Tag Archives: Freeborn

Government Not Required to Prove Intent or Consciousness of Wrongdoing to Convict the Jensen Brothers

Jensen Farms PicAs the produce industry follows the fate of Eric and Ryan Jensen many articles and commentary have surfaced in support of the brothers Jensen.  However, these articles and commentary all focus around a significant misconception about the government’s burden  of proof.  Specifically, the general misconception is that the U.S. Attorney’s Office must prove or otherwise show intent on the part of the Jensen brothers to obtain a criminal conviction.  This is wrong!

The Federal Food Drug and Cosmetic Act (“FD&C Act”) protects the consuming public by allowing the government to regulate the conditions under which food and drugs are manufactured and distributed and it requires those responsible to comply with its provisions.  Under the FD&C Act, misdemeanor criminal responsibility does not require intent or consciousness of wrongdoing.  On the other hand, felony criminal responsibility requires a knowing violation with the specific intent to defraud or mislead.  The FD&C Act also states that a  corporation may commit an offense and all persons who aid and abet its commission are equally guilty.

The Jensen brothers are facing misdemeanor criminal charges, which still carry the threat of imprisonment and significant financial penalties.  Given the misdemeanor nature of the charges, the U.S. Attorney’s Office does not need to allege or prove any type of intent on the part of the Jensen brothers to obtain a criminal conviction.

The foregoing is but one example of why the Jensen brothers’ criminal case is alarming to the produce industry.  With that said, are there any real and meaningful defenses available to the Jensen brothers?  The answer is yes!

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 to Speak at the Upcoming Food Regulatory Compliance Summit in Chicago

Food Regulatory Compliance Summit Logo

On October 4, 2013, Jason Klinowski will join Daniel Shaw – Vice President, Deputy General Counsel at H.J. Heinz Company – to address food recalls and to discuss practical tips and best practices for preventing common pitfalls and minimizing downstream litigation exposure.  Please join us at theWit for this two-day conference and connect with food industry leaders from The Hillshire Brands Company, Kellogg, US Foods, Nestle, MOM Brands, Cargill, H.J. Heinz Company, and others.

An “Open Price” Sale or “Price After Sale” is Still a Sale Requiring Prompt Payment Within 10 Days of Delivery

USDA LogoNeither the UCC nor the PACA recognize the term “Price After Sale.”  The term is a subcategory of “Open Price.”  A.P.S. Marketing, Inc. v. R.S. Hanline & Co., Inc., 59 Agric.154 Dec. 407 (2000), Sucasa Produce v. A.P.S. Marketing, Inc., 59 Agric. Dec. 421 (2000), and Well Pict, Inc. v. Ag-West Growers, Inc., 39 Agric. Dec. 1221, 1227-1228 (1980).  See Eustis Fruit Co., Inc. v. The Auster Co., Inc., 51 Agric. Dec. 865 at 877 (1991) (“The term “price after sale” usually contemplates the parties agreeing to a price following the prompt resale of the produce.); Bonanza Farms, Inc. v. Tom Lange Co., Inc., 51 Agric. Dec. 839 at 846 (1991); M. Offutt Co., Inc. v. Caruso Produce, Inc., 49 Agric. Dec. 596 (1990).  This fact becomes important because the regulations (other than the rules of practice) under PACA (7 CFR Part 46) (the “Regulations”) do not place a duty to account upon a buyer who purchases on an open basis.  Ronnie Carmack v. Delbert E. Selvidge, 51 Agric. Dec. 892 (1992) (emphasis added).

Why is this important to a produce supplier?

As the industry knows, “a PACA supplier must [sell] produce on a cash or short-term credit basis.”  Patterson Frozen Foods, Inc. v. Crown Foods International, Inc., 307 F.3d 666, 669 (7th Cir. 2002).  As a matter of fact, the Secretary of Agriculture has determined that ‘the maximum time for payment for a shipment to which [parties] can agree and still qualify for coverage under the trust is 30 days after receipt and acceptance.’”  7 C.F.R. § 46.46(e)(2) (emphasis added).  Taken together, PACA and the Regulations provide both parties to a sales transaction with the ability to calculate the seller’s last day to perfect its PACA trust rights with the level certainty needed to ensure the credit agreement does not exceed the statutory maximum of 30 day terms.

The Regulations state, in relevant part, that “[f]ull payment promptly’ for the purpose of determining violations of [PACA], means: [p]ayment for produce purchased by a buyer, within 10 days after the day on which the produce is accepted.’” 7 C.F.R. §46.2(aa)(5) (emphasis added).  Once the seller delivers its produce to the buyer, both parties possess the immediate ability to calculate two important dates.  The first date is the payment due date, which is generally 10 days later.

The second critical date is the seller’s last day to perfect PACA trust rights, which is within 30 calendar days after the expiration of the time prescribed by which payment must be made as set forth in the Regulations.  See 7 U.S.C. §499e(c)(3)(i).  This means the seller has a 40 calendar days (10 day payment terms + 30 days thereafter to perfect) in which to preserve its PACA trust rights.

A Seller who sells produce with “Open Price” terms or “Price After Sale” terms must preserve its PACA trust rights within 40 days pursuant to 7 C.F.R. §46.2(aa)(5) and 7 U.S.C. §499e(c)(3)(i).  This is true even if the parties have not agreed upon a price or the buyer has not provided any type of account of sale.  Remember, the buyer in an “Open Price” term contract has no duty to provide the seller with an account of sale because the sales contract becomes valid and binding as soon as the produce is accepted.  Also, the uniform commercial code will not allow an otherwise valid and binding contract to fail simply because there either is no agreement on price or there is a dispute as to the price term.  See UCC Section 2-305.

Important Take Away:  Seller Beware!

An unpaid seller of produce CANNOT sit back and wait for the resolution of any missing price term before it acts to perfect its PACA trust rights.  The clock starts ticking on the seller’s ability to preserve its PACA trust rights as soon as the produce is accepted.  The failure of the buyer to provide an accounting or the inability of the parties’ to agree upon the proper price will not toll, delay or otherwise modify the calculation of the seller’s last day to preserve its PACA trust rights.

PACA Trust Litigation Alert!

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On September 6, 2013, a civil action was filed in California against J.D. Produce, Inc. in an effort to collect approximately $54,000.00 in alleged PACA trust debt.

On September 9, 2013, a civil action was filed in New York against New A & N Food Market, Inc. in an effort to collect approximately $36,000.00 in alleged PACA trust debt.

On September 13, 2013, a civil action was filed in Colorado against Mi Pueblo Latin Market, Inc. t/a Mi Pueblo Market in an effort to collect approximately $202,000.00 in alleged PACA trust debt.

On September 19, 2013, a civil action was filed in New Jersey against Dandrea Produce, Inc. in an effort to collect approximately $600,000.00 in alleged PACA trust debt.

On September 19, 2013, a civil action was filed in Ohio against Arena Produce Co., Inc. in an effort to collect approximately $54,000.00 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.

Another Successful Conference in the Books… Thank You for Joining Us!

Midwest Produce Conference LogoMichael Jordan's Steakhouse LogoI wanted to take a second and thank everyone who joined me and Freeborn’s Food Industry Team at Michael Jordan’s Steakhouse for a cocktail reception after the Midwest Produce Conference & Expo.  Those of you who attended know that Freeborn’s event provides a great way for folks to close out the conference and experience one of Chicago’s “must visit” restaurants.  Our event also helps you maximize your networking time in Chicago by providing a great atmosphere to connect with your produce industry peers and colleagues.  For those of you who could not make it, we hope to see you in New Orleans for the upcoming PMA show.

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.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On May 31, 2013, a civil action was filed in New York against Robert Guiliano d/b/a Guiliano Brother’s Produce in an effort to collect about $287,100.00 in alleged PACA trust debt.

On June 3, 2013, a civil action was filed in California against Miki’s Farm Fresh Market, Inc. in an effort to collect about $16,200.00 in alleged PACA trust debt.

On June 4, 2013, a civil action was filed in Illinois against FP Drive LLC d/b/a LA International in an effort to collect about $11,100.00 in alleged PACA trust debt.

On June 10, 2013, a civil action was filed in Florida against Alexa Produce, Inc. in an effort to collect about $24,000.00 in alleged PACA trust debt.

On June 11, 2013, a civil action was filed in Massachusetts against Banana Joe’s Farm Stand and Deli, Inc. in an effort to collect about $8,700.00 in alleged PACA trust debt.

On June 14, 2013, a civil action was filed in California against Edgar P. Barajas d/b/a Premier Fresh in an effort to collect about $215,900.00 in alleged PACA trust debt.

On June 19, 2013, a civil action was filed in New York against Southern Hospitality Xanadu LLC d/b/a Southern Hospitality in an effort to collect about $10,700.00 in alleged PACA trust debt.

On June 19, 2013, a civil action was filed in Texas against Farmer’s Fruit and Vegetable Company in an effort to collect about $29,600.00 in alleged PACA trust debt.

On June 20, 2013, a civil action was filed in New York against Lansky’s Operating Corporation d/b/a Lansky’s in an effort to collect about $41,900.00 in alleged PACA trust debt.

On June 22, 2013, a civil action was filed in Florida against Star International Food, LLC in an effort to collect about $7,200.00 in alleged PACA trust debt.

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

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.”