Blue Book Services recently launched the “New Hire Academy,” an online training program designed to help new hires learn the fundamentals of the produce industry and avoid costly setbacks. The program consists of five sessions covering: (1) trading customs and rules, (2) the Perishable Agricultural Commodities Act (PACA) trust, (3) sales and account management, (4) Blue Book ratings, and (5) transportation customs and rules.
In this article we recap some of the key points from the session on the PACA trust presented by Jason Read, an attorney with Rynn & Janowsky LLP based in Newport Beach, California. Each of the sessions is available for online viewing at www.producebluebook.com.
Principle #1 –
Introducing the PACA Trust
In 1984 Congress amended the Perishable Agricultural Commodities Act to include what is commonly referred to as the ‘PACA trust’ to help protect produce suppliers from defaulting buyers.
The PACA trust creates a trust relationship between unpaid sellers of perishable agricultural commodities and their buyers, giving produce suppliers what is sometimes referred to as “super-priority” collection rights, provided the produce seller properly preserves its trust rights. As a PACA trustee, sellers are empowered to protect and recover money owed to them in ways that are simply not available to ordinary creditors.
Although often misunderstood, the PACA trust is enforced only in federal civil court. In contrast, the U.S. Department of Agriculture’s PACA branch handles licensing, disciplinary complaints (e.g., misbranding violations), and reparation complaints (e.g., breach of contract disputes), but not PACA trust actions.
Principle #2 –
What is a trust relationship?
A trust relationship may be thought of as one where the ownership and control of certain assets have been separated, such as when a parent arranges for a trustee to manage assets for the benefit of a child. The PACA trust relationship between buyer and seller shares the same basic legal components: the buyer as the trustee responsible for managing trust assets, and the seller as the trust beneficiary.
The buyer, as trustee, is required to manage the trust assets for the benefit of seller with the highest level of care, known as a fiduciary duty. It is important to understand that individual officers, directors, and shareholders who mismanage PACA trust assets may be held personally liable to produce sellers, without protection from the corporate structure.
Principle #3 –
What are PACA trust assets?
Produce buyers are responsible for properly managing PACA trust assets consisting of: (1) their inventory of perishable agricultural commodities, (2) proceeds and accounts receivable from the sale of these commodities, and (3) food items derived from these commodities.
The definition of “perishable agricultural commodities” includes fresh and frozen fruits and vegetables of every kind, plus mushrooms, edible flowers, sugar cane, garlic, cactus leaves, herbs, and cherries in brine. Dried and processed fruit and vegetables are not subject to the PACA trust; nor are coconuts, fresh minced garlic, sugar beets, nuts, or juices.