By Lawrence H. Meuers
In my 27 years of representing produce companies, I thought I had seen all possible produce purchasing scams resulting in unpaid suppliers. I recently learned of a new scam involving brokers attempting to fleece suppliers out of their produce. Then, low and behold, two clients recently called having been involved in a very similar situation. The scams are ingenious on the part of the brokers because, if left unchecked, they would have left our clients, the suppliers, without any PACA trust protection at the time they sought payment for their produce.
The scams followed a similar pattern. Our clients are produce suppliers operating at shipping point. The suppliers were contacted by produce brokers seeking to purchase produce on behalf of their customers. The brokers informed the suppliers that they were true brokers that would be arranging for sales of the produce from the suppliers to the customers and the customers would be responsible for paying the suppliers. The brokers instructed the suppliers to invoice the customers for the produce, but to send the invoice to the brokers and the brokers would forward the invoice on to the customers. The suppliers received a couple of orders in this manner and received prompt payment for these transactions. The payments were received by ACH transfer making it difficult to determine the source of the payments. And, of course, now that the suppliers felt comfortable doing business with the brokers, they felt no need to investigate further. It was now that the stage was set for trouble to begin.
Needless to say, the suppliers did not get paid for the next several loads. The suppliers asked the brokers to contact the customers for payment. When this tactic failed to produce payments, the suppliers got nervous and contacted the customers directly. Now, things got really interesting. The customers provided enlightening information. The customers claimed they received invoices from the brokers for the transactions, not the suppliers, and paid the brokers directly for some of the transactions. Not only that, the customers informed the suppliers that on some of the loads, they had received only a couple of the pallets from the shipment.
At this point, the suppliers called me. What to do? Some of you that are regular readers of our newsletter may know the answer. The suppliers have no PACA trust rights on these transactions. They have no PACA trust rights against the customers because the suppliers never sent their invoices with the PACA trust language to the customers. The customers also claim that they purchased the produce from the brokers or did not receive the produce. The suppliers have no PACA trust rights against the brokers because the suppliers never invoiced the brokers for the produce, they sent the brokers invoices with the customers’ names on them.
Our advice to the suppliers was to cover all of their bases. Fortunately, the suppliers contacted us prior to the 40-day deadline to preserve their PACA trust rights (10-day payment term + 30 days to give notice). We advised the suppliers to send invoices directly to the customers for all the produce they received. We also suggested that they ask the brokers and the customers for information on the other customers who received the other portions of the loads. We advised the suppliers to also invoice these customers. We then had the suppliers send Notices of Intent to Preserve Trust Benefits to the brokers to protect the suppliers’ PACA trust rights against the brokers so they could seek payment from the brokers under the PACA trust if they did not receive payment directly from the customers.
Had the suppliers not contacted us prior to expiration of their PACA trust rights, the brokers would have executed a perfect scam. The suppliers would have no PACA trust rights against them for the produce, and the suppliers would have no claim against the customers, leaving the brokers with the ability to receive payment from the customers for the entire value of the produce and avoid any potential liability to the suppliers.
To avoid being caught up in similar shenanigans, we advise you take these simple steps. First, when dealing with a broker that alleges it is a true broker and is negotiating a contract between a supplier and an end customer, make sure that the broker complies with its obligations under PACA. These obligations include issuing a broker’s memorandum of sale sent to both the supplier and the customer stating all terms of the transactions. As a supplier, make sure that you have direct communication with the customers. Perform credit checks and establish them as customers. Send them invoices directly with copies to the broker. Do not ever allow brokers to perform all communications with customers, unless the brokers agreed to be collect-and-remit brokers and bear the credit risk of the customers’ nonpayment.
If you have any questions regarding this scam or transactions with brokers, please contact our office.
Meuers Law Firm, P.L., 5395 Park Central Court, Naples, FL 34109-5395
Telephone: (239) 513-9191
Facsimile: (239) 513-9677
www.meuerslawfirm.com
The Meuers Legal Team
ATTORNEYS:
Lawrence H. Meuers, lmeuers@meuerslawfirm.com
Steven E. Nurenberg, snurenberg@meuerslawfirm.com
Steven M. De Falco, sdefalco@meuerslawfirm.com
