Enforcement of PACA Law
The PACA law is generally enforced either in a proceedings before the PACA branch of the USDA or in the United States District Courts. (The law does allow someone to seek a remedy in state courts, but in our experience very few buyers or sellers bring claims in state courts. Many state court judges are unfamiliar with PACA and its protections, for this reason we strongly suggest that our clients file their PACA court actions solely in federal courts and not in state courts.)
- United States and Canadian sellers of produce – When should a party with a PACA claim file that claim with PACA branch of the USDA? Generally if a seller is claiming against a buyer, and the claim is a small claim, then the PACA branch of the USDA is a cost effective place to bring a claim. The total cost of filing a reparations proceeding with USDA is $600, $100 for the informal complaint and $500 for the formal complaint. It is difficult for a seller to bring a small claim, for example of $10,000, in a federal court in a cost effective manner, unless that claim is combined with the claim of another seller. It is very difficult for a party to hire a lawyer, pay the filing and attorney’s fees and proceed with the claim.
- Foreign, non-Canadian shippers of produce – If a foreign produce shipper, not based in Canada, has a claim against a US produce merchant, the shipper has to make a decision regarding the claim. The seller cannot file a claim that proceeds to the second, formal complaint, stage before the PACA branch of the USDA unless the foreign seller posts a bond equal to double the amount of the claim filed. If a seller wants to file a $50,000, the seller must post a $100,000 bond. The bond may be made by depositing cash or by contracting with a surety company accredited by the United States treasury. For this reason, foreign, non-Canadian sellers rarely proceed to the second stage of reparations proceedings before the PACA branch of the USDA. These sellers usually file their claims in federal courts, where there is no double bond requirement.
- How does the reparations process work in the USDA PACA branch? The first step of the process is commenced with the filing of an Informal Complaint with the USDA branch which covers the location where the buyer is based. The United States is divided into regions and the locations of the regional offices and the states and territories covered by each office is found on the USDA PACA webpage.
In the informal complaint, the party which makes the claim (the “complainant”) generally describes the problem it has with the other party to a produce transaction (the “respondent”) and describes why it believes that the other respondent’s conduct was improper under PACA. A sample informal complaint is found on the USDA PACA web page. The form found at this address is a fillable, online form that is easy to complete and print.
The complainant should attach any invoices, order confirmations, purchase orders and any other correspondence or contracts related to the transactions which are the subject of the informal complaint. The USDA PACA branch charges a fee of $100 for the filing of an informal complaint and the fee must be sent along with the informal complaint. The USDA accepts checks, VISA and Master Card.
PACA Reparations Process
The PACA reparations process has a very short period during which a complaint must be filed, nine months after the claim arose, if you wish to seek payment from the other party or an audit of its records of your transactions with that party! If the Informal Complaint is filed after the end of this nine month period, generally 9 months after the payment was due or nine months after the goods were shipped, then the USDA will dismiss the informal complaint. The nine month filing period is one of the major differences between the filing of a PACA complaint with the USDA PACA branch and filing suit in federal court to protect your rights under PACA. Generally, the period to file a suit in the federal courts is at least four years after the claim arose, a far longer period than the nine month filing period for claims that are filed with the USDA PACA branch.
When the Informal Complaint is filed, the USDA will send a copy of the Informal Complaint to the Respondent and request that the respondent describe what it believed happened. The USDA may attempt to resolve the Informal Complaint through mediation with both parties present at a USDA office. In addition, in the case of consignment transactions between a complainant and respondent, the USDA may, but is not required to, conduct an audit of the records of a party that received product on consignment. The USDA may, but is not required to, issue a Report of Investigation and make findings that can be used in the Formal Complaint stage and if the USDA conducts an audit, it may report what it believes is owed by either the complainant or the respondent to the other. During this time, the USDA may offer the parties the chance to mediate their disputes before the USDA.
If the parties have been unable to resolve their dispute in the Informal Complaint stage, the USDA will issue a letter telling the complainant that the informal complaint process has been unsuccessful and will give the complainant 90 days to file a formal complaint. It is very important to track this 90 day period. The USDA will not accept a formal complaint if it is filed after the end of this 90 day period.
Formal Complaints before the USDA
If a complainant does not resolve its claim against the respondent at the informal complaint stage and wishes to continue with its claim before the USDA, it must file a formal complaint. The USDA has a form which may be used and adapted for the filing of a formal complaint.
If the formal complaint is for an amount less than $30,000 and if any counterclaim by respondent is also less than $30,000[link to the second sentence of the next paragraph], the dispute between the complainant and the respondent will be decided by the USDA based solely on the paper filings by the complainant and the respondent, there is no hearing. If the amount is more than $30,000, and if either party asks for a formal hearing, then the complaint will be decided by an oral hearing before a USDA representative. Note the last paragraph of the formal complaint form. Formal complaints must be sworn before a notary.
The USDA sends a copy of the formal complaint to the respondent who must file an answer. Again, as with the formal complaint, the answer must be sworn. The respondent has an opportunity in the answer to present any counterclaims it may have back against the complainant and these claims may be decided as part of the same case.
If the parties do not proceed with a hearing, the USDA will direct the complainant to file an opening statement. The opening statement is the complainant’s description of what happened in the transaction between the complainant and the respondent. Normally, the complainant will attach key documents that relate to the transaction to the opening statement. Again, the opening statement must be sworn before a notary. The opening statement is filed with the USDA which in turn forwards the opening statement to the respondent who then has an opportunity to prepare and send in its answering statement. Again this is a description of the respondent’s side of the story, with key documents attached and the answering statement must be sworn before a notary.
After the answering statement is filed, the complainant is given one more opportunity to file a statement in reply to answer any of the new contentions made by the respondent in the answering statement. This statement must be notarized as well.
Finally each party is given an opportunity to file a brief regarding the legal points and issues related to the matter between them. Once all the briefs are filed, or if one or both parties decide to not file a brief, the matter is submitted to an administrative law judge who will decide the case and issue an order.
If either the claim by the complainant or a counterclaim by a respondent are for more than $30,000 both parties have the option to have the controversy between them decided by an oral hearing before a hearing officer, instead of resolving their dispute solely by sending documents to the USDA. The USDA has special rules for these proceedings, and it is possible to request depositions of witnesses and it is possible to obtain documents from the other party or third parties. The process concludes with an oral hearing before a hearing officer. Parties may ask the USDA to issue subpoenas of witnesses to appear at the place of the hearing and give their testimony at the hearing. The hearing officer hears the testimony, exhibits are offered into evidence, the parties or their counsel can make arguments and the entire matter is then submitted to an administrative law judge who will issue a final order. The hearing officer hears the case, but the hearing officer does not sign the formal decision. If the decision of the administrative law judge orders one party to pay the other, the order is known as a “reparations order.”
Enforcing a PACA reparations order – Whether the parties have proceeded without a hearing on the PACA claim or with a hearing the administrative law judge will issue an order. Either party may request reconsideration of the order. If the order is a reparations order which requires either the complainant to pay the respondent or the respondent to pay the complainant,(for example as the result of a counterclaim) the order itself does not force the losing party to pay the winning party. Enforcement of a money award against a party will be suspended if the party files an appeal There are two kinds of enforcement of a monetary award by the PACA branch, license suspension by the USDA and the filing of an enforcement action before the United States District Court where the losing party is located. But a party which has won a reparations award against a party needs to know that the fact that it has an award does not automatically mean that it will get paid. If no appeal has been filed and no appeal bond has been posted, the party which won a reparations award may file suit in United States District Court to enforce its award. The enforcement action is filed normally in the United States District Court where the losing party is located. The party files suit to enforce the award and a copy of the suit must be served upon the losing party. If no appeal was filed as required by PACA , the enforcement is a relatively quick proceeding, which results in a judgment as well as attorney’s fees for the enforcement action.
If a party against whom a reparations award does not appeal the award and does not pay the award within 30 days of the date on which the award becomes final, the USDA will automatically suspend the PACA license. If the PACA license is suspended, the person or entity whose license is suspended may not legally trade in produce in the United States. Furthermore the USDA may file actions to bar those persons affiliated with the suspended licensee (called “responsibly connected persons”) from working in the US produce industry for one to two years. If another PACA licensee hires one of these responsibly connected persons within the first year after that person’s right to work in the produce industry has been suspended, it risks losing its own PACA license.
If after one year, but before two years have passed since the USDA issues an order against an responsibly connected person, that person may only work in the produce industry if he or she (or his or her employer) post a bond with the USDA to cover any losses by any produce trader that deals with them or the entity with which they are affiliate. Keep in mind that the USDA has limited resources and it cannot always dedicate the resources to seek court orders against responsibly connected persons who simply go out and open another unlicensed produce business. If a produce trader is not familiar with a prospective buyer, seller , broker or consignee, it is a good idea to check the USDA PACA section of the USDA website and see if anyone affiliated with the other party to a transaction has a disciplinary order outstanding against himself. Here is a link to the section of the USDA’s website where anyone can check and see if someone has a PACA disciplinary order pending against them:
If an award is issued against a party to a PACA reparations proceeding that requires payment of a specific amount, that party may appeal if it complies with the requirements for PACA appeals. There are time limitations for filing such appeals, but the most important requirement is that the party against which a PACA reparations award was issued must deposit a bond with the USDA for twice the amount of the reparations award. This bond can either be in cash or in the form of a surety bond from a surety recognized by the United States Department of the Treasury.
The purpose of the cash or surety bond is to protect the party which obtained the reparations award by providing a source of payment of the award and payment of attorney’s fees in the event that the appeal is successful. The appeal is filed in the United States District Court for the judicial district where the principal office of the losing party is located. The USDA reparations award from which the appeal was made is admitted into evidence, but otherwise the appeals proceeds like any other civil trial of a case in a federal court. If the appeal is successful, the bond is released back to the party that lost the reparations award and filed the appeal. If the appeal is only partially successful or unsuccessful, then the party that won the reparations award has the right to collect the award out of the bond which was filed and may also collect its reasonable attorney’s fees that it incurred in opposing the appeal.