The May 2012 edition of Food Safety Magazine’s eDigest includes a 2012 Farm Bill Update Article that I co-authored along with John Shapiro.
Please see a link to the article below:
Food Safety Magazine – eDigest
This article looks at the “2012 Farm Bill” and discusses the proposals heading to the Senate for consideration and debate.
Adams Produce Company LLC filed a motion May 11 requesting the approval of a proposed settlement between the debtors, PNC Bank, Perishable Agricultural Commodities Act (PACA) claimants and their employees. As part of the proposed settlement, Adams Produce will be authorized to obtain post-petition financing from PNC in the amount of $1.45 million, with the bank being granted a first priority security interest in all of the debtors’ property except for the PACA trust assets.
According to the proposed settlement, the debtors’ employees shall be paid $1 million through the debtor-in-possession loan proceeds, while the total amount of $250,000 shall be transferred to an account set up to pay the costs of administering the PACA trust and the PACA claims procedures and $200,000 will be used to pay certain costs of administration of these cases. The debtors filing anticipates that the settlement amounts paid to the employees pursuant to the proposal will pay the workers in full for their approximately three weeks worth of unpaid wages, and in part for their accrued vacation, holiday and personal time off, health and other employee benefits, payroll deductions and reimbursement expenses.
Pursuant to the proposed settlement, several parties will be released from liability, including a partial release of PNC by the debtors, a partial release of the debtors by the employees and the PACA claimants, a partial release of the PACA claimants by the debtors and a partial release of certain professionals by the PACA claimants, the employees and PNC.
The proposed settlement also establishes an Adams Produce PACA trust, to be administered by a trustee, pursuant to procedures for establishing the validity and payment of PACA claims.
THE OPPOSITION
The problem with this proposed settlement is that it is controlled by the single largest PACA creditor and does not truly reflect the voice of the PACA trust beneficiaries as a whole. Moreover, the proposed settlement appears to release certain parties from liability under PACA prior to the installation and completion of a PACA claims procedure designed to place a real dollar figure on damages to the PACA trust beneficiaries. As you can imagine, this leaves many questions (i.e. who will be responsible for any shortfall in the Debtor’s ability to fully pay all the PACA trust claims) and provides no guarantees of full payment to the PACA trust beneficiaries. Although the proposal may partially repay employees, it will all but deplete the $1.4 million in post-petition financing with arguably no real benefit to remaining creditors, including the PACA trust creditors. More alarmingly, what the proposal does do is insulate the bank and others from potentially millions in liability and in the short-term authorize the use of PACA trust assets to pay the Debtor’s non-PACA trust obligations.
In opposition to the Debtor’s Motion to Approve Settlement, certain PACA trust beneficiaries recently filed an Adversary Proceeding that seeks the turn-over of the PACA trust assets and the disgorgement of millions of dollars of PACA trust assets allegedly received by various third parties, which is the exact liability the settlement proposal sought to avoid through a deal with the largest PACA trust creditor. Furthermore, because the issues presented deal with PACA, not bankruptcy law, the creditor group filing the Adversary Proceeding also filed a Motion to Withdraw the Reference requesting the U.S. District Court for the Northern District of Alabama adjudicate the federal PACA trust issues and other claims presented in the Adversary Proceeding instead of the Bankruptcy Court.
The opposition also seeks to stay the Bankruptcy Court’s consideration of the opposed Motion to Approve Settlement to allow the U.S. District Court an opportunity to rule on the Motion to Withdraw the Reference.
Stay tuned…
The trademark suit filed by Naturesweet, Ltd. against Mastronardi Produce Ltd. is merely the latest battle over intellectual property rights involving grape tomatoes, which were only introduced to the worldwide produce market in the 1990s.
The first legal skirmish involved the right to use the term “grape tomatoes” and offers a valuable lesson on how to protect the brand image of an innovative product.
In the United States, the first “grape” tomatoes were grown in 1994 by Andrew Chu in Florida. Chu received some “Santa F1” tomato seeds from a friend in Taiwan that were ultimately turned into the first commercially significant “grape tomatoes” – a term that Chu coined for the grape-sized tomato that distinguished the variety from cherry tomatoes. Grape tomatoes are sweet and small with thicker skins than cherry tomatoes, which makes them more durable and, some argue, more flavorful.
In 1998, Chu filed a trademark application with the U.S. Patent & Trademark office for the term “grape tomatoes.” In hindsight, this might appear misguided because that term presently describes an entire class of tomato and is thus not capable of trademark protection. At the time, however, it was a new term coined by Chu that he wanted applied only to his “Santa F1” tomatoes. In fact, the trademark office agreed and issued Chu a trademark registration in March 2000 for “small fresh tomatoes shaped like grapes.” This meant that Chu had the exclusive right to use this term in the United States in connection with his tomatoes.
Almost immediately, however, Procacci Brothers Sales Corp. challenged Chu’s trademark rights in federal court, arguing that the registration should be cancelled because “grape tomatoes” was a generic or merely descriptive term and thus did not identify the source of the produce. After a relatively brief court battle, Chu Farms surrendered or otherwise lost any claim it may have had to an exclusive right to use the term “grape tomatoes,” which allowed anyone else to use this term to describe tomatoes of similar size and shape.
The take away here is that there is significant value in exclusivity and protecting innovation should be of paramount concern to the produce industry. As we all know, the produce industry is fairly unique in that many of the products look very similar. The key differences are found in the taste, quality, safety, appearance and other similar factors that may not be readily identifiable pre-sale. Therefore, the importance of packaging and related marketing innovations are vital to produce companies and they should be protected. Protecting your intellectual property not only helps define a produce company in a competitive marketplace, but it also ensures that the company receives the benefits of its investments in innovation, quality and food safety.
Creativity + Innovation = Goodwill
On May 8, 2012, NatureSweet filed a civil action against Mastronardi Produce alleging trademark infringement. Specifically, NatureSweet alleges that Mastronardi’s “Angel Sweet” mark and its winged tomato design mark infringes upon and otherwise trades upon NatureSweet’s “Nature Sweet Cherubs” brand tomatoes.
At its core, the complaint alleges that Mastronardi’s packaging causes confusion in the marketplace and allows Mastronardi to trade on NatureSweet’s goodwill, which is a result of NatureSweet’s brand recognition in the retail segment. In support of this claim, NatureSweet’s complaint discusses NatureSweet’s portfolio of patents and trademarks. As a matter of fact, NatureSweet reported to the Packer that its Cherubs brand generates about $300 million in annual sales. The Packer
As this case unfolds, the take away here is that branding in the produce industry is critical because it is such a fast paced and highly competitive industry. And, as NatureSweet intends to show, there are ways to distinguish produce in the marketplace that go beyond taste and quality. Boasting $300 million in sales from the Cherub brand alone, it is clear that a proper intellectual property portfolio is capable of generating significant revenues that are capable of protection.
PACA Trust Litigation Alert
On May 2, 2012, a civil action was filed in Florida against Aaron’s Market LLC in an effort to collect approximately $18,100.00 in an alleged PACA trust debt.
On May 3, 2012, a civil action was filed in Massachusetts against Lowell Bros. & Bailey, Inc. in an effort to collect approximately $450,489.00 in alleged PACA debt. A motion for Temporary Restraining Order and for the appointment of a Trustee are currently pending.
On May 4, 2012, a civil action was filed in Arizona against Triple R Distributing LLC in an effort to collect approximately $130,180.00 in an alleged PACA trust debt.
On May 4, 2012, a civil action was filed in California against Cal-O Vegetable Exchange, Inc. in an effort to collect approximately $318,245.00 in an alleged PACA trust debt.
On May 4, 2012, a civil action was filed in Washington against G & H Foods, Inc. d/b/a Paldo World Federal Way in an effort to collect approximately $36,930.00 in an alleged PACA trust debt.
On May 8, 2012, a civil action was filed in California against Patterson Vegetable Company LLC in an effort to collect approximately $123,315.00 in an alleged PACA trust debt.
PACA Trust Litigation Alert
On April 27, 2012, Adams Produce Company LLC filed for Ch. 11 Bankruptcy and reported approximately $10 million plus in PACA/trade debt. At this time, several “day one” motions are pending, including a Motion to Sell certain real property assets free and clear of liens.
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
On April 20, 2012, a civil action was filed in Arizona against Rainbow Produce Company, Inc. in an effort to collect approximately $337,860.00 in alleged PACA debt.
On April 20, 2012, a civil action was filed in Texas against J.D. Rodriguez Produce, Inc. in an effort to collect approximately $18,290.00 in alleged PACA 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
On April 16, 2012, a civil action was filed in California against White Oak Frozen Foods, LLC in an effort to collect approximately $60,800.00 in alleged PACA debt. At this time, an Application for a Temporary Restraining Order is pending.
Please check your A/R to see if this case affects you. If it does, please do not wait to assert your rights.
Savvy credit managers need to understand how to use restrictive endorsements to their advantage and how to deal with any restricted check they may receive.
As a matter of policy, a company should make it a practice not to deposit any check containing a restrictive endorsement until they have discussed the issue with their legal counsel.
With that said, here is an overview of what credit managers should know about accord and satisfaction:
To constitute a valid accord and satisfaction it is essential that what is given shall be offered in full satisfaction and extinction of the original debt. That the debtor shall intend it as a full satisfaction of the original debt and that such intention shall be made known to the creditor in some unmistakable manner.
It is equally important that the creditor shall have accepted it with the intention that it should operate as a full satisfaction of the original debt.
Generally, an accord and satisfaction requires:
1 Am. Jur. Accord & Satisfaction, Section 22 et. seq. See also Louis Caric & Sons v. Ben Gatz Co., 38 Agric. Dec. 1486 (1979); Mendelson-Zeller Co. v. Michael J. Navilio, Inc., 34 Agric. Dec. 903 (1975); Kelman Farms v. Bushman Brokerage, 34 Agric. Dec. 1146 (1975); Mendelson-Zeller Co. v. The Season Produce Co., 31 Agric. Dec. 1288 (1972).
“To constitute an accord and satisfaction it is necessary that the money be offered in full satisfaction of the demand, and be accompanied by such acts and declarations as amount to a condition that the money, if accepted, is accepted in satisfaction; and it must be such that the party to whom it is offered is bound to understand therefrom that, if he takes it, he takes it subject to such conditions. The mere fact that the creditor receives less than the amount of his claim, with knowledge that the debtor claims to be indebted to him only to the extent of the payment made, does not necessarily establish an accord and satisfaction.”
Spada Distributors Co. v. Frank KenworthyCo., 17 Agric. Dec. 347 (1958). (emphasis added). Quoted in Mendelson-Zeller Co. v. The Season Produce Co., 31 Agric. Dec. 1288 (1972).
Clear and CONSPICUOUS terms required
Words: “This check is in settlement of the following invoices: . . .” and words: “This check is in settlement of the following. If incorrect please return.” did NOT constitute clearly conditional tender. Half Moon Fruit & Produce Co. v. North American Produce, 40 Agric. Dec. 1610 (1981) (emphasis added); Harvitz Brothers v. David Goldsamt, 20 Agric. Dec. 391 (1961).
Words: “Payment in Full” or “similar words” held effective. Kelman Farms v. Bushman Brokerage, 34 Agric. Dec. 1146 (1975) (emphasis added); Southmost Vegetable Co-Op v. M. & G. Tomato, 28 Agric. Dec. 966 (1969); Johnson & Allen v. Fernandez Bros., 27 Agric. Dec. 1127 (1968); Zinno v. Marvin, 24 Agric. Dec. 396 (1965); National Produce Distributors, Inc. v. Stewart Produce, 21 Agric. Dec. 955 (1962) [Transaction lacked bona fide dispute, and check was not offered in good faith where accord language was pre-printed on the check].
Where a partial payment check was tendered on the condition that it be accepted as payment in full, but debtor did not specify to what debt it was to be applied, and there were several open accounts at the time of tender, creditor was within its rights when it applied the payment to an open freight bill, and no accord and satisfaction of the produce debt was accomplished. Jody DeSomma d/b/a Impact Brokerage v. All World Farms, Inc., 61 Agric. Dec. 821 (2002).
Bona Fide Dispute Required!
One of the biggest misuses of restrictive endorsements arise from the mistaken belief that placing a restrictive endorsement on all checks as a matter of company policy provides some benefit if a unknowing recipient deposits a partial payment. NOT TRUE! There must be a bona fide or good faith dispute that the partial payment is intended to resolve. A “gotcha” move will not carry the day and will be resolved in the payee’s favor.
Although respondent’s partial payment checks stated that the checks were tendered as payment in full, it was found that no accord and satisfaction existed as to several transactions because respondent had not proven that a dispute existed between the parties as to such transactions. Eustis Fruit Company, Inc. v. The Auster Company, Inc., 51 Agric. Dec. 865 (1992). Where a Respondent presented evidence of a breach by the Complainant this was not enough to show that there had been a dispute. Richard Ruiz v. Pacific Sun Produce Co., 48 Agric. Dec. 1105 (1989).
Good Faith Tender As Full Payment Necessary
Debtor tendered payment in one check for six produce transactions. Four of the transactions were undisputed, and the check covered these transactions in their full amount. The remaining two transactions were disputed, and as to these the check tendered only partial payment. The creditor negotiated the check, and then sought to recover the balance alleged due on the disputed transactions. The debtor pled accord and satisfaction. It was held that the good faith tender requirement of UCC 3-311 would not be met by such a check, especially in view of the “full payment promptly” requirement of the Act and Regulations. Lindemann Produce, Inc. v. ABC Fresh Mktg., Inc., et al., 57 Agric. Dec. 7389 (1998).
In C. H. Robinson Company v.TrademarkProduce, Inc., 53 Agric. Dec. 1861 (1994) the words “Full and Final Payment” were pre-printed on all of respondent’s checks in very small type. Referencing Official Comment 4 to UCC Section 3-311 it was held that the requirement of “good faith tender” had not been met, and there was no accord and satisfaction.
Although respondent’s partial payment checks stated that the checks were tendered as payment in full, it was found that no accord and satisfaction existed as to one transaction because there was no manifested intent that the payment should apply to all the items on the invoice where respondent paid in full for one of the types of fruit. Eustis Fruit Company, Inc. v. The Auster Company, Inc., 51 Agric. Dec. 865 (1992).
Return the Check!
Under UCC Section 3-311 the return within 90 days of an amount paid in full satisfaction of a claim disputed in good faith precludes the discharge of the claim. Pacific Tomato Growers, LTD v. American Banana Co., Inc., 60 Agric. Dec. 352 (2001). Simply put, you must return the check containing a restrictive endorsement to the sender within 90 days of your receipt. If you keep it as a partial payment you will be deemed to have accepted full payment.
BEST PRACTICES
PACA Trust Litigation Alert
On April 16, 2012, a civil action was filed in California against Riverfield Export Import, Inc. in an effort to collect an alleged PACA debt. At this time, an Application for a Temporary Restraining Order is pending.
On April 16, 2012, a civil action was filed in Florida against Bostonia Produce, Inc. in an effort to collect approximately $16,300.00 in alleged PACA debt.
Please check your A/R to see if these cases affect you. If they do, please do not wait to assert your rights.