You, the seller of fresh or frozen fruits and vegetables in interstate commerce, did everything you promised. You made sure the type, quantity, and quality of produce ordered by your customer was delivered to the requested location, and you promptly submitted an accurate invoice including the “magic” Perishable Agricultural Commodities Act (PACA) statutory trust notice. You even included language about interest charges for late payments and reasonable attorney fees for collection efforts. Now you’re simply waiting to get paid by your buyer, who may be a commission merchant, dealer, or broker. Waiting…and waiting. And still waiting!
Perhaps a half dozen or more phone calls, emails, faxes, and resent invoices later, you have still not been paid, the due date long since passed. You have confirmed the buyer has not filed for bankruptcy court protection; in fact it is actively conducting business. The buyer is simply, for whatever reason, not paying your bill. What to do? Before hiring an attorney or collection agency to send a terse letter demanding payment or filing a lawsuit, you would be remiss in not considering a potentially faster and less expensive method for collecting your invoice—the PACA Division of the U.S. Department of Agriculture (USDA) Agricultural Marketing Service.
This article provides a general overview of reparation complaint procedures with PACA, as well as tips for navigating through the process. As you read on, keep in mind that no two cases are the same, and you would be well advised to confer with counsel before proceeding down any collection road. For example, in some cases going before the USDA could preclude you from litigating your claim in the future in state or federal court.
The Act & Its Purpose
If you have been in the produce business for any significant length of time, you are likely familiar with the federal Perishable Agricultural Commodities Act of 1930, codified at 7 U.S.C. § 499a, et seq. One of the main purposes of the law is to help ensure dealers of fresh and frozen fruits and vegetables get paid for what they sell.
To help achieve this result, sellers can file a reparation complaint against buyers who have accepted produce but failed to pay. There are two types of reparation proceedings—informal and formal. While this might sound like suggested attire for a social gathering or event, these names connote the extent and binding nature of the rules and outcomes related to the respective proceedings.
Informal Complaints
The informal reparation complaint process is, as you probably guessed, the more ‘relaxed’ of the two procedures. It is the starting point for all nonpayment proceedings and calls for the filing of a written informal complaint and payment of the requisite fee ($100) with the deputy administrator of the Fruit and Vegetable Program.
Complaints must be filed within nine months after payment was due, and sent in a manner that provides proof of delivery to PACA, such as email or fax (be sure to keep the transmission confirmation page).
The informal complaint should be in writing and contain (i) the name and address of each person and of the agent, if any, representing a person in the pertinent transaction; (ii) quantity and quality or grade of each kind of produce shipped; (iii) date of shipment; (iv) carrier identification; (v) shipping and destination points; (vi) if a sale, the date, sale price, and amount actually received; (vii) if a consignment, the date, reported proceeds, gross and net; (viii) amount of damages claimed, if any; and (ix) a statement of other material facts including terms of contract.
You, the seller of fresh or frozen fruits and vegetables in interstate commerce, did everything you promised. You made sure the type, quantity, and quality of produce ordered by your customer was delivered to the requested location, and you promptly submitted an accurate invoice including the “magic” Perishable Agricultural Commodities Act (PACA) statutory trust notice. You even included language about interest charges for late payments and reasonable attorney fees for collection efforts. Now you’re simply waiting to get paid by your buyer, who may be a commission merchant, dealer, or broker. Waiting…and waiting. And still waiting!
Perhaps a half dozen or more phone calls, emails, faxes, and resent invoices later, you have still not been paid, the due date long since passed. You have confirmed the buyer has not filed for bankruptcy court protection; in fact it is actively conducting business. The buyer is simply, for whatever reason, not paying your bill. What to do? Before hiring an attorney or collection agency to send a terse letter demanding payment or filing a lawsuit, you would be remiss in not considering a potentially faster and less expensive method for collecting your invoice—the PACA Division of the U.S. Department of Agriculture (USDA) Agricultural Marketing Service.
This article provides a general overview of reparation complaint procedures with PACA, as well as tips for navigating through the process. As you read on, keep in mind that no two cases are the same, and you would be well advised to confer with counsel before proceeding down any collection road. For example, in some cases going before the USDA could preclude you from litigating your claim in the future in state or federal court.
The Act & Its Purpose
If you have been in the produce business for any significant length of time, you are likely familiar with the federal Perishable Agricultural Commodities Act of 1930, codified at 7 U.S.C. § 499a, et seq. One of the main purposes of the law is to help ensure dealers of fresh and frozen fruits and vegetables get paid for what they sell.
To help achieve this result, sellers can file a reparation complaint against buyers who have accepted produce but failed to pay. There are two types of reparation proceedings—informal and formal. While this might sound like suggested attire for a social gathering or event, these names connote the extent and binding nature of the rules and outcomes related to the respective proceedings.
Informal Complaints
The informal reparation complaint process is, as you probably guessed, the more ‘relaxed’ of the two procedures. It is the starting point for all nonpayment proceedings and calls for the filing of a written informal complaint and payment of the requisite fee ($100) with the deputy administrator of the Fruit and Vegetable Program.
Complaints must be filed within nine months after payment was due, and sent in a manner that provides proof of delivery to PACA, such as email or fax (be sure to keep the transmission confirmation page).
The informal complaint should be in writing and contain (i) the name and address of each person and of the agent, if any, representing a person in the pertinent transaction; (ii) quantity and quality or grade of each kind of produce shipped; (iii) date of shipment; (iv) carrier identification; (v) shipping and destination points; (vi) if a sale, the date, sale price, and amount actually received; (vii) if a consignment, the date, reported proceeds, gross and net; (viii) amount of damages claimed, if any; and (ix) a statement of other material facts including terms of contract.
The complaint must be accompanied by true copies of all available supporting papers related to the transaction at issue. This includes, for example, shipping documents, letters, invoices, account statements, credit memorandums, payment term agreements, contracts, sale confirmations, bills of lading, manifests, and inspection certificates. Do not overlook pertinent emails or faxes sent or received related to the transaction.
Upon receipt of your complaint, an investigation of sorts will begin, as is justified by the facts. If the informal complaint and subsequent investigation “seem to warrant such action,” (yes, that is the standard language contained in the pertinent regulation), the deputy administrator will give written notice to your buyer (“respondent”) of the facts or conduct (nonpayment in this case), and give the respondent an opportunity to comply (i.e., pay you).
A PACA Division representative will then try to mediate or otherwise resolve the dispute. If a settlement is reached, it is best to get it in writing, and signed by the buyer. (For more information about filing an informal reparation complaint, visit the USDA website’s “Fair Trading Regulations” page).
Formal Complaints
As the name suggests, the informal reparation process does not result in a binding outcome (unless you and the buyer voluntarily enter into a settlement agreement). If a mutually satisfactory resolution proves illusive, you have the right (usually explained in a notification letter received from PACA upon conclusion of the informal proceedings) to continue pursuing the buyer on a formal basis. You will typically have ninety days from such notification to file a formal reparation complaint with the USDA.
The formal and informal complaint processes are similar in that both require filing a written complaint with supporting documents. The USDA has a sample formal complaint for nonpayment on its website, along with drafting suggestions, but it should not simply be copied, pasted, and filed. Instead, you should be sure to include only allegations pertinent to your claim (such as omitting references to an inspection or broker involvement if they do not apply), while adding important facts (references to any admissions by the buyer).
The complaint and notarized verification statement should be signed by someone with firsthand knowledge of the transaction and must be accompanied by a $500 handling fee (you can typically recover this fee if your buyer is found to have violated PACA procedures).
As you proceed with the formal reparation process, keep in mind that upon written request, the USDA may grant you an extension at any given stage of the process.
You should not, however, assume you will always get an extension, nor abuse the USDA’s discretion in this regard. If you truly require an extension, include a short statement in your written request explaining your reasons, and submit it to the USDA in advance of the actual deadline at issue—and always be aware of the next deadline in your case.
After filing the formal complaint, things begin to diverge from the informal complaint process. The respondent will have a deadline for filing its answer or response. If the buyer has claims against you, it may assert them in a counterclaim, to which you must reply. If the buyer admits to owing some, but not all, of the amount claimed, the USDA may promptly enter an order directing payment of the undisputed amount by a certain date.
Also unlike the informal process, in a formal reparation proceeding the losing party may be required to pay the prevailing party’s attorney fees and costs. Because, in this day and age, attorneys’ fees can be very high, often exceeding the actual amount at issue, the possibility that attorneys’ fees might be assessed against you if you should lose, should never be taken lightly.
Determinations & Outcomes
Consideration of the evidence in support of and against a formal complaint can proceed in one of two ways: a determination based solely on the documents submitted by the parties, or after an oral hearing before the examiner (picture a trial minus the jury and elaborate courtroom). Generally the amount claimed in your complaint will determine the process utilized.
If the damages sought in your complaint total $30,000 or less (excluding interest), typically an oral hearing will not be held. Instead, within twenty days after the respondent’s answer, you may file a ‘verified opening statement,’ accompanied by pertinent documents.
If the respondent files an answering statement, you will have twenty days to file a reply, also accompanied by pertinent documents. All filings must be notarized and include a verification statement.
Because there will not be an oral hearing before the examiner (everything will be decided based on the documents provided), be sure to submit all the materials you may have in support of your claim for nonpayment. After the period for submitting evidence closes, the parties will also have twenty days to submit briefs, or written arguments, in support of their respective positions. Upon consideration of the evidence, the examiner will prepare his or her report and forward it to the USDA’s Secretary of Agriculture.
When seeking more than $30,000 in your complaint, you and/or the buyer may request an oral hearing before the examiner. If neither of you does so within the time allotted, you will both be deemed to have waived an oral hearing and agreed to have the case decided on the documents, as set forth in the previous paragraph.
Similarly, the examiner may suggest the parties agree to the documentary procedure; however, if one party does not waive an oral hearing or consent to the documentary procedure, an oral hearing will be scheduled.
Although USDA rules stipulate hearings should be conducted by audio-visual telecommunication (at an off-site, prearranged location), the examiner may allow the hearing to be conducted over the phone or by personal attendance (typically near the place where the respondent does business).
Before the actual oral hearing, you will need to submit written statements of anticipated oral testimony by your witnesses, which will limit their actual testimony at the hearing. As you might expect, as the complainant you will have the burden of proof at the hearing, i.e., you must prove to the examiner the terms of your transaction, that you satisfied your obligations under the deal, and the buyer failed to pay you.
Like in a “real” trial, your witnesses will be subject to cross examination, with the examiner excluding any evidence considered immaterial, irrelevant, unduly repetitious, etc. Before the hearing is closed, each party may file a claim for attorneys’ fees and expenses incurred in connection with the oral hearing.
Parties may also file supporting briefs, and the examiner may permit the presentation of oral arguments, as well as proposed findings of fact, conclusions of law, and a proposed order ruling in your favor.
Following a hearing, the examiner will prepare a report in the form of a final order for the signature of the Secretary.
Secretary of Agriculture’s Order
After receiving the examiner’s report, proposed order, and other case materials, the Secretary of Agriculture will issue his/her order in the proceeding.
Unless the Secretary disagrees with the order as drafted by the examiner, the Secretary must move forward with the order as prepared by the examiner.
Besides obviously impacting the complainant’s claims, these orders may establish a precedent for future cases presenting the same or similar issues (many notable orders have been covered in the Reparation Report department in each issue of Blueprints).
Orders from the USDA can have considerable bite; when a PACA-licensed firm fails to pay an award, the USDA automatically suspends its license and the firm is prohibited from operating in the produce industry until the award is paid to the complainant’s satisfaction. While the firm’s license is suspended, its officers are also restricted and cannot be employed or affiliated with any other PACA licensee without the consent of the Secretary of Agriculture.
Whether you ultimately choose to proceed with an informal or formal complaint, both merit consideration before going through the time, effort, and expense of filing a lawsuit in state or federal court.
