PRODUCE AND PACA LAW
PACA & PRODUCE LAW ATTORNEY
If you sell, buy, or ship fresh or frozen fruits and vegetables anywhere in the United States, the Perishable Agricultural Commodities Act, or PACA, likely applies to your transactions. At Esquivel Law, we’re dedicated to helping you comply with the requirements of this law and making sure its covenants protect you.
WHAT IS PACA?
PACA was enacted in 1930 to ensure fair dealings in the trade of fresh produce throughout America. Unlike some commodities which are state-regulated, produce is federally regulated. This allows a single set of regulations for everyone involved in the agricultural business.
PACA provides a framework for uniform contracts, transportation regulation, dispute resolution, and guidance for compliance. PACA also establishes a trust, called a “floating trust,” to cover payments in cases of bankruptcy or nonpayment by buyers.
WHAT IS COVERED UNDER PACA?
PACA is administered by the Agricultural Marketing Service (AMS), a division of the U.S. Department of Agriculture. AMS assists in all areas of PACA, including:
PACA licensing. If you buy or sell more than 2,000 pounds of agricultural commodities per day or more than $230,000 annually in aggregate, you may be subject to licensing.
Contracts and documentation. Companies and businesses subject to licensing must abide by PACA contract requirements. This includes obeying fair trade practices and prompt payment.
Dispute resolution. AMS provides a series of informal and formal dispute resolution options before resorting to litigation is necessary.
Reparations. A company may request repayment from the PACA trust if they are not paid due to a bankruptcy or contract dispute.
Disciplinary actions. These are separate proceedings from requests for reparations.
The steps involved in meeting PACA requirements are complicated, even with guidance from the PACA division of the AMS. Esquivel Law can assist you with navigating the licensing and document requirements.
When it’s time to write a contract, parties should always contact an agricultural lawyer before signing. It is easy to lose PACA protections by accident and find yourself without coverage in case of nonpayment. Esquivel Law will make sure your contract meets all the PACA requirements.
WHY DO I NEED A PACA-COMPLIANT
You need a PACA-compliant contract so your shipment or sale qualifies for protection under the PACA trust. If the buyer defaults on payment, file bankruptcy, or the shipment is lost or stolen, the seller or shipper will retain a trust claim over the shipment.
PACA licensees must include a “legend” or trust language on their invoices to preserve their trust rights. Trust language is stated in the statute and provides notice to the buyer that the seller or shipper is a PACA licensee.
In all instances, you should always have your contract reviewed by a knowledgeable PACA and produce law attorney before signing anything. Even if you have already shipped, Esquivel Law can review the documents and let you know your rights and options if something goes wrong.
WHAT DO I NEED FOR A PACA INVOICE?
Your PACA invoice should contain these elements:
Invoice payment terms. PACA was enacted to ensure prompt payment, defined as within 10 days of receipt of shipment. You may have agreed to different terms, but it cannot be over 30 days. The terms agreed to must be written and displayed on the invoice.
Notice statement. As described above, the invoice must have a legend or statement notifying the buyer that the seller retains a trust claim on the shipment until payment is received in full
Terms of sale. All invoices must include the price, shipping terms (fob, consignment, etc.), and delivery dates.
Exclusions and disclosures. If you have agreed to any exclusions from the standard PACA trust, or have waived any coverage, put this into the invoice. Other important terms may include a time for inspections and claims.
The invoice acts as a contract in the absence of a previously written contract, so any terms not present in the invoice may not carry over into the presumed contract. Be sure not to leave anything out.
WHAT IS A PACA TRUST?
In 1984, PACA was amended to include a trust for the benefit of unpaid sellers of agricultural commodities. The amendment provides that all sellers retain a monetary interest in their product during shipment until they have received payment in full from the buyer.
If you are a PACA licensee, you are also a “PACA trust creditor” when you sell or ship produce. When you purchase produce or receive it from a PACA licensee, you are a “PACA trust debtor.”
Any asset of the “PACA trust debtor” that was acquired from “trading in produce” becomes a “PACA trust asset.” For instance, if a restaurant buys produce from a farm and uses the money to open a new franchise, the franchise may become a PACA trust asset.
All this matters because if a supplier, or “PACA trust creditor”, does not get paid by a trust debtor due to bankruptcy or business failure, they can file for payment through the PACA trust. To make a claim through the trust, the creditor must:
Prove buyer was provided with notice of PACA protection at the time of purchase. If the notice was not provided on the invoice, it can be given in a separate written notice within 30 days of the transfer.
Show that the creditor did not receive payment.
Prevent further transfer of any PACA trust assets.
Recover any assets transferred to third parties.
Hold the principals and shareholders personally responsible for shortfalls in the PACA trust.
To do this, you will need the help of a produce law attorney who knows the specifics of PACA. These claims must be made in federal or bankruptcy court, so your attorney must be licensed to appear in these courts. Esquivel Law can represent our clients in federal district courts across the country when it is time to pursue your claims.
REPARATIONS AND DISPUTE RESOLUTION
If a buyer, broker, or seller violates the fair business dealing provision of PACA, you are allowed to file an informal complaint and request a reparation proceeding.
Reparations are separate from any state civil filing for fraud or breach. The PACA unfair conduct provisions have to do with violations of the act itself, specifically, the provisions prohibiting “unfair, unreasonable, discriminatory, or deceptive practice in connection with the weighing, counting, or in any way determining the quantity of any perishable agricultural commodity received, bought, sold, shipped, or handled . . [or] to make, for a fraudulent purpose, any false or misleading statement in connection with any transaction involving any perishable agricultural commodity” (7 U.S.C. § 499)
A request for reparations must be filed within nine months of the alleged misconduct and include a brief statement of the facts supporting the claim. The request is filed with the AMS office, which will conduct an investigation and give the other party a chance to respond to the allegation.
AMS will attempt an amicable resolution, usually using mediation or other informal dispute resolution. Even during these informal hearings, you can be represented by an attorney.
If an amicable agreement is not possible, you can file a formal complaint and request for a hearing. This complaint must include all the information that was contained in the original document, as well as a statement of damages. If the claimed damages are less than $30,000.00, there does not need to be a hearing. Above that amount, a hearing must be held unless waived by both parties.
As you can see, resolving complaints and disputes is complicated. You should not try this on your own. Esquivel Law is here to help you navigate the complex network of bureaucracy and courtrooms.
WHAT TYPES OF PRODUCE ARE COVERED BY PACA?
The “perishable” in PACA stands for fresh and frozen fruits and vegetables, regardless of how it is stored. Raw nuts (but not dried), mushrooms, herbs, and french fries are also included.
Dried fruits, such as prunes and apricots, sugar cane and cane juice, and, in a recent case, guar nuts, are not covered.
I AM NOT A PACA LICENSEE. DO I STILL HAVE PACA RIGHTS?
If you grow and sell your produce, you can still claim your PACA rights after a sale by sending a notice of intent to preserve rights within 30 days of the date of sale. You should use the same language licensees use on their invoices, and include the original date of sale. Your best course of action is to consult with a PACA and produce law attorney before sending the notice.
CAN I SPECIFY DIFFERENT TERMS OF PAYMENT IN MY INVOICE?
PACA requires a 10-day prompt payment to meet the requirements for fair dealing. If both parties agree to an alternate payment plan, it must be in writing and cannot exceed 30 days for PACA protections to apply.
If the parties wish to extend their payment past 30 days, they can do so, but then they will void PACA protection.
WHEN IS A SHIPMENT “ACCEPTED”?
According to PACA guidelines, a shipment is considered “accepted” by the buyer if it is unloaded for any reason besides inspection or if the buyer diverts it for any reason. This shows that the buyer has taken control of the shipment. Once accepted, the buyer cannot reject or refuse the shipment.
I GOT AN INVOICE MARKED “PAS.” IS THAT A PACA TERM?
PAS, “price after sale,” or “open” are not terms recognized by PACA. They are industry terms that mean a price will be set following resale of the goods. This differs from “consignment” in that a PAS sale means the buyer has accepted ownership of the shipment, and in a consignment, the broker is merely acting as an agent.
For purposes of a PACA claim, what matters is the status of the goods at the time of the transfer. If they have not been inspected, they will be assumed to be in marketable condition unless the buyer can show otherwise..
HOW A PACA AND PRODUCE LAW ATTORNEY CAN HELP
As you can see, PACA and produce law is a complicated tangle of regulations, licenses, and contract language. The best way to protect yourself and your profit is to have a knowledgeable PACA and produce law attorney at your back who understands the complexity of federal law and can guide you through the maze.
Katy Koestner Esquivel has more than 20 years experience in researching, negotiating, and litigating in this unique area of the law. She has handled cases in states from California to Florida and understands the ins and outs of PACA rules. She can take your case through whether you need a contract written or a dispute litigated.