The Packer quoted Jason Klinowski in its 5/17/2012 article discussing the rapidly unfolding battle over a proposed settlement in the Adams Produce bankruptcy case.
See: Adams Produce: Bankruptcy Deal Could Hamper PACA Creditors
Jason Klinowski and Brian Jackiw of Freeborn & Peters LLP are leading the opposition to the proposed settlement on behalf of several PACA trust creditors.
The Produce News quoted Jason Klinowski in its 5/17/2012 article discussing the rapidly unfolding battle over a proposed settlement in the Adams Produce bankruptcy case.
See: Creditors Battling Over Potential Adams Produce Settlement
Jason Klinowski and Brian Jackiw of Freeborn & Peters LLP are leading the opposition to the proposed settlement on behalf of several PACA trust creditors.
PACA Trust Litigation Alert
On May 10, 2012, a civil action was filed in New York against Sun East Trading Corp. in an effort to collect approximately $198,650.00 in an alleged PACA trust debt. Importantly, the Court recently entered a Temporary Restraining Order in this case.
On May 10, 2012, a civil action was filed in Washington against Seven Stars Fruit Company LLC in an effort to collect approximately $1,467,950.00 in alleged PACA debt.
On May 15, 2012, a civil action was filed in Maryland against Blue Ocean Enterprises LLC t/a The Family Market in an effort to collect approximately $236,000.00 in an alleged PACA trust debt. Importantly, the Court recently entered a Temporary Restraining Order in this case.
On May 15, 2012, a civil action was filed in New York against J. NY Produce, Inc. in an effort to collect approximately $48,000.00 in an alleged PACA trust debt. Importantly, the Court recently entered a Temporary Restraining Order in this case.
The Packer recently reported that the “CaliforniaCantaloupe Advisory Board is establishing the state’s first mandatory food safety program implemented by a commodity board.” Although the actual details are still in the works, Steve Patricio, chairman of the California Cantaloupe Advisory Board, stated that “we have existing assessments and revenue we can convert to food safety” and “there will be an additional assessment, probably as high as two cents a carton.” California Cantaloupe Food Safety Program Article – The Packer
According to the article, the proposed Cantaloupe safety program utilizes USDA inspectors under the supervision of the California Department of Food and Agriculture (“CDFA”). This is important because the CDFA stated that:
“noncompliance with the coming food safety metrics would amount to an unfair trade practice.”
Under California law,
“a marketing order may contain provisions which relate to the prohibition of unfair trade practices. In addition to the unfair trade practices now prohibited by law, applicable to the processing, distribution, or handling of any commodity within this state, the director may include in any marketing order which is issued provisions that are designed to correct any trade practice which affects the processing, distributing, or handling of any commodity within this state which the director finds, after a hearing upon the marketing order in which all interested persons are given an opportunity to be heard, is unfair and detrimental to the effectuation of the declared purposes of this chapter.”
California Food and Agricultural Code Section 58890. The foregoing means that the parties to a marketing agreement or other similar arrangement can agree that certain conduct shall be deemed a violation of California law.
Taken as a whole, the members of the California Cantaloupe industry, who make up approximately 70% of the domestic Cantaloupe supply, are working together to accomplish two significant goals. See Leafy Green Marketing Agreement Article The first is to promote and ensure food safety, which is great! The second is to ensure that no one Cantaloupe grower is able to obtain a competitive price advantage over the other by electing not to incur the costs associated with a mandatory food safety program, which was reported to be approximately two cents per carton. This is a good idea!
The PACA prohibits certain types of conduct by fruit and vegetable buyers and sellers as unfair trade practices. Some examples of unfair trade practices include failing to make full payment promptly for produce purchases, misbranding or mislabeling of produce, making false and/or misleading statements in connection with produce transactions, and employing individuals under employment restrictions that were responsibly connected with a PACA violator firm. What you don’t see addressed here is the subject of food safety and the unfair advantages associated with non-compliance with food safety laws. Maybe it should… 70% of the Cantaloupe industry seems to think so!
But, what the PACA does give the suppliers of perishable agricultural commodities (“Produce”) is the right to obtain trust protection on the sums “owing in connection” with their transactions in produce. 7 U.S.C. 499e(c)(2). The cost of food safety (i.e. the two-cent per carton assessment discussed above) is a sum owning in connection with a company’s transactions in produce. The cost of compliance with food safety programs and laws help ensure the safety of the produce itself and that serves the public interest.
As such, the cost of food safety compliance should be considered an inseparable part of a company’s transactions in produce and it should be invoiced as such. Any company that has ever been on the wrong side of a foodborne illness issue or incurred the costs associated with a major recall can attest to the fact that the cost of prevention is far less than the alternative, which often includes brand identity damage, loss of goodwill in the marketplace and litigation costs. Moreover, as we see from the premiums placed on most organic products, consumers will seek out and pay for safer products.
The Food and Drug Administration (FDA) recently announced an opportunity for public comment on the proposed collection of certain information by the Agency. This notice solicits comments on the information collection provisions of FDA’s program of voluntary submission of food facility profile information and the new Form FDA 3797, which may be submitted electronically via the FDA Industry Systems Website.
Under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Pub. L. 107-188) (the “Bioterrorism Act”) FDA was further authorized to improve the ability of the United States to prevent, prepare for, and respond to bioterrorism and other public health emergencies. The Bioterrorism Act added section 415 of the FD&C Act (21 U.S.C. 350d), which requires domestic and foreign facilities that manufacture, process, pack, or hold food for human or animal consumption in the United States to register with FDA. (emphasis added). FDA regulations at 21 CFR 1.230 through 1.235 set forth the procedures for registration of food (including animal food/feed) facilities.
The types of information the FDA proposes to collect in its voluntary food facility profile includes, among other things:
With respect to the collection of information, FDA invites comments on the following topics: (1) whether the proposed collection of information is necessary for the proper performance of FDA’s functions, including whether the information will have practical utility; (2) the accuracy of FDA’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.
The deadline to submit either electronic or written comments on the collection of information summarized above is July 10, 2012. Please take full advantage of this opportunity. These rules will affect how the industry operates and establishs another key standards against which a food facility will be measured. As such, it is important to voice your concerns to the FDA during these comment periods.
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.