Monthly Archives: April 2012

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On April 27, 2012, Adams Produce Company LLC filed for Ch. 11 Bankruptcy and reported approximately $10 million plus in PACA/trade debt.  At this time, several “day one” motions are pending, including a Motion to Sell certain real property assets free and clear of liens.

Please check your A/R to see if this case affects you.  If it does, please do not wait to assert your rights.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On April 20, 2012, a civil action was filed in Arizona against Rainbow Produce Company, Inc. in an effort to collect approximately $337,860.00 in alleged PACA debt.  

On April 20, 2012, a civil action was filed in Texas against J.D. Rodriguez Produce, Inc. in an effort to collect approximately $18,290.00 in alleged PACA debt.  

Please check your A/R to see if these cases affect you.  If they do, please do not wait to assert your rights.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On April 16, 2012, a civil action was filed in California against White Oak Frozen Foods, LLC in an effort to collect approximately $60,800.00 in alleged PACA debt.  At this time, an Application for a Temporary Restraining Order is pending.

Please check your A/R to see if this case affects you.  If it does, please do not wait to assert your rights.

Restrictive Endorsements: What you need to know about accord and satisfaction

Savvy credit managers need to understand how to use restrictive endorsements to their advantage and how to deal with any restricted check they may receive.

As a matter of policy, a company should make it a practice not to deposit any check containing a restrictive endorsement until they have discussed the issue with their legal counsel. 

With that said, here is an overview of what credit managers should know about accord and satisfaction: 

To constitute a valid accord and satisfaction it is essential that what is given shall be offered in full satisfaction and extinction of the original debt.  That the debtor shall intend it as a full satisfaction of the original debt and that such intention shall be made known to the creditor in some unmistakable manner. 

It is equally important that the creditor shall have accepted it with the intention that it should operate as a full satisfaction of the original debt.

Generally, an accord and satisfaction requires:

  1. a bona fide dispute, plus
  2. tender which is clearly made as payment in full. 

1 Am. Jur. Accord & Satisfaction, Section 22 et. seqSee also Louis Caric & Sons v. Ben Gatz Co., 38 Agric. Dec. 1486 (1979); Mendelson-Zeller Co. v. Michael J. Navilio, Inc., 34 Agric. Dec. 903 (1975); Kelman Farms v. Bushman Brokerage, 34 Agric. Dec. 1146 (1975); Mendelson-Zeller Co. v. The Season Produce Co., 31 Agric. Dec. 1288 (1972). 

“To constitute an accord and satisfaction it is necessary that the money be offered in full satisfaction of the demand, and be accompanied by such acts and declarations as amount to a condition that the money, if accepted, is accepted in satisfaction; and it must be such that the party to whom it is offered is bound to understand therefrom that, if he takes it, he takes it subject to such conditions. The mere fact that the creditor receives less than the amount of his claim, with knowledge that the debtor claims to be indebted to him only to the extent of the payment made, does not necessarily establish an accord and satisfaction.” 

Spada Distributors Co. v. Frank KenworthyCo., 17 Agric. Dec. 347 (1958). (emphasis added).  Quoted in Mendelson-Zeller Co. v. The Season Produce Co., 31 Agric. Dec. 1288 (1972).

Clear and CONSPICUOUS terms required

Words: “This check is in settlement of the following invoices: . . .” and words: “This check is in settlement of the following. If incorrect please return.” did NOT constitute clearly conditional tender.  Half Moon Fruit & Produce Co. v. North American Produce, 40 Agric. Dec. 1610 (1981) (emphasis added); Harvitz Brothers v. David Goldsamt, 20 Agric. Dec. 391 (1961).

Words: “Payment in Full” or “similar words” held effective. Kelman Farms v. Bushman Brokerage, 34 Agric. Dec. 1146 (1975) (emphasis added); Southmost Vegetable Co-Op v. M. & G. Tomato, 28 Agric. Dec. 966 (1969); Johnson & Allen v. Fernandez Bros., 27 Agric. Dec. 1127 (1968); Zinno v. Marvin, 24 Agric. Dec. 396 (1965); National Produce Distributors, Inc. v. Stewart Produce, 21 Agric. Dec. 955 (1962) [Transaction lacked bona fide dispute, and check was not offered in good faith where accord language was pre-printed on the check].

Where a partial payment check was tendered on the condition that it be accepted as payment in full, but debtor did not specify to what debt it was to be applied, and there were several open accounts at the time of tender, creditor was within its rights when it applied the payment to an open freight bill, and no accord and satisfaction of the produce debt was accomplished. Jody DeSomma d/b/a Impact Brokerage v. All World Farms, Inc., 61 Agric. Dec. 821 (2002).

Bona Fide Dispute Required!

One of the biggest misuses of restrictive endorsements arise from the mistaken belief that placing a restrictive endorsement on all checks as a matter of company policy provides some benefit if a unknowing recipient deposits a partial payment.  NOT TRUE!  There must be a bona fide or good faith dispute that the partial payment is intended to resolve.  A “gotcha” move will not carry the day and will be resolved in the payee’s favor.

Although respondent’s partial payment checks stated that the checks were tendered as payment in full, it was found that no accord and satisfaction existed as to several transactions because respondent had not proven that a dispute existed between the parties as to such transactions.   Eustis Fruit Company, Inc. v. The Auster Company, Inc., 51 Agric. Dec. 865 (1992).  Where a Respondent presented evidence of a breach by the Complainant this was not enough to show that there had been a dispute.  Richard Ruiz v. Pacific Sun Produce Co., 48 Agric. Dec. 1105 (1989).

Good Faith Tender As Full Payment Necessary

Debtor tendered payment in one check for six produce transactions. Four of the transactions were undisputed, and the check covered these transactions in their full amount. The remaining two transactions were disputed, and as to these the check tendered only partial payment. The creditor negotiated the check, and then sought to recover the balance alleged due on the disputed transactions. The debtor pled accord and satisfaction. It was held that the good faith tender requirement of UCC 3-311 would not be met by such a check, especially in view of the “full payment promptly” requirement of the Act and Regulations. Lindemann Produce, Inc. v. ABC Fresh Mktg., Inc., et al., 57 Agric. Dec. 7389 (1998).

In C. H. Robinson Company v.TrademarkProduce, Inc., 53 Agric. Dec. 1861 (1994) the words “Full and Final Payment” were pre-printed on all of respondent’s checks in very small type.  Referencing Official Comment 4 to UCC Section 3-311 it was held that the requirement of “good faith tender” had not been met, and there was no accord and satisfaction.

Although respondent’s partial payment checks stated that the checks were tendered as payment in full, it was found that no accord and satisfaction existed as to one transaction because there was no manifested intent that the payment should apply to all the items on the invoice where respondent paid in full for one of the types of fruit.  Eustis Fruit Company, Inc. v. The Auster Company, Inc., 51 Agric. Dec. 865 (1992).

Return the Check!

Under UCC  Section 3-311 the return within 90 days of an amount paid in full satisfaction of a claim disputed in good faith precludes the discharge of the claim.  Pacific Tomato Growers, LTD v. American Banana Co., Inc., 60 Agric. Dec. 352 (2001).  Simply put, you must return the check containing a restrictive endorsement to the sender within 90 days of your receipt.  If you keep it as a partial payment you will be deemed to have accepted full payment.

BEST PRACTICES

  • If you use a lock box service to receive payments, consider notifying your bank in writing not to deposit any checks containing a restrictive endorsement.  Instead, these checks should be forwarded directly to the company for assessment.
  • If you place a restrictive endorsement on a check, use the correct terminology and make it CONSPICUOUS
  • Do not bundle or combine payment for both disputed and undisputed invoices.  You may lose the benefit of the restrictive endorsement if there is not a bona fide dispute. 
  • Always reference the disputed invoice the check is intended to resolve.
  • Be prepared to return the partial payment if you are not willing to accept it as full payment.
  • Return the check in a timely manner and include a cover letter articulating your position.
  • Don’t deposit checks containing a restrictive endorsement until you have assessed the situation.

Jason Klinowski Published in Food Safety Magazine

The April 2012 edition of Food Safety Magazine’s eDigest includes a Food Safety Modernization Act Update Article that I co-authored along with John Shapiro. 

Please see a link to the article below:

Food Safety Magazine – FSMA Legislative Update

This article looks at the “FSMA One-Year Progress Report” and discusses where we are with the implementation of this historic act.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On April 16, 2012, a civil action was filed in California against Riverfield Export Import, Inc. in an effort to collect an alleged PACA debt.  At this time, an Application for a Temporary Restraining Order is pending.

On April 16, 2012, a civil action was filed in Florida against Bostonia Produce, Inc. in an effort to collect approximately $16,300.00 in alleged PACA debt.  

Please check your A/R to see if these cases affect you.  If they do, please do not wait to assert your rights.

FSMA: Is There Penalty for Non-Compliance with a Recall Order?

YES!  The FDA may assess fees under Section 107 of the FSMA for non-compliance with a recall order under Section 423(d) or 412(f) of the FD&C Act. 

Non-compliance may include:

             1.         Not initiating a recall as ordered by the FDA

            2.        Not conducting the recall in the manner the FDA specifies in the recall order

            3.         Not providing the FDA with requested information regarding the ordered recall

Who Pays the fee for non-compliance with a recall order?

The party responsible for paying the non-compliance with a recall order fees include:

  • The responsible party for a domestic facility
  • An importer who does not comply with a recall order

The party paying the fee would be the party that received the recall order.  Importantly, this means that a distribution or storage company who owns or operates a food facility to provide services to others may be subject to this penalty even though they may not own the food. 

How much will a non-compliance with a recall order fee cost my company?

Rates: For Fiscal Year 2012, the hourly rate per FDA inspector participating in a reinspection is $224.00 per hour is no foreign travel is required and $325.00 per hour if foreign travel is required.

Number of FDA employees or agents assigned to a reinspection: The FDA will make this determination on a case-by-case basis.  Relevant factors for this decision include the anticipated number of direct hours spent on taking action in response to the company’s failure to comply with a recall order.  

Billable Activities: conducting recall audit checks, reviewing periodic status reports, analyzing the status reports and the results of the audit checks, conducting inspections, traveling to and from locations, and monitoring product disposition.

How can my company guard against or minimize its exposure to these  fees?

BE PREPARED!

  • Successful inspections are the result of comprehensive preparation.
  • Assess your company’s compliance with all relevant statutory and regulatory requirements.
  • Understand the FDA’s inspection process and know your rights at every stage
  • Be prepared to manage and control the inspection process… don’t let it control you.