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Enforcing Your PACA Trust - A Guide for PACA Violations

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Article on information for growers on how to seek a PACA Trust for a violation under the Perishable Perishable Agricultural Commodities Act

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									                                                                                                        MAKE THE RIGHT LEGAL
                                                                                                        AND BUSINESS DECISION.




                                         Enforcing Your PACA Trust

A PACA claim can be one of, if not, the strongest debt collection enforcement tools recognized by the law and can be just
as important to a farming business’ desire to get paid as water is to crops. Often times however, its enforcement proce-
dures are either misunderstood or mishandled, resulting in a loss of its intended bene ts and protections.

PACA, or the Perishable Agricultural Commodities Act, is a Federal law that promotes fair trading and business practices
between buyers and sellers in the fruit and vegetable industry. A PACA claim can generally be made by any seller of a
perishable comity who has not been paid and is enforced by ling a complaint either with the United States Department
of Agriculture (“USDA”) or in Federal Court. Each forum carries its own advantages and disadvantages which should be
evaluated before ever ling a claim.

The chief advantages of ling a claim with the USDA are that it is generally cheaper than a Federal Court action and it will
be heard by PACA representatives who have specialized experience in the produce industry. Unfortunately, the only
leverage that the USDA has for the failure to pay a PACA judgment is the loss of a produce license. It does not have the
right to enforce a PACA Trust which is the single most e ective and important tool in recovering monies owed which can
only be enforced in Federal Court.

What is a PACA Trust? A PACA Trust is an enforcement mechanism which, if certain quali cations are met, places a
trust or hold on assets or monies owed by a buyer to a seller. Among other things, if the buyer diverts or misuses the
funds subject to the trust, the PACA Trust allows the seller to sue the o cers, directors or principals of the buyer who
controlled the funds otherwise owed to the seller. If PACA Trust assets are comingled with other non-PACA Trust assets,
all the assets are subject to the PACA Trust. If the PACA Trust is properly invoked, a PACA claim can even, in certain circum-
stances, survive or receive special priority should the buyer/shipper le for bankruptcy. For this reason the cost, length,
and necessity of a Federal Court action can be substantially diminished since there is often more of an appetite by the
buyer to settle early verses engaging in a long protracted court battle at the risk losing other assets.

Unfortunately, the bene ts of a PACA Trust are often lost because sellers do not assert their rights correctly. By far and
away the most common mistake made in the enforcement of a PACA claim is the failure to provide timely notice of an
intent to invoke PACA rights. Sending notice of an intent to invoke PACA rights does not mean a lawsuit has to be or
even will be led. It is simply a way of preserving PACA rights in the event a claim needs to be led. In most circum-
stances, this must be done by sending notice within 30 days of the date that payment is due. The easiest way to preserve
PACA rights, however, is to simply include the speci c language prescribed by PACA at the bottom of each invoice,
notifying the buyer that the product is being sold subject to a trust. If the PACA Trust time limits are not followed, a PACA
Trust cannot be enforced which means no bankruptcy protection, no personal liability of the principals, and no trust on
other assets. It also means there is less of a chance to recover what is owed. As such, as a general rule of thumb, when
in doubt -- send the PACA notice.

For questions regarding the contents of a PACA notice or this article, you may contact Matthew R. Dildine, Esq.
at Dowling Aaron Incorporated, 559-432-4500 or mdildine@dowlingaaron.com




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