Idahoan Fresh v. Advantage Produce, Inc.

Opinions of the United

1998 Decisions States Court of Appeals

for the Third Circuit

10-6-1998

Idahoan Fresh v. Advantage Prod Inc

Precedential or Non-Precedential:

Docket 98-3169

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Filed October 6, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-3169

IDAHOAN FRESH, A Division of Clement Enterprises

v.

ADVANTAGE PRODUCE, INC.;

WILLIAM H. CARSON;

WILLIAM H. CARSON, III

C.H. Robinson Company (Intervenor in D.C.),

Appellant

On Appeal from the United States District Court

for the Western District of Pennsylvania

(D.C. Civ. No. 97-00237)

Submitted under Third Circuit LAR 34.1(a)

October 5, 1998

BEFORE: GREENBERG and MCKEE, Circuit Judges,

and LUDWIG, District Judge.*

(Filed October 6, 1998)

_________________________________________________________________

*Honorable Edmund V. Ludwig, Senior United States District Judge, for

the Eastern District of Pennsylvania, sitting by designation.

Jennifer Sorce

Mark A. Amendola

Martyn & Associates

820 Superior Avenue, N.W.

10th Floor

Cleveland, OH 44113

Attorneys for Appellant

Joseph P. McCafferty

McCafferty & Williams

2000 East 9th Street

Suite 700

Cleveland, OH 44115

Attorneys for Appellees

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

C.H. Robinson Company ("CHR") appeals from the district

court's order of November 7, 1997, denying its motion to

exclude certain suppliers of perishable agricultural

commodities ("produce") from the universe of unpaid

suppliers entitled to recover benefits under the statutory

trust created by the Perishable Agricultural Commodities

Act, 7 U.S.C. S 499e(c). CHR intervened in this action filed

by Idahoan Fresh ("Idahoan") against Advantage Produce,

Inc. ("Advantage") to enforce the trust and challenged

Idahoan's proposed schedule of qualified claimants under

the trust.

The district court had jurisdiction pursuant to 7 U.S.C.

S 499e(c)(5). We have jurisdiction over the district court's

interlocutory order denying the exclusion of Idahoan and

Alsum Produce, Inc. ("Alsum") as qualified beneficiaries

pursuant to 28 U.S.C. S 1292(b) as the district court

certified the order of November 7, 1997, for immediate

2

appeal and we granted CHR's Petition for Permission to

Appeal.

II. FACTUAL AND PROCEDURAL HISTORY

A. Statutory and Regulatory Framework of Perishabl e

Agricultural Commodities Act of 1930

We begin with a brief overview of the Perishable

Agricultural Commodities Act ("PACA"). In 1930, Congress

enacted PACA to promote fair trading practices in the

produce industry. See 7 U.S.C. S 499a et seq.; Consumers

Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d

1374, 1377 (3d Cir. 1993). In particular, Congress intended

PACA to protect small farmers and growers who were

vulnerable to the practices of financially irresponsible

buyers.1 See Hull Co. v. Hauser's Foods, Inc., 924 F.2d 777,

780 (8th Cir. 1991). Under PACA, it is unlawful for buyers

of produce, inter alia, to fail to make prompt payment for a

shipment of produce. See 7 U.S.C. S 499b(4). A buyer's

failure to tender prompt payment triggers civil liability and

the possible revocation of the buyer's PACA license required

by 7 U.S.C. S 499c. See 7 U.S.C. SS 499e(a), 449h(a).

Prompt payment is defined by regulations which apply

unless the parties agree otherwise in writing prior to the

transaction. See 7 C.F.R. S 46.2(aa).

In 1984, Congress amended PACA to protect further

certain unpaid suppliers2 of produce by including a

statutory trust provision which provides an additional

remedy for sellers against a buyer failing to make prompt

payment. See P.L. 98-273; H.R. Rep. No. 98-543, at 2

(1983), reprinted in 1984 U.S.C.C.A.N. 405, 406. Prior to

this amendment, unpaid produce suppliers were unsecured

creditors vulnerable to the buyers' practice of granting

_________________________________________________________________

1. The statute and regulations speak in terms of "commission merchant,

dealer and broker." See 7 U.S.C. S 499a et seq. For ease of reference, we

refer to these participants as "buyers."

2. The statute and regulations use the terms "supplier, seller, or agent."

This opinion refers to the these participants interchangeably as suppliers

or sellers.

3

other creditors a security interest in their inventory and

accounts receivable. See Tom Lange Co. v. Lombardo Fruit

& Produce Co. (In re Lombardo Fruit & Produce Co.), 12 F.3d

806, 808-09 (8th Cir. 1994) (citing H.R. Rep. No. 98-543, at

3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 407). Under

the 1984 provision, a buyer's produce, products derived

from that produce, and the proceeds gained therefrom are

held in a non-segregated, floating trust for the benefit of

unpaid suppliers who have met the applicable statutory

requirements. See 7 U.S.C. S 499e(c); 7 C.F.R. S 46.46(b).

Thus, the provision gives certain unpaid sellers of produce

an interest in the PACA trust assets superior to that of a

perfected, secured creditor. See Consumers Produce, 16

F.3d at 1379. In a 1995 amendment to PACA, which we

discuss below, Congress made procedural changes in the

trust fund provisions. See P.L. 104-48,S 6, 7 U.S.C.

S 499e(c)(4).

To enforce its rights under the statutory trust, a qualified

beneficiary may file a claim in the district court

immediately upon the buyer's failure to tender prompt

payment. See 7 U.S.C. S 499e(c)(5). A qualified unpaid seller

remains entitled to benefits until paid in full. See 7 C.F.R.

S 46.46(c)(1). A seller eligible for the statutory trust benefits

must preserve its rights by satisfying a notice requirement

by either sending notice to the buyer within 30 days of a

payment default or, as provided in the 1995 amendment to

PACA, including a statutory statement referencing the trust

on its invoices. See 7 U.S.C. S 499e(c)(3), (4); 7 C.F.R.

S 46.46(c), (f). While a seller may agree in writing to a

payment period other than that defined in the regulations

as prompt, an unpaid seller loses its right to participate in

the trust if it agrees in writing to extend the payment period

beyond 30 days. See 7 C.F.R. S 46.46(e)(2). The issue

presented by this appeal is whether a seller also forfeits its

right to participate in the PACA trust if it fails to reduce to

writing an agreement to extend the payment term.

B. Current Dispute

Over a period of several months, Advantage purchased

produce from Idahoan, CHR, Alsum, O.P. Murphy & Sons

("Murphy"), and Powerhouse Produce, L.L.C.

4

("Powerhouse"). The details of these transactions are not in

dispute.3

In a series of transactions from August 7, 1996, through

December 28, 1996, Idahoan sold a total of $116,684.26

worth of produce on credit to Advantage. See app. 9.4 All of

Idahoan's invoices to Advantage contain the language

required under 7 U.S.C. S 499e(c)(4), the 1995 PACA

amendment, to notify the buyer that the seller intends to

preserve its trust claim against the buyer. Idahoan and

Advantage did not enter into a written agreement extending

the payment term which, in this case, in the absence of a

written agreement altering the term, is ten days. See 7

C.F.R. S 46.2(aa)(5). However, William Carson, president of

Advantage, alleges that they had an oral agreement

extending the payment term to 20 days. Additionally, 28 of

the 30 outstanding invoices issued by Idahoan to

Advantage stated "PAYMENT TERMS: Net 20 days." The

remaining two invoices contain no payment term.

Alsum sold, on credit, a total of $10,708.00 worth of

produce to Advantage in two transactions on October 9 and

24, 1996. Alsum and Advantage did not enter into a written

agreement extending the payment term. As with Idahoan,

Carson claims that Alsum and Advantage had an oral

agreement to extend the term, though in Alsum's case the

extended term was 15 rather than 20 days.

Notwithstanding the oral agreement, both of Alsum's

unpaid invoices state "PAYMENT TERMS: NET 10." Both

invoices also contain the statutory language as provided in

the 1995 PACA amendment notifying Advantage that Alsum

intended to preserve its PACA trust claim.

CHR sold $36,004.80 worth of produce to Advantage

pursuant to their written agreement to extend the payment

term to 30 days. CHR's invoices for these sales included a

_________________________________________________________________

3. Because there seems to be no dispute that Murphy and Powerhouse

are qualified PACA trust beneficiaries, we need not be concerned with

the details of their transactions with Advantage. Our discussion of the

facts therefore is limited to Advantage's transactions with Alsum,

Idahoan, and CHR.

4. Citations to the appendix refer to the tab number because the pages

of the Appendix are not numbered continuously.

5

payment term of 30 days as well as the statutory language

required to preserve its interest in the PACA trust. See app.

5.

Advantage failed to pay Idahoan, Alsum, and CHR the

amounts due on these outstanding invoices. On February

10, 1997, Idahoan filed a complaint against Advantage and

its officers, William Carson and William Carson III, for

damages and injunctive relief alleging violations of PACA

based upon Advantage's failure to pay its invoices and

breach of the statutory trust. The district court issued a

temporary restraining order on February 11, 1997,

enjoining the defendants from further dissipating the

constructive trust imposed by 7 U.S.C. S 499e(c). On

February 20, 1997, Idahoan and Advantage filed a

Stipulated Order for Preliminary Injunction which stated a

procedure for identifying all of Advantage's qualified and

unpaid PACA trust creditors.

CHR intervened as a party plaintiff in the action on May

27, 1997. See app. 5. On June 2, 1997, Idahoan and

Advantage filed a Joint Status Report and Motion for an

Order for the Distribution of PACA Trust Proceeds ("Joint

Motion") identifying the following universe of qualified PACA

trust creditors:

Idahoan $ 116,684.26

CHR 36,004.80

Murphy 4,300.00

Alsum 10,708.00

Powerhouse 4,868.00

____________

$ 172,565.06

App. 6.

Although CHR was a party to the action at the time

Advantage and Idahoan filed the Joint Motion, they did not

consult CHR or invite CHR to join in the Joint Motion. On

June 5, 1997, CHR filed an objection to the Joint Motion

and served discovery requests upon Advantage seeking

documents which established the alleged qualified status of

the creditors set forth in the Joint Motion. See app. 7. CHR

then filed a Motion to Exclude Alsum and Idahoan from the

universe of qualified PACA trust creditors on the grounds

6

that they failed to comply with the statute and regulations.

In particular, CHR argued that Idahoan and Alsum orally

agreed to extend the payment term beyond the ten-day

period established in the regulations, and they were,

therefore, not qualified PACA trust creditors because the

agreements were not reduced to writing prior to the

transaction. See app. 9.

At the time of briefing on this appeal, the total amount of

available PACA trust funds was approximately $45,000.00.

See Br. for Appellant at 5. If Idahoan and Alsum are

excluded from the universe of qualified trust beneficiaries,

the total qualified and unpaid trust claims would be

$45,172.80. Thus, their exclusion would result in payment

virtually in full, rather than a small pro-rata portion, to the

qualified PACA trust creditors, CHR, Powerhouse, and

Murphy.

On November 7, 1997, the district court issued an order

denying CHR's Motion to Exclude Idahoan and Alsum citing

"the reasons stated of record at the argument of the

motion." App. 12. Following argument on CHR's motion to

exclude, the district court stated that an oral agreement to

extend a payment term is totally ineffective and, provided

that the supplier complies with the notice provisions of the

statute, it is a qualified PACA trust beneficiary. See Br. for

Appellee, Attach. at 11-12.5 Thereafter, CHR filed a motion

for reconsideration or, in the alternative, certification

pursuant to 28 U.S.C. S 1292(b). On December 1, 1997, the

district court certified the November 7, 1997 order, for

immediate appeal, the controlling question of law being

whether Idahoan and Alsum "perfected their trust claims

under PACA." On February 19, 1998, we granted CHR's

Petition for Permission to Appeal. See app. 1, 14.

III. DISCUSSION

CHR contends that the district court erred in finding that

Idahoan and Alsum were qualified to receive statutory

benefits under PACA. According to CHR, the plain

_________________________________________________________________

5. A partial transcript of the argument is included as an Attachment to

the Brief for the Appellee, Idahoan.

7

language, legislative history, and purposes of the statute

and regulations lead to the conclusion that a seller forfeits

its right to PACA trust benefits if it orally agrees to extend

the payment term beyond that established in the

regulations as prompt, in this case, ten days.

There is no dispute that Idahoan and Alsum did not

reduce to writing their agreements to extend the payment

period in their transactions with Advantage. There is also

no dispute that Idahoan's and Alsum's invoices properly

notified Advantage of their intent to preserve their right to

statutory benefits under 7 U.S.C. S 499e(c)(4). Thus, as we

have indicated, this appeal raises the following issue

regarding the proper interpretation of PACA: whether an

agreement to extend the payment term beyond the time

defined by the regulations as prompt must be in writing in

order for the seller to qualify for the benefits of the PACA

trust. Because this appeal concerns solely the legal issue of

the proper interpretation of statutes and regulations, we

exercise de novo review over the district court's order. See

Shell Oil Co. v. Babbit, 125 F.3d 172, 175 (3d Cir. 1997).

We initially point out that certain general precepts guide

us on this appeal. The role of the courts in interpreting a

statute is to give effect to Congress's intent. See Negonsott

v. Samuels, 507 U.S. 99, 104, 113 S.Ct. 1119, 1122-23

(1993). Because it is presumed that Congress expresses its

intent through the ordinary meaning of its language, every

exercise of statutory interpretation begins with plain

language of the statute itself. See Santa Fe Med. Servs., Inc.

v. Segal (In re Segal), 57 F.3d 342, 345 (3d Cir. 1995)

(citing Mansell v. Mansell, 490 U.S. 581, 588, 109 S.Ct.

2023, 2028 (1989)); United States v. Pelullo, 14 F.3d 881,

903 (3d Cir. 1994). Where the statutory language is plain

and unambiguous, further inquiry is not required, except in

the extraordinary case where a literal reading of the

language produces an absurd result. See In re Segal, 57

F.3d at 346. Moreover, a court may depart from the plain

language of a statute only by an extraordinary showing of

a contrary congressional intent in the legislative history.

See Garcia v. United States, 469 U.S. 70, 75, 105 S.Ct. 479,

482 (1984).

8

In interpreting a statute, courts should endeavor to give

meaning to every word which Congress used and therefore

should avoid an interpretation which renders an element of

the language superfluous. See United States v. State of

Alaska, ___ U.S. ___, 117 S.Ct. 1888, 1918 (1997); United

Food & Commercial Workers Union Local 751 v. Brown

Group, Inc., 517 U.S. 544, 550, 116 S.Ct. 1529, 1533

(1996) (reading which gives effect to all of a statute's

provisions prevails over one which disregards a provision as

legislative oversight); First Bank Nat'l Ass'n v. FDIC, 79 F.3d

362, 367 (3d Cir. 1996); Insurance Co. of N. Am. v. Cohn (In

re Cohn), 54 F.3d 1108, 1115 (3d Cir. 1995). This basic

tenet of statutory construction applies equally to the

interpretation of regulations. See Silverman v. Eastich

Multiple Investor Fund, LP, 51 F.3d 28, 31 (3d Cir. 1995)

(dealing with canon that court should construe statutory

language so that all provisions are given effect); LaVallee

Northside Civic Ass'n v. Virgin Islands Coastal Zone

Management Comm'n, 866 F.2d 616, 623 (3d Cir. 1989)

(regulation which conflicts with statute under which it was

promulgated is ineffective, but court should endeavor to

reconcile the two). Thus, the preferred construction of a

statute and its regulations is the one that gives meaning to

all provisions. See United States v. Higgins, 128 F.3d 138,

142 (3d Cir. 1997).

In addition to following these general canons of statutory

construction, we are mindful that PACA, which was enacted

to protect unpaid suppliers of produce and alleviate the

burden of nonpayment on commerce, see 7 U.S.C.

S 499e(c)(1); H.R. Rep. No. 98-543, at 3-4 (1983), reprinted

in 1984 U.S.C.C.A.N. at 407, is remedial legislation which

a court should construe broadly to effectuate its purpose.

See Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548,

553 (1967); RNS Servs., Inc. v. Secretary of Labor, Mine

Safety & Health Admin., 115 F.3d 182, 186-87 (3d Cir.

1997); see also Hull, 924 F.2d at 782; Exportal LTDA. v.

United States, 902 F.2d 45, 46 (D.C. Cir. 1990); Harry Klein

Produce Corp. v. United States Dep't of Agric., 831 F.2d 403,

405 (2d Cir. 1987).

With these principles in mind, we begin our analysis with

the statutory and regulatory language. The statute and

9

regulations refer, in numerous instances, to the

requirement that an agreement to extend the prompt

payment period be in writing. This appeal requires us to

determine whether that requirement relates only to the

enforceability of such an agreement or is a precondition to

a seller's qualification for trust benefits. We turn first to the

section of the statutory trust provision which refers to the

writing requirement.

The statutory trust provision provides that the produce,

products derived from that produce, and any proceeds

gained therefrom are held in trust by the buyer for the

benefit of unpaid sellers until such sellers are paid in full.

See 7 U.S.C. S 499e(c)(2). Two subsections condition this

provision by requiring an unpaid seller to preserve its rights

to the trust benefits by notifying the buyer of its intent to

do so, 7 U.S.C. S 499e(c)(3), which we discussfirst, and 7

U.S.C. S 499(c)(4), which we discuss below. In the context of

establishing this notice requirement, the statute refers to

the mandate that an agreement must be in writing. In

particular, the statute provides that

(3) The unpaid supplier . . . shall lose the benefits of

such trust unless such person has given written notice

of intent to preserve the benefits of the trust to the

[buyer] within thirty calendar days (i) after the

expiration of the time prescribed by which payment

must be made, as set forth in regulations issued by the

Secretary; [or] (ii) after expiration of such other time by

which payment must be made, as the parties have

expressly agreed to in writing before entering into the

transaction . . . . When the parties expressly agree to

a payment time period different from that established

by the Secretary, a copy of any such agreement shall

be filed in the records of each party to the transaction

and the terms of payment shall be disclosed on

invoices, accountings, and other documents relating to

the transaction.

7 U.S.C. S 499e(c)(3).6

_________________________________________________________________

6. Section 499e(c)(3) also provides that proper notice may be given within

30 days after the seller receives notice that the payment instrument

presented by the buyer had been dishonored. See 7 U.S.C. S 499e(c)(3).

The facts of the transactions in this case do not implicate this portion

of

the statute.

10

According to CHR, the plain language of section

499e(c)(3), in particular Congress's use of the term"shall,"

unambiguously requires that an agreement to extend the

payment term be in writing in order for the seller to

preserve its PACA trust benefits. This reading overstates

what the subsection requires. The statute provides that an

unpaid seller "shall lose the benefits of such trust unless

such person has given written notice of intent to preserve the

benefits of such trust." 7 U.S.C. S 499e(c)(3) (emphasis

added). The remainder of that sentence establishes the time

period in which such notice must be given. In the context

of defining timely notification, the statute then provides

that agreements to extend payment terms must be in

writing and that parties shall maintain a copy of such an

agreement and disclose the terms of the agreement on

invoices and other documents relating to the transaction.

See 7 U.S.C. S 499e(c)(3); see also 7 C.F.R. S 46.2(aa)(11).

Thus, Congress, using the verb "shall," unambiguously

intended that a seller timely notify the buyer of its intent to

preserve its rights to PACA trust benefits. The plain and

unambiguous language of the section does not provide,

however, that a written agreement is a precondition of

being entitled to the statutory trust benefits. Rather, the

requirement is relevant to assessing when prompt payment

is due and therefore when notice is timely.

The plain language of the regulations supports this

reading of the statute. The regulations first mention the

writing requirement in the context of defining prompt

payment. As noted above, the regulations establish times

for prompt payment for various scenarios. See 7 C.F.R.

S 46.2(aa)(1) - (10); 7 U.S.C. S 499e(c)(3). In this case, the

regulations provide that, unless agreed otherwise in writing,

prompt payment is defined as payment within ten days of

the buyer's acceptance of the produce. See 7 C.F.R.

S 46.2(aa)(5). The regulations also provide that

[p]arties who elect to use different times of payment

than those set forth [herein] must reduce their

agreement to writing before entering into the

transaction and maintain a copy of the agreement for

their records. If they have so agreed, then payment

within the agreed upon time shall constitute `full

11

payment promptly': Provided, That the party claiming

the existence of such an agreement for time of payment

shall have the burden of proving it.

7 C.F.R. S 46.2(aa)(11). This section unambiguously

requires that an agreement to extend a payment term must

be in writing prior to the transaction.

The regulations concerning the statutory trust also refer

to the writing requirement. In particular, the regulation

provides that

[w]hen a seller, supplier or agent who has met the

eligibility requirements of paragraphs (e)(1) and (e)(2) of

this section, transfers ownership, possession, or

control of goods to a commission merchant, dealer, or

broker, it automatically becomes eligible to participate

in the trust. Participants who preserve their rights to

benefits in accordance with paragraph (f) of this section

remain beneficiaries until they are paid in full.

7 C.F.R. S 46.46(c)(1). Subsection (f) requires that the seller

properly notify the buyer of its intent to preserve its PACA

trust benefits. See 7 C.F.R. S 46.46(f).7 The "eligibility"

requirements of paragraphs (e)(1) and (e)(2) provide the

following:

(e) Prompt payment and eligibility for trust benefits.

(1) The times for prompt accounting and prompt

payment are set out in S 46.2(z) and (aa). Parties who

elect to use different times for payment must reduce

their agreement to writing before entering into the

transaction and maintain a copy of their agreement for

their records, and the times of payment must be

_________________________________________________________________

7. This regulation refers to the writing requirement in the same context,

and virtually to the same extent, as 7 U.S.C. S 499e(c)(3). In particular,

the regulation provides that a seller's notice of an intent to preserve

the

right to PACA trust benefits is timely if given 30 days "[a]fter

expiration

of such other time by which payment must be made as the parties have

expressly agreed to in writing before entering into the transaction, but

not longer than [30 days]." 7 C.F.R. S 46.46(f)(2)(ii). We therefore

conclude that this section's reference to the writing requirement has the

same effect as that of 7 U.S.C. S 499e(c)(3) discussed above.

12

disclosed on invoices, accountings, and other

documents relating to the transaction.

(2) The maximum time for payment for a shipment to

which a seller, supplier, or agent can agree and still

qualify for coverage under the trust is 30 days after

receipt and acceptance of the commodities as defined

in S 46.2(dd) and paragraph (a)(1) of this section.

7 C.F.R. S 46.46(e). As in the statute, section (e)(1) of this

regulation discusses the writing requirement in the context

of defining prompt payment for a given transaction. Section

(e)(2) explicitly provides that a seller is disqualified from

receiving trust benefits if it agrees to extend the payment

term longer than 30 days from the buyer's acceptance of

the produce. The existence of such an explicit

disqualification supports our view that the writing

requirement is not a prerequisite to eligibility to participate

in the PACA trust.

Under CHR's view, these regulations establish eligibility

requirements separate from the notice requirement to

preserve eligibility. CHR argues that the eligibility

requirements for sellers who agree to payment terms

beyond ten days are that such an agreement be reduced to

writing, those terms be included on all invoices regarding

the transaction, and that eligibility is lost if the parties

agree to a payment term over 30 days. CHR asserts that

these prerequisites do not apply where there is not an

agreement to extend a payment term. The plain language

does not support this interpretation.

The plain language of the statute and regulations

requires that an agreement establishing a "prompt

payment" period other than that established in the

regulations must be in writing. The plain language also

provides that an unpaid seller loses its right to PACA trust

benefits if (1) it does not timely notify the buyer of its intent

to preserve that right or (2) it agrees to a payment period

beyond 30 days. Because we liberally interpret PACA to

further its remedial purposes of reducing the burden on

commerce and protecting unpaid sellers, we find that the

writing requirement relates to the enforceability of an

agreement to extend a payment term, but does not

disqualify an unpaid seller from receiving trust benefits.

13

Idahoan and Alsum satisfied the notice requirement by

including the requisite language on the face of their

invoices to Advantage, see 7 U.S.C. S 499e(c)(4), and neither

party agreed to a payment period over 30 days.8 Their

failure to reduce their oral agreements with respect to the

payment term to writing does not disqualify them, and they

therefore are entitled to share in a pro-rata distribution of

the statutory trust res until they receive payment in full.

In so holding, we join the United States Court of Appeals

for the Eighth Circuit, the only other court of appeals of

which we are aware which has addressed the precise issue

presented by this appeal, in concluding that a supplier's

failure to reduce to writing an agreement to extend the

payment term does not disqualify that supplier as a PACA

trust beneficiary. See Hull, 924 F.2d 777. In Hull, two

unpaid wholesale distributors of produce, Hull & J.J.

Distributing, instituted suit against a defunct retail grocery

store, Hauser's, to enforce their PACA trust rights. See id.

at 778. Some of the retail store's assets were seized by one

of the store's secured creditors, Gateway, who held

perfected security interests in all of the store's assets and

inventory. See id. at 778.

It was undisputed that Hull and J.J. Distributing

supplied Hauser's with produce over several years and that

during that time the two suppliers orally agreed to a

payment period of 45 days and 30 days after delivery,

respectively. See id. Hull's invoices to Hauser indicated this

as the payment period, while J.J. Distributing's invoices did

not indicate any payment term. See id.

The district court held that Hull and J.J. Distributing

were entitled to trust benefits for their unpaid invoices

notwithstanding the fact that they had not reduced their

payment term extensions to writing. See id. at 779. Finding

that the two suppliers had given Hauser's sufficient

notification of their intent to preserve their PACA trust

rights, the district court held that while the plain language

of the statute makes oral agreements extending the

_________________________________________________________________

8. We are not reaching the issue of what would happen if the oral

extension provided for a payment period in excess of 30 days because

that situation is not before us in this case. See 7 C.F.R. S 46.46(e)(2).

14

payment term unenforceable, it only disqualifies a supplier

from trust benefits where the supplier enters into a written

agreement to extend the payment term beyond 30 days. See

id.

The court of appeals affirmed the district court,finding

that "oral agreements have no effect on produce sellers'

trust protection." Id. at 781. According to the court, a buyer

who orally agrees to an extension of the payment term

beyond ten days makes an arrangement to violate PACA's

prompt payment provision. See id. at 782. The court found

that

it would be incongruous to disregard oral agreements

for purposes of enforcing PACA but recognize them for

the purpose of voiding the sellers' protection under the

trust. Thus, notwithstanding the oral agreements, both

sellers retained the right to demand payment within

ten days and seek trust protection under PACA.

Id. at 782.9 In concluding its discussion of this issue, the

(Text continued on page 17)

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9. We note that the Court of Appeals for the Eighth Circuit has suggested

a conflicting result in two subsequent decisions. See Tom Lange Co. v.

Lombardo Fruit & Produce Co. (In re Lombardo Fruit & Produce Co.), 12

F.3d 806, 809 (8th Cir. 1993) (hereinafter In re Lombardo II); Goldman

Fruit & Produce Co. v. Lombardo Fruit & Produce Co. (In re Lombardo

Fruit & Produce Co.), 12 F.3d 110 (8th Cir. 1993) (hereinafter In re

Lombardo I). These two cases concern disputes between two different

produce suppliers and a single buyer. In both instances, the court held

that the unpaid seller was not entitled to PACA trust benefits. See 12

F.3d at 809; 12 F.3d at 113.

In In re Lombardo I, although letters and the invoices indicated an

extended payment period, there was no written agreement which

complied with all respects of PACA and its regulations. See 12 F.3d at

113. There was also evidence of an oral agreement to extend the

payment term. In the absence of a valid written agreement under PACA

to extend the payment term, the court first stated that it could not

measure the timeliness of notice based upon the extended payment

term. See id. Then the court rejected the supplier's argument that its

notice to the buyer was within 30 days of the expiration of the payment

period established in the regulations. The court held that

[t]he evidence in the record clearly demonstrates that the parties

had an agreement to extend the payment terms beyond the ten days

15

in the regulations. Though this agreement is insufficient to

preserve

Goldman's trust protection, it is a valid contract between the

parties. A predicate to the trust protection is the requirement

that

payment is delinquent; having agreed to extend the payment period

beyond ten days, it would be incongruous to permit Goldman to now

claim that no agreement existed and that payment was therefore

due within ten days.

Id. at 113 (citation omitted).

In making this statement, the In re Lombardo I court cited the opinion

in Bowlin & Son, Inc. v. San Joaquin Food Serv., Inc. (In re San Joaquin

Food Serv., Inc.), 958 F.2d 938, 941 n.2 (9th Cir. 1992). Our reading of

In re San Joaquin suggests that the In re Lombardo I court may have

cited it for a proposition In re San Joaquin did not state. Furthermore,

In re Lombardo I did not question Hull. In the circumstances, to the

extent, if any, that the language in In re Lombardo I conflicts with Hull,

we find it unpersuasive.

In In re Lombardo II, the supplier and the buyer entered into a written

agreement prior to the transaction to extend the payment term to 30

days. See 12 F.3d at 809. This agreement complied with PACA and its

regulations in all respects. See id. Thereafter, the parties modified the

agreement in writing in such a manner that no longer complied with

PACA. See id. Although the court does not explain this subsequent

written agreement or explicitly state in what manner it no longer

complied with PACA, the opinion suggests that the agreement extended

the payment term beyond 30 days, for which PACA explicitly disqualifies

a seller as a trust beneficiary. The court found that, at that time, "an

agreement complying with PACA no longer existed. There being no

written agreement complying with PACA, Lange is prohibited from

claiming PACA's trust protection." Id. at 807 (footnote omitted). The

court

further stated that

PACA imposes a trust upon the funds held by delinquent

purchasers if a written agreement required payment within thirty

days of delivery. Thus, at the time trust protection is claimed,

there

must exist a valid written agreement complying with PACA's terms.

Id. at 809-10.

This language could be read to imply that without a written agreement

to extend the payment term, the seller is not entitled to trust benefits.

Although we believe that such a result would be incorrect in light of the

explicit holding to the contrary in Hull, we note the potential conflict

as

16

court also noted that a liberal construction of the statute is

appropriate because it is remedial legislation. See id. at 782.10

CHR argues that Hull is not applicable to this case

because it was decided prior to Congress's 1995

amendment to the PACA statutory trust which, it argues,

changed the statutory landscape. In 1995, Congress added

section 499e(c)(4) which provides, as an alternative to the

post-delinquency methods outlined in subsection 3, an

invoicing method of notifying the buyer of a seller's intent

to preserve its right to trust benefits. See 7 U.S.C.

S 499e(c)(4). According to CHR, because there was no

invoice-notification method under PACA at the time the

court decided Hull, the payment terms were crucial to

determining the timeliness of the notice. CHR asserts that

the rationale of Hull is inapplicable to this case where the

timeliness of the notice is irrelevant because the sellers

complied with the invoice-notification provision. In essence,

CHR asserts that our interpretation renders the writing

requirement meaningless in cases such as this where the

supplier invokes invoice notification.

The purpose of the 1995 amendment was to remove the

expense to the United States Department of Agriculture in

administering the trust provisions. See H.R. Rep. No. 104-

207, at 9 (1995), reprinted in 1995 U.S.C.C.A.N. 453, 456.

Under the 1995 amendment, a seller may satisfy the notice

requirement by including on its regular invoicing

documents a statutory statement indicating the intent to

preserve its trust rights. See id. An invoice which serves as

notice to preserve a seller's trust rights also must include

"[t]he terms of the payment if they differ from prompt

_________________________________________________________________

we are unsure of the court's intentions. Of course, the court may have

meant nothing more than that the trust protection was lost because the

payment period was extended in writing beyond 30 days contrary to 7

C.F.R. S 46.46(e)(2). If so, In re Lombardo II is not inconsistent with

Hull

which involved an oral extension by one seller to 45 days.

10. We recognize that one of the suppliers in Hull agreed to a payment

period of 45 days. As we have indicated, we are not reaching the issue

of what would happen if the oral extension provided for a period in

excess of 30 days. See n.8, supra. The Hull court did not distinguish

between a 30-day and 45-day period.

17

payment set out in section 46.2(z) and (aa) of this part, and

the parties have expressly agreed to such terms in writing

before the affected transactions occur." 7 C.F.R.

S 46.46(f)(3)(ii). The writing requirement therefore is not

rendered superfluous under our interpretation of the

statute where the seller invokes the invoice-notification

provision. Rather, a written agreement to extend the

payment period gives rise to the obligation to include the

payment term on the invoice which serves as notice of the

seller's intent to preserve it PACA rights.

District courts in other circuits have followed, either

implicitly or explicitly, the Court of Appeals for the Eighth

Circuit's approach in Hull. See A & J Produce Corp. v. CIT

Group/Factoring, Inc., 829 F. Supp. 651, 655 (S.D.N.Y.

1993) (holding that only a written agreement to extend a

payment term beyond 30 days forfeits the seller's rights, so

that in the absence of a written agreement otherwise, a

seller is entitled to enforce its right to full payment against

the buyer within ten days of delivery of the produce);

Continental Fruit Co. v. Thomas J. Gatziolis & Co., 774 F.

Supp. 449, 452 (N.D. Ill. 1991) (holding that evidence of a

course of dealing between the parties accepting payment

beyond 30 days does not forfeit an unpaid seller's right to

statutory benefits); C.H. Robinson Co. v. B.H. Produce Co.,

723 F. Supp. 785, 797 (N.D. Ga. 1989), aff'd sub nom.,

C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311

(11th Cir. 1992) (discussing the lack of a written agreement

to extend the payment period only in reference to the

timeliness of the notice). In each of these cases, there was

no evidence of a prior written agreement to extend the

payment term, yet the courts held that the unpaid sellers

were entitled to PACA trust benefits if they notified the

buyers within 40 days after the delivery of the produce,

which is 30 days after the expiration of the ten-day prompt

payment period established by the regulations.

In addition, at least one court has described the PACA

writing requirement for agreements to extend payment

terms as being in the nature of a statute of frauds. See

Debruyn Produce Co. v. Richmond Produce Co. (In re

Richmond Produce Co.), 112 B.R. 364, 374 (Bankr. N.D.

Cal. 1990). In In re Richmond, the court was faced with the

18

issue of whether certain notices were timely to preserve the

sellers' rights to statutory trust benefits. Finding that

certain letters satisfied the writing requirement and

therefore validly extended the payment term, the court

found that the notices sent were timely because they were

sent within 30 days of the expiration of the extended

payment period. In so holding, the court commented that

the purpose of the writing requirement is to preclude

uncertainties as to the applicable payment terms and

the resulting deadline for filing a PACA notice. Thus,

the provision at issue is in the nature of a statute of

frauds and serves the same purpose. This conclusion is

supported by the statutory requirement that both

parties maintain a copy of the agreement in their

records and that the terms of the payment be disclosed

on `invoices. . . .'

Id. at 374 (citation omitted). Thus, the court viewed the

writing requirement as relevant to assessing when prompt

payment is due and not as a precondition to preserving

statutory trust benefits.

CHR urges this court to join those courts which have

required strict compliance with the preconditions of the

statutory trust.11 See, e.g., Bowlin & Son, Inc. v. San

_________________________________________________________________

11. Most of the case law considering whether strict or substantial

compliance is necessary addresses the notice requirement. There is

authority in support of both positions. Compare Anic, Inc. v. Chipwich,

Inc. (In re Chipwich, Inc.), 165 B.R. 135, 136 (Bankr. S.D.N.Y. 1994)

(requirements of notice to preserve trust must be complied with strictly

such that wrong name on notice renders it ineffective); Blair Merriam

Fresh Fruit & Produce Co. v. Clark (In re D.K.M.B., Inc.), 95 B.R. 774,

779

(Bankr. D. Colo. 1989) (requiring strict compliance with content of

notice); In re Marvin Properties, Inc., 854 F.2d 1183, 1186 (9th Cir.

1988)

(requiring notice to be given by seller itself andfinding that the buyer's

actual knowledge of the seller's intent was insufficient to preserve its

statutory PACA trust benefits) with In re Richmond Produce Co., 112 B.R.

364 (Bankr. N.D. Cal. 1990) (holding that substantial compliance with

notice requirement is sufficient to preserve right to trust benefits such

that early notification or notice lacking certain information is

effective);

Dubin v. Carlton Fruit Co. (In re Carlton Fruit Co.), 84 B.R. 810 (Bankr.

M.D. Fla. 1988) (requiring substantial compliance with requirements for

19

Joaquin Food Serv., Inc. (In re San Joaquin Food Serv., Inc.),

958 F.2d 938, 940 (9th Cir. 1992) (requiring strict

compliance with the clear mandate of Congress to include

the payment term on an invoice); In re John DeFrancesco &

Sons, Inc., 114 B.R. 335, 336 (Bankr. D. Mass. 1990)

(requiring strict compliance with the preconditions of

participation in trust benefits). But, this case presents the

issue of whether the writing requirement is a precondition

to qualification as a PACA trust beneficiary. Only if we

answered that question positively would we be required to

reach the issue of whether strict or substantial compliance

with that requirement was necessary to preserve properly

an unpaid seller's right to receive benefits. Having found

that it is not and is rather only relevant to determining

what constitutes prompt payment in a given transaction,

we need not decide today whether strict compliance with

the requirements of PACA trust eligibility is required.

Nonetheless, we recognize that these cases support the

interpretation urged by CHR. Although the Court of Appeals

for the Ninth Circuit has not addressed explicitly the

precise issue presented by this appeal, its ruling on a

similar issue suggests a conclusion other than the one we

reach today. In In re San Joaquin the court held that a

produce supplier was not entitled to PACA trust benefits

where the invoices it issued to the buyer did not contain

the payment term agreed upon by the two parties in writing

prior to the transaction. See 958 F.2d 938.

In In re San Joaquin, there was no dispute that the

supplier gave the buyer timely notice of its intent to

preserve its interest in the trust or that the agreement to

extend the payment term was in writing. See id. at 939-40.

Thus, the sole issue presented was whether the supplier's

failure to include the payment term on the invoice forfeited

_________________________________________________________________

notice such that failure to include date of transaction, contract terms

and amount due did not render notice ineffective to preserve benefits of

the statutory trust); In re W.L. Bradley Co., 75 B.R. 505, 511 (Bankr.

E.D. Pa. 1987) (holding that premature filing of notice under section

499e(c)(3) was effective). Because there is no dispute that Alsum and

Idahoan complied with the invoice-notice provision, we need not address

this issue today.

20

its rights to the PACA trust. As discussed above, 7 U.S.C.

S 499e(c)(3) requires that "[w]hen the parties expressly agree

to a payment time period different from that established by

the Secretary, a copy of any such agreement shall befiled

in the record of each party to the transaction and the terms

of payment shall be disclosed on invoices, accountings, and

other documents relating to the transaction." (emphasis

added). The In re San Joaquin court found that the

provision relating to the disclosure of the payment terms on

invoices was a requirement to preserve a supplier's trust

rights. See id. at 940. The court found that because this

was a clear mandate of Congress as expressed in

unambiguous statutory terms, sellers must comply strictly

with it to receive trust benefits. See id.

It is possible that the Court of Appeals for the Ninth

Circuit also would hold that the requirement of a written

agreement to extend the payment term beyond the period

prescribed in the regulations is a prerequisite to preserving

a supplier's rights to PACA trust benefits. After all, that

requirement is in the same clause in 7 U.S.C. S 499e(c)(3)

as the requirement that extended payment terms be

indicated on invoices.

In re John DeFrancesco & Sons, Inc., 114 B.R. 335, also

is inconsistent with the interpretation of PACA that we have

adopted. The court held that

in order to preserve its PACA trust benefits under the

statute, [the seller] must prove that it strictly complied

with all the necessary statutory requirements. By not

offering evidence of an agreement in writing before the

transaction was entered into, [the seller] fails to meet

its burden of proof that it strictly complied with the

statute.

114 B.R. at 338 (citing In re Lombardo, 106 B.R. 593

(Bankr. E.D. Mo. 1989)). Thus, the court implicitly held

that the writing requirement is a precondition to eligibility

as a trust beneficiary with which sellers must comply

strictly.

As discussed above, under our reading of the statute and

the regulations, the plain language does not support the

result reached by these cases. Guided as we must by the

21

plain language, we therefore find them unpersuasive.

Moreover, a departure from the plain meaning of PACA is

not warranted because we find no extraordinary showing of

congressional intent otherwise in the legislative history. On

the contrary, the legislative history supports our reading of

PACA and its regulations. Like the statute and the

regulations, the legislative history explicitly refers to two

requirements for an unpaid supplier to qualify for trust

benefits: (1) that the seller notify the buyer of its intention

to preserve its rights and (2) that an agreement to extend

the payment period not be beyond a reasonable time. See,

e.g., H.R. Rep. No. 98-543, at 4 (1983), reprinted in 1984

U.S.C.C.A.N. at 407-08 ("[T]he unpaid seller must accept

the burden to preserve the trust by notifying both the

Secretary and the commission merchant, dealer or broker

within 30 days after expiration of the prompt payment date

or date on which a payment instrument has been

dishonored, or the trust benefits will be lost."); id. at 7,

reprinted in 1984 U.S.C.A.A.N. at 410 ("[T]he committee

does not intend the trust to apply to any credit transaction

that extends beyond a reasonable period. . . . [T]he

secretary is required to establish, through rulemaking, the

time by which, the parties to a transaction must agree

payment on a transaction must be made, to qualify it for

coverage under the trust. An agreement for payment after

such time will not be eligible to receive the benefits of the

trust."); 49 Fed. Reg. 45735, 45739 (1984) ("The legislation

is clear that an absolute precondition to pursuing trust

assets held by a defaulting buyer or receiver is thefiling of

a written notice by the seller, supplier or agent after a

failure to pay within the prescribed periods has elapsed.").

Finally, we reject CHR's argument that requiring strict

compliance with the writing requirement, such that a seller

loses it right to statutory benefits if an agreement to extend

the payment term is not reduced to writing, furthers the

purposes of the statutory scheme. According to CHR,

interpreting the writing requirement as a precondition to

receiving trust benefits furthers the purposes of PACA by

construing the trust to protect only those sellers who

conduct their business in such a manner that complies

with PACA and encourages prompt payment. Thus, CHR

urges that "permitting sellers to orally extend payment

22

terms without adverse effect on trust eligibility would result

in, and in fact already resulted in, practices by sellers

which are in direct contravention of the PACA and its

purpose." Br. at 23.

PACA makes a buyer's failure to tender prompt payment

a violation, but it does not make a seller's failure to

demand prompt payment a violation. After all, PACA does

not preclude a seller from agreeing in writing to a payment

term beyond 30 days, but only disqualifies such a seller

from participating in the trust.12 See 7 C.F.R. SS 46.2

(aa)(11), 46.46(e)(2).

We recognize that, in instances such as the one

presented here, our interpretation places those sellers who

reduce to writing agreements to extend payment terms in

no better position than those who do not. Nevertheless,

because Congress established the PACA trust to protect

unpaid sellers against buyers' failure to make prompt

payment and their subordination of the sellers' claim to

secured creditors, we believe that our interpretation

furthers the statutory purpose. The primary purpose of the

statute was to protect unpaid sellers vis-a-vis secured

creditors, not to prefer certain unpaid sellers over others.

IV. CONCLUSION

For the foregoing reasons, we will affirm the district

court's order denying CHR's motion to exclude Idahoan and

Alsum from the universe of those qualified to receive trust

benefits in this case.

_________________________________________________________________

12. In urging this court not to follow Hull, CHR argues that the court

failed to sanction sellers who do not conduct their business in accord

with PACA's prompt payment requirements. In particular, CHR

challenges the Hull court's conclusion that a buyer who orally agrees to

extend a payment term thereby makes an arrangement to violate PACA

without the corresponding recognition that the seller necessarily makes

the same arrangement. According to CHR, the sanction for sellers who

make an arrangement to violate PACA by orally agreeing to an extended

payment term is the forfeit of its trust benefits. We reject this argument

for the reasons discussed above.

23

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

24