Alliance v. Let-Us Produce

• Decision Date: 01 July 2011
• Docket Number: Civil Action No. 2:10cv198
• Court: U.S. District Court — Eastern District of Virginia
• Parties: PRODUCE ALLIANCE, et al., Plaintiffs, v. LET-US PRODUCE, et al., Defendants.

PRODUCE ALLIANCE, et al., Plaintiffs, v. LET-US PRODUCE, et al., Defendants.

Civil Action No. 2:10cv198

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Norfolk Division

Dated: July 1, 2011

OPINION AND ORDER

This matter is before the court on a motion for interim distribution based on the "Proof of Claim" submitted by plaintiff/claimant Poppell's Produce, Inc. ("Poppell's"). Poppell's proof of claim documents unpaid receivables arising from produce sales to defendant Let-Us Produce Inc. ("Let-Us Produce"). Subsequent to the filing of such proof of claim, defendants timely voiced their opposition to Poppell's claim in accordance with the "Consent Injunction and Agreed Order Establishing PACA Trust Claims Procedure" previously entered in this case. (Dkt. No. 32.) On March 31, 2011, this court issued an Opinion and Order resolving the majority of the claims filed by the other plaintiffs, but expressly reserved ruling on Poppell's request for distribution/proof of claim. (Dkt. No. 186.) The court ordered additional briefing, which has now been received, regarding the validity of Poppell's PACA claim. For the reasons set forth below, the court DENIES the motion for interim distribution as to Poppell's and DISALLOWS Poppell's proof of claim.

I. Summary of March 31, 2011 Opinion and Order

The factual and procedural background of this case is set forth in detail in this court'sMarch 31, 2011 Opinion and Order. After a lengthy analysis, the court's prior Opinion and Order concludes that, pursuant to The Perishable Agricultural Commodities Act ("PACA") and associated regulations, the majority of the plaintiffs/claimants in this case had valid PACA claims. See 7 U.S.C. § 499e(c);7 C.F.R. § 46.46(e). The court reached such conclusion after determining that "the PACA statute and regulations include two clear prerequisites to qualify for trust coverage: (a) timely notice of the assertion of PACA trust rights; and (b) credit cannot be extended beyond 30 days." (Dkt. No. 186 at 6.) The facts before the court established that such prerequisites were met as to nearly all of the plaintiffs' claims; however, defendants still argued that numerous plaintiffs' failure to comply with another provision of the relevant statute and regulations (the "writing requirement") invalidated such properly noticed claims. The court found that neither the statute nor regulations expressly state whether failure to comply with the so-called "writing requirement" results in the automatic invalidation of a PACA claim or whether it merely renders unenforceable a non-complying agreement that was not reduced to writing. After carefully analyzing the ambiguity in the statute and regulations, the court concluded that the latter result was appropriate based on the language of the statute and regulations as a whole, relevant case law, and the remedial nature of the statutory scheme. Notably, the court only considered the remedial nature of the statutory scheme after finding that: (1) the notice and maximum credit period prerequisites were satisfied; and (2) there was ambiguity regarding the effect of a non-conforming oral agreement to modify credit terms.

II. Analysis of Poppell's PACA Claim

It is undisputed that Poppell's did not violate PACA's 30-day maximum term for the extension of credit. See In re Davis Distributors. Inc., 861 F.2d 416, 417-18 (4th Cir. 1988)(quoting 7 C.F.R. § 46.46(f)(2)) ("'[T]he maximum time for payment for a shipment to which a seller, supplier, or agent can agree and still qualify for coverage under the trust is 30 days after receipt and acceptance of the commodities."'). Although Poppell's asserts that it is also undisputed that Poppell's provided "timely notice of the assertion of PACA trust rights," (Dkt. No. 192), there is plainly a dispute as to whether Poppell's notice of its intent to assert PACA trust rights was effective since Poppell's failed to fully comply with the PACA regulation governing notice.

As discussed in this court's prior Opinion and Order, the PACA statute creates a powerful trust in favor of produce suppliers in order to "protect the public interest" and remedy the "burden on commerce in perishable agricultural commodities." 7 U.S.C. § 499e(c)(l). The statutory PACA notice provisions enacted by Congress state:

(3) The unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary, (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored . . . . When the parties expressly agree to a payment time period different from that established by the Secretary, a copy of any such agreement shall be filed in the records of each party to the transaction and the terms of payment shall be disclosed on invoices, accountings, and other documents relating to the transaction.

(4) In addition to the method of preserving the benefits of the trust specified in paragraph (3) a licensee may use ordinary and usual billing or invoice statements to provide notice of the licensee's intent to preserve the trust. The bill or invoice statement must include the information required by the last sentence of paragraph (3) and contain on the face of the statement the following: "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 U.S.C. 499e(c)). The seller of these commodities retains a trust claimover 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."

7 U.S.C. § 499e(c)(3)-(4) (emphasis added). As highlighted above, the statute plainly states that an unpaid produce supplier that otherwise qualifies for PACA trust protection "shall lose the benefits of such trust" unless the supplier properly notices its claim. Id.

Under the alternative notice provisions set forth in subsection (c)(4) of the statute (hereinafter "invoice notice"), there are either one or two requirements to properly effectuate notice, depending on the circumstances. First, under any set of facts, invoice notice requires the seller to include, on the face of its invoice, the two sentence statutory notice provision. Second, in situations where the buyer and seller have expressly agreed in writing prior to the transaction to modify the default 10-day PACA credit terms, the seller's invoices must expressly state the contractually modified payment period. The regulations mirror such requirements, and unambiguously state that when the parties have agreed in writing to modify the prompt payment 10-day default period, invoices must contain both the required statutory language and the contractually modified payment period. 7 C.F.R. § 46.46(f)(3). Specifically, the PACA regulations state:

(3) Licensees may choose an alternate method of preserving trust benefits from the requirements described in paragraphs (f)(1) and (2) of this section. Licensees may use their invoice or other billing statement as defined in paragraph (a)(5) of this section, whether in documentary or electronic form, to preserve trust benefits. Alternately, the licensee's invoice or other billing statement, given to the buyer, must contain:

(i) The statement: "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 U.S.C. 499e(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 fullpayment is received."; and

(ii) The terms of payment if they differ from prompt payment set out in section 46.2(z) and (aa) of this part, and the parties have expressly agreed to such terms in writing before the affected transactions occur.

7 C.F.R. § 46.46(f)(3) (emphasis added).

Here, Poppell's and defendant Let-Us Produce entered into a written contract to modify the PACA prompt payment period. Such written contract was executed prior to the produce transactions at issue in this case. The contract is written on Poppell's letterhead and indicates that, after evaluating the credit application submitted by Let-Us Produce, Poppell's will extend credit on 21-day terms. (Dkt. No. 53, Exh. A.) The writing further states that by signing the credit contract, Let-Us Produce represents that it has read and understands the terms set forth therein and agrees to abide by them. (Id.) The contract is signed at the bottom by Let-Us Produce's Office Manager.¹ (Id.)

Because there is a prior written contract modifying the prompt payment period, the PACA statute and regulations require that Poppell's invoices include: (1) the two sentence statutory notice language; and (2) the "terms of payment" agreed to by the parties in writing. Although Poppell's invoices include the statutory notice language, all of its invoices state that the payment terms are "COD" rather than the "21-day" terms agreed to by written contract. Because the statute and regulations make clear that proper notice is required "to preserve trust benefits," 7 C.F.R. § 46.46(f)(3), the plain language of the regulatory scheme requires this court to conclude that failure to provide proper notice results in the loss of trust benefits. See Idahoan Fresh v.Advantage...