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Agricultural Law

A solid advantage in serving agribusiness

Agri-Law

Agricultural Law

Rynn & Janowsky has developed a solid history of success in representing agribusiness. We handle marketing disputes governed by the California Food and Agricultural Code and the federal Perishable Agricultural Commodities Act (PACA). The firm’s expertise in PACA law, including enforcement of PACA Trust rights, and defense of disciplinary and license revocation actions, is recognized nationwide.

We also handle a substantial volume of commercial litigation both in state and federal courts throughout the United States. The firm has experience with obtaining extraordinary remedies for its clients, such as temporary restraining orders, preliminary injunctions and writs of attachment.

Apart from litigation, Rynn & Janowsky devotes a significant amount of its practice to drafting and negotiation growing, marketing and related agreements on behalf of agricultural and non-agricultural clients.

Perishable Agricultural Commodities Act (PACA)

Understanding the Perishable Agricultural Commodities Act (PACA)
“PACA Trust” is one of the most used, yet least understood terms in the produce industry. Signed into law back in 1930, Congress amended the Perishable Agricultural Commodities Act (“PACA”) in 1984 to include the statutory trust provisions. These provisions resulted in the collection of millions of dollars in past due receivables with little or no understanding of what the trust is and how it actually works. The PACA Trust operates according to general trust law. Sellers who learn these general trust law principles, will better understand the trust and how it operates, thereby increasing the rate of success in the recovery of past due receivables. The trust under the PACA is usually enforced in the federal courts (U.S. District Courts and Bankruptcy Courts).

The situation before PACA
Prior to the PACA trust, if a produce buyer became insolvent, produce sellers had to stand in line behind secured creditors such as banks for payments. As last in line, produce sellers often received no money for their produce. Congress wanted to fix this problem because it was concerned that non-payment to produce suppliers was threatening the financial stability of the produce industry. Their goal was simple – to ensure that produce buyers used the proceeds of produce to pay the sellers of that produce. Congress also sought to prevent produce buyers from using the proceeds of produce, for which the produce sellers had not received payment, to pay their non-produce related expenses.

Congress could have followed state imposed remedies and given the produce sellers a lien on the buyer’s inventory or requiring that buyers be bonded. Instead, Congress chose to impose a trust on the parties to a produce sales transaction. This unique choice creates a fiduciary relationship between produce sellers and produce buyers. It gives produce sellers the most potent collection tool afforded any industry – a trust, which provides them with superior creditor rights over other creditors.

What is a trust?
A trust is an obligation imposed by agreement or law, where one person holds and controls property for the benefit of another. A trust must have four elements: a trustee, trust assets, trust beneficiaries and a trust purpose. With the PACA Trust, its terms are set up by law. Since a federal statute (PACA) set up the trust, it is called a statutory trust. The “purpose” is to protect unpaid produce sellers. The “trustee” is the produce buyer. The “trust assets” are the buyer’s produce inventory, products made from produce and proceeds from their sale. The “trust beneficiaries” are all unpaid produce sellers, who properly preserved their rights as PACA trust beneficiaries.

Preserving PACA Trust Rights and Enforcing PACA Trust Claims in Federal Courts

Produce sellers must preserve their PACA trust rights to become PACA trust beneficiaries. This is done by sending a document entitled “Notice of Intent to Preserve Trust Benefits” to the buyer within thirty (30) days after expiration of the parties’ payment terms. Alternatively, a produce seller, who is licensed under PACA, may preserve its trust rights by including language required by the PACA statute on the face of its invoice to notify the buyer that the produce is sold subject to the trust.

PACA law mandates that the produce buyer/trustee must maintain sufficient PACA trust assets to pay PACA trust claims as they become due. If non-PACA trust assets are commingled with PACA trust assets, under trust law, all of the assets are impressed with the PACA trust. The buyer/trustee has the burden of proving which assets are not subject to PACA.

Provided a seller has properly preserved its PACA trust rights, then it can file in federal court to enforce these trust rights. This can include filing a simple lawsuit, but it also can include seeking to obtain injunctive relief. This type of relief entails requesting emergency relief in the form of a temporary restraining order (TRO) or Preliminary Injunction to freeze all PACA trust assets so that they are not completely dissipated.

Resolving Produce Related Disputes

In addition to filings actions federal court to enforce PACA trust rights, to resolve other produce related disputes, the parties have the following options:

1. Informal Reparation Complaint with the PACA Branch of the U.S.D.A.
While we typically recommend enforcing your claim in the federal courts, there are some disputes that may be better suited for an administrative reparation proceeding before the PACA Branch. The filing fee for the Informal Complaint is $100.00, and an aggrieved party can file against a PACA licensee either using an attorney or on its own, without an attorney if it chooses to do so. If the amount at issue is over $30,000.00, either party may request an oral hearing to decide the dispute. If the amount at issue is under $30,000.00, then the shortened or documentary procedure will be used to adjudicate the claims. In a shortened procedure case, all evidence is submitted in writing (Opening Statement, Answering Statement, Statement in Reply, and Briefs). The statute of limitations for filing an Informal PACA reparation complaint is only nine (9) months from the date the cause of action accrued, so to file with the PACA Department, you must be diligent so that the claim does not become untimely.

2. Formal Reparation Complaint filed with the PACA Branch of the U.S.D.A.
If the dispute is not settled during the Informal Reparation Complaint stage, then the Complainant will be invited to file a Formal Complaint. The filing fee for a Formal Complaint is $500, and as set forth above, depending on the amount of the claim, an oral hearing may be available. The advantage of requesting an oral hearing is that the prevailing party can request recovery of its attorney fees in connection with the oral hearing. However, if you use invoices with attorney fee language on them, you may be awarded your attorney fees, even if an oral hearing does not occur.

3. Enforcement of PACA Reparation Award in Federal Court
If you obtain a favorable reparation award from the U.S.D.A., then the losing party has to pay you. If it does not, then the PACA Department will suspend its PACA license, which is required to operate. If the losing party is out of business or unlawful, it may not care about maintaining its PACA license in good standing. If it does not pay the award, then you can file a federal court action to enforce the PACA Reparation award in your favor. The other side will be able to present new evidence, but the burden of proof is in your favor as the party with the Reparation award in its favor. Also, should you prevail in the federal lawsuit to enforce the reparation award, then the statute provides your attorney fees are to be added to the judgment.