Tag Archives: food attorney

Objecting to a Debtor’s Use of Cash Collateral in Bankruptcy

Personal BankruptcyWhen a produce company files a chapter 11 bankruptcy case, one of the first questions my PACA trust creditor clients ask is whether the debtor will be able to keep any cash it may have in the bank or any cash it receives from collecting its accounts receivable.

The answer is that the debtor almost always has a bank or other secured creditor which holds a lien on substantially all of its assets.  Property like inventory, machinery and equipment and the like is called hard collateral.  Such items can be used and sold in the ordinary course of business in a chapter 11 case.

Liquid assets, like cash, bank accounts, and accounts receivable, however, are a different matter.  These are called “cash collateral.”  And cash collateral may not be used over the objection of a secured party without a court order.  This order is called the “cash collateral order.”   Simply put, the purpose of a cash collateral order is to allow the debtor to utilize its cash collateral even though the cash collateral is subject to the liens of a secured party.  To do this, the debtor must provide its secured lenders with adequate protection (e.g. replacement liens in post-petition assets, super-priority administrative claims, etc.) necessary to facilitate the use of the cash collateral.  Because the debtor’s ability to use its cash collateral is critical to its ability to successfully emerge from a chapter 11 filing, debtor’s counsel often seek court approval of a cash collateral order on the very first day of the bankruptcy filing.

If you are a PACA trust creditor, you must be mindful of the cash collateral order process because there are almost never any provisions included in a cash collateral order that protect the rights of the PACA trust creditors.  As a result, a savvy PACA trust creditor will immediately object to the debtor’s use of cash collateral and create a seat at the negotiating table for the PACA trust creditors.  A well advised PACA trust creditor understands the debtor’s obligations under PACA and will generally make the following objections to debtor’s use of cash collateral:

  1. The scope of the PACA trust covers the debtor’s cash collateral as a matter of law
  2. PACA trust assets are not property of the debtor’s estate
  3. The debtor cannot use non-estate property as cash collateral
  4. The debtor cannot use PACA trust assets as collateral for post-petition financing

A timely filed objection to a debtor’s attempt to obtain a cash collateral order will often result in the full and immediate payment of the PACA trust claim.  When that is not possible, the objecting PACA trust creditor will have the ability to either seek adequate protection (just like a secured party) from both the debtor and its secured creditors or force the case to convert to a chapter 7 liquidation case.  Remember, a chapter 11 case will not stand if there are no estate assets to administer.

Key Point: If the PACA trust creditors do not act quickly when they are notified of a produce buyer’s insolvency, the debtor will obtain a cash collateral order that does not include any protections for PACA trust creditors.  If that happens, the cash collateral order will allow the debtor to use trust assets (the Court won’t know unless someone speaks up) to administer its estate, obtain DIP financing, and otherwise place trust assets out of the PACA trust creditors reach (e.g. paying pre-petition wages, etc.)

What you Need to Know About Administrative Detention of Foods – New FSMA Guidence

FDA LogoThe FDA recently issued a revised industry guidance document titled: What You Need To Know About Administrative Detention of Foods; Small Entity Compliance Guide  Utilizing a question and answer format, this industry guidance document contains some valuable information.  Here are some of the highlights you need to know:

Why is administrative detention needed?

Administrative detention provides a means through which FDA can hold adulterated or misbranded food and prevent it from reaching the marketplace, thus further enhancing FDA’s ability to ensure the safety of food for U.S. consumers.

What food is subject to administrative detention?

The term food refers to (1) articles used for food or drink for man or other animals, (2) chewing gum, and (3) articles used for components of any such article (section 201(f) of the FD&C Act [21 U.S.C. § 321(f)]).  The term food also refers to dietary supplements, which are to be treated as food under the FD&C Act (section 201(ff) [21 U.S.C. § 321(ff)]).

How long may FDA administratively detain an article of food?

FDA may detain an article of food for a reasonable period, not to exceed 20 calendar days, after the detention order is issued. However, an article of food may be detained for 10 additional calendar days if a greater period of time is required to institute a seizure or injunction action. The entire detention period may not exceed 30 calendar days (21 CFR 1.379).

What criteria does FDA use to order an administrative detention?

An officer or qualified employee of FDA may order the administrative detention of any article of food that is found during an inspection, examination, or investigation under the FD&C Act if the officer or qualified employee has reason to believe that the article of food is adulterated or misbranded (21 CFR 1.378).

May an administratively detained article of food be delivered to another entity or transferred to another location?

It is a prohibited act under section 301(bb) of the FD&C Act [21 U.S.C. 331(bb)] to transfer an article of food subject to an administrative detention order and/or to alter or remove any mark or label that identifies an article of food as administratively detained.

Can an administrative detention order be modified?

FDA may approve a request for modification of an administrative detention order to allow for the destruction of the article of food or movement of the detained article of food to a secure facility, to maintain or preserve the integrity or quality of the article of food, or for any other purpose that the authorized FDA representative believes is appropriate in the case (21 CFR 1.381(c)).

What’s the difference between an import detention and administrative detention?

FDA’s authority to administratively detain food under section 304(h) of the FD&C Act [21 U.S.C. 334(h)] is separate and distinct from detention that may occur during FDA’s import admissibility review. Under section 801(a) of the FD&C Act [21 U.S.C. 334(h)], when food is imported or offered for import into the United States, FDA conducts an admissibility review to determined whether to admit the product into United States or detain the product.

On the other hand for administrative detentions under section 304(h) of the FD&C Act, FDA will issue an order to the owner of the suspect food notifying him that FDA is administratively detaining the food and that he has an opportunity to appeal the detention with or without a hearing (see 21 CFR Part 1 Subpart K).

When does an administrative detention order terminate?

If FDA terminates an administrative detention order or the detention period expires, an authorized FDA representative will issue an administrative detention termination notice to any person who received the detention order (or that person’s representative), releasing the article of food, as quickly as possible. If FDA fails to issue an administrative detention termination notice and the detention period expires, the administrative detention is deemed to be terminated (21 CFR 1.384).

Who pays the costs associated with the detention order, such as storage, moving, disposal or reconditioning?

As stated in the preamble to the 2004 final rule (69 Federal Register 31659 at 31690), the party or parties responsible for paying the storage costs of food that FDA orders administratively detained is a matter between the private parties involved with the food. FDA is not liable for those costs. An owner, operator, or agent in charge of the place where the food is located can always request modification of a detention order to destroy the food if they do not want to store it.

Please take the time to read the entire guidance document.  It contains information about your rights and other deadlines that become very important if your product is administratively detained.

Jason Klinowski to Speak at Upcoming Food Executive Roundtable

On October 23, 2102, Freeborn & Peters and Mesirow Financial will host  a food industry roundtable event for food company executives.  At this event, Jason Klinowski will discuss legal issues related to food recall events, specifically addressing issues related to preparing for and managing government inspections.  Other speakers will discuss security and insurance issues related to food recall events.  Please contact me directly if you are interested in attending this “invite only” event.

Here are the details:

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On September 26, 2012, a civil action was filed in Washington against YLM, Inc. in an effort to collect approximately $64,600.00 in an alleged PACA trust debt.

On October 2, 2012, a civil action was filed in Puerto Rico against P.R. Rexville Produce Distributors, Inc. in an effort to collect approximately $236,300.00 in alleged PACA trust debt.

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

Jason Klinowski Published in Food Safety Magazine

The September 2012 edition of Food Safety Magazine’s eDigest includes a Food Safety Modernization Act (“FSMA”) Update Article that I co-authored along with John Shapiro.

Please see a link to the article below:

FSMA Legislative Update

This article discusses the Food and Drug Administration (FDA)’s second annual report on the roll out of the Food Safety Modernization Act (FSMA) and illustrated how the report did not mention the FDA’s failure to promulgate five important regulations during 2012.

Along this same line, we discussed the Center for Food Safety and the Center for Environmental Health’s August 29, 2012 civil action against certain governmental agencies and officers to enforce the FSMA and to compel the promulgation of certain key regulations.

Jason Klinowski Speaks at the 13th Annual Illinois Food Safety Symposium

On September 19, 2012, Jason Klinowski addressed the 240+ attendees of the 13th Annual Illinois Food Safety Symposium, which was held in Bloomington, IL.

During his presentation, Jason Klinowski addressed the issue of whether a health department could recoup the costs it incurs responding to a foodborne illness outbreak in light of the department’s statutory duty to respond and to protect the public health.  The presentation looked at both the legal theories for recovery and the practical considerations (pros & cons) of such litigation.

This event was co-sponsored by the Illinois Department of Public Health and the Illinois Public Health Association.  A special thanks goes out to Kevin Dreesman of the Illinois Department of Health for organizing this event and for inviting me to address its attendees.

Jason Klinowski – Panelist at Turnaround Management Association Event

On Friday, September 21, 2012, Jason Klinowski served as one of five panel speakers at the Turnaround Management Association’s “Trying to Stay Healthy in a Distasteful Economy” Breakfast Forum Event, which was held at The Standard Club.  During this event, Jason discussed the Perishable Agricultural Commodities Act and the Food Safety Modernization Act in order to illustrate some of the challenges they present to the food & agribusiness industries.

Tyler Mayoras of O’Keefe & Associates moderated the panel, which consisted of: Wayne Carpenter (Managing Director of Lake Pacific Partners), Ed Cooper (Senior Vice President of Wells Fargo’s Food & Agribusiness Office), Justin Segel (CEO of American Pasteurization Company), Jason Klinowski (Agricultural & Food Law attorney at Freeborn & Peters) and Troy Terwilliger (CFO of Graceland Fruit).

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On September 7, 2012, a civil action was filed in New York against Maxsun Produce Corporation in an effort to collect approximately $291,390.00 in an alleged PACA trust debt.

On September 19, 2012, a civil action was filed in Arizona against Arizona Marketing Produce Distributors, Inc. in an effort to collect approximately $111,740.00 in alleged PACA trust debt.

On September 20, 2012, a civil action was filed in Florida against Florida European Export-Import Co., Inc. in an effort to collect approximately $36,660.00 in alleged PACA trust debt. 

On September 20, 2012, another civil action was filed in New York against Maxsun Produce Corporation in an effort to collect approximately $71,200.00 in an alleged PACA trust debt.

On September 20, 2012, a civil action was filed in New York against Illinois Trading Co. in an effort to collect approximately $319,760.00 in an alleged PACA trust 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 August 28, 2012, a civil action was filed in California against Koshan, Inc. d/b/a Payless Foods and d/b/a Bargain Foods in an effort to collect approximately $421,500.00 in an alleged PACA trust debt.

On August 24, 2012, a civil action was filed in New Jersey against Amazon Produce Network LLC in an effort to collect approximately $437,800.00 in alleged PACA trust debt.

On August 21, 2012, a civil action was filed in Maryland against Tree House Produce, Inc. in an effort to collect approximately $140,000.00 in alleged PACA trust debt.  A temporary restraining order was recently entered in this case.

On August 9, 2012, a civil action was filed in California against Inglewood Unified School District in an effort to collect approximately $36,300.00 in an alleged PACA trust debt.

On August 6, 2012, a civil action was filed in Massachusetts against Vetsource Solutions LLC in an effort to collect approximately $26,900.00 in an alleged PACA trust debt.

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

Jason Klinowski Published in Food Safety Magazine

The August 2012 edition of Food Safety Magazine’s eDigest includes a Food Safety Modernization Act (“FSMA”) Update Article that I co-authored along with John Shapiro.

Please see a link to the article below:

FSMA Legislative Update

This article discusses the July 31, 2012, Food and Drug Administration (FDA) announcement of the per hour FDA inspector charges it will levy against food companies in the upcoming fiscal year under the Food Safety Modernization Act (FSMA).  Those rates are $221 per hour if no foreign travel is required and $289 per hour if foreign travel is required. The new rates will take effect October 1, 2012, and will be effective through September 30, 2013. FDA intends to reassess the rates for the fiscal year starting October 1, 2013.