On October 3, 2014, The Packer reported that “as of October 1, 2014, Canadian produce sellers now have to have a surety bond that’s twice the amount of the claim, so selling $100,000 worth of product will have to have a bond of $200,000.” See Make your own PACA
This bond requirement is found in Section 499f(e) of the Perishable Agricultural Commodities Act, which states, in relevant part, as follows:
“In case a complaint is made by a nonresident of the United States [Canadian produce seller]… the complainant shall be required, before any formal action is taken on his complaint, to furnish a bond in double the amount of the claim conditioned upon the payment of costs, including a reasonable attorneys’ fee for the respondent if the respondent shall prevail, and any reparation award that may be issued by the Secretary of Agriculture against the complainant on any counter claim by respondent….” 7 U.S.C. § 499f(e)
To be clear, the foregoing only applies to nonresident (e.g. Canadian) produce sellers who elect to bring a claim against a PACA licensee before the USDA. Importantly, the USDA’s PACA Division provides a two tier dispute resolution process. The first tier involves the filing of an informal complaint and the PACA division will work with both parties to reach an amicable resolution to a PACA dispute. The second tier involves filing a formal complaint against a PACA licensee wherein the complainant alleges that a violation of Section 2 of PACA has occurred and seeks a reparation order. While the USDA may not require a bond as a condition precedent to the nonresident complainant’s participation in the informal dispute resolution process, a bond will be required before the USDA will accept a formal complaint seeking a reparation order.
How Do I Avoid the Bond Requirement?
To avoid the bond requirement, the unpaid Canadian produce seller could elect to follow the these steps:
Preserve its PACA trust rights against the PACA licensee buyer by issuing a timely and properly formatted Notice of Intent to Preserve Trust Rights.
- Attempt to resolve disputes arising out of the produce transactions in-house or with the assistance of third parties (e.g. PACA counsel)
- File all complaints related to your unpaid produce transactions with a given PACA licensee in the U.S. District Court closest to the PACA licensee’s principal place of business. (e.g. if in Chicago, file in the Northern District of Illinois).
You must retain counsel to file a complaint in federal court, but you will not be required to post a bond if you elect to file a civil complaint in federal court. With that said, utilizing the USDA’s PACA Division for dispute resolution purposes is a cost-effective way to handle smaller (less than $15,000 – $20,000) PACA claims. Also, these same types of smaller claims may not justify the costs of retaining counsel to prepare and file a civil action in federal court. But, when you add the cost of the USDA’s double bond requirement to the regulatory equation (e.g. the cost of filing an administrative claim with the USDA vs. a civil action in federal court ) the scale of efficiency may now tip in favor of filing a civil action with an experienced PACA attorney who can work efficiently.
The bottom line is that the USDA’s double bond requirement only applies to administrative actions and Canadian produce sellers do have other options.