/ research-bytopic/paca/
and www.ams.usda.gov. VGN
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July 2020

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