Produce Vendors Want Trust Payments

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In this suit by fresh produce vendors to collect on their accounts receivable with distributor Let-Us Produce, a Norfolk U.S. District Court denies requests for immediate distribution and construes the controlling federal statute that sets up a trust fund from the distributor’s operating account, and orders the vendors to submit updated claims.

It is undisputed that the numerous plaintiffs in this action sold produce to defendant Let-Us Produce on credit and that defendant accepted the shipments of produce but failed to remit payment on all invoices currently before the court. The acceptance of such produce on short-term credit resulted in plaintiffs potentially qualifying as beneficiaries in a statutory trust designed to protect produce suppliers pursuant to the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. § 499e(c).

The consent Claims Procedure Order was entered in this case in an effort to identify all valid PACA trust claims and to efficiently and cost effectively distribute available funds to PACA claimants. Intervener defendant SunTrust is a secured creditor of Let-Us. Several plaintiffs have filed the instant joint motion for interim distribution of funds held in the Let-Us operating account.

The overriding issue in this case is the legal impact of a produce supplier extending credit for periods between 11 and 30 days absent a prior written agreement to modify the default 10-day PACA credit period.

The PACA statute and regs include two clear prerequisites to qualify for trust coverage: timely notice of the assertion of PACA trust rights; and credit cannot be extended beyond 30 days. The statute and regs further state that agreements to extend credit beyond 10 days must be in writing and be executed prior to the relevant produce transaction. However, what both the statute and regs lack is a reference to the effect of failing to comply with such provision. If the regulatory provision setting forth the writing requirement is viewed in isolation, it could be deemed a prerequisite to obtaining trust protection. However, when considering such language in the context of the entire regulatory and statutory scheme, it appears more appropriately categorized as a provision establishing the unenforceability of non-conforming agreements. Case law from the 4th Circuit appears to support the interpretation that the failure to reduce to writing a permissible agreement extending credit terms simply results in the unenforceability of such agreement. This court’s interpretation of the statute and regulation is in line with the majority rule. There does not appear to be any circuit court that has invalidated for lack of a writing a timely noticed PACA claim associated with a permissible short-term extension of credit for more than 30 days.

The court finds that non-conforming agreements to extend payment terms for more than 10 days, but in no case more than 30 days, do not invalidate timely noticed and otherwise valid PACA trust rights.
The court finds that other than the payment of reasonable collection expenses, the entirety of the funds in the operating account are PACA trust assets.

The majority of the claimants seeking PACA protection in this action admittedly have no prior written agreements with defendant Let-Us Produce. However, such claimants nevertheless qualify for PACA trust benefits as such sellers did not extend credit beyond 30 days, and they notified defendant Let-Us Produce of their intent to claim PACA rights through timely invoice notice.

The court’s finding of validity as to claims asserted by nearly all the plaintiffs results in valid PACA claims that exceed the funds held in the Let-Us Produce operating account. Although the instant motion seeks an early disbursement, the lack of clarity as to the amount currently in the account and/or amount necessary for future collection costs, as well at the apparent disputes regarding some claimants’ asserted rights to interest and fees, create obstacles to immediate distribution. Counsel for plaintiffs are instructed to submit to the court an updated PACA Claims chart.

Produce Alliance v. Let-Us Produce (Friedman) No. 2:10cv198, March 31, 2011; USDC at Norfolk, Va. VLW 011-3-193, 28 pp.