PACA Law Dictionary
ADVERSARY PROCEEDING: A lawsuit filed in or related to a case in bankruptcy is commenced by filing a complaint, known as an Adversary Proceeding, with the United States Bankruptcy Court. A PACA Trust Enforcement Action filed in a United States Bankruptcy Court is an Adversary Proceeding. An Adversary Proceeding may also be filed seeking to exempt the PACA Trust Claim from the Debtor’s discharge in bankruptcy.
AVAILABLE PACA TRUST ASSETS: The funds in the PACA Trust Account available for immediate distribution, equal to the funds currently on deposit less a reserve to pay administrative expenses.
BROKER: A broker is any person or entity engaged in the business of bringing a buyer and seller of Perishable Agricultural Commodities together to form a sales contract. A broker does not become part of the sales transaction and does not obtain title or possession of the commodities. A broker is paid a commission by either the buyer or seller.
CLAIM OBJECTION: After the PACA Claims Bar Date has past, any party, including PACA Trust Beneficiaries or a defunct produce company, can file Objections to the amount or validity of the PACA Trust Claims. All Objections must be filed on or before the “Objection Deadline” set forth in the PACA Claims Procedure. The Objection must set forth in detail the legal and factual basis for the Objection to each invoice or the payment thereof subject to the Objection. Any PACA claimant whose claim is subject to a Claim Objection must file a detailed response to any Claim Objection received. A Claim will be disallowed if a Claim Objection was timely filed and the claimant failed to file and serve a timely response.
COMMISSION MERCHANT: A commission merchant is any person or entity engaged in the business of receiving perishable agricultural commodities for sale on a commission basis on behalf of another. A commission merchant is the agent of the seller, the seller retains title and the commission merchant sells the commodities on a consignment basis. A commission merchant is usually a receiver at destination that obtains possession of the commodities. However, a grower’s agent or shipper that sells a grower’s crop on a consignment basis at shipping point is also a commission merchant.
COMPLAINT IN INTERVENTION: A Complaint in Intervention is the initial pleading a potential PACA Trust Beneficiary that wishes to share in distribution of the company’s assets must file with the court in the pending lawsuit that sets forth the grounds for its claim.
CONSIGNMENT: Although consignments are often confused with price after sale transactions, there is a significant legal distinction between the two. In a consignment, there is no “sale” of produce. Rather, an agency relationship is created between the consignor (supplier) and consignee (receiver). Title to the produce remains with the consignor. The consignee sells the produce and remits the proceeds to the consignor, receiving only his costs and a commission for the transaction. Unlike a price after sale, the consignor is not entitled to a “reasonable price” on the produce sold by the consignee. The consignor chooses a consignee and, absent a showing of negligence or a violation of PACA, bears the risk that the consignee may fail to sell the produce at a reasonable price.
DEALER: A Dealer includes any person or entity engaged in the business of buying or selling 2,000 pounds or more of Perishable Agricultural Commodities in Interstate Commerce on any given day. Retailers, persons who sell directly to the ultimate consumer, are not considered dealers until they purchase in excess of $230,000 annually. Produce growers are exempt from licensing as long as they only sell products of their own production. Retailers and frozen food brokers representing sellers are exempt from licensing until they purchase and negotiate sales of $230,000 or more worth of Perishable Agricultural Commodities in a calendar year. Restaurants that purchase $230,000 or more worth of Perishable Agricultural Commodities in a calendar year and 2,000 pounds or more on any given day are retailers subject to the PACA Law.
DELIVERED: Delivered means that the produce is to be delivered by the seller to the buyer free of any charges for transportation. Unlike a sale F.O.B., the seller assumes all risk of loss and damage in transit not caused by the buyer. Title passes to the buyer upon unloading the produce at the arrival destination, rather than the shipping point. If the contract fails to state either F.O.B. or Delivered, then it will be assumed to be F.O.B. at the shipping point. However, if the seller is paying freight charges or using its own trucks and including the freight charges in the cost of the produce, then the price term is Delivered. The seller gives no warranty of suitable shipping condition on a Delivered sale. Instead, the produce must meet its specified grade at the arrival destination. As a result of the increased risk of loss, a seller is generally in a better position on an F.O.B. sale.
DISPUTED PACA TRUST CLAIM: A Disputed PACA Trust Claim is the amount of a PACA Trust Claim subject to a pending Claim Objection.
F.O.B.: F.O.B means that the subject of the transaction, the produce, is to be placed “free on board” a truck at the shipping point. From there, the buyer assumes all risk of damage and/or delay in transit not caused by the seller. Title to the produce transfers to the buyer once the truck leaves the shipping dock. Most sales tend to be F.O.B, with the buyer accepting direct billing for freight charges. The Seller, however, warrants that at the time the produce is loaded on a truck at the shipping point, it is in suitable shipping condition.
INTERSTATE COMMERCE: The PACA Law states that interstate commerce means that the produce must cross state lines or a federal border somewhere from the time when it was grown until the time it was eaten. Court decisions have expanded this definition to include any sale made with the expectation that it will be in interstate commerce and it is generally accepted that PACA applies if the commodities involved are the type typically sold in interstate commerce.
MONIES WITHHELD: The pro-rata percentage of the Available PACA Trust Assets of Disputed PACA Trust Claims which are held in the PACA Trust Account pending a resolution of the Disputed PACA Trust Claims. If the PACA Trust Claim is deemed valid, the monies withheld will be distributed to the PACA Trust Beneficiary. If the PACA Trust Claim is found to be invalid, the monies will be distributed to other PACA Trust Beneficiaries.
MOTION FOR TURNOVER: In a bankruptcy case, a PACA Trust Beneficiary may enforce its PACA Trust Rights by filing a motion requesting that the judge issue an order that the debtor turn over its PACA Trust Assets to satisfy the unpaid PACA Trust Claim.
PACA BRANCH: The PACA Branch refers to the branch of the United States Department of Agriculture (“USDA”) that administers the PACA Law and regulates the produce industry. The PACA Branch administers licensing of companies under the PACA Law, brings Disciplinary Actions against licensees for violating the PACA Law and adjudicates Reparation Complaints brought before it by produce companies.
PACA CLAIMS BAR DATE: The deadline to file a Complaint in Intervention and PACA Proof of Claim is referred to as the PACA Claims Bar Date.
PACA CLAIMS PROCEDURE: In a PACA Claims Procedure, which is similar to a mini bankruptcy case, an insolvent produce company is liquidated under the supervision of the U.S. District Court and its assets distributed. The PACA Claims Procedure Order is a form of Preliminary Injunction that contains the following provisions: the company is prohibited from transferring or dissipating PACA Trust Assets; the company’s assets are liquidated and deposited into a PACA Trust Account; Valid PACA Trust Claims are determined by requiring all potential PACA Trust Beneficiaries to join the lawsuit by a PACA Claims Bar Date; and distribute the available PACA Trust Assets to holders of valid claims on a pro-rata basis.
PACA DISTRIBUTION CHART: A PACA Distribution Chart lists all the Claims that were filed in the case, the Claims that are disputed and those that are undisputed. A portion of the money that has been recovered in the case to date is then distributed to those with undisputed Claims. As discussed, the remaining portion is held in an escrow account pending resolution of the disputed Claims. The parties then work toward resolution of the disputed Claims. If they cannot be resolved, the PACA claimant whose Claim is disputed must file a motion for determination of the validity of the Disputed PACA Trust Claim on or before the deadline set forth in the PACA Claims Procedure.
PACA ESCROW AGENT: In a PACA Claims Procedure, a third party is chosen to handle the task of liquidating the company’s assets and depositing them into an escrow account. An attorney who is participating in the case is normally chosen and, if possible, a former employee of the company, who is familiar with the books and records, is hired to maintain the books and records and assist with the collection efforts. The person hired to liquidate the company’s assets, deposit them into the PACA Trust Account, and distribute the money is referred to as the PACA Escrow Agent.
PACA LAW: PACA is an acronym for the Perishable Agricultural Commodities Act of 1930, a Federal Law which provides a comprehensive scheme for the regulation of Brokers, Dealers and Commission Merchants of Perishable Agricultural Commodities in Interstate Commerce, which includes the statutory trust.
PACA PROOF OF CLAIM: A PACA Proof of Claim is a statement under oath filed in a PACA Claims Procedure by a potential PACA Trust Beneficiary where the beneficiary sets forth the amount owed and sufficient detail to prove the basis of its Valid PACA Trust Claim.
PACA STATUTORY TRUST: Since the PACA Trust’s terms are set up by the PACA Law, a federal statute, it is technically a statutory trust and thus sometimes referred to as the PACA Statutory Trust.
PACA TRUST: The PACA Trust may be defined as consisting of the 1984 amendments to the PACA Law that require produce buyers to use the proceeds of produce to pay the sellers of that produce. 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. A trust is an obligation imposed by agreement or law whereby one person holds and controls property for the benefit of another. A trust must have four elements: a purpose, a trustee, trust assets, and trust beneficiaries. The PACA Trust requires a produce buyer to act as a trustee to hold its produce-related assets in trust for the benefit of its produce sellers.
PACA TRUST ACCOUNT: The escrow account that holds the PACA Trust Assets is referred to as a PACA Trust Account.
PACA TRUST ASSETS: The PACA Trust Assets are the assets of the PACA Trustee that it must hold for the benefit of its PACA Trust Beneficiaries. The PACA Trust Beneficiaries have priority over all other creditors to the PACA Trust Assets. PACA Trust Assets consist of all of the buyer’s inventories of perishable agricultural commodities (“Produce”), food or products derived from Produce (“Products”), accounts receivable and other proceeds of the sale of Produce or Products, and assets commingled or purchased or otherwise acquired with proceeds of such Produce or Products.
PACA TRUST BENEFICIARY: A PACA Trust Beneficiary is an unpaid produce seller, who has properly preserved its rights as PACA Trust Beneficiary by sending the buyer a document entitled “Notice of Intent to Preserve Trust Benefits” to the buyer within thirty (30) days of 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 it is preserving its PACA Trust Rights.
PACA TRUST CHART: Before we initiate a lawsuit against a produce company, we must determine that you have a Valid PACA Trust Claim. We first review your invoices, bills of lading, and other billing statements to ensure that you have a valid claim. We then document the claim and its compliance with the PACA Trust by preparing a PACA Trust Chart on an excel spread sheet, using the following terms with the following described meanings: Invoice Number refers to the number under which the commodity was sold; Transaction Date refers to the date the payment term began; Invoice Date refers to the date the invoice was sent; Invoice Amount refers to the total amount owed and remaining unpaid, regardless of whether the particular invoice amount qualified for trust protection; and Trust Amount refers to the amount owed and remaining unpaid which is entitled to trust protection due to the produce seller’s compliance with the applicable PACA regulations.
PACA TRUST CLAIM: The claim of an unpaid produce seller that has preserved its rights as a PACA Trust Beneficiary for payment of its produce. Also, a PACA Trust Claim refers to a claim that has PACA Trust Rights.
PACA TRUST CREDITOR: A PACA Trust Creditor is the same as a PACA Trust Beneficiary. Although PACA Trust Creditor is the more commonly used term, we prefer using PACA Trust Beneficiary because it emphasizes that the unpaid creditor is the beneficiary of the PACA Trust that carries numerous rights not available to normal creditors.
PACA TRUSTEE: The PACA Trustee is the produce company that buys the produce and is charged with maintaining sufficient PACA Trust Assets to pay its PACA Trust Beneficiaries as their invoices become due. The PACA Trust only applies, and the produce company can only be a PACA Trustee, if it has a PACA License or is Subject to PACA License.
PACA TRUST ENFORCEMENT ACTION: If a buyer of produce fails to pay the seller, the seller’s option is to enforce payment from the PACA Trust. The PACA Trust is not self-enforcing. The seller must take some affirmative action to collect from the buyer, which generally means hiring an attorney to initiate a PACA trust enforcement lawsuit. In simple terms, the PACA Trust Enforcement Action is a foreclosure lawsuit on the PACA Trust Assets. The lawsuit may be filed in the United States District Court or, if the buyer files bankruptcy, in the United States Bankruptcy Court.
PACA TRUST NOTICE: In a PACA Claims Procedure, in order to determine the Valid PACA Trust Claims against the company, a PACA Trust Notice is sent to all creditors of the company informing them that if they claim to be a PACA Trust Beneficiary and wish to share in distribution of the company’s assets, they are required to intervene in the lawsuit by filing a Complaint in Intervention and PACA Proof of Claim, that proves that they have met the requirements to be a Valid PACA Trust Beneficiary.
PACA TRUST PURPOSE: The PACA Trust’s Purpose is to protect unpaid produce sellers and ensure that produce buyers use the proceeds from sold produce to pay the sellers of that produce.
PACA TRUST RES: RES is a Latin term that means “thing” or “things.” It is a commonly used term within the legal community and generally refers to all of the assets in a particular trust. In other words, the RES of the Trust is the “thing” or “things” that constitute the assets. In the context of the PACA Trust, the PACA Trust Res is synonymous with PACA Trust Assets. PACA Trust Assets are defined as all of the buyer’s inventories of perishable agricultural commodities (produce), food or products derived from produce, accounts receivable and other proceeds of the sale of produce or products, and assets commingled or purchased or otherwise acquired with proceeds of such produce or products.
PACA TRUST RIGHTS: The bundle of rights an unpaid produce seller has at its disposal to obtain payment for its produce provided it has preserved its rights as a PACA Trust Beneficiary. The PACA Trust Rights include filing a PACA Trust Enforcement Action, obtaining a Temporary Restraining Order (TRO), instituting a PACA Claims Procedure to marshal and distribute assets, the Personal Liability of the company’s owners for the debt and the Third Party Liability of those that unlawfully received PACA Trust Assets.
PERISHABLE AGRICULTURAL COMMODITIES: The PACA Law defines perishable agricultural commodities as fresh fruits and vegetables of every kind and character, whether or not frozen or packed in brine. It does not include commodities that have been subject to more than very minimal processing that transforms them into different goods or products that contain less than 90% fruits or vegetables. Breading and battering fruits and vegetables are considered minimal processing. Dried fruits and vegetables are not considered perishable agricultural commodities. Some courts have ruled that green nuts are perishable agricultural commodities because they are botanically classified as fruit.
PERSONAL LIABILITY: If there is any shortfall between the Available PACA Trust Assets and the total amount of all Valid PACA Trust Claims, under normal commercial law the unpaid creditors could only look to the company for payment. Since all assets were paid out, the PACA Trust Beneficiaries would be out of luck for the balance of their Claims. The existence of a business entity like a corporations or limited liability companies would shield the individual owners from personal liability for the business debt. However, under the PACA Law, the company that buys produce is also the PACA Trustee that has a fiduciary duty to the produce seller and is charged with maintaining its PACA Trust Assets for its PACA Trust Beneficiaries. Since the company has not maintained sufficient assets to cover its Valid PACA Trust Claims, it has breached its fiduciary duty to the unpaid Valid PACA Trust Beneficiaries. The legal classification for a breach of a fiduciary duty is a tort, which is a breach of any duty imposed by law (except for breaches of contract). The most common types of torts are personal injury and medical malpractice, but also includes a Trustee’s breach of fiduciary duty. Because business entities have no real existence besides the people in the company who are reasonable for its operations, those individual employees who commit torts are personally liable for the damages caused, even when the employee was acting within the scope of his or her employment. Since individual employees are liable for the torts committed in the context of their employment, when the produce buyer does not maintain sufficient money to pay its suppliers in full, the next step in a PACA Trust Calms Procedure is to seek to recover the balance from the individual employees whose tort – the breach of the fiduciary duty – resulted in nonpayment. Federal courts have found shareholders, officers, or directors of a produce buyer personally liable for the company’s breach of trust. This is called “Personal Liability.”
PRICE AFTER SALE: The term “price after sale” is defined by neither the Perishable Agricultural Commodities Act nor the Regulations. It is a type of “open” transaction in which the price is determined not at the time of sale, but at some later date. However, unlike an “open” transaction, the time for determining a price is clearly defined as occurring after the buyer has resold the produce. If the parties are unable to agree upon a price, the USDA in a PACA reparation action or a civil court will impose a “reasonable price” based upon an account of sale from the buyer or the USDA Market News.
PRELIMINARY INJUNCTION (PI): Since the TRO is temporary and can only last a maximum of 10 days, the court must set a hearing within that time frame to determine whether the TRO should be converted to a permanent remedy. Such a remedy is known as a Preliminary Injunction, or PI. Essentially, a PI is the same as a TRO, in that it prohibits the produce buyer from transferring any assets subject to the PACA Trust, without further order of the court. At the hearing to determine whether the PI should be issued, the court will carefully examine all of the evidence to ensure that the PI is reasonable and necessary to protect the PACA Trust Beneficiaries.
PRO-RATA DISTRIBUTION: The PACA Law provides that if insufficient PACA Trust Assets are available to pay all PACA Trust Beneficiaries in full, the monies recovered must be paid to all valid PACA Trust Beneficiaries on a pro-rata basis, which is the percentage of each Valid PACA Trust Claim to the total of all Valid PACA Trust Claims.
SUITABLE SHIPPING CONDITION: Suitable shipping condition means that the produce, at time of shipment, is in a condition that if handled under normal transportation conditions will arrive at the agreed-upon destination without “abnormal deterioration.” If the produce arrives at the agreed-upon destination with excessive deterioration, it is considered abnormally deteriorated and the buyer is entitled to damages. The seller has no responsibility for any deterioration in transit if there is no contract destination agreed upon between the parties. Although the phrases “abnormal deterioration” and “excessive deterioration” may by somewhat subjective, the USDA has published good delivery standards to assist the parties in gauging the amount of deterioration.
TEMPORARY RESTRAINING ORDER (TRO): A TRO is a temporary injunction, which can last no more than 10 days. A TRO is a lethal option available to protect a PACA Trust Beneficiary’s PACA Trust Rights in a PACA Trust Enforcement Action. Upon a showing by the seller that a produce buyer is failing to maintain sufficient assets to pay its PACA Trust claim when it become due, a court may enter a TRO, without notice to the buyer. The TRO “freezes” the buyer’s bank accounts and assets, making it impossible for the buyer to pay any bills or transfer any assets. While the TRO is in effect, the buyer is prohibited from transferring assets to any party without authorization of the PACA Trust Beneficiary holding the TRO or further order of the court.
THIRD PARTY LIABILITY: If a buyer transfers PACA Trust assets to a third party such as a bank or mortgage loan company, the unpaid produce seller may file a lawsuit against the third party seeking recovery of those assets. In order to be successful, the seller must prove: (1) That it has a valid PACA trust claim; (2) that the assets transferred to the third party were PACA trust assets; and, (3) that the assets were transferred to the third party in breach of the PACA trust. Proving these elements establishes a “prima facie” case in favor of the seller. Once the seller establishes its prima facie case, the third party is liable unless it can rebut the allegations by proving that it was a “bona fide purchaser” of PACA trust assets. A bona fide purchaser, or BFP, is one who: (1) Paid value for the PACA Trust assets in the ordinary course of business; and, (2) received the assets without knowledge that the trustee was in breach of the PACA trust.
UNDISPUTED PACA TRUST CLAIM: If a PACA Claim is subject to a timely filed Claim Objection as to only a part of the Claim’s amount, that Claim will be deemed an Undisputed PACA Trust Claim only to the extent it is not subject to the timely filed Claim Objection.
VALID PACA TRUST CLAIM: A Valid PACA Trust Claim is the amount of the Claim that is deemed valid due to no Objections being filed or all Objections being settled by the parties or decided by a judge.