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The DRC and the Statute of Limitations
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Filled under International Produce Trade on April 20, 2012 - no comments .

The DRC and the Statute of Limitations – Don’t Fall for Rope-a-Dope!

In 1974 boxer Muhammed Ali fought George Foreman in a match that later became known as the Rumble in the Jungle.  Ali held back during the course of the fight, appeared weak and then came on strong at the end to defeat Foreman after wearing Foreman down with Ali’s delaying tactics.  Ali’s tactic of delay and then coming on strong to defeat Foreman became known as “rope-a-dope,” referring to the ropes that surround the edges of a boxing ring.

We have seen the equivalent of “rope-a-dope” in the produce industry.  Many foreign shippers of produce are members of the Fruit and Vegetable Dispute Resolution Corporation (the “DRC”), which is both an arbitration forum and a set of substantive trading rules for the produce trade.  In particular, many shippers seek DRC membership if they have receivers in Canada or Mexico in order to avoid resort to the courts in those countries in the event that they need to collect an unpaid invoice or consignment liquidation.  For shippers outside Canada, the DRC is a voluntary organization; a produce trader must choose to be a DRC member by filing an application for membership and then be accepted as a member.  The DRC has two types of memberships, regular memberships for US, Mexican and Canadian produce merchants and associate memberships for those located in other countries, such as Chile and Guatemala, which are among the other countries in which there are produce businesses with DRC memberships.

The DRC has arbitration rules that require members renounce their right to go to court against another DRC member and instead they agree as part of their DRC membership to submit their disputes with another DRC member to arbitration before the DRC.  Disputes between regular members (except when both parties to the dispute are DRC members based in the US) and disputes between associate members and regular members must be submitted to DRC arbitration.  There is a limited exception to the arbitration requirement in order to enforce rights such as those under the PACA trust before the courts while the DRC arbitration proceeds.

Recently we have seen cases in which a regular or associate member of the DRC enters into negotiations with another regular DRC member when it has a disagreement with the other DRC member and the negotiations are prolonged and then the party seeking payment continues to negotiate with the belief that eventually it will reach an agreement with the other party.  Later after more than nine months have passed since the date on which a payment should have been made, the party seeking payment will discover that it cannot seek payment because the DRC trading rules require all claims to be filed within nine months of the date on which payment was due.  In other words the party which owed the money has stalled the negotiations with the hope that the other party would wait until the limitations period had passed.  Once more than nine months pass after the payment would have been due, the DRC rules bar the claim, the party which refused to pay does not have to pay.
We have been asked by DRC members who are owed money by another DRC member to collect funds owed to them only to discover that the DRC member cannot make a claim because it waited too long to contact us.  Upon discovering that their claim could not be brought before the DRC due to the nine month statute of limitations, they have in turn asked us to file suit against the debtor in US District Courts, incorrectly believing that because the statute of limitations in federal courts is much longer than 9 months that they can still try to collect in court.  Unfortunately, they cannot sue in federal court.  US law is very clear, if parties have agreed to settle their disputes through arbitration in a forum like the DRC, they must proceed with arbitration and a claim which is barred by a statute of limitations in the arbitral forum cannot be revived by filing suit in federal court.  (We are not lawyers in other countries, so we cannot state what the result would be in other countries, we can only state the legal consequence in the United States.)  For this reason, any produce shipper who is a member of the DRC must know if the other party to its contract is a DRC member because the limitations period for filing of claims, nine months after payment was due, is extremely short when compared to the statute of limitations that would apply if the DRC rules did not apply to the transaction.  Yes, there are some traders who play “rope-a-dope” and take advantage of this ignorance of the DRC limitations period to avoid payments they owe to another DRC member.  Be careful and do not let a desire to try to settle a matter cause you to completely lose your right to make a claim.  Don’t fall for produce “rope-a-dope.”