A true/false quiz for produce vendors Part 3

The daily rush of buying, selling, and servicing customers—not to mention running your business—probably leaves little time for brushing up on the industry trading rules you’ve learned over the years.

Fortunately, PACA, DRC, WGA, and Blue Book all have dedicated staff just a phone call away when a deal starts to go sideways. Still, a proactive review of the fundamentals from time to time can be helpful.

In these three posts, we review a sampling of 15 trading rules or principles in a true/false format. Here’s Part 3 on PACA.

Read Part 1 here and Part 2 here.

Of course, feel free to reach out to us if you’d like to discuss any of these points further. Good luck!

PACA Regulations
12. Foreign suppliers are eligible to file PACA reparation complaints.
True. Foreign suppliers may file PACA reparations complaints against U.S. buyers, provided they meet PACA’s bonding requirements, 7 U.S.C. Sec. 499f(e) provides—

In case a complaint is made by a nonresident of the United States…the complainant shall be required, before any formal action is taken on this complaint, to furnish a bond in double the amount of the claim conditioned upon the payment of costs, including a reasonable attorney’s fee for the respondent if the respondent shall prevail, and any reparation award that may be issued by [the USDA] against the complainant on any counter claim by respondent.

You may recall that historically an exception to the bonding requirement was made for Canadian firms based on the idea that Canada provided reciprocity by allowing U.S. firms to file with the CFIA against Canadian companies without requiring a bond.

Although true reciprocity never really existed due to the limited nature of the CFIA’s now obsolete dispute resolution process, Canadian firms were nonetheless excepted from this requirement until 2014, when the absence of financial protections akin to the PACA trust led to the USDA discontinuing its practice of waving the bonding requirement for Canadian firms.

13. If a complainant does not file a reparation complaint with PACA within nine months of the cause of action accruing, it forfeits all legal recourse.
False. Although 7 U.S.C. Sec. 499f(a)(1) provides that liability for violations of the Act must be enforced “within nine months after the cause of action accrues,” section 499e(b) explains that the Act “shall not in any way abridge or alter the remedies now existing at common law or by statue, and the provisions of this [Act] are in addition to such remedies.”

Consequently, complainants are free to pursue claims, such as for breach of contract, in court, even if they failed to file a PACA reparation complaint within nine months. State statues of limitation typically permit filing for at least two years after the cause of action accrues.

14. There is no benefit to having a PACA license, other than to comply with the law.
False. PACA licensees have the benefit of section 499e(c) which allows them to automatically invoke PACA trust rights by simply including boilerplate language on their invoices reading—

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 full payment is received.

Conversely, a seller without a PACA license (e.g., a foreign supplier or a grower that only sells product of its own raising and is therefore not required to have a license), must provide a separate written notice to the buyer within 30 days of the obligation becoming past due; otherwise, per section 499e(3) the “unpaid supplier shall lose the benefits of such trust…”

15. Under the PACA trust, as long as payment terms are within 30 days, it doesn’t matter what those payment terms are.
False. Concerning the trust, section 499e(c)(3) states, “When the parties expressly agree to a payment time period different from that established by [PACA regulation], 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.”

In other words, when sellers agree to payment terms other than those put forth in 7 C.F.R. 46.2(aa), (other than “PACA Prompt”), these terms must be documented and filed in order to avoid risking—or at minimum complicating—any PACA trust claim that may later be filed. Under no circumstances is a supplier eligible for PACA trust protection when the payment terms are greater than 30 days.

How did you do?
If you got 12 or more correct, you must be an industry veteran with a good memory. If you got 10 or more correct, let’s say you made good arrival. If you got less than 10 right, you may want to visit PACA’s training course , and Blue Book’s New Hire Academy . The New Hire Academy is available to Blue Book members at no charge.

Doug Nelson is Vice President of Trading Assistance for Blue Book Services Inc.