Category Archives: On My Radar

Do Canadian Produce Sellers Really Need Surety Bonds?

US_and_Canadian_FlagsOn 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:

  1. Preserve its PACA trust rights against the PACA licensee buyer by issuing a timely and properly formatted Notice of Intent to Preserve Trust Rights.
  2. Attempt to resolve disputes arising out of the produce transactions in-house or with the assistance of third parties (e.g. PACA counsel)
  3. 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.

Award Winning Blog!

Legal Marketing AssociationOn March 5, 2014, the Midwest Chapter of the Legal Marketing Association announced the winners of the 2014 Your Honor Awards at an event in Chicago, Illinois.  The Your Honor Awards recognize excellence by marketing and communication practitioners in legal marketing, sales, business development, and design. Entries were submitted by legal marketing professionals on behalf of their respective law firms. Entries were submitted in LMA Midwest’s annual regional competition from law firms and legal service providers in Illinois, Indiana, Wisconsin, Missouri, Michigan and Kansas. Submissions were judged on a variety of criteria, including product, strategy and results.

The Legal Marketing Association presented Freeborn & Peters  with an Honorable Mention Award recognizing the firm for Jason Klinowski’s blog – The Fresh Facts Blog – because of its innovative and effective utilization of social media to build a niche industry practice.

This is the blog’s first award and it is a good indication that The Fresh Facts Blog is a great resource for the food industry.  Thank you to all my readers!

Fresh & Easy Neighborhood Market, Inc. Files for Chapter 11 Bankruptcy Protection

freshandeasyneighborhoodmarketOn September 30, 2013, Fresh & Easy Neighborhood Market, Inc. filed for chapter 11 bankruptcy protection in the District of Delaware and was assigned case number 13-12569.  The Debtor’s voluntary petition estimates: (i) between 10,000 and 25,000 creditors; (ii) holding assets valued between $100 million and $500 million, and; (iii) liabilities between $500 million and $1 billion dollars.  This case was assigned to Judge Kevin J. Carey.

A review of the first day motions shows the Debtor has already filed a Motion to Pay PACA/PASA claims and are seeking permission from the Court to use $5,000,000.00 (in the aggregate) to pay all the PACA/PASA claims.  In addition, the Debtor is asking for a court order directing the Debtor’s bank to honor all checks presented for payment.  In addition to several other motions, the Debtor filed a 305 page list of creditors.

Please check back for updates.  I will update this entry further after I review the first day pleadings more fully and additional pleadings are filed.

Jason Klinowski and Freeborn’s Bankruptcy & Financial Restructuring Group Tapped to Represent the Official Committee of Unsecured Creditors in the Pro’s Ranch Markets Chapter 11 Case

Pros Ranch MarketThe Official Committee of Unsecured Creditors in the Pro’s Ranch Markets’ bankruptcy case recently retained Freeborn’s Bankruptcy and Financial Restructuring Group to help maximize their recovery in this Chapter 11 case.  Specifically, Freeborn possesses considerable experience representing official committees of unsecured creditors in chapter 11 cases involving retail grocers, food service companies, and food distribution companies.  Because the attorneys in Freeborn’s Food Industry Team routinely represent these same types of food industry clients, we are highly familiar with the issues affecting both debtors and creditors in this space.  This allows Freeborn to be incredibly effective when it comes to maximizing value for creditors.

Belle Foods Files for Chapter 11 Bankruptcy Protection

Belle Foods LogoOn July 1, 2013, Belle Foods LLC filed for Chapter 11 bankruptcy protection in the Northern District of Alabama.

Although Belle Foods presented a top 20 list of unsecured creditors, the business has not yet submitted its full schedules of debts and assets, statement of financial affairs or other required information. The business estimates it owes between $10 million and $50 million in debt and that it holds the same general range in assets.

Belle Foods told the bankruptcy court that its Chapter 11 bankruptcy petition was precipitated by a variety of factors that have led to a deterioration in its business and a lack of liquidity. The debtor cited technical issues with its accounting system during 2012 that led to losses and said it also “experienced issues with its lending structure and relationship.” Additionally, higher payroll taxes in 2013 led to a decline in purchases by the debtor’s customer base, according to documents filed with the court. Furthermore, Belle Foods said it has seen an increased amount of competition in several of its markets from other grocers. With older locations, the debtor explained it has had difficulty competing with the newer grocery stores that have moved into its markets.

Belle Foods is a privately held company that owns and operates a grocery store chain that operates stores under the banners of Belle Foods, Piggly Wiggly and Food World. Combined, Belle Foods LLC states it operates 57 stores in Florida, Georgia, Alabama and Mississippi.

It is not clear from the pleadings how much, if any, PACA debt exists.  I will provide more updates as new information becomes available.

Jason Klinowski Quoted in The Packer’s Recent Article on Pro’s Ranch Markets Bankruptcy

the-packerOn Mary 30, 2013, Tom Karst of The Packer published an article discussing the Pro’s Ranch Markets bankruptcy case and the $7.2 million dollars in anticipated PACA trust claims.  Here is a link to Tom Karst’s article: Retailer Bankruptcy Could Involve Millions in PACA Claims.  In case you did not know, “Pro’s Ranch Markets is a Hispanic-oriented grocery chain with stores in seven stores in Phoenix, one store in Las Cruces, N.M., one store in Albuquerque, N.M., and two stores in El Paso, Texas. The grocery chain employs 2,235 employees in four states, according to court documents.”  Tom’s article quoted Jason as follows:

Jason Klinowski, agricultural and food law attorney from the firm of Freeborn & Peters LLP, Chicago, said the grocery chain apparently has a limited pool of assets from which to pay its creditors.

“If the debtor’s voluntary petition accurately reflects the amount of assets in the debtor’s estate, then I think that PACA creditors will be well-advised to quickly object to the debtor’s use of the cash collateral and start looking for alternative sources of recovery.”

Pro’s Ranch Markets – Bankruptcy UPDATE

Pros Ranch MarketAs reported by SeaFax on May 30, 2013 – Pro’s Ranch Markets has not presented full lists of assets and liabilities or statements of financial affairs, but estimates that liabilities are between $10 million to $50 million. Those documents are due by June 11, unless an extension is requested and granted.

Pro’s Ranch Markets did file a motion to establish procedures and to allow claims of Perishable Agricultural Commodities Act (PACA) claimants and Packers and Stockyards Act (PASA) claimants. The motion states the debtors reviewed their records and identified at least 83 potential PACA claimants, owed about $7.2 million in pre-petition claims potentially subject to PACA.

In addition to the PACA claimants, the debtors have certain vendors who may assert claims pursuant to PASA as a result of providing them with beef, swine and poultry products. The debtors do not think they are subject to PASA.

The motion requests that the bankruptcy court enter an order establishing procedures, allowing claims and authorizing the debtors to pay, in their sole discretion, the pre-petition claims of PACA claimants and PASA claimants.  The obvious danger here is that PACA requires each unpaid supplier to share in the distribution of the PACA trust and an order authorizing the debtor to pay claims on a first come first serve basis could prejudice some PACA creditors.

PRM Family Holding Company LLC is the sole member of the other limited liability company debtors. Prodigio Mercado LLC operates three grocery stores located in Phoenix, AZ. Provenzano’s LLC operates four grocery stores located in Phoenix. Pro’s ABQ Ranch Markets LLC operates two grocery stores located in New Mexico, one in Albuquerque and one in Las Cruces. Pro’s ELP Ranch Markets LLC operates two stores located in El Paso, TX. Pro’s ELP Ranch Markets Beverage Company LLC holds the liquor license for Pro’s ELP Ranch Markets LLC. Pro & Son’s LLC holds title to intellectual property owned by the debtors. Pro’s Ranch Markets (CA) LLC acts as the paymaster, manager, internal wholesaler, oversees trucking and distribution, pays all accounts payable and provides employees to all of the debtors’ stores. Collectively the debtors own and operate 11 retail grocery stores and employ approximately 2,235 full time workers in the stores and other locations.