PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On March 28, 2012, a second civil action was filed in New York against X & L Supermarkets, Inc. in an effort to collect approximately $89,495.00 in alleged PACA debt.  

Please check your A/R to see if this case affects you.  If it does, please do not wait to assert your rights.

New PACA WebGuide Launched

McCarron & Diess recently launched what they are calling a PACA Web Guide.

“This WebGuide is written in non-legal language, and is searchable to obtain general information about PACA, or about a particular PACA issue.”

The WebGuide’s author warns its readers that “problems under the PACA often need further clarification from PACA officials or an attorney.  The WebGuide is not legal advice.” 

The USDA also maintains lots of free online information about PACA and it provides a free online training course that may be accessed here: USDA’s Online PACA Training.  This 10 part course is written in a non-legal language and those who successfully complete the course will receive a certificate from the USDA.  The purpose of the USDA’s online PACA training course is to provide you with valuable information on your rights and responsibilities under PACA.

Some of the topics covered in the USDA’s online training course include:

  • The difference between a Price After Sale transaction and a Consignment
  • How to make a claim for damages in the event of a breach of contract
  • How to preserve and enforce PACA trust rights
  • How to interpret an inspection certificate
  • When to expect payment
  • What constitutes a proper rejection of produce, and the consequences of acceptance
  • And more…

As a Produce Industry advocate, I am a big fan of free access to information that is important to the day-to-day operations of the industry.

FSMA: Am I Operating a High-Risk Food Facility?

According to a recent FDA guidance document, the FDA’s risk-based model for prioritizing inspections of food establishments utilizes technology to analyze traditionally available information and to set the agency’s priorities for allocating domestic inspection resources. 

What does this mean in layman’s terms?

It means the FDA is going to analyze the data it already collects, tracks and monitors to determine the agency’s priorities when it comes to identifying food facilities to inspect. 

How does the FDA identify a high-risk facility?

The answer to this question is two fold.  First, the FDA looks at inherent risk factors at the industry wide level.  The industry wide risk factors include, but are not limited to:

  • foodborne illness outbreaks
  • recalls
  • reports of adverse events associated with a specific industry of category of food (i.e. cantalope, sprouts, etc.) 

Secondly, (and most importantly) the FDA looks at inherent risk factors at the firm or company level.  The firm or company level risk factors include, but are not limited to:

  • the known safety risks of the food manufactured, processed, packed or held at the facility.  (i.e. if your facility handles high-risk food(s) your facility will be deemed a high-risk facility based on that fact alone)
  • compliance history of the firm or company (i.e. food recalls, outbreaks of foodborne illnesses and prior violations of food safety standards)
  • the rigor and effectiveness of your hazard analysis and risk-based preventative controls.
  • whether the food manufactured, processed, packed or held at the facility meets the criteria for priority under section 801(h)(1) of the FD&C Act, which relates to the prioritization to detect intentional adulteration in food offered for import into the U.S.  (applies only to foreign food facilities)
  • whether the food or the facility the manufactured, processed, packed or held such food has received a certification from the FDA under the foreign supplier verification program or the voluntary qualified importer program.
  • anything else the FDA deems necessary and appropriate.  Two known examples include the establishment type / type of activity conducted at the facility (i.e. manufacturer/processor, repacker/packer, etc.) and the number of years since last inspection.

How is the information used to determine inspection priority?

The FDA’s decision-making process is based primarily on the first two bullets and the last.  The balance of the risk factors will be incorporated into the FDA’s decision-making process as they continue to develop their data collection and testing tools and will be laid out in the forthcoming Preventative Controls regulation.

In addition, the FDA may inspect facilities more often than the frequency mandate as a result of emerging public health information, follow-up to violative inspections and/or samples, etc.

From a technical position, the FDA is utilizing “a software program that assesses the characteristics of each facility in the agency’s inventory.”  This “software provides data access, analysis and reporting from the agency’s internal data systems.”   See Domestic Facility Risk Categorization

What does all of this mean to my business?

The FDA estimates that there are approximately 22,325 domestic high-risk (HR) food facilities and about 60,000 non high-risk (NHR) domestic food facilities.  FSMA calls for all HR domestic food facilities to be inspected within five years of the date the bill was signed into law.  Thereafter, all HR food facilities will be inspected once every three years and all NHR food facilities will be inspected once every five years.  Importantly, FSMA limits its inspection of food facilities to only those required to register under the Section 415 of the FD&C Act, which is the Bioterrorisim Act.

Food companies would be well advised to start preparing for inspections NOW before the USDA comes knocking.   A company may proactively mitigate many of the FDA’s risk factors through preparation.  For example, there should be no excuse for a food company not to:

  • be properly registered under the Bioterrorism Act.
  • have the proper food safety plans and related standard operating procedures prepared and ready for inspection. 
  • be in compliance with many of the already known food safety rules.  
  • possess a solid understanding of how to manage a FDA inspection
  • and more…

Genetically Modified Food (GMO) Labeling… will it be required?

Tom Karst of The Packer recently published an interesting opinion article on GMO labeling.  Tom’s article reported that “the group ‘Just Label it’ has a reported 990,000 signatures in its petition to FDA calling on the agency to label genetically engineered foods…” organizations in favor of this petition want the “FDA to take notice and act on this “right to know” issue.”  GMO food labeling: Resistance is useless – The Packer

Tom’s article raises an important issue that cannot be understated.  The consumers in today’s marketplace are more savvy than ever before and they are proactively asserting their “right to know” about the origins of the food they purchase and consume.  This is a critical point because perception is often more important that reality.

For a recent example of this we turn to the meat industry.  On March 26, 2012, Beef Products, Inc. reported that it suspended operations at three of its processing plants, which processes about 900,000 lbs. of meat at each facility daily.  Why did Beef Products, Inc. suspend its operations?

The decision to halt operations at the three plants comes shortly after retailers began stating they would no longer carry the company’s products due to customer concerns.

Beef Products suspends operations at three plants, FoodONE Article (Division of SeaFax, Inc.) published on March 27, 2012.

Specifically, grocery store operators revealed they would no longer carry the “lean finely textured beef,” or “pink slime,” produced by Beef Products Inc. Ironically, food industry experts agree the “lean finely textured beef” is safe, but recent media reports have caused considerable consumer concern about the product and retailers have bowed to this pressure.  The take away here is that consumer perceptions are stronger than reality when safe products are removed from our stores simply because they are perceived to be unsafe.

Apply this recent event to “Just Label It’s” pending petition to the FDA to require food companies to label GMO food products… rightly or wrongly, I must agree with Tom Karst and say “resistance is useless.”

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On March 26, 2012, a civil action was filed in Ohio against Baker Produce LLC in an effort to collect approximately $47,000.00 in alleged PACA debt.  

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 March 20, 2012, a civil action was filed in California against Premier Fresh and its principals in an effort to collect approximately $98,000.00 in alleged PACA debt.  

Please check your A/R to see if this case affects you.  If it does, please do not wait to assert your rights.

Guilty Plea Entered in Tomato Fraud Case

Scott Salyer, former CEO of SK Foods LP, pleads guilty to allegations of price-fixing, bribery and racketeering. 

SK Foods, LP was a grower and processor of tomato and other food products.  According to various court documents, SK Foods paid bribes and kickbacks to purchasing agents of several of SK Foods’ customers.  In return for these routine payments, purchasing managers at B&G Foods, Inc., Frito-Lay, Inc. and Kraft Foods, Inc. promoted SK Foods products at their respective companies in order to ensure SK Foods obtained certain supply contracts.

According to these same documents, SK Foods also routinely and materially falsified the values of the various grading factors and data contained on the certificates of analysis, bills of lading, invoices, and bin labels.   These documents were falsified in order to make it appear to SK Foods’ customers that they were in fact receiving product that met their purchasing requirements and to avoid rejections of troubled product.  A specific example of this type of activity included the alleged modification of the labeling on certain tomato paste from conventional to organic.  This labeling change was alleged to have been made in order to make a sale to a customer who would not purchase conventional tomato paste. 

The court documents further discuss a price-fixing scheme involving product sold to McCain Foods, USA, Inc.  The primary purpose of the alleged price-fixing scheme was to install a floor in the base price for tomato paste sold to McCain Foods through a competitive bidding process.

Assuming the Court accepts the plea agreement, Salyer may face between four and seven years of incarceration.  In addition, Salyer must forfeit to the United States his right, title and interest in millions of dollars he transferred out of the United States in January of 2010.

Scott Salyer Pleads Guilty in Tomato Fraud Case – The Packer

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On March 22, 2012, a civil action was filed in New York against X & L Supermarket, Inc. in an effort to collect approximately $84,290.00 in alleged PACA debt. 

On March 20, 2012, a civil action was filed in Ohio against Meduri Brothers Produce, Inc. in an effort to collect approximately $7,400.00 in alleged PACA debt. 

On March 19, 2012, a civil action was filed in Kentucky against Foodtown Supermarkets of Kentucky, Inc. d/b/a Big Value Discount Food and d/b/a Slone’s Signature Market in an effort to collect approximately $26,980.00 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.

FSMA: Consumers are not protected when the FDA’s rules are “stuck in review.”

On March 19, 2012, the Consumer Federation of America announced that its members voted to support a resolution urging the Obama Administration to issue four proposed food safety rules, which have been delayed for over two months. 
“On behalf of CFA’s nearly 300 members, we urge the Administration to immediately issue these important food safety proposals,” said Chris Waldrop of CFA’s Food Policy Institute.  “The longer these proposals are delayed, the longer it will take to fulfill the promise of the Food Safety Modernization Act, which is intended to better protect consumers from foodborne illness.”  Simply put, “consumers won’t be adequately protected if the FDA’s proposals are stuck in review.”  See CFA Press Release.
Being in the trenches with my food industry clients on a daily basis, I can confirm that the CFA’s position is well aligned with the industry’s current thinking.   However, I would like highlight the importance of the food industry’s comment period and the FDA’s attention to our collective voice.   As we all know, it is critical for the food industry to speak up and use comment opportunities to help shape the very rules that govern our business operations. 
To rush this process and force a potentially premature closure to the FDA’s listening period (e.g. when FDA uses the industry’s comments to further modify the proposed rules prior to issuance) invites future litigation to resolve issues of fairness, application, constitutionality, language interpretation, etc.   Although accountability is critical, I always urge people to look at all sides of any given position.
With that said, we are all waiting for the FDA to issue its long overdue food safety rules.   

Words produce buyers should NOT rely upon…

Use of words such as work out the loador sell the product and we will settle at a later date” by the seller are NOT sufficiently specific to constitute an authorization that the buyer handle the produce on consignment.  Granada Marketing, Inc. v. Jos. Notarianni & Co., Inc., 47 Agric. Dec. 329 (1988); Royal Packing Co. v. William D. Class, Jr. d/b/a W.D. Class & Son, 42 Agric. Dec. 2077 (1983); B&L Produce of Arizona v. Mim’s Produce, 37 Agric. Dec. 201 (1978).

Similarly, “do the best you candoes NOT constitute permission to handle on consignment.  Relan Produce Farms v. Rushton & Co., 38 Agric. Dec. 1636 (1979); B & L Produce, Inc. v. Harry Becker Produce Co., 36 Agric. Dec. 913 (1977); Barkley Company of Arizona v. Ifsco, Inc., 31 Agric. Dec. 279 (1972).

Nor does:

the buyer should work it out.See Frank Gaglione & Sons v. Theron Hooker Co., 30 Agric. Dec. 528 (1971).

or handle best possibleor handle to best advantage.See Ralph Samsel v. L. Gillarde Sons Co., 19 Agric. Dec. 374 (1960).

or handleor open.”   See Ronnie Carmack v. Delbert E. Selvidge, 51 Agric. Dec. 892 (1992).

or respondent “should keep the shipment, [and] do with it what respondent could. . ..”  See Chiquita Brands, Inc. v. Joseph Williams, Jr. Co. Inc., 45 Agric. Dec. 374 (1986).

Still further, the phrase “customer will keep + Work Outdid NOT signify an agreement that the load could be handled on a consignment basis.   See The Lionheart Group, Inc. v. Sy Katz Produce, Inc., 59 Agric. Dec. 449 (2000).

Buyer’s Obligation to Modify Agreement or Reject Produce

When a buyer is seeking permission from the seller to sell a troubled load of produce on a price after sale (“PAS”) basis the buyer must take steps to ensure that the parties’ fixed price agreement (e.g. the invoice) is modified.

To convert a fixed price term agreement to PAS terms, the buyer must obtain clear, definite and unequivocal authorization from the seller.  Absent such authority, the Seller may successfully enforce the terms of its fixed price invoice and they buyer may have lost the opportunity to properly reject the produce or otherwise protect itself.