Idahoan Fresh v. Advantage Produce, Inc.

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
10-6-1998
Idahoan Fresh v. Advantage Prod Inc
Precedential or Non-Precedential:
Docket 98-3169
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Filed October 6, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-3169
IDAHOAN FRESH, A Division of Clement Enterprises
v.
ADVANTAGE PRODUCE, INC.;
WILLIAM H. CARSON;
WILLIAM H. CARSON, III
C.H. Robinson Company (Intervenor in D.C.),
Appellant
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 97-00237)
Submitted under Third Circuit LAR 34.1(a)
October 5, 1998
BEFORE: GREENBERG and MCKEE, Circuit Judges,
and LUDWIG, District Judge.*
(Filed October 6, 1998)
_________________________________________________________________
*Honorable Edmund V. Ludwig, Senior United States District Judge, for
the Eastern District of Pennsylvania, sitting by designation.
Jennifer Sorce
Mark A. Amendola
Martyn & Associates
820 Superior Avenue, N.W.
10th Floor
Cleveland, OH 44113
Attorneys for Appellant
Joseph P. McCafferty
McCafferty & Williams
2000 East 9th Street
Suite 700
Cleveland, OH 44115
Attorneys for Appellees
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
C.H. Robinson Company ("CHR") appeals from the district
court's order of November 7, 1997, denying its motion to
exclude certain suppliers of perishable agricultural
commodities ("produce") from the universe of unpaid
suppliers entitled to recover benefits under the statutory
trust created by the Perishable Agricultural Commodities
Act, 7 U.S.C. S 499e(c). CHR intervened in this action filed
by Idahoan Fresh ("Idahoan") against Advantage Produce,
Inc. ("Advantage") to enforce the trust and challenged
Idahoan's proposed schedule of qualified claimants under
the trust.
The district court had jurisdiction pursuant to 7 U.S.C.
S 499e(c)(5). We have jurisdiction over the district court's
interlocutory order denying the exclusion of Idahoan and
Alsum Produce, Inc. ("Alsum") as qualified beneficiaries
pursuant to 28 U.S.C. S 1292(b) as the district court
certified the order of November 7, 1997, for immediate
2
appeal and we granted CHR's Petition for Permission to
Appeal.
II. FACTUAL AND PROCEDURAL HISTORY
A. Statutory and Regulatory Framework of Perishabl e
Agricultural Commodities Act of 1930
We begin with a brief overview of the Perishable
Agricultural Commodities Act ("PACA"). In 1930, Congress
enacted PACA to promote fair trading practices in the
produce industry. See 7 U.S.C. S 499a et seq.; Consumers
Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d
1374, 1377 (3d Cir. 1993). In particular, Congress intended
PACA to protect small farmers and growers who were
vulnerable to the practices of financially irresponsible
buyers.1 See Hull Co. v. Hauser's Foods, Inc., 924 F.2d 777,
780 (8th Cir. 1991). Under PACA, it is unlawful for buyers
of produce, inter alia, to fail to make prompt payment for a
shipment of produce. See 7 U.S.C. S 499b(4). A buyer's
failure to tender prompt payment triggers civil liability and
the possible revocation of the buyer's PACA license required
by 7 U.S.C. S 499c. See 7 U.S.C. SS 499e(a), 449h(a).
Prompt payment is defined by regulations which apply
unless the parties agree otherwise in writing prior to the
transaction. See 7 C.F.R. S 46.2(aa).
In 1984, Congress amended PACA to protect further
certain unpaid suppliers2 of produce by including a
statutory trust provision which provides an additional
remedy for sellers against a buyer failing to make prompt
payment. See P.L. 98-273; H.R. Rep. No. 98-543, at 2
(1983), reprinted in 1984 U.S.C.C.A.N. 405, 406. Prior to
this amendment, unpaid produce suppliers were unsecured
creditors vulnerable to the buyers' practice of granting
_________________________________________________________________
1. The statute and regulations speak in terms of "commission merchant,
dealer and broker." See 7 U.S.C. S 499a et seq. For ease of reference, we
refer to these participants as "buyers."
2. The statute and regulations use the terms "supplier, seller, or agent."
This opinion refers to the these participants interchangeably as suppliers
or sellers.
3
other creditors a security interest in their inventory and
accounts receivable. See Tom Lange Co. v. Lombardo Fruit
& Produce Co. (In re Lombardo Fruit & Produce Co.), 12 F.3d
806, 808-09 (8th Cir. 1994) (citing H.R. Rep. No. 98-543, at
3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 407). Under
the 1984 provision, a buyer's produce, products derived
from that produce, and the proceeds gained therefrom are
held in a non-segregated, floating trust for the benefit of
unpaid suppliers who have met the applicable statutory
requirements. See 7 U.S.C. S 499e(c); 7 C.F.R. S 46.46(b).
Thus, the provision gives certain unpaid sellers of produce
an interest in the PACA trust assets superior to that of a
perfected, secured creditor. See Consumers Produce, 16
F.3d at 1379. In a 1995 amendment to PACA, which we
discuss below, Congress made procedural changes in the
trust fund provisions. See P.L. 104-48,S 6, 7 U.S.C.
S 499e(c)(4).
To enforce its rights under the statutory trust, a qualified
beneficiary may file a claim in the district court
immediately upon the buyer's failure to tender prompt
payment. See 7 U.S.C. S 499e(c)(5). A qualified unpaid seller
remains entitled to benefits until paid in full. See 7 C.F.R.
S 46.46(c)(1). A seller eligible for the statutory trust benefits
must preserve its rights by satisfying a notice requirement
by either sending notice to the buyer within 30 days of a
payment default or, as provided in the 1995 amendment to
PACA, including a statutory statement referencing the trust
on its invoices. See 7 U.S.C. S 499e(c)(3), (4); 7 C.F.R.
S 46.46(c), (f). While a seller may agree in writing to a
payment period other than that defined in the regulations
as prompt, an unpaid seller loses its right to participate in
the trust if it agrees in writing to extend the payment period
beyond 30 days. See 7 C.F.R. S 46.46(e)(2). The issue
presented by this appeal is whether a seller also forfeits its
right to participate in the PACA trust if it fails to reduce to
writing an agreement to extend the payment term.
B. Current Dispute
Over a period of several months, Advantage purchased
produce from Idahoan, CHR, Alsum, O.P. Murphy & Sons
("Murphy"), and Powerhouse Produce, L.L.C.
4
("Powerhouse"). The details of these transactions are not in
dispute.3
In a series of transactions from August 7, 1996, through
December 28, 1996, Idahoan sold a total of $116,684.26
worth of produce on credit to Advantage. See app. 9.4 All of
Idahoan's invoices to Advantage contain the language
required under 7 U.S.C. S 499e(c)(4), the 1995 PACA
amendment, to notify the buyer that the seller intends to
preserve its trust claim against the buyer. Idahoan and
Advantage did not enter into a written agreement extending
the payment term which, in this case, in the absence of a
written agreement altering the term, is ten days. See 7
C.F.R. S 46.2(aa)(5). However, William Carson, president of
Advantage, alleges that they had an oral agreement
extending the payment term to 20 days. Additionally, 28 of
the 30 outstanding invoices issued by Idahoan to
Advantage stated "PAYMENT TERMS: Net 20 days." The
remaining two invoices contain no payment term.
Alsum sold, on credit, a total of $10,708.00 worth of
produce to Advantage in two transactions on October 9 and
24, 1996. Alsum and Advantage did not enter into a written
agreement extending the payment term. As with Idahoan,
Carson claims that Alsum and Advantage had an oral
agreement to extend the term, though in Alsum's case the
extended term was 15 rather than 20 days.
Notwithstanding the oral agreement, both of Alsum's
unpaid invoices state "PAYMENT TERMS: NET 10." Both
invoices also contain the statutory language as provided in
the 1995 PACA amendment notifying Advantage that Alsum
intended to preserve its PACA trust claim.
CHR sold $36,004.80 worth of produce to Advantage
pursuant to their written agreement to extend the payment
term to 30 days. CHR's invoices for these sales included a
_________________________________________________________________
3. Because there seems to be no dispute that Murphy and Powerhouse
are qualified PACA trust beneficiaries, we need not be concerned with
the details of their transactions with Advantage. Our discussion of the
facts therefore is limited to Advantage's transactions with Alsum,
Idahoan, and CHR.
4. Citations to the appendix refer to the tab number because the pages
of the Appendix are not numbered continuously.
5
payment term of 30 days as well as the statutory language
required to preserve its interest in the PACA trust. See app.
5.
Advantage failed to pay Idahoan, Alsum, and CHR the
amounts due on these outstanding invoices. On February
10, 1997, Idahoan filed a complaint against Advantage and
its officers, William Carson and William Carson III, for
damages and injunctive relief alleging violations of PACA
based upon Advantage's failure to pay its invoices and
breach of the statutory trust. The district court issued a
temporary restraining order on February 11, 1997,
enjoining the defendants from further dissipating the
constructive trust imposed by 7 U.S.C. S 499e(c). On
February 20, 1997, Idahoan and Advantage filed a
Stipulated Order for Preliminary Injunction which stated a
procedure for identifying all of Advantage's qualified and
unpaid PACA trust creditors.
CHR intervened as a party plaintiff in the action on May
27, 1997. See app. 5. On June 2, 1997, Idahoan and
Advantage filed a Joint Status Report and Motion for an
Order for the Distribution of PACA Trust Proceeds ("Joint
Motion") identifying the following universe of qualified PACA
trust creditors:
Idahoan $ 116,684.26
CHR 36,004.80
Murphy 4,300.00
Alsum 10,708.00
Powerhouse 4,868.00
____________
$ 172,565.06
App. 6.
Although CHR was a party to the action at the time
Advantage and Idahoan filed the Joint Motion, they did not
consult CHR or invite CHR to join in the Joint Motion. On
June 5, 1997, CHR filed an objection to the Joint Motion
and served discovery requests upon Advantage seeking
documents which established the alleged qualified status of
the creditors set forth in the Joint Motion. See app. 7. CHR
then filed a Motion to Exclude Alsum and Idahoan from the
universe of qualified PACA trust creditors on the grounds
6
that they failed to comply with the statute and regulations.
In particular, CHR argued that Idahoan and Alsum orally
agreed to extend the payment term beyond the ten-day
period established in the regulations, and they were,
therefore, not qualified PACA trust creditors because the
agreements were not reduced to writing prior to the
transaction. See app. 9.
At the time of briefing on this appeal, the total amount of
available PACA trust funds was approximately $45,000.00.
See Br. for Appellant at 5. If Idahoan and Alsum are
excluded from the universe of qualified trust beneficiaries,
the total qualified and unpaid trust claims would be
$45,172.80. Thus, their exclusion would result in payment
virtually in full, rather than a small pro-rata portion, to the
qualified PACA trust creditors, CHR, Powerhouse, and
Murphy.
On November 7, 1997, the district court issued an order
denying CHR's Motion to Exclude Idahoan and Alsum citing
"the reasons stated of record at the argument of the
motion." App. 12. Following argument on CHR's motion to
exclude, the district court stated that an oral agreement to
extend a payment term is totally ineffective and, provided
that the supplier complies with the notice provisions of the
statute, it is a qualified PACA trust beneficiary. See Br. for
Appellee, Attach. at 11-12.5 Thereafter, CHR filed a motion
for reconsideration or, in the alternative, certification
pursuant to 28 U.S.C. S 1292(b). On December 1, 1997, the
district court certified the November 7, 1997 order, for
immediate appeal, the controlling question of law being
whether Idahoan and Alsum "perfected their trust claims
under PACA." On February 19, 1998, we granted CHR's
Petition for Permission to Appeal. See app. 1, 14.
III. DISCUSSION
CHR contends that the district court erred in finding that
Idahoan and Alsum were qualified to receive statutory
benefits under PACA. According to CHR, the plain
_________________________________________________________________
5. A partial transcript of the argument is included as an Attachment to
the Brief for the Appellee, Idahoan.
7
language, legislative history, and purposes of the statute
and regulations lead to the conclusion that a seller forfeits
its right to PACA trust benefits if it orally agrees to extend
the payment term beyond that established in the
regulations as prompt, in this case, ten days.
There is no dispute that Idahoan and Alsum did not
reduce to writing their agreements to extend the payment
period in their transactions with Advantage. There is also
no dispute that Idahoan's and Alsum's invoices properly
notified Advantage of their intent to preserve their right to
statutory benefits under 7 U.S.C. S 499e(c)(4). Thus, as we
have indicated, this appeal raises the following issue
regarding the proper interpretation of PACA: whether an
agreement to extend the payment term beyond the time
defined by the regulations as prompt must be in writing in
order for the seller to qualify for the benefits of the PACA
trust. Because this appeal concerns solely the legal issue of
the proper interpretation of statutes and regulations, we
exercise de novo review over the district court's order. See
Shell Oil Co. v. Babbit, 125 F.3d 172, 175 (3d Cir. 1997).
We initially point out that certain general precepts guide
us on this appeal. The role of the courts in interpreting a
statute is to give effect to Congress's intent. See Negonsott
v. Samuels, 507 U.S. 99, 104, 113 S. Ct. 1119, 1122-23
(1993). Because it is presumed that Congress expresses its
intent through the ordinary meaning of its language, every
exercise of statutory interpretation begins with plain
language of the statute itself. See Santa Fe Med. Servs., Inc.
v. Segal (In re Segal), 57 F.3d 342, 345 (3d Cir. 1995)
(citing Mansell v. Mansell, 490 U.S. 581, 588, 109 S. Ct.
2023, 2028 (1989)); United States v. Pelullo, 14 F.3d 881,
903 (3d Cir. 1994). Where the statutory language is plain
and unambiguous, further inquiry is not required, except in
the extraordinary case where a literal reading of the
language produces an absurd result. See In re Segal, 57
F.3d at 346. Moreover, a court may depart from the plain
language of a statute only by an extraordinary showing of
a contrary congressional intent in the legislative history.
See Garcia v. United States, 469 U.S. 70, 75, 105 S. Ct. 479,
482 (1984).
8
In interpreting a statute, courts should endeavor to give
meaning to every word which Congress used and therefore
should avoid an interpretation which renders an element of
the language superfluous. See United States v. State of
Alaska, ___ U.S. ___, 117 S. Ct. 1888, 1918 (1997); United
Food & Commercial Workers Union Local 751 v. Brown
Group, Inc., 517 U.S. 544, 550, 116 S. Ct. 1529, 1533
(1996) (reading which gives effect to all of a statute's
provisions prevails over one which disregards a provision as
legislative oversight); First Bank Nat'l Ass'n v. FDIC, 79 F.3d
362, 367 (3d Cir. 1996); Insurance Co. of N. Am. v. Cohn (In
re Cohn), 54 F.3d 1108, 1115 (3d Cir. 1995). This basic
tenet of statutory construction applies equally to the
interpretation of regulations. See Silverman v. Eastich
Multiple Investor Fund, LP, 51 F.3d 28, 31 (3d Cir. 1995)
(dealing with canon that court should construe statutory
language so that all provisions are given effect); LaVallee
Northside Civic Ass'n v. Virgin Islands Coastal Zone
Management Comm'n, 866 F.2d 616, 623 (3d Cir. 1989)
(regulation which conflicts with statute under which it was
promulgated is ineffective, but court should endeavor to
reconcile the two). Thus, the preferred construction of a
statute and its regulations is the one that gives meaning to
all provisions. See United States v. Higgins, 128 F.3d 138,
142 (3d Cir. 1997).
In addition to following these general canons of statutory
construction, we are mindful that PACA, which was enacted
to protect unpaid suppliers of produce and alleviate the
burden of nonpayment on commerce, see 7 U.S.C.
S 499e(c)(1); H.R. Rep. No. 98-543, at 3-4 (1983), reprinted
in 1984 U.S.C.C.A.N. at 407, is remedial legislation which
a court should construe broadly to effectuate its purpose.
See Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S. Ct. 548,
553 (1967); RNS Servs., Inc. v. Secretary of Labor, Mine
Safety & Health Admin., 115 F.3d 182, 186-87 (3d Cir.
1997); see also Hull, 924 F.2d at 782; Exportal LTDA. v.
United States, 902 F.2d 45, 46 (D.C. Cir. 1990); Harry Klein
Produce Corp. v. United States Dep't of Agric., 831 F.2d 403,
405 (2d Cir. 1987).
With these principles in mind, we begin our analysis with
the statutory and regulatory language. The statute and
9
regulations refer, in numerous instances, to the
requirement that an agreement to extend the prompt
payment period be in writing. This appeal requires us to
determine whether that requirement relates only to the
enforceability of such an agreement or is a precondition to
a seller's qualification for trust benefits. We turn first to the
section of the statutory trust provision which refers to the
writing requirement.
The statutory trust provision provides that the produce,
products derived from that produce, and any proceeds
gained therefrom are held in trust by the buyer for the
benefit of unpaid sellers until such sellers are paid in full.
See 7 U.S.C. S 499e(c)(2). Two subsections condition this
provision by requiring an unpaid seller to preserve its rights
to the trust benefits by notifying the buyer of its intent to
do so, 7 U.S.C. S 499e(c)(3), which we discussfirst, and 7
U.S.C. S 499(c)(4), which we discuss below. In the context of
establishing this notice requirement, the statute refers to
the mandate that an agreement must be in writing. In
particular, the statute provides that
(3) The unpaid supplier . . . shall lose the benefits of
such trust unless such person has given written notice
of intent to preserve the benefits of the trust to the
[buyer] within thirty calendar days (i) after the
expiration of the time prescribed by which payment
must be made, as set forth in regulations issued by the
Secretary; [or] (ii) after expiration of such other time by
which payment must be made, as the parties have
expressly agreed to in writing before entering into the
transaction . . . . When the parties expressly agree to
a payment time period different from that established
by the Secretary, 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.
7 U.S.C. S 499e(c)(3).6
_________________________________________________________________
6. Section 499e(c)(3) also provides that proper notice may be given within
30 days after the seller receives notice that the payment instrument
presented by the buyer had been dishonored. See 7 U.S.C. S 499e(c)(3).
The facts of the transactions in this case do not implicate this portion
of
the statute.
10
According to CHR, the plain language of section
499e(c)(3), in particular Congress's use of the term"shall,"
unambiguously requires that an agreement to extend the
payment term be in writing in order for the seller to
preserve its PACA trust benefits. This reading overstates
what the subsection requires. The statute provides that an
unpaid seller "shall lose the benefits of such trust unless
such person has given written notice of intent to preserve the
benefits of such trust." 7 U.S.C. S 499e(c)(3) (emphasis
added). The remainder of that sentence establishes the time
period in which such notice must be given. In the context
of defining timely notification, the statute then provides
that agreements to extend payment terms must be in
writing and that parties shall maintain a copy of such an
agreement and disclose the terms of the agreement on
invoices and other documents relating to the transaction.
See 7 U.S.C. S 499e(c)(3); see also 7 C.F.R. S 46.2(aa)(11).
Thus, Congress, using the verb "shall," unambiguously
intended that a seller timely notify the buyer of its intent to
preserve its rights to PACA trust benefits. The plain and
unambiguous language of the section does not provide,
however, that a written agreement is a precondition of
being entitled to the statutory trust benefits. Rather, the
requirement is relevant to assessing when prompt payment
is due and therefore when notice is timely.
The plain language of the regulations supports this
reading of the statute. The regulations first mention the
writing requirement in the context of defining prompt
payment. As noted above, the regulations establish times
for prompt payment for various scenarios. See 7 C.F.R.
S 46.2(aa)(1) - (10); 7 U.S.C. S 499e(c)(3). In this case, the
regulations provide that, unless agreed otherwise in writing,
prompt payment is defined as payment within ten days of
the buyer's acceptance of the produce. See 7 C.F.R.
S 46.2(aa)(5). The regulations also provide that
[p]arties who elect to use different times of payment
than those set forth [herein] must reduce their
agreement to writing before entering into the
transaction and maintain a copy of the agreement for
their records. If they have so agreed, then payment
within the agreed upon time shall constitute ``full
11
payment promptly': Provided, That the party claiming
the existence of such an agreement for time of payment
shall have the burden of proving it.
7 C.F.R. S 46.2(aa)(11). This section unambiguously
requires that an agreement to extend a payment term must
be in writing prior to the transaction.
The regulations concerning the statutory trust also refer
to the writing requirement. In particular, the regulation
provides that
[w]hen a seller, supplier or agent who has met the
eligibility requirements of paragraphs (e)(1) and (e)(2) of
this section, transfers ownership, possession, or
control of goods to a commission merchant, dealer, or
broker, it automatically becomes eligible to participate
in the trust. Participants who preserve their rights to
benefits in accordance with paragraph (f) of this section
remain beneficiaries until they are paid in full.
7 C.F.R. S 46.46(c)(1). Subsection (f) requires that the seller
properly notify the buyer of its intent to preserve its PACA
trust benefits. See 7 C.F.R. S 46.46(f).7 The "eligibility"
requirements of paragraphs (e)(1) and (e)(2) provide the
following:
(e) Prompt payment and eligibility for trust benefits.
(1) The times for prompt accounting and prompt
payment are set out in S 46.2(z) and (aa). Parties who
elect to use different times for payment must reduce
their agreement to writing before entering into the
transaction and maintain a copy of their agreement for
their records, and the times of payment must be
_________________________________________________________________
7. This regulation refers to the writing requirement in the same context,
and virtually to the same extent, as 7 U.S.C. S 499e(c)(3). In particular,
the regulation provides that a seller's notice of an intent to preserve
the
right to PACA trust benefits is timely if given 30 days "[a]fter
expiration
of such other time by which payment must be made as the parties have
expressly agreed to in writing before entering into the transaction, but
not longer than [30 days]." 7 C.F.R. S 46.46(f)(2)(ii). We therefore
conclude that this section's reference to the writing requirement has the
same effect as that of 7 U.S.C. S 499e(c)(3) discussed above.
12
disclosed on invoices, accountings, and other
documents relating to the transaction.
(2) The maximum time for payment for a shipment to
which a seller, supplier, or agent can agree and still
qualify for coverage under the trust is 30 days after
receipt and acceptance of the commodities as defined
in S 46.2(dd) and paragraph (a)(1) of this section.
7 C.F.R. S 46.46(e). As in the statute, section (e)(1) of this
regulation discusses the writing requirement in the context
of defining prompt payment for a given transaction. Section
(e)(2) explicitly provides that a seller is disqualified from
receiving trust benefits if it agrees to extend the payment
term longer than 30 days from the buyer's acceptance of
the produce. The existence of such an explicit
disqualification supports our view that the writing
requirement is not a prerequisite to eligibility to participate
in the PACA trust.
Under CHR's view, these regulations establish eligibility
requirements separate from the notice requirement to
preserve eligibility. CHR argues that the eligibility
requirements for sellers who agree to payment terms
beyond ten days are that such an agreement be reduced to
writing, those terms be included on all invoices regarding
the transaction, and that eligibility is lost if the parties
agree to a payment term over 30 days. CHR asserts that
these prerequisites do not apply where there is not an
agreement to extend a payment term. The plain language
does not support this interpretation.
The plain language of the statute and regulations
requires that an agreement establishing a "prompt
payment" period other than that established in the
regulations must be in writing. The plain language also
provides that an unpaid seller loses its right to PACA trust
benefits if (1) it does not timely notify the buyer of its intent
to preserve that right or (2) it agrees to a payment period
beyond 30 days. Because we liberally interpret PACA to
further its remedial purposes of reducing the burden on
commerce and protecting unpaid sellers, we find that the
writing requirement relates to the enforceability of an
agreement to extend a payment term, but does not
disqualify an unpaid seller from receiving trust benefits.
13
Idahoan and Alsum satisfied the notice requirement by
including the requisite language on the face of their
invoices to Advantage, see 7 U.S.C. S 499e(c)(4), and neither
party agreed to a payment period over 30 days.8 Their
failure to reduce their oral agreements with respect to the
payment term to writing does not disqualify them, and they
therefore are entitled to share in a pro-rata distribution of
the statutory trust res until they receive payment in full.
In so holding, we join the United States Court of Appeals
for the Eighth Circuit, the only other court of appeals of
which we are aware which has addressed the precise issue
presented by this appeal, in concluding that a supplier's
failure to reduce to writing an agreement to extend the
payment term does not disqualify that supplier as a PACA
trust beneficiary. See Hull, 924 F.2d 777. In Hull, two
unpaid wholesale distributors of produce, Hull & J.J.
Distributing, instituted suit against a defunct retail grocery
store, Hauser's, to enforce their PACA trust rights. See id.
at 778. Some of the retail store's assets were seized by one
of the store's secured creditors, Gateway, who held
perfected security interests in all of the store's assets and
inventory. See id. at 778.
It was undisputed that Hull and J.J. Distributing
supplied Hauser's with produce over several years and that
during that time the two suppliers orally agreed to a
payment period of 45 days and 30 days after delivery,
respectively. See id. Hull's invoices to Hauser indicated this
as the payment period, while J.J. Distributing's invoices did
not indicate any payment term. See id.
The district court held that Hull and J.J. Distributing
were entitled to trust benefits for their unpaid invoices
notwithstanding the fact that they had not reduced their
payment term extensions to writing. See id. at 779. Finding
that the two suppliers had given Hauser's sufficient
notification of their intent to preserve their PACA trust
rights, the district court held that while the plain language
of the statute makes oral agreements extending the
_________________________________________________________________
8. We are not reaching the issue of what would happen if the oral
extension provided for a payment period in excess of 30 days because
that situation is not before us in this case. See 7 C.F.R. S 46.46(e)(2).
14
payment term unenforceable, it only disqualifies a supplier
from trust benefits where the supplier enters into a written
agreement to extend the payment term beyond 30 days. See
id.
The court of appeals affirmed the district court,finding
that "oral agreements have no effect on produce sellers'
trust protection." Id. at 781. According to the court, a buyer
who orally agrees to an extension of the payment term
beyond ten days makes an arrangement to violate PACA's
prompt payment provision. See id. at 782. The court found
that
it would be incongruous to disregard oral agreements
for purposes of enforcing PACA but recognize them for
the purpose of voiding the sellers' protection under the
trust. Thus, notwithstanding the oral agreements, both
sellers retained the right to demand payment within
ten days and seek trust protection under PACA.
Id. at 782.9 In concluding its discussion of this issue, the
(Text continued on page 17)
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9. We note that the Court of Appeals for the Eighth Circuit has suggested
a conflicting result in two subsequent decisions. See Tom Lange Co. v.
Lombardo Fruit & Produce Co. (In re Lombardo Fruit & Produce Co.), 12
F.3d 806, 809 (8th Cir. 1993) (hereinafter In re Lombardo II); Goldman
Fruit & Produce Co. v. Lombardo Fruit & Produce Co. (In re Lombardo
Fruit & Produce Co.), 12 F.3d 110 (8th Cir. 1993) (hereinafter In re
Lombardo I). These two cases concern disputes between two different
produce suppliers and a single buyer. In both instances, the court held
that the unpaid seller was not entitled to PACA trust benefits. See 12
F.3d at 809; 12 F.3d at 113.
In In re Lombardo I, although letters and the invoices indicated an
extended payment period, there was no written agreement which
complied with all respects of PACA and its regulations. See 12 F.3d at
113. There was also evidence of an oral agreement to extend the
payment term. In the absence of a valid written agreement under PACA
to extend the payment term, the court first stated that it could not
measure the timeliness of notice based upon the extended payment
term. See id. Then the court rejected the supplier's argument that its
notice to the buyer was within 30 days of the expiration of the payment
period established in the regulations. The court held that
[t]he evidence in the record clearly demonstrates that the parties
had an agreement to extend the payment terms beyond the ten days
15
in the regulations. Though this agreement is insufficient to
preserve
Goldman's trust protection, it is a valid contract between the
parties. A predicate to the trust protection is the requirement
that
payment is delinquent; having agreed to extend the payment period
beyond ten days, it would be incongruous to permit Goldman to now
claim that no agreement existed and that payment was therefore
due within ten days.
Id. at 113 (citation omitted).
In making this statement, the In re Lombardo I court cited the opinion
in Bowlin & Son, Inc. v. San Joaquin Food Serv., Inc. (In re San Joaquin
Food Serv., Inc.), 958 F.2d 938, 941 n.2 (9th Cir. 1992). Our reading of
In re San Joaquin suggests that the In re Lombardo I court may have
cited it for a proposition In re San Joaquin did not state. Furthermore,
In re Lombardo I did not question Hull. In the circumstances, to the
extent, if any, that the language in In re Lombardo I conflicts with Hull,
we find it unpersuasive.
In In re Lombardo II, the supplier and the buyer entered into a written
agreement prior to the transaction to extend the payment term to 30
days. See 12 F.3d at 809. This agreement complied with PACA and its
regulations in all respects. See id. Thereafter, the parties modified the
agreement in writing in such a manner that no longer complied with
PACA. See id. Although the court does not explain this subsequent
written agreement or explicitly state in what manner it no longer
complied with PACA, the opinion suggests that the agreement extended
the payment term beyond 30 days, for which PACA explicitly disqualifies
a seller as a trust beneficiary. The court found that, at that time, "an
agreement complying with PACA no longer existed. There being no
written agreement complying with PACA, Lange is prohibited from
claiming PACA's trust protection." Id. at 807 (footnote omitted). The
court
further stated that
PACA imposes a trust upon the funds held by delinquent
purchasers if a written agreement required payment within thirty
days of delivery. Thus, at the time trust protection is claimed,
there
must exist a valid written agreement complying with PACA's terms.
Id. at 809-10.
This language could be read to imply that without a written agreement
to extend the payment term, the seller is not entitled to trust benefits.
Although we believe that such a result would be incorrect in light of the
explicit holding to the contrary in Hull, we note the potential conflict
as
16
court also noted that a liberal construction of the statute is
appropriate because it is remedial legislation. See id. at 782.10
CHR argues that Hull is not applicable to this case
because it was decided prior to Congress's 1995
amendment to the PACA statutory trust which, it argues,
changed the statutory landscape. In 1995, Congress added
section 499e(c)(4) which provides, as an alternative to the
post-delinquency methods outlined in subsection 3, an
invoicing method of notifying the buyer of a seller's intent
to preserve its right to trust benefits. See 7 U.S.C.
S 499e(c)(4). According to CHR, because there was no
invoice-notification method under PACA at the time the
court decided Hull, the payment terms were crucial to
determining the timeliness of the notice. CHR asserts that
the rationale of Hull is inapplicable to this case where the
timeliness of the notice is irrelevant because the sellers
complied with the invoice-notification provision. In essence,
CHR asserts that our interpretation renders the writing
requirement meaningless in cases such as this where the
supplier invokes invoice notification.
The purpose of the 1995 amendment was to remove the
expense to the United States Department of Agriculture in
administering the trust provisions. See H.R. Rep. No. 104-
207, at 9 (1995), reprinted in 1995 U.S.C.C.A.N. 453, 456.
Under the 1995 amendment, a seller may satisfy the notice
requirement by including on its regular invoicing
documents a statutory statement indicating the intent to
preserve its trust rights. See id. An invoice which serves as
notice to preserve a seller's trust rights also must include
"[t]he terms of the payment if they differ from prompt
_________________________________________________________________
we are unsure of the court's intentions. Of course, the court may have
meant nothing more than that the trust protection was lost because the
payment period was extended in writing beyond 30 days contrary to 7
C.F.R. S 46.46(e)(2). If so, In re Lombardo II is not inconsistent with
Hull
which involved an oral extension by one seller to 45 days.
10. We recognize that one of the suppliers in Hull agreed to a payment
period of 45 days. As we have indicated, we are not reaching the issue
of what would happen if the oral extension provided for a period in
excess of 30 days. See n.8, supra. The Hull court did not distinguish
between a 30-day and 45-day period.
17
payment set out in section 46.2(z) and (aa) of this part, and
the parties have expressly agreed to such terms in writing
before the affected transactions occur." 7 C.F.R.
S 46.46(f)(3)(ii). The writing requirement therefore is not
rendered superfluous under our interpretation of the
statute where the seller invokes the invoice-notification
provision. Rather, a written agreement to extend the
payment period gives rise to the obligation to include the
payment term on the invoice which serves as notice of the
seller's intent to preserve it PACA rights.
District courts in other circuits have followed, either
implicitly or explicitly, the Court of Appeals for the Eighth
Circuit's approach in Hull. See A & J Produce Corp. v. CIT
Group/Factoring, Inc., 829 F. Supp. 651, 655 (S.D.N.Y.
1993) (holding that only a written agreement to extend a
payment term beyond 30 days forfeits the seller's rights, so
that in the absence of a written agreement otherwise, a
seller is entitled to enforce its right to full payment against
the buyer within ten days of delivery of the produce);
Continental Fruit Co. v. Thomas J. Gatziolis & Co., 774 F.
Supp. 449, 452 (N.D. Ill. 1991) (holding that evidence of a
course of dealing between the parties accepting payment
beyond 30 days does not forfeit an unpaid seller's right to
statutory benefits); C.H. Robinson Co. v. B.H. Produce Co.,
723 F. Supp. 785, 797 (N.D. Ga. 1989), aff'd sub nom.,
C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311
(11th Cir. 1992) (discussing the lack of a written agreement
to extend the payment period only in reference to the
timeliness of the notice). In each of these cases, there was
no evidence of a prior written agreement to extend the
payment term, yet the courts held that the unpaid sellers
were entitled to PACA trust benefits if they notified the
buyers within 40 days after the delivery of the produce,
which is 30 days after the expiration of the ten-day prompt
payment period established by the regulations.
In addition, at least one court has described the PACA
writing requirement for agreements to extend payment
terms as being in the nature of a statute of frauds. See
Debruyn Produce Co. v. Richmond Produce Co. (In re
Richmond Produce Co.), 112 B.R. 364, 374 (Bankr. N.D.
Cal. 1990). In In re Richmond, the court was faced with the
18
issue of whether certain notices were timely to preserve the
sellers' rights to statutory trust benefits. Finding that
certain letters satisfied the writing requirement and
therefore validly extended the payment term, the court
found that the notices sent were timely because they were
sent within 30 days of the expiration of the extended
payment period. In so holding, the court commented that
the purpose of the writing requirement is to preclude
uncertainties as to the applicable payment terms and
the resulting deadline for filing a PACA notice. Thus,
the provision at issue is in the nature of a statute of
frauds and serves the same purpose. This conclusion is
supported by the statutory requirement that both
parties maintain a copy of the agreement in their
records and that the terms of the payment be disclosed
on ``invoices. . . .'
Id. at 374 (citation omitted). Thus, the court viewed the
writing requirement as relevant to assessing when prompt
payment is due and not as a precondition to preserving
statutory trust benefits.
CHR urges this court to join those courts which have
required strict compliance with the preconditions of the
statutory trust.11 See, e.g., Bowlin & Son, Inc. v. San
_________________________________________________________________
11. Most of the case law considering whether strict or substantial
compliance is necessary addresses the notice requirement. There is
authority in support of both positions. Compare Anic, Inc. v. Chipwich,
Inc. (In re Chipwich, Inc.), 165 B.R. 135, 136 (Bankr. S.D.N.Y. 1994)
(requirements of notice to preserve trust must be complied with strictly
such that wrong name on notice renders it ineffective); Blair Merriam
Fresh Fruit & Produce Co. v. Clark (In re D.K.M.B., Inc.), 95 B.R. 774,
779
(Bankr. D. Colo. 1989) (requiring strict compliance with content of
notice); In re Marvin Properties, Inc., 854 F.2d 1183, 1186 (9th Cir.
1988)
(requiring notice to be given by seller itself andfinding that the buyer's
actual knowledge of the seller's intent was insufficient to preserve its
statutory PACA trust benefits) with In re Richmond Produce Co., 112 B.R.
364 (Bankr. N.D. Cal. 1990) (holding that substantial compliance with
notice requirement is sufficient to preserve right to trust benefits such
that early notification or notice lacking certain information is
effective);
Dubin v. Carlton Fruit Co. (In re Carlton Fruit Co.), 84 B.R. 810 (Bankr.
M.D. Fla. 1988) (requiring substantial compliance with requirements for
19
Joaquin Food Serv., Inc. (In re San Joaquin Food Serv., Inc.),
958 F.2d 938, 940 (9th Cir. 1992) (requiring strict
compliance with the clear mandate of Congress to include
the payment term on an invoice); In re John DeFrancesco &
Sons, Inc., 114 B.R. 335, 336 (Bankr. D. Mass. 1990)
(requiring strict compliance with the preconditions of
participation in trust benefits). But, this case presents the
issue of whether the writing requirement is a precondition
to qualification as a PACA trust beneficiary. Only if we
answered that question positively would we be required to
reach the issue of whether strict or substantial compliance
with that requirement was necessary to preserve properly
an unpaid seller's right to receive benefits. Having found
that it is not and is rather only relevant to determining
what constitutes prompt payment in a given transaction,
we need not decide today whether strict compliance with
the requirements of PACA trust eligibility is required.
Nonetheless, we recognize that these cases support the
interpretation urged by CHR. Although the Court of Appeals
for the Ninth Circuit has not addressed explicitly the
precise issue presented by this appeal, its ruling on a
similar issue suggests a conclusion other than the one we
reach today. In In re San Joaquin the court held that a
produce supplier was not entitled to PACA trust benefits
where the invoices it issued to the buyer did not contain
the payment term agreed upon by the two parties in writing
prior to the transaction. See 958 F.2d 938.
In In re San Joaquin, there was no dispute that the
supplier gave the buyer timely notice of its intent to
preserve its interest in the trust or that the agreement to
extend the payment term was in writing. See id. at 939-40.
Thus, the sole issue presented was whether the supplier's
failure to include the payment term on the invoice forfeited
_________________________________________________________________
notice such that failure to include date of transaction, contract terms
and amount due did not render notice ineffective to preserve benefits of
the statutory trust); In re W.L. Bradley Co., 75 B.R. 505, 511 (Bankr.
E.D. Pa. 1987) (holding that premature filing of notice under section
499e(c)(3) was effective). Because there is no dispute that Alsum and
Idahoan complied with the invoice-notice provision, we need not address
this issue today.
20
its rights to the PACA trust. As discussed above, 7 U.S.C.
S 499e(c)(3) requires that "[w]hen the parties expressly agree
to a payment time period different from that established by
the Secretary, a copy of any such agreement shall befiled
in the record of each party to the transaction and the terms
of payment shall be disclosed on invoices, accountings, and
other documents relating to the transaction." (emphasis
added). The In re San Joaquin court found that the
provision relating to the disclosure of the payment terms on
invoices was a requirement to preserve a supplier's trust
rights. See id. at 940. The court found that because this
was a clear mandate of Congress as expressed in
unambiguous statutory terms, sellers must comply strictly
with it to receive trust benefits. See id.
It is possible that the Court of Appeals for the Ninth
Circuit also would hold that the requirement of a written
agreement to extend the payment term beyond the period
prescribed in the regulations is a prerequisite to preserving
a supplier's rights to PACA trust benefits. After all, that
requirement is in the same clause in 7 U.S.C. S 499e(c)(3)
as the requirement that extended payment terms be
indicated on invoices.
In re John DeFrancesco & Sons, Inc., 114 B.R. 335, also
is inconsistent with the interpretation of PACA that we have
adopted. The court held that
in order to preserve its PACA trust benefits under the
statute, [the seller] must prove that it strictly complied
with all the necessary statutory requirements. By not
offering evidence of an agreement in writing before the
transaction was entered into, [the seller] fails to meet
its burden of proof that it strictly complied with the
statute.
114 B.R. at 338 (citing In re Lombardo, 106 B.R. 593
(Bankr. E.D. Mo. 1989)). Thus, the court implicitly held
that the writing requirement is a precondition to eligibility
as a trust beneficiary with which sellers must comply
strictly.
As discussed above, under our reading of the statute and
the regulations, the plain language does not support the
result reached by these cases. Guided as we must by the
21
plain language, we therefore find them unpersuasive.
Moreover, a departure from the plain meaning of PACA is
not warranted because we find no extraordinary showing of
congressional intent otherwise in the legislative history. On
the contrary, the legislative history supports our reading of
PACA and its regulations. Like the statute and the
regulations, the legislative history explicitly refers to two
requirements for an unpaid supplier to qualify for trust
benefits: (1) that the seller notify the buyer of its intention
to preserve its rights and (2) that an agreement to extend
the payment period not be beyond a reasonable time. See,
e.g., H.R. Rep. No. 98-543, at 4 (1983), reprinted in 1984
U.S.C.C.A.N. at 407-08 ("[T]he unpaid seller must accept
the burden to preserve the trust by notifying both the
Secretary and the commission merchant, dealer or broker
within 30 days after expiration of the prompt payment date
or date on which a payment instrument has been
dishonored, or the trust benefits will be lost."); id. at 7,
reprinted in 1984 U.S.C.A.A.N. at 410 ("[T]he committee
does not intend the trust to apply to any credit transaction
that extends beyond a reasonable period. . . . [T]he
secretary is required to establish, through rulemaking, the
time by which, the parties to a transaction must agree
payment on a transaction must be made, to qualify it for
coverage under the trust. An agreement for payment after
such time will not be eligible to receive the benefits of the
trust."); 49 Fed. Reg. 45735, 45739 (1984) ("The legislation
is clear that an absolute precondition to pursuing trust
assets held by a defaulting buyer or receiver is thefiling of
a written notice by the seller, supplier or agent after a
failure to pay within the prescribed periods has elapsed.").
Finally, we reject CHR's argument that requiring strict
compliance with the writing requirement, such that a seller
loses it right to statutory benefits if an agreement to extend
the payment term is not reduced to writing, furthers the
purposes of the statutory scheme. According to CHR,
interpreting the writing requirement as a precondition to
receiving trust benefits furthers the purposes of PACA by
construing the trust to protect only those sellers who
conduct their business in such a manner that complies
with PACA and encourages prompt payment. Thus, CHR
urges that "permitting sellers to orally extend payment
22
terms without adverse effect on trust eligibility would result
in, and in fact already resulted in, practices by sellers
which are in direct contravention of the PACA and its
purpose." Br. at 23.
PACA makes a buyer's failure to tender prompt payment
a violation, but it does not make a seller's failure to
demand prompt payment a violation. After all, PACA does
not preclude a seller from agreeing in writing to a payment
term beyond 30 days, but only disqualifies such a seller
from participating in the trust.12 See 7 C.F.R. SS 46.2
(aa)(11), 46.46(e)(2).
We recognize that, in instances such as the one
presented here, our interpretation places those sellers who
reduce to writing agreements to extend payment terms in
no better position than those who do not. Nevertheless,
because Congress established the PACA trust to protect
unpaid sellers against buyers' failure to make prompt
payment and their subordination of the sellers' claim to
secured creditors, we believe that our interpretation
furthers the statutory purpose. The primary purpose of the
statute was to protect unpaid sellers vis-a-vis secured
creditors, not to prefer certain unpaid sellers over others.
IV. CONCLUSION
For the foregoing reasons, we will affirm the district
court's order denying CHR's motion to exclude Idahoan and
Alsum from the universe of those qualified to receive trust
benefits in this case.
_________________________________________________________________
12. In urging this court not to follow Hull, CHR argues that the court
failed to sanction sellers who do not conduct their business in accord
with PACA's prompt payment requirements. In particular, CHR
challenges the Hull court's conclusion that a buyer who orally agrees to
extend a payment term thereby makes an arrangement to violate PACA
without the corresponding recognition that the seller necessarily makes
the same arrangement. According to CHR, the sanction for sellers who
make an arrangement to violate PACA by orally agreeing to an extended
payment term is the forfeit of its trust benefits. We reject this argument
for the reasons discussed above.
23
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
24