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- Litigation Strategy - Preliminary
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- Procedural Types of Actions
- State/Federal Court Differences
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- PACA Perish Agr Comm Act Litig
- Discussing Fees & Expenses
- Choosing between Litigation and Arbitration
- Useful Legal Doctrines
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PACA Cases under the Perishable Agricultural Commodities Act of 1930
"PACA" refers to the Perishable Agricultural Commodities Act of 1930 ((7 U.S.C. 499a-499t). PACA's website is at The USDA's PACA Website, which states in part:
Under the PACA, anyone buying or selling commercial quantities of fruit and vegetables must be licensed by the U.S. Department of Agriculture.
From the PACA Plaintiff's Standpoint
The "PACA Plaintiff" usually is a wholesaler or grower which has sold fruits or vegetables to a wholesaler or retailer (the "PACA Corporate Defendant") and has not been paid on outstanding PACA invoices for a few weeks or longer. The PACA Plaintiff realizes that there are probably other unpaid PACA Plaintiffs and there is an URGENT need to rush into court and obtain a temporary restraining order and preliminary injuntion to obtain an order stopping the PACA Corporate Defendant [and the PACA Principal Defendant(s)] from dissipating PACA trust assets (i.e., from using PACA assets including commingled assets held by the PACA Principal Defendant to pay anyone except the PACA Plaintiff). By rushing into court and pushing for immediate relief, the PACA Plaintiff may be able to obtain a court order and payment before any other PACA creditors. The payment might be full payment or a negotiated amount in settlement. The important thing for the PACA Plaintiff is to bring the action to enforce the PACA trust and force the PACA Corporate and Principal Defendants to somehow come up with the money to pay the PACA Plaintiff, to then have the PACA Plaintiff end or "lift" the temporary restraining order or preliminary injunction and resume business operations.
Fast Preparation of Court Papers
The papers needed to go into court generally can be prepared in a single working day. These papers include a complaint including all of the information needed to be able to calculate the precise amount due the PACA Plaintiff (useful if trying to obtain a default judgment); a notice of appearance by the attorney; a Local Civil Rule 7.1 Statement about any control of the plaintiff by a publicly-held company; an order to show cause; a proposed default judgment with injunctive relief or, alternatively, a proposed order for a temporary restraining order, preliminary injunction and discovery (to find out where the PACA assets went); an attorney's certification under Rule 65(b), Fed. R. Civ. Proc., when commencing the proceeding "ex parte" (i.e., without notifying the PACA Defendants or their attorneys), to deny the PACA Defendants any opportunity to dissipate PACA trust assets; a PACA chart showing how much in PACA invoice principal and interest is owed, plus a daily rate of interest (to calculate the amount of a final dollar judgment no matter what effectove date); various declarations (or affidavits) from officers or employees of the PACA Plaintiff, any other witnesses and the attorney for the PACA Plaintiff and a Memorandum of Law in support of the relief being requested of the court. There is quite a lot of work to be done in a very short time, because time is of the essence when commencing and pursuing a PACA action.
Pressure on the PACA Plaintiff's Attorney
Also, the attorney for the PACA Plaintiff has to keep in close touch with the court to ensure that notice is obtained about the signing of the Order to Show Cause, which will often provide a very short window in which to serve the PACA Defendants. If service of the Order to Show Cause is not done by the deadline set by the court (which could be set even for the very day the papers are first presented to the court), then the Order to Show Cause fails and the PACA Plaintiff's attorney has to bring on a new order to show cause or, alternatively (now that the cat is out of the bag and the PACA Defendants are aware of the lawsuit) to prepare and file a regular motion for injunctive relief (with or without a request for a default judgment), which will take about one month longer to obtain. The delay could be costly, by giving additional time for the PACA Defendants to dissipate PACA trust assets as well as to find out about the filing of the complaint. Also, if the Order to Show Cause was done on notice to the PACA Defendants, they will know about the complaint and failed effort to obtain a temporary restraining order.
Complications that Can Arise
Complications in PACA cases arise when the PACA Defendants defend, by the filing of an Answer or a motion to dismiss the complaint; or when other PACA Plaintiffs file actions as well. Generally speaking, the bankruptcy courts are not appropriate for PACA trust cases because the PACA statute has all of the trust assets going to PACA sellers, with nothing going to administrative costs or other (non-PACA) creditors. Thus, there may be no right to a bankruptcy court ensuring that the PACA assets still held by the PACA Defendants be distributed equitably to all PACA creditors of the PACA Defendants. The PACA Plaintiffs who obtain first payment may well hinder the efforts of other PACA creditors from obtaining full or any payment on their unpaid PACA invoices to the PACA Corporate Defendant.
Strategy for the PACA Plaintiff
Depending on the stages of 2 or more PACA cases against the same PACA Defendants, it may be best not to try to consolidate with subsequently-filed cases (as to the first PACA to file a complaint), or it may be desirable to intervene and consolidate (by the later PACA cases). And it may be vital for a PACA claimant to file its PACA claim because a federal judge having two or more PACA cases before him/her against the same PACA Corporate Defendant may order a "bar date" after which a PACA claimant would not be permitted to share in the PACA assets being put under court protection before such judge. Also, there is the consideration of getting discovery to determine where the PACA trust assets went, even though the PACA Plaintiff is trying to obtain a non-default final judgment. This will require a delay in obtaining a final judgment in order to use the court to order the PACA Corporate Defendant and its PACA Principal Defendant to disclose how all PACA assets were spent or dissipated, giving the PACA Plaintiff an opportunity to freeze the assets and have them turned over to the court even before a final judgment is rendered. The fact that there is a so-called PACA trust changes the nature of the litigation and makes the litigation much more effective from the plaintiff's standpoint and deadly from the defendant's standpoint.
PACA Experience is Important for the Attorneys to Have
Experience in representing PACA Plaintiffs as well as PACA Defendants is important because it gives the attorney an opportunity to understand what the opposition is doing. The PACA Plaintiff is trying to get there first with injunctive relief and a judgment (often a default judgment) with the hope that it will be paid before any other PACA claimants. The PACA Defendant is hoping to delay the PACA case for at least two possible purposes: (i) to try to buy time in which to put money together so that the most pressing PACA claims can be paid (i.e., claims that are further along in court, or claims of non-payment made directly to PACA, which could cause a loss of PACA license if not paid); AND/OR (ii) to try to buy time to dissipate PACA trust assets, to take them out of the reach of PACA creditors (such as to pay salaries and rent for the business or to pay mortgage payments for the Principal's home and food for the Principal's family, or to amass a lot of cash to enable the PACA Principal to start a new business. [These non-PACA uses would be illegal, of course, if all PACA creditors have not been paid.]
From the PACA Defendants' Standpoint
Please re-read the preceding paragraph, which states what many PACA Defendants are seeking to do. Failure to respond to a PACA complaint often results in a temporary restraining order and/or preliminary injunction or permanent injunction (until the PACA Plaintiff is paid in full). The presence of an attorney enables the PACA Defendants to defend their interests, but with the VERY IMPORTANT PROVISO that the defense activity must be bona fide and not just for delay. The attorney will want to make sure that any motions or defenses in pleadings are legitimate. Instances of legitimate defenses could include failure to deliver produce of the ordered quality; or failure to deliver produce in the ordered amount; or failure to deliver produce on a timely basis (where the delay caused injury to the PACA Defendant).
My Experience with PACA Cases
I have had experience with various PACA cases in the Southern and Eastern Districts of New York. For a PACA Defendant, the problems are serious because of the PACA trust requirements, which generally result in claims that the defendant licensee (generally a corporation) and its individual principal(s) have commingled the trust fund assets (i.e., proceedings from sales of the delivered agricultural commodities). The remedies available to the PACA Plaintiff include a motion for a temporary restraining order and a motion for a preliminary injunction to enjoin the PACA Defendants from using any of their commingled assets to pay any Non-PACA expenses, and a motion for disclosure of how all PACA assets were dissipated.
The injunctive remedy given by the PACA statute is harsh, and PACA Plaintiffs have to understand that in some cases they can push only so far, and that settlement for 75% or 85% (let's say) of the money owed is a lot better than 100% of zero, which is what could happen when a PACA Defendant really doesn't have the money and is pushed too far, and winds up unable to borrow sufficient money to settle with the PACA Plaintiffs. In many (but certainly far from most) PACA cases, the PACA Defendants have insufficient assets remaining (PACA or non-PACA) to be able to pay all PACA creditors, and the only way they can bring the litigation to an end is to borrow money. But if the PACA Plaintiffs demand too much, the PACA Defendants may not be able to borrow enough money to settle at 85%, but could borrow enough to settle at 75%. This is a factor which must be taken into account.
I can be of help to either side of the PACA problem, and invite you to call me to discuss your situation.
Please call me at 212-307-4444 or email me at email@example.com
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Carl E. Person, Attorney at Law
325 W. 45th Street - Suite 201
New York NY 10036-3803
Copyright © 2007-2008 by Carl E. Person