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PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On July 16, 2012, a civil action was filed in Florida against On The Beach Brokers, Inc. in an effort to collect approximately $19,690.00 in an alleged PACA trust debt.

On July 16, 2012, a civil action was filed in Georgia against TJ Produce, Inc. in an effort to collect approximately $120,540.00 in alleged PACA trust debt.

On July 23, 2012, a civil action was filed in Puerto Rico against Luna Commercial Corp. in an effort to collect approximately $21,750.00 in alleged PACA trust debt.  

On July 24, 2012, a civil action was filed in Maryland against Evergreen Supermarket, Inc. in an effort to collect approximately $10,800.00 in an alleged PACA trust debt.

On July 31, 2012, a civil action was filed in Maryland against Tamburo, Inc. in an effort to collect approximately $6,400.00 in an alleged PACA trust debt.

On August 1, 2012, a civil action was filed in Washington against Walla Walla Gardeners’ Association, Inc. in an effort to collect approximately $19,850.00 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.

Personal Liability Under PACA: Exposure for Non-Shareholding Officers

On August 2, 2012, the U.S. Court of Appeals for the 6th Circuit issued an unpublished decision that discussed, inter alia, personal liability under the Perishable Agricultural Commodities Act (“PACA”).  Specifically, the 6th Cir. addressed the issue of whether an individual could be held personally liable under PACA absent a showing of “active wrongdoing.”  The Court said: YES! See Arava USA, Inc. v. Karni Family Farm, LLC, 6th Cir. Case No. 11-1944.

In this case, the 6th Circuit found that an individual (who was an officer of the company, but not a shareholder) could be prosecuted personally for any shortfall in the company’s ability to fully satisfy it’s PACA trust obligations.

In so doing, the 6th Cir. agreed with the District Court (W.D. Mich.) and noted that thenon-shareholding officer at issue was not a statutory trustee of the PACA trust.  However, the 6th Cir. further held:

[b]ut that does not mean that [an individual] cannot be personally liable for interfering with [a PACA trust beneficiary’s] receipt of trust assets.  Ordinary principles of trust law apply to statutory trusts created by the Act. See Owner Operator Indep. Drivers Ass’n, Inc. v. Comerica Bank (In re Arctic Exp. Inc.), 636 F.3d 781, 798 (6th Cir. 2011).  This court has held that, where an officer causes a corporate trustee to commit a breach of trust, the beneficiary of the trust may sue the officer personally for the loss.  See Capitol Indemnity Corp. v. Interstate Agency, Inc. (In re Interstate Agency, Inc.), 760 F.2d 121 (6th Cir. 1985).  This liability arises not because the officer is a trustee or because of a piercing of the corporate veil, but rather because the officer himself has committed a tort against the trust’s beneficiary. Id. at 125.  The law of trusts is clear that “a beneficiary who is entitled to immediate distribution of . . . property may bring an action against a third party [i.e., not the trustee] who has damaged that property or interfered with its delivery to the beneficiary.” Restatement (Third) of Trusts § 107 cmt. c(1).  (emphasis added).

Every court of appeals to consider this issue has held that a corporate officer may be held personally liable under the Act.  See Coosemans Specialities, Inc. v. Gargiulo, 485 F.3d 701, 705–06 (2d Cir. 2007) (collecting cases from the First, Second, Third, Fifth, Seventh, and Ninth Circuits).   We now join them and hold that “individual shareholders, officers, or directors of a corporation who are in a position to control [statutory] trust assets,” and who fail to preserve those assets, may be held personally liable under the Act. Sunkist Growers, 104 F.3d at 283. Where the officer has “fail[ed] to maintain” the assets of a § 499e trust, trust law allows an unpaid produce seller to sue that officer in his personal capacity. 7 U.S.C. § 499b(4).

Critical Point

The thrust of this case is that you do not have to be a shareholder of a produce company to be exposed to PACA trust liability.  The proper test for determining liability is control over the PACA trust assets and how your actions affected the PACA trust beneficiary’s ability to receive full payment promptly.

FSMA Update: 2013 Fee Schedule Features Reduced Rates!

On July 31, 2012, the FDA announced its fee structure for rates to be assessed under the Food Safety Modernization Act in 2013.  The rates for 2013 are $221.00 per hour if no foreign travel is required and $289.00 per hour if foreign travel is required.  These new rates will be effective from October 1, 2012 through September 30, 2013, which is when the next fiscal year’s fee schedule will be published.

The good news is that the 2013 rates are lower than the 2012 rates, which were $224.00 per hour is no foreign travel is required and $325.00 per hour if foreign travel is required.  Perhaps the rate reduction in 2013 is a sign that the FDA is attempting to implement FSMA in light of the known operational realities and pain tolerances for administrative fees that exist in the food industry.

With that said, it is important to remember that FSMA’s fee structure represents hourly rates charged by each FDA inspector participating any type of billable activity related to a given case.  As a reminder, billable activities include conducting the reinspection at the facility, making preparations and arrangements for the reinspection, traveling to and from the facility, analyzing records, analyzing samples, preparing reports or examining labels and performing any other activity deemed necessary to determine compliance with the regulation or statute found to be violated in the initial inspection.  Other billable activities include 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.  Simply put, even with a reduced fee structure, FSMA related fees can add up quickly and significantly impact businesses.

Will the FDA charge and collect fees under FSMA in 2013?

Because FDA recognizes that for some small businesses the full cost recovery of FDA reinspection or recall oversight could impose severe economic hardship, FDA intends to consider reducing certain fees for those firms.  FDA is currently developing a guidance document to outline the process through which firms may request such a reduction of fees. FDA does not intend to issue invoices for reinspection or recall order fees until this guidance document has been published.

Who will be affected by these fees?

Only those parties in the food and feed industry whose non-compliance results in the following activities:

  • Facility reinspections – follow-up inspections conducted by FDA subsequent to a previous facility inspection that identified noncompliance materially related to a food safety requirement of the Federal Food, Drug, and Cosmetic Act (the Act). The reinspection must be conducted specifically to determine that compliance has been achieved.
  • Recalls – food recall activities performed by FDA that are associated with a recall order with which a responsible party has not complied.
  • Importer reinspections — follow-up inspections of a food offered for import conducted by FDA subsequent to a previous inspection that identified noncompliance materially related to a food safety requirement of the Act. The reinspection must be conducted specifically to determine that compliance has been achieved. As discussed in F.2.2., these fees will not be assessed until the agency has resolved issues associated with these fees and the public has been notified by the agency.

Can small businesses have their fees waived?

The FY 2013 fee schedule does not contain any reduced fee rate for small business. However, FDA does not intend to issue invoices for reinspection or recall order fees until a guidance document to outline the process through which firms may request a reduction of fees has been published. Once published, invoices will be issued and firms can apply for reductions as outlined in the guidance.

How does FDA plan to charge these fees?

For facility reinspection fees, FDA will invoice the responsible party for each domestic facility and the United States Agent for each foreign facility for the direct hours, including travel, spent to perform the reinspection at the appropriate hourly rate. For recall order fees, FDA will invoice the responsible party for each domestic facility or an importer who does not comply with a recall order under sections 423 or 412 of the Act for the hours spent to cover food recall activities associated with such order. For importer reinspection fees, FDA will invoice the importer for the direct hours spent to perform the reinspection including travel. Detailed payment information will be included in the invoice.

Which fiscal year rate will be used and when?

The fiscal year in which the reinspection occurs dictates the fee rate to be applied. For example, if a reinspection was conducted in September, 2012 and the invoice was issued in October, 2012, the fee rate to be applied would be the FY 2012 rate. The invoice clearly itemizes the fiscal year, hours and rate used to calculate the total invoice amount.

How long does the responsible party have to pay the fees?

Payment must be made within 90 days of the invoice date.

What happens if the responsible party or U.S. Agent does not pay?

Any fee that is not paid within 30 days after it is due shall be treated as a claim of the United States government subject to provisions of subchapter II of Chapter 37 of Title 31, United States Code.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On July 10, 2012, AMK Foodservices, Inc. d/b/a Kaney Foods filed for Chapter 11 bankruptcy protection.  In this case, the debtor recently filed a motion seeking to approve a PACA claims procedure.  This motion is currently pending before the court, but no hearing date has been set yet.

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 July 17, 2012, a civil action was filed in Arizona against Rainbow Produce Company Incorporated in an effort to collect approximately $43,611.00 in an alleged PACA trust debt.

On July 13, 2012, a civil action was filed in California against G. R. Products LLC in an effort to collect approximately $112,212.00 in alleged PACA trust debt.

On July 9, 2012, a civil action was filed in Texas against Empire Produce USA LLC  in an effort to collect approximately $124,366.00 in alleged PACA trust debt.  

On July 6, 2012, a civil action was filed in California against South Bay Fresh, Inc. in an effort to collect approximately $48,600.00 in an alleged PACA trust debt.

On July 3, 2012, a civil action was filed in Michigan against Great Lakes Produce and Marketing LLC in an effort to collect approximately $26,400.00 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 Quoted in The Packer’s Updated Article on Adams Produce

The Packer quoted Jason Klinowski in its 7/12/2012 updated article announcing the entry of an Agreed Order Establishing a PACA Claims Procedure in the $50 million dollar Adams Produce bankruptcy case, which involves over $16 million in secured debt.

See: PACA Claims Due in Adams Produce Case

In this article, The Packer noted that: “Attorney Jason Klinowski, from Freeborn & Peters in Chicago, and Larry Meuers of Meuers Law Firm in Naples, Fla., represent produce companies seeking payment from Adams and were key players in the development of the plan. They worked with lawyers representing Adams, PNC Bank and other parties to resolve how the PACA claims should move forward.”  Id.

The article also quoted Jason as saying: “Getting the PACA trust beneficiaries paid quickly was our No. 1 priority,” Klinowski said. “A lot of good attorneys worked through some tough issues … Having been intimately involved in that process, I can tell you that it is not only a solid work product but the best way to get the PACA trust beneficiaries paid quickly.”  Id.

With the PACA Claims Procedure in place, here are some critical dates of interest:

EVENT

DEADLINE

Bankruptcy Proof of Claim Deadline

July 6, 2012

PACA Proof of Claim Deadline:

August 3, 2012

PACA Trust Asset Report Deadline:

August 3, 2012

Deadline to Object to PACA Proofs of Claim:

August 24, 2012

Deadline to Object to PACA Trust Asset Report:

August 24, 2012

Deadline to Schedule Meet and Confer:

August 31, 2012

Deadline to Meet and Confer:

September 14, 2012

Deadline to Notify Debtor of Result of Meet and   Confer Conferences:

September 17, 2012

Deadline to file Meet and Confer Report:

September 21, 2012

Deadline to Respond to Claim Objections:

September 28, 2012

Deadline to File PACA Trust Distribution Report:

October 5, 2012

Deadline to Object to PACA Trust Distribution   Report:

October 12, 2012

Deadline to Make First Interim Distribution:

October 19, 2012

Mediation Date for Disputed Claims and Disputed   Assets:

October __, 2012

Deadline to File Motion to Determine Disputed   Claims and Assets

December 7, 2012

Proofs of Claim Due in the Adams Produce Bankruptcy

Although the Court is set to establish a PACA Claims Procedure on July 9, 2012, the deadline to file all proofs of claim (PACA and non-PACA alike)  is July 6, 2012.  Importantly, any party that fails to file their proof of claim by July 6, 2012 will not be able to file their PACA proof of claim after the Court enters an approved order as the July 6, 2012 date is a statutory date.  Please do not be confused.

ALL creditors must file a proof of claim on or before July 6, 2012. 

In addition to meeting the July 6, 2012 deadline, the PACA creditors will be required to file a special PACA Proof of Claim as outlined in Judge Mitchell’s  forthcoming order.  Simply put, the PACA creditors need to be prepared to file two separate proofs of claim.  Any PACA creditor who fails to file any one of the two proofs of claim runs the risk of having the Court deny its claim.  Those familiar with this case can tell you that these dates are going to come fast.  Please do not wait to assert your rights.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On June 27, 2012, a civil action was filed in Wisconsin against The Red Onion LLC in an effort to collect approximately $56,960.00 in an alleged PACA trust debt.

On June 21, 2012, a civil action was filed in New York against New Farm, Inc. in an effort to collect approximately $140,000.00 in alleged PACA trust debt.

On June 18, 2012, a civil action was filed in New York against Suffolk Banana Co., Inc., Long Island Banana Corp. and Long Island Banana in an effort to collect approximately $1,998,400.00 in alleged PACA trust debt.  

On June 18, 2012, a civil action was filed in Idaho against Savory Sweet LLC in an effort to collect approximately $58,400.00 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 Presents at the 3rd Advanced Summit on Food Safety Regulatory Compliance

Recently, I had the privilege of speaking at the American Conference Institute’s 3rd Advanced Summit on Food Safety Regulatory Compliance, which was held in Chicago, Illinois on June 26-27 2012.  My presentation discussed: “How to Prepare and Implement Effective Remediation and Corrective Action Plans Post-Inspection.”  Notable conference attendees included counsel and/or representatives from ConAgra Foods, H.J. Heinz Company, J.M. Smucker Company,  Whole Foods Market and others.  Freeborn & Peters LLP was a proud sponsor of this event.

My presentation provided a practitioner’s point of view (as outside general counsel to numerous food companies) on how to prepare a proper response to a FDA 483 Report of Investigation, which including drafting tips, best practices and response strategies.  Following this same format, I also discussed how to prepare effective corrective action plans  and reconditioning plans.

For those of you who may be interested, here is a link to my presentation:

Jason Klinowski’s – ACI Presentation

FSMA Update: FDA Releases New Information Related to Food Facility Registration

The FDA recently published information answering three frequently asked questions:

QUESTION:  What form do I use to renew a food facility registration?

ANSWER:  FDA Form 3537.

Registrants must use Form 3537 to register, update, or renew a registration. Form 3537 is being updated to meet registration renewal needs. The next registration renewal cycle begins October 1, 2012. Facilities may register online via the Internet at www.fda.gov/furls, which operates during business hours from 7:00 am to 11:00 pm U.S. Eastern Standard Time.

QUESTION: Am I required to renew a food facility registration online? 

ANSWER:  No!  Registrants can renew food facility registrations online or submit the paper Form 3537 by mail or fax. A business with multiple facilities may also register on a CD-ROM by mail. FDA encourages online registration as the least costly, quickest, and most efficient means for food facility registration. With online registration, a food facility must enter all of the required information before the system will accept the submission. After all required information has been entered, a registrant will receive confirmation of registration and a registration number. Paper registration is a more costly and less efficient process to supply FDA with registration information and to provide food facilities with their registration numbers. Further, paper registration may have a higher number of errors or omissions on the form, which may require additional time to complete the registration process.

QUESTION: Why wait until October 1, 2012 to start the registration renewal process? 

ANSWER:  Because you will be required to do it again between Oct. 1 and Dec. 31, 2012.   The FDA Food Safety Modernization Act (FSMA) mandates that all food facilities that are required to register must renew their registrations every other year during the period beginning on October 1st and ending on December 31st of each even-numbered year. The first registration renewal cycle will occur from October 1 to December 31, 2012.

As always, more information may be found at: Food Safety Modernization Act – FAQ Page

Please keep in mind that the FDA does not provide answers to questions of registration strategy, information disclosure and impact of registration choices on frequency of inspections and the classification of a food facility as high risk or non-high risk.  These are ALL very important issues that need to be addressed.