Although the trust provisions of the Federal Perishable Agricultural Commodities Act ("PACA") were added nearly 30 years ago, the meaning of these provisions is still being worked out by the U.S. Department of Agriculture ("USDA") and the courts. Perhaps so much legal interpretation has been necessary because of the extraordinary remedies these trust provisions can give to sellers of fresh produce. These remedies include, for beneficiaries who comply with the act, the possibility of full recovery for sales, including attorneys fees, from a purchaser in bankruptcy and recovery from a customer's bank who has foreclosed on the customer's assets.
A year ago I was interviewed in this publication about the big news at that time, a new regulation by the USDA challenging previous court decisions in New York and elsewhere that had held PACA trust rights waived when a seller agreed with a defaulting buyer upon work out payment terms in excess of 30 days. Although a regulator's regulations are entitled to deference in the courts, it remained to be seen, at the time of my interview, whether the courts would accept the new regulation and, if so, whether the new regulation would be applied retroactively.
So far, I have not found any court challenging the regulation outright. However, several decisions here in New York and elsewhere have continued to hold credit work out deals, that extended payment due dates beyond 30 days, to have resulted in PACA trust rights waivers, where the deals predated the new regulation. The Courts have done this by holding the new regulation not retroactive.
Interestingly, however, one court here in New York developed a new wrinkle by asserting that this waiver rule did not apply where the work out agreement was entered into after the buyer had already brought suit against the seller in Federal Court. See Northeast Trading, Inc. v. Ven-Co Produce, Inc., 2011 WL 4444511 (S.D.N.Y. 2011). The court argued, cogently, that such an exception was necessary because of the strong policy in favor of judicial settlements.
Hopefully the post default PACA waiver issue will disappear once claims predating the new regulation are resolved.