With the launch of our new website, we are also launching our Produce and Ag Trade Law Blog.  The blog will cover items that are of interest to traders in produce and other agricultural goods to and from the US.   We will also mention cases of note in federal and state courts.

Legal notes – Invoicing and PACA

Invoices are important and incorrect invoicing can lead to legal problems.  One serious problem arising in invoicing arises out of the PACA trust legend.  The PACA trust provides many protections for produce shippers.  Here is a sample trust legend:

“The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by Section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 USC 499(e)(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.  NOTICE: Past due invoices shall accrue annual interest at the rate of 12% or at the maximum legal rate, whichever is lower.  Receiver agrees that seller shall be entitled to collect reasonable attorney’s fees and expenses as part of an action to collect on this invoice.  Actual attorney’s fees incurred in bringing any action to collect on this invoice and/or enforcing any judgment granted and interest shall be considered as additional sums owed in connection with this transaction.”

This legend does three things.  First it preserves a right to collect interest from the receiver, at least in most jurisdictions.  Second, it preserves a right to collect attorney’s fees in the event the receiver does not pay for the produce which was received and accepted.  Finally, this legend preserves the shipper’s rights under the PACA trust, if and that is a BIG IF, the seller is a US shipper which has a current PACA license.  Unfortunately, some foreign shippers mistakenly believe they can preserve their PACA trust rights by placing this legend on their invoices.  They are mistaken.   Recently a shipper in California which did not have a PACA license at the time of the transactions at issue lost its claim under the PACA trust by mistakenly believing that by including a paragraph similar to this one that it would have rights under the PACA trust.  It was mistaken and the court dismissed its PACA trust claims.

Foreign shippers CANNOT use a legend, like the one above to preserve PACA trust rights.  They MUST send a trust notice to their US receivers.  No trust notice, no PACA trust rights.  We have seen a number of Canadian shippers which mistakenly include this legend on their invoices.  They fail to send a trust notice and then discover that they have no PACA trust rights.

CASES OF NOTE

Here are some recent cases that may be of interest to produce traders:

Market 52 Bankruptcy – Bankruptcy Court Eastern District of California – Market 52, Inc. filed for bankruptcy in California.  This case is interesting because many foreign shippers of produce sent product to Market 52 and failed to protect their PACA trust rights.  It appears that many shippers false believed that letters and agreements from Market 52 representatives would protect them in the case that the company did not pay.  Instead, many foreign shippers now find themselves as unsecured creditors while US based shippers who perfected their PACA trust rights will have first payment priority.

The bankruptcy court has set up a claims procedure for produce creditors to present their claims.  The deadline for claims filing is April 13, 2012.

Hop Hing Produces, Inc. v. X & L Supermarket, Inc., and New Son Yeng Produc NY, LLC. v. X & L Supermarket, Inc.  U.S. District Court Eastern District of New York.  In these two PACA actions the sellers seek approximately $84,000 and $89,000 from X & L.

Crossett Company, LLC, v. Foodtown Supermarkets of Kentucky, Inc.  U.S. District Court, Eastern District of Kentucky.  This is a PACA suit to collect approximately $26,000.