Perishable Agricultural Commodities ACT (PACA)
Congress enacted PACA “to regulate the sale of perishable agricultural commodities and amended the statute in 1984 to further strengthen the protections provided to produce suppliers”. Endico Potatoes Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1066-67 (2d. Cir. 1995). This amendment imposed a statutory trust on all produce--related assets, including the produce itself, cash, inventories of perishable agricultural commodities (“Produce”), food or products derived from Produce (“Products”), accounts receivable and other proceeds of the sale of Produce or Products, and assets commingled or purchased or otherwise acquired with proceeds of such Produce or Products (assets subject to the PACA Trust are hereinafter referred to as “PACA Trust Assets”) which must be maintained for the benefit of all unpaid suppliers and sellers of the produce until full payment has been made. 7 U S.C. §499e(c)(2). The trust arises upon the commencement of the produce purchaser's business, and is continually in existence throughout the life of the purchaser's business until all suppliers have been paid in full. In re Kornblum & Co., Inc., 81 F.3d 280, 286 (2nd Cir. 1996); In re Atlantic Tropical Market Corp., 118 B.R. 139, 142 (Bankr. S.D. Fla. 1990).
The trust provisions of PACA at 7 U.S.C. §499e(c) also impose a duty on the produce buyer to establish a statutory, non-segregated trust under which it must hold its PACA Trust Assets for the benefit of creditors with valid and enforceable PACA trust claims. PACA mandates that the trustee maintain trust assets in such a manner that these assets are “freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities.” 7 U.S.C. §499b(4) and 7 C.F.R. §46.46(d)(1). Failure to maintain the trust and make full payment promptly to the trust beneficiary is unlawful. 7 U.S.C. §499b(4). Since general principles of trust law govern the PACA trust, any act or omission, which is inconsistent with this duty owed beneficiaries, including dissipation of trust assets, is unlawful and constitutes a “breach of trust”. Restatement (Second) of Trusts, §201; 7 C.F.R. §46.46(d)(1) (See also Harllee-Gargiulo, 131 F.3d at 1000, citing to C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311 (11th Cir. 1992)).
Section §499e(c)(2) “imposes a non-segregated floating trust on the commodities and their derivatives and permits the commingling of trust assets without defeating the trust.” Endico Potaties, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir. 1995). The Second Circuit has held that “[T]his ‘highly unusual trust beneficiary status’ permits sellers, in the event of default, ‘to trump the buyers’ other creditors, including secured ones”. A & J Produce Corp. v. Bronx Overall Economic Development Corporation, 542 F.3d 54 (2d Cir. 2008) citing Am. Banana Co. v. Republic Nat’l Bank of N.Y., N.A., 362 F.3d 33, 38 (2d Cir. 2004).
Please contact the Law Offices of Donna M. Fiorelli, P.C. at 516-783-1950 if you have any questions regarding this unique protection afforded to the sellers of produce.