Additionally, unlike arbitration, the PACA reparation process is only available to certain types of litigants—namely, produce buyers, sellers, and brokers—and only when the party claimed against is operating subject to a PACA license (i.e., the party must be located in the United States and the purchaser of wholesale quantities [as defined under PACA] of produce for interstate or foreign commerce).
What’s more, the dispute must involve a subject transaction (a sale involving a wholesale quantity of produce) and the claim must be filed with PACA within nine months of the date the cause of action arose (e.g., nine months and ten days after the product was accepted assuming “PACA prompt” terms).
Notably absent from the PACA reparation scheme are: (i) claims against firms located in Canada; (ii) claims that do not involve interstate or foreign commerce (e.g., product grown, sold, and consumed in Florida); and (iii) disputes by or against transportation providers (e.g., carrier claims). Arbitration through the DRC and Blue Book helps fill these voids, and keeps produce firms out of the courtroom.
Arbitration Fundamentally, it’s important to recognize that although arbitration represents an alternative to the courts, this doesn’t mean the courts don’t play a role. Ultimately, arbitrations get their force and effect from a long history of the courts enforcing arbitration agreements and decisions.
For example, a seller that files a lawsuit against a buyer despite a valid arbitration clause in the sales agreement will likely find its case dismissed in favor of arbitration. And should the losing party in the arbitration fail to pay, the courts are needed to enforce the arbitration decision.
Surprisingly, however, even though the courts may be needed to enforce an arbitration decision, in two important respects a favorable arbitration decision may be more advantageous than an award from a court. First, arbitration decisions may be appealed only in very rare circumstances, such as serious misconduct or fraud by the arbitrator. Unlike an award from a court (or administrative law judge), arbitration decisions may not be appealed based solely on flawed legal reasoning. This limited right to appeal is consistent with the nature and goals of arbitration as a streamlined and cost effective method of resolving disputes.
Second, in those cases where the parties are domiciled in different countries, an arbitration award issued in country A against a firm domiciled in country B may be easier to enforce in country B than a court award issued in country A. This is because courts are not necessarily obligated to honor an award from a foreign court.
But if country B has ratified the New York Convention, as more than 150 countries including the United States, Canada, Mexico, Chile, Costa Rica, and China have, then by international treaty the foreign court is generally obligated to enforce arbitration awards, even those issued in other countries.
The North American produce industry offers a number of specialized dispute resolution options to resolve routine disputes without resorting to traditional litigation in the courts. In addition to the reparation process under the Perishable Agricultural Commodities Act (PACA), both the Fruit and Vegetable Dispute Resolution Corporation (DRC) and Blue Book Services, Inc. (Blue Book) offer arbitration processes tailored to meet the needs of the produce industry.
Arbitration is a form of alternative dispute resolution designed to be faster and more cost effective than litigation. When parties agree to arbitrate, they agree to let a private person or entity decide how the dispute in question will be resolved. Arbitration should not be confused with mediation, which is a process where a neutral third party attempts to help the parties reach a mutually agreed-upon settlement of the dispute in question.
Unlike arbitrators, mediators do not have the authority to issue binding decisions, though settlement agreements reached between the parties through mediation are, of course, binding on the parties. Mediation (both informal and formal) offered by PACA, DRC, and Blue Book helps resolve hundreds of claims each year. Still, even with the help of a mediator, there are times when agreement between the parties is not possible.
In this article, we look at how arbitration is used to resolve produce disputes. We’ll start by comparing arbitration to PACA’s reparation process, and then discuss the arbitration services offered by DRC and Blue Book.
Comparing and Contrasting The reparation process set forth in PACA (7 USC 499(f)) is, like arbitration generally, designed to be more streamlined and cost effective than traditional litigation. Claims that cannot be resolved through PACA’s informal mediation process (usually consisting of telephone calls and correspondence exchanged with PACA staff) may proceed to a formal decision that is, in many ways, more like a typical arbitration than a traditional lawsuit.
The vast majority of formal PACA reparation decisions are conducted without an oral hearing, discovery (e.g., depositions, document production, interrogatories), service of process, a jury, or ever actually going to the courthouse. Instead, the proceeding is conducted with written pleadings, affidavits, documentary evidence, and briefs (written arguments) submitted by the parties.
And while making your case without discovery, oral argument, and “having your day in court” may seem limiting, especially in a case that hinges on the credibility of witnesses, the streamlined nature of the process is well suited for most produce claims, especially those for relatively small amounts where the cost of traditional legal mechanisms, such as depositions, cannot be justified.
Despite the similarities, however, the PACA reparation process is fundamentally different from arbitration in a number of ways, including: (i) the decision is issued by an administrative law judge, not an arbitrator selected by the parties; (ii) the PACA reparation process is not dependent on a private agreement between the parties; and (iii) the resulting decision may be overturned on appeal (in federal district court) more readily than an arbitration decision, which is not susceptible to appeal, except in very limited circumstances.
Additionally, unlike arbitration, the PACA reparation process is only available to certain types of litigants—namely, produce buyers, sellers, and brokers—and only when the party claimed against is operating subject to a PACA license (i.e., the party must be located in the United States and the purchaser of wholesale quantities [as defined under PACA] of produce for interstate or foreign commerce).
What’s more, the dispute must involve a subject transaction (a sale involving a wholesale quantity of produce) and the claim must be filed with PACA within nine months of the date the cause of action arose (e.g., nine months and ten days after the product was accepted assuming “PACA prompt” terms).
Notably absent from the PACA reparation scheme are: (i) claims against firms located in Canada; (ii) claims that do not involve interstate or foreign commerce (e.g., product grown, sold, and consumed in Florida); and (iii) disputes by or against transportation providers (e.g., carrier claims). Arbitration through the DRC and Blue Book helps fill these voids, and keeps produce firms out of the courtroom.
Arbitration Fundamentally, it’s important to recognize that although arbitration represents an alternative to the courts, this doesn’t mean the courts don’t play a role. Ultimately, arbitrations get their force and effect from a long history of the courts enforcing arbitration agreements and decisions.
For example, a seller that files a lawsuit against a buyer despite a valid arbitration clause in the sales agreement will likely find its case dismissed in favor of arbitration. And should the losing party in the arbitration fail to pay, the courts are needed to enforce the arbitration decision.
Surprisingly, however, even though the courts may be needed to enforce an arbitration decision, in two important respects a favorable arbitration decision may be more advantageous than an award from a court. First, arbitration decisions may be appealed only in very rare circumstances, such as serious misconduct or fraud by the arbitrator. Unlike an award from a court (or administrative law judge), arbitration decisions may not be appealed based solely on flawed legal reasoning. This limited right to appeal is consistent with the nature and goals of arbitration as a streamlined and cost effective method of resolving disputes.
Second, in those cases where the parties are domiciled in different countries, an arbitration award issued in country A against a firm domiciled in country B may be easier to enforce in country B than a court award issued in country A. This is because courts are not necessarily obligated to honor an award from a foreign court.
But if country B has ratified the New York Convention, as more than 150 countries including the United States, Canada, Mexico, Chile, Costa Rica, and China have, then by international treaty the foreign court is generally obligated to enforce arbitration awards, even those issued in other countries.
Arbitration: DRC No organization in the produce industry conducts more arbitrations than the DRC, based in Ottawa, Ontario. The DRC, in a sense, functions similarly to PACA in the United States, helping keep produce firms out of the courts by requiring members to arbitrate disputes that cannot be resolved through its informal mediation process.
By the terms of their DRC membership agreement, members agree that disputes with other DRC members will be resolved through the DRC (with PACA an option for eligible claims). Fred Webber, president of the DRC, explains that its arbitration process, particularly when selling into Canada, has become a service the industry relies on. “Not long ago, there were only limited options to resolve Canadian disputes involving slow pay, no pay, and commercial contracts.”
The DRC’s arbitration process is quite sophisticated and includes arbitrator selection, oral hearings, and different procedural rules depending on the amount in dispute. “From the beginning our members were clear that they wanted a process that met the needs of the produce industry,” explains Webber. “The process is now time-tested and has survived challenges in the courts.”
The typical arbitration conducted by the DRC is rather straightforward. “It is a documentary procedure, with no oral hearing and two rounds of document exchange. The chosen arbitrator issues his or her decision based on the written submissions,” says Webber. “Larger, more complex cases do have hearings, however. And for all arbitrations, the DRC staff is involved in administering the logistics of the case.”
Arbitration: Blue Book Services Blue Book arbitration has a long history dating back to at least the 1950s. The process has historically been used by those members with an honorary Trading or Transportation Membership designation. But today Blue Book arbitration is typically invoked voluntarily between the parties almost as a form of “settlement agreement” where the parties agree to disagree, and then let the arbitration process determine the resolution.
“Years ago, we ran an ad that read ‘Can’t agree? Agree to Arbitrate,’ and I think that sums up the value of the arbitration we offer pretty well,” comments Jim Carr, president of Blue Book Services. “If the parties can agree on the process to resolve the dispute—even if they can’t agree on exactly how it should be resolved—that goes a long way toward preserving the business relationship, which is usually worth a lot more than winning the arbitration in the long term.”
Blue Book’s arbitration process does not provide for oral hearings or a selection process for arbitrators. The process is as streamlined as possible and uses a panel of three arbitrators (consisting of Blue Book personnel).
Carr, who regularly sits on the arbitration panel, explains that “the process consists of just four submissions: the claimant’s presentation, the respondent’s reply, and rebuttals from both parties. This is usually all that’s needed to allow the parties to fully make their case. And, if not, the process is flexible enough to allow [the arbitration panel] to request additional submissions if, for instance, we don’t think a party has had a full opportunity to respond to facts or allegations raised by the other party.
“Ultimately, the process delivers a binding decision that explains our reasoning to the parties,” Carr shares. “In almost all cases, the parties have been respectful of one another and the process and, win or lose, have abided by the decision without the need for any enforcement action.”
Closing Remarks Arbitration is not unique to the fresh produce industry; but the arbitration services offered by the DRC and Blue Book are specifically designed to meet the industry’s needs, much like PACA’s reparation process. And while some cases may be better suited for traditional litigation, a produce business that finds itself knee-deep in a lawsuit may come to appreciate the relative speed and efficiency offered by arbitration.
