Amendments to the Perishable Agricultural Commodities Act (PACA)

SUMMARY: The Department of Agriculture (USDA) invites comments on

proposed revisions to the PACA Regulations that are required in order

to implement legislative changes signed by President Clinton on

November 15, 1995 (Pub. L. 104-48). Specifically, the legislative

changes phase retailers and grocery wholesalers out of license fee

payments over a 3-year period; establish a one-time administrative fee

for new retailers and grocery wholesalers entering the program after

the 3-year phase-out period; increase license fees from $400 to $550

annually for all other licensees; grant USDA authority to adjust future

license fees through ``notice and comment'' rulemaking; eliminate the

requirement of filing notice of intent to preserve trust benefits with

USDA in the PACA trust; require USDA to receive a written complaint

before initiating an investigation; require additional USDA

investigation notification procedures; increase administrative

penalties; establish civil penalties as an alternative to revocation or

suspension of license; continue current filing fees for formal and

informal reparation complaints; explicit address the status of

collateral fees and expenses; clarify misbranding prohibitions; and

amend the provisions of PACA regarding the determination of responsibly

connected individuals.

DATES: Comments must be received by November 12, 1996.

ADDRESSES: Interested persons are invited to submit written comments

concerning this proposal. Comments must be sent to James R. Frazier,

Chief, Fruit and Vegetable Division, PACA Branch, Room 2095-So. Bldg.,

P.O. Box 96456, Washington, D.C. 20090-6456. All comments should

reference the docket number and the date and page number of this issue

in the Federal Register and will be made available for public

inspection in the PACA Branch during regular business hours.

FOR FURTHER INFORMATION CONTACT: James R. Frazier, Chief, PACA Branch,

Room 2095-So. Bldg., Fruit and Vegetable Division, AMS, USDA,

Washington, D.C. 20250, Phone (202) 720-4180.

SUPPLEMENTARY INFORMATION: This proposal is issued under authority of

section 15 of the PACA (7 U.S.C. 499o).

The license fee increase was signed into law by President Clinton

on November 15, 1995, as part of the PACA Amendments of 1995 (Pub. L.

104-48). Public Law 104-48 mandated an immediate increase in the

license fees. As a result of this mandate, license renewals and new

applications received after November 15, 1995, are subject to the $550

fee. Notice of the fee increase was published in the Federal Register

on December 27, 1995.

This rule has been determined to be significant for the purposes of

Executive Order 12866 and, therefore, has been reviewed by the Office

of Management and Budget.

This proposed rule has been reviewed under Executive Order 12988,

Civil Justice Reform. It is not intended to have retroactive effect.

This proposed rule will not preempt any State or local laws,

regulations, or policies, unless they present an irreconcilable

conflict with this rule. There are no administrative procedures which

must be exhausted prior to any judicial challenge to the provisions of

this rule.

Effects on Small Businesses

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA) (5 U.S.C. 601 et. seq.), the Agricultural Marketing Service

(AMS) has considered the economic impact of this proposed rule on small

entities. The purpose of the RFA is to fit regulatory actions to the

scale of businesses subject to such actions in order that small

businesses will not be unduly or disproportionately burdened. Small

agricultural service firms have been defined by the Small Business

Administration (SBA) (13 CFR 121.601) as those whose annual receipts

are less than $5,000,000. The PACA requires commission merchants,

dealers, and brokers buying or selling fruits and/or vegetables in

interstate or foreign commerce who meet certain threshold requirements

to be licensed. There are approximately 15,300 PACA licensees.

Separating licensees by the nature of business, there are approximately

6,000 wholesalers, 4,750 retailers, 2,100 brokers, 1,200 processors,

550 commission merchants, 450 food service businesses, 150 grocery

wholesalers, and 50 truckers licensed under PACA. The license is

effective for 1 year unless suspended or revoked by USDA for valid

reasons [46.9 (a)-(h)], and must be renewed annually by the licensee.

Many of the licensees may be classified as small entities.

Wholesalers, processors, food service companies, grocery

wholesalers, and truckers are considered to be dealers and subject to a

license when they buy or sell more than 2,000 pounds of fresh and/or

frozen fruits and vegetables in any given day. Dealers whose fruit and

vegetable purchases or sales do not exceed the 2,000 pound threshold

are exempt from the license requirement. A retailer is considered to be

a dealer and subject to license when the invoice cost of its perishable

agricultural commodities exceeds $230,000 in a calendar year. Brokers,

negotiating the sale of frozen fruits and vegetables on behalf of the

seller, are exempt from licensing when the invoice value of the

transactions are below $230,000 in any calendar year.

Pursuant to Public Law 104-48, the base license fee for all

licensees, as set forth in these proposed regulations, was raised on

November 15, 1995, from $400 to $550 for all licensees, except for

retailers and grocery wholesalers. As reflected in the proposed

regulations, retailers and grocery wholesalers will no longer have to

pay license fees at the end of the 3-year phase-out period which began

on November 15, 1995. This change affects approximately 30 percent, or

about 4,900, of the firms licensed under PACA. During the first year,

after enactment of P.L. 104-48, from November 15, 1995, through

November 14, 1996, retailers and grocery wholesalers will have to pay

$400 for a new license, or for the

[[Page 47675]]

renewal of an existing license. For the second year of the phase-out

period from November 15, 1996, through November 14, 1997, they will pay

75 percent of that fee, or $300, for a license. During the last year of

the phase-out period, November 15, 1997, through November 14, 1998,

retailers and grocery wholesalers will pay 50 percent of the fee, or

$200 for a PACA license. After November 14, 1998, retailers and grocery

wholesalers will no longer be required to pay an annual license fee,

but they will be required to maintain a PACA license. At the time of

application for a new license, retailers and grocery wholesalers will

pay a one-time administrative fee of $100.

The increase of $150 in the base annual license fee, from $400 to

$550, for commission merchants, brokers and dealers (other than

retailers and grocery wholesalers) is considered nominal when averaged

over a 12-month period. The fee increase, where applicable, affects all

licensees regardless of size. Again, this proposed rule is needed

solely for the purpose of conforming the current regulations to P.L.

104-48; license fee changes were required by statute and implemented on

November 15, 1995. Projected annual income, based on the revised

license fees, will approximate $9,028,000 in fiscal year 1996,

$8,683,000 in fiscal year 1997, and $8,288,000 in fiscal year 1998.

Public Law 104-48 removed the previously existing statutory cap on

license fees other than those of retailers and grocery wholesalers, and

altered the previous legislated ceiling on operating reserves of the

PACA fund. After November 14, 1998, USDA has the authority to increase

fees through rulemaking, provided operating reserves fall below 25

percent of the projected annual program costs. USDA projects that the

initial increase in receipts from fees collected following enactment of

P.L. 104-48 will allow the PACA fund to build up operating reserves so

that no fee increase will be needed until fiscal year 2001, when PACA

operating reserves are expected to fall below that level.

The proposed rule, again pursuant to Public Law 104-48, increases

the penalty for late renewal of a license, and the penalty for

operating without a license. These penalties, which are applicable to

all entities operating subject to the PACA, are necessary to deter

licensees from operating in violation of the PACA. Any penalties for

violations of the PACA would be applied equitably.

A compliance guide which highlights the 1995 PACA legislation, and

a general compliance guide entitled ``PACA Fact Finder'' which explains

the rights and responsibilities of firms operating subject to the

provisions of the PACA, are available to all licensees, including small

businesses.

Accordingly, based on the information discussed above and in the

following discussion, it is determined that the provisions of this

proposed rule would not have a significant economic impact on a

substantial number of small entities.

Paperwork Reduction Act

The amendments to Public Law 104-48 set forth in this proposed rule

involves a change in the existing information collection and record

keeping requirements which were previously approved by OMB under the

provisions of 44 U.S.C. Chapter 35. In accordance with the Paperwork

Reduction Act of 1995, this notice announces AMS' intention to request

revisions to a currently approved information collection in support of

the Reporting and Record keeping Requirements Under Regulations (Other

Than Rules of Practice) Under the Perishable Agricultural Commodities

Act, 1930.

Title: Reporting and Record keeping Requirements Under Regulations

(Other Than Rules of Practice) Under the Perishable Agricultural

Commodities Act, 1930.

OMB Control Number: 0581-0031.

Expiration Date of Approval: May 31, 1999.

Type of Request: Revision of a currently approved information

collection.

Abstract: The PACA was enacted by Congress in 1930 to establish a

code of fair trading practices covering the marketing of fresh and

frozen fruits and vegetables in interstate or foreign commerce. It

protects growers, shippers, and distributors dealing in those

commodities by prohibiting unfair and fraudulent practices.

The law provides for the enforcement of contracts by providing a

forum for resolving contract disputes, and for the collection of

damages from anyone who fails to meet contractual obligations. In

addition, the PACA impresses a statutory trust on licensees for

perishable agricultural commodities received, products derived from

them, and any receivables or proceeds due from the sale of the

commodities for the benefit of suppliers, sellers, or agents that have

not been paid. An amendment to the PACA, enacted into law on November

15, 1995, reduced the record keeping and reporting burden imposed under

the trust provision by removing the requirement that trust claimants

file notices of intent to preserve trust benefits with the Department

of Agriculture. The burden is, therefore, being revised to remove the

record keeping and time requirements that were necessary for the filing

of trust claims. This action will decrease the time requirement by

43,091 total hours and the paperwork burden by 124,445 total annual

responses.

The PACA is enforced through a licensing system and is user-fee

financed through a license fee. All commission merchant, dealers, and

brokers engaged in business subject to the PACA must be licensed. The

license is effective for one (1) year unless withdrawn by USDA for

valid reasons, and must be renewed annually. Those who engage in

practices prohibited by the PACA may have their licenses suspended or

revoked.

The information collected from respondents is used to administer

licensing provisions under the PACA. The records maintained are used to

adjudicate reparation and administrative complaints filed against

licensees to determine the imposition of sanctions on firms and

responsibly connected individuals who have engaged in unfair trading

practices. We estimate the paperwork and time burden as follows:

Form FV-211, Application for License: average of 15 minutes per

application per response.

Form FV-231, Application for Renewal of License: Average of 5

minutes per application per response.

Regulations Section 46.13--Letters to Notify USDA of Changes in

Business Operations: Average of 5 minutes per notice per response.

Regulations Section 46.20--Records Reflecting Lot Numbers: Average

of 8.25 hours with approximately 1,000 record keepers.

Regulations Section 46.46(d)(2)--Waiver of Rights to Trust

Protection: Average of 15 minutes per notice with approximately 100

principals.

Regulations Sections 46.46(f) and 46.2(aa)(11)--Copy of Written

Agreement Reflecting Times for Payment: Average of 20 hours with

approximately 2,000 record keepers.

Estimate of Burden: The total public reporting burden for this

collection of information is estimated to average 8 hours per response.

Respondents: Commission merchants, dealers, and brokers engaged in

the business of buying, selling, or negotiating the purchase or sale of

fresh and/or frozen fruits and vegetables in interstate or foreign

commerce are required to be licensed under the PACA (7 U.S.C.

499(c)(a)).

[[Page 47676]]

Estimated Number of Respondents: 15,550.

Estimated Number of Responses per Respondent: 1.

Estimated Total Annual Burden on Respondents: 118,476 hours.

Comments are invited on: (a) whether the proposed collection of

information is necessary for the proper performance of the functions of

the agency, including whether the information will have practical

utility; (b) the accuracy of the agency's estimate of the burden of the

proposed collection of information including the validity of the

methodology and assumptions used; (c) ways to enhance the quality,

utility and clarity of the information to be collected; and (d) ways to

minimize the burden of the collection of information on those who are

to respond, including through the use of appropriate automated,

electronic, mechanical, or other technological collection techniques or

other forms of information technology. Comments may be sent to: Michael

A. Clancy, Head, License and Program Review Section, PACA Branch, Fruit

and Vegetable Division, Agricultural Marketing Service, U.S. Department

of Agriculture, Room 2715-South Building, P.O. Box 96456, Washington,

D.C. 20090-6456.

All responses to this notice will be summarized and included in the

request for OMB approval. All comments will also become a matter of

public record.

OMB is required to make a decision concerning the collection(s) of

information contained in these proposed regulations between 30 and 60

days after publication of this document in the Federal Register.

Therefore, a comment to OMB is best assured of having its full effect

if OMB receives it within 30 days of publication. This does not affect

the deadline for the public to comment to the Department on the

proposed regulations.

Background

The PACA, enacted in 1930, establishes a code of fair trading

practices covering the marketing of fresh and frozen fruits and

vegetables in interstate and foreign commerce. The PACA protects

growers, shippers, distributors, and retailers dealing in those

commodities by prohibiting unfair and fraudulent practices. The law

provides a forum to adjudicate private disputes alleging violations of

the PACA and awards damages against anyone who fails to meet

contractual obligations subject to the PACA. The law also imposes a

statutory trust on perishable agricultural commodities received but not

yet paid for, products derived from those commodities, and any

receivables or proceeds due from the sale of those commodities for the

benefit of unpaid suppliers or sellers.

Under the PACA, anyone buying and selling commercial quantities of

fruits and vegetables in interstate or foreign commerce must be

licensed. The cost of administering the PACA is defrayed primarily

through the license fees paid by those engaging in business subject to

the law. The law also imposes complaint filing fees which help finance

the program. Amendments to the PACA in 1988 permitted the Secretary to

assess a base annual license fee of $400, plus $200 for each branch

operation in excess of nine. The maximum aggregate annual license fee

for any firm could not exceed $4,000. Public Law 104-48 increased the

base license fee to $550 while retaining the branch fee and the maximum

aggregate for all applicants except retailers and grocery wholesalers

who are phased out of paying a fee over a 3-year period.

Public Law 104-48 added two new definitions to the law for types of

dealers: ``retailer'' and ``grocery wholesaler''. Accordingly, a change

would be made in section 46.2 in the definition of ``retailer'' as it

appears in the current regulations, and a new definition would be added

to the regulations for the term ``grocery wholesaler''. The definition

of ``retailer'' in the proposed regulations would be the same as that

adopted in Public Law 104-48, but would include a provision to make it

clear that occasional wholesale sales, defined as not more than 5

percent of the gross annual sales, would not remove a dealer from the

category of ``retailer''. The intent was that occasional wholesale

transactions should not remove an entity from the category of

``retailer''. The definition of ``grocery wholesaler'' would be the

same as that adopted by Public Law 104-48, but would include objective

criteria for determining the meaning of ``primarily engaged'' as that

term is used in the definition. This will enable an entity to more

readily determine whether it falls within the ``grocery wholesaler''

category.

The proposed definition of ``good faith'' would also be added to

the regulations since that term is used in Section 2 of Public Law 104-

48 in reference to collateral fees. The proposed definition is taken

from the Uniform Commercial Code article on Sales, section 2-103(b).

Public Law 104-48 provides that the good faith offer, solicitation,

payment or receipt of collateral fees is not, in and of itself, a

violation of the PACA. The proposed regulation points out that where

collateral fees would affect a material term of the agreement,

disclosure of the fees is required by the principle good faith.

Section 46.6 would be revised to conform with the fee structure

mandated by Public Law 104-48. Under the new fee structure, retailers

and grocery wholesalers, described earlier, are phased out of the

responsibility for annual license fee payments over a 3-year period. A

one-time administrative fee was established by Public Law 104-48 for

new retailers and grocery wholesalers entering the program after the 3-

year phase-out period. License fees for all other licensees are

increased from $400 to $550 annually. After the expiration of the 3-

year period, USDA is authorized to adjust future license fees through

notice and comment rulemaking.

Conforming changes are proposed for sections 46.9 and 46.10 as a

result of the increased penalties for late license renewals provided

Public Law 104-48. Sections 46.9 and 46.10 would also be revised to

make these sections applicable to entities subject to license which no

longer have to pay an annual license fee. As mandated by Public Law

104-48, the payment of renewal fees or accrued license fees is not

required of such entities after the phase-out period, but they are

subject to the $50 late application fee, and when they have violated

the PACA by operating without a license, they will have to submit the

required license application and pay the applicable fine. The proposed

regulation would implement these changes.

The House Agriculture Committee, in its Report (House Reports No.

104-207), directed USDA to review and revise the PACA regulations

relating to brokers in order to ``accurately reflect an increased role

as a purchasers agent''. The role of brokers has changed over the years

and increasingly the broker is engaged by the buyer. To address this

issue, we propose to revise sections 46.27 and 46.28, which describe

and establish the duties of a broker, to more accurately describe the

relationship of a broker to buyers and sellers, and to require that the

broker disclose on its confirmation or memorandum of sale the party

that engaged the broker to act in the negotiations. A broker is

``engaged'' by, and thus may have a closer relationship with, one of

the parties to the contract than with the other. The changes in these

sections are intended to recognize that the broker may not be a neutral

party and would make the broker's position relative to the parties

clear.

Section 46.45 is being modified to reflect the amendment to the

misbranding provisions requiring that only the first licensed handler

be held

[[Page 47677]]

responsible for the violation unless subsequent handlers had knowledge

of the misbranding and failed to correct it.

The Amendments also eliminate from the law the need for unpaid

produce suppliers to file trust notices with USDA in order to preserve

their rights to trust protection under the statutory trust provision of

the PACA. Therefore, paragraphs (d) and (e) of Sec. 46.46 of the

regulations would be revised to eliminate references to filing with

USDA. Paragraph (a) would be removed since it is unnecessary.

Accordingly, paragraphs (b) through (g) would be redesignated

paragraphs (a) through (f).

Redesignated paragraph (f) of section 46.46 has been reworded to

remove the referenced requirement for the filing of the notice with

USDA and to clarify the two methods available to preserve trust rights

and their filing requirements.

Redesignated paragraphs (f)(1)(ii) and (3)(ii) conform with the

statutory requirement that the notice of preservation of trust benefits

contain the terms of payment when the parties have agreed to terms

different from those established by the Secretary.

Redesignated paragraph (c)(2) would be reworded to make it clear

that there is no general duty resting upon all brokers to preserve the

trust benefits of their principals by filing trust notices. Rather the

duty attaches only to brokers, or others operating in a fiduciary

capacity, who have undertaken an obligation to ``collect and remit''.

The paragraph also reminds those who employ collect and remit agents

that they must preserve their right to trust benefits against such

agents by filing appropriate notices with such agents. The citation in

paragraph (e)(2) to paragraph (b)(1) would be conformed to the new

paragraph designation for this section.

The Amendments outline new requirements for USDA when pursuing a

disciplinary investigation of an alleged violation. USDA must have a

written notification of the alleged violation before initiating an

investigation. After receiving such a complaint, USDA would initiate an

investigation if warranted. The subject of the investigation would be

notified of the existence of the investigation and the nature of the

alleged violations. Section 46.17, which establishes the requirements

for inspection of records, would be revised to clarify that PACA

representatives are permitted access to licensee's records to

investigate petitions or complaints under section 6(a) of the PACA, and

written notifications under section 6(b) of the PACA.

New section 46.49 would be added to the proposed regulations to

describe what constitutes a written notification. In conformity with

the text of amended section 6(b) of the PACA, official USDA

certificates and trust notices are deemed written notifications, as are

written statements reporting or complaining of a PACA violation filed

by any officer or agency of any State or Territory having jurisdiction

over licensees or persons subject to license or any other interested

person who has knowledge of or information regarding a possible

violation other than an employee of an agency of USDA administering the

PACA. In conformity with the language used by Report 104-207 of the

House Committee on Agriculture, written notifications are equated with

complaints as that term is used in the PACA. The proposed regulation

also outlines investigative procedures relating to such complaints.

List of Subjects in 7 CFR Part 46

Agricultural commodities, Brokers, Penalties, Reporting and record

keeping requirements.

For the reasons set forth in the preamble, 7 CFR part 46 is amended

as follows:

PART 46--[AMENDED]

1. The authority citation for part 46 continues to read as follows:

Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o

2. In Sec. 46.2, paragraph (j) is revised and two new paragraphs

(hh) and (ii) are added to read as follows:

Sec. 46.2 Definitions

* * * * *

(j) Retailer means a person that is a dealer engaged in the

business of selling any perishable agricultural commodity at retail;

Provided, That occasional sales at wholesale shall not be deemed to

remove a dealer from the category of retailer if less than 5 percent of

annual gross sales is derived from wholesale transactions.

* * * * *

(hh) Good faith means honesty in fact and the observance of

reasonable commercial standards of fair dealing in the trade. The

principle of good faith requires that a party to a transaction disclose

the existence of any collateral fees and expenses to all other parties

to the transaction where the collateral fees and expenses affect a

material term of the agreement.

(ii) The term grocery wholesaler means a person that is a dealer

primarily engaged in the full-line wholesale distribution and resale of

grocery and related nonfood items (such as perishable agricultural

commodities, dry groceries, general merchandise, meat, poultry, and

seafood, and health and beauty care items) to retailers. However, such

term does not include a person described in the preceding sentence if

the person is primarily engaged in the wholesale distribution and

resale of perishable agricultural commodities rather than other grocery

and related nonfood items. This definition states two criteria in order

for an entity to be considered a grocery wholesaler:

(1) The entity must be primarily engaged, that is, have 50 percent

or greater of its annual gross sales, in the full-line distribution and

resale of grocery and related nonfood items. ``Full-line'' means that

the entity must be supplying the retailer with a wide range of products

such as the items specified. If the entity meets this condition, then

the entity will be considered a grocery wholesaler unless;

(2) The entity has more than 50 percent of its annual gross sales

in perishable agricultural commodities.

3. Sec. 46.6 is revised to read as follows:

Sec. 46.6 License fees.

(a) For retailers and grocery wholesalers making an initial or a

renewal application for license, the annual license fee is as follows:

(1) During the period November 15, 1995 through November 14, 1996,

the license fee is $400 plus $200 dollars for each branch or additional

business facility operated by the applicant in excess of nine. In no

case shall the aggregate annual fees paid by any retailer or grocery

wholesaler during such period exceed $4,000.

(2) The annual license fee during the period November 15, 1996

through November 14, 1997, is $300 plus $150 for each branch or

additional business facility operated by the retailer or grocery

wholesaler in excess of nine. In no case shall the aggregate annual

fees paid by any retailer or grocery wholesaler during such period

exceed $3,000.

(3) The annual license fee during the period November 15, 1997

through November 14, 1998, is $200 plus $100 for each branch or

additional business facility operated by any retailer or grocery

wholesaler in excess of nine. In no case shall the aggregate annual

fees paid by any retailer or grocery wholesaler during such period

exceed $2,000.

(4) No annual license fee will be required after November 14, 1998

for renewal of a license. However, a retailer or grocery wholesaler

making an initial

[[Page 47678]]

application for a license after November 14, 1998, shall pay a $100

administrative processing fee.

(b) For commission merchants, brokers, and dealers (other than

grocery wholesalers and retailers) the annual license fee is $550 plus

$200 dollars for each branch or additional business facility in excess

of nine. In no case shall the aggregate annual fees paid by any such

applicant exceed $4,000.

(c) The Director may require that fees be paid in the form of a

money order, bank draft, cashier's check, or certified check made

payable to ``USDA-AMS''. Authorized representatives of the Division may

accept fees and issue receipts.

4. In Sec. 46.9, paragraph (i) is revised to read as follows:

Sec. 46.9 Termination, suspension, revocation, cancellation of

licenses; notices; renewal.

* * * * *

(i) Under section 4(a) of the Act, at least 30 days prior to the

anniversary date of a valid and effective license, the Director shall

mail a notice to the licensee at the last known address advising that

the license will automatically terminate on its anniversary date unless

an application for renewal is filed supplying all information requested

on a form to be supplied by the Division, and unless the renewal fee

(if any is applicable) is paid on or before such date. If the renewal

application is not filed and/or the renewal fee (if required) is not

paid by the anniversary date, the licensee may obtain a renewal of that

license at any time within 30 days by submitting the required renewal

application and/or paying the renewal fee (if required), plus $50.

Within 60 days after the termination date of a valid and effective

license, the former licensee shall be notified of such termination,

unless a new license has been obtained in the meantime.

5. Sec. 46.10 is revised to read as follows:

Sec. 46.10 Nonlicensed person; liability; penalty.

Any commission merchant, dealer, or broker who violates the Act by

engaging in business subject to the Act without a license may settle

its liability, if such violation is found by the Director not to have

been willful but due to inadvertence, by submitting the required

application and paying the amount of fees that it would have paid had

it obtained and maintained a license during the period that it engaged

in business subject to the Act, plus an additional sum not in excess of

two hundred and fifty dollars ($250) as may be determined by the

Director.

6. Sec. 46.17 is revised to read as follows:

Sec. 46.17 Inspection of records.

(a) Each licensee shall, during ordinary business hours, promptly

upon request, permit any duly authorized representative of USDA to

enter its place of business and inspect such accounts, records, and

memoranda as may be material:

(1) in the investigation of complaints under the Act including any

petition, written notification, or complaint under section 6 of the

Act,

(2) to the determination of ownership, control, packer, or State,

country, or region of origin in connection with commodity inspections,

(3) to ascertain whether there is compliance with section 9 of the

Act,

(4) in administering the licensing and bonding provisions of the

Act,

(5) if the licensee has been determined in a formal disciplinary

proceeding to have violated the prompt payment provision of section

2(4) of the Act, to determine whether, at the time of the inspection,

there is compliance with that section.

(b) Any necessary facilities for such inspection shall be extended

to such representative by the licensee, its agents, and employees.

7. In Sec. 46.27, paragraph (a) is revised to read as follows:

Sec. 46.27 Types of broker operations.

(a) Brokers carry on their business operations in several different

ways and are generally classified by their method of operation. The

following are some of the broad groupings by method of operation. The

usual operation of brokers consists of the negotiation of the purchase

and sale of produce either of one commodity or of several commodities.

A broker is usually engaged by only one of the parties, but in

negotiating a contract the broker acts as a special agent of first one

and then the other party in conveying offers, counter offers, and

acceptances between the parties. Once the contract is formed, and the

confirmation issued, the broker's duties are usually ended, and the

broker is not the proper party to whom notice of breach or of rejection

should be directed. However, a broker receiving notice has a duty to

promptly convey the notice to the proper party. Frequently, brokers

never see the produce they are quoting for sale or negotiating for

purchase by the buyer, and they carry out their duties by conveying

information received from the parties between the buyer and seller

until a contract is effected. Generally, the seller of the produce

invoices the buyer, however, when there is a specific agreement between

the broker and its principal, the seller invoices the broker who, in

turn, invoices the buyer, collects, and remits to the seller. Under

other types of agreements, the seller ships the produce to pool buyers,

and the broker as an accommodation to the seller invoices the buyers,

collects, and remits to the seller. Also, there are times when the

broker is authorized by the seller to act much like a commission

merchant, being given blanket authority to dispose of the produce for

the seller's account either by negotiation of sales to buyers not known

to the seller or by placing the produce for sale on consignment with

receivers in the terminal markets.

* * * * *

8. In section 46.28, paragraph (a) is revised to read as follows:

Sec. 46.28 Duties of brokers.

(a) General. The function of a broker is to facilitate good faith

negotiations between parties which lead to valid and binding contracts.

A broker who fails to perform any specification or duty, express or

implied, in connection with any transaction is in violation of the Act,

is subject to the penalties specified in the Act, and may be held

liable for damages which accrue as a result thereof. It shall be the

duty of the broker to fully inform the parties concerning all proposed

terms and conditions of the proposed contract. After all parties agree

on the terms and the contract is effected, the broker shall prepare in

writing and deliver promptly to all parties a properly executed

confirmation or memorandum of sale setting forth truly and correctly

all of the essential details of the agreement between the parties,

including any express agreement as to the time when payment is due. The

confirmation or memorandum of sale shall also identify the party who

engaged the broker to act in the negotiations. If the confirmation or

memorandum of sale does not contain such information, the broker shall

be presumed to have been engaged by the buyer. Brokers do not normally

act as general agents of either party, and will not be presumed to have

so acted. Unless otherwise agreed and confirmed, the broker will be

entitled to payment of brokerage fees from the party by whom it was

engaged to act as broker. The broker shall retain a copy of such

confirmations or memoranda as part of its accounts and records. The

broker who does not prepare these documents and retain copies in its

files is failing to prepare and maintain complete and correct records

as required by the Act. The broker who does not deliver copies of these

documents to all parties

[[Page 47679]]

involved in the transaction is failing to perform its duties as a

broker. A broker who issues a confirmation or memorandum of sale

containing false or misleading statements shall be deemed to have

committed a violation of section 2 of the Act. If the broker's records

do not support its contentions that a binding contract was made with

proper notice to the parties, the broker may be held liable for any

loss or damage resulting from such negligence, or for other penalties

provided by the Act for failing to perform its express or implied

duties. The broker shall take into consideration the time of delivery

of the shipment involved in the contract, and all other circumstances

of the transaction, in selecting the proper method for transmitting the

written confirmation or memorandum of sale to the parties. A buying

broker is required to truly and correctly account to its principal in

accordance with section 46.2(y)(3). The broker should advise the

appropriate party promptly when any notice of rejection or breach is

received, or of any other unforeseen development of which it is

informed.

* * * * *

9. In Sec. 46.45, the introductory text is revised to read as

follows:

Sec. 46.45 Procedures in administering section 2(5) of the Act.

It is a violation of section 2(5) for a commission merchant,

dealer, or broker to misrepresent by word, act, mark, stencil, label,

statement, or deed, the character, kind, grade, quality, quantity,

size, pack, weight, condition, degree, or maturity, or State, country,

region of origin of any perishable agricultural commodity received,

shipped, sold, or offered to be sold in interstate or foreign commerce.

However, a person other than the first licensee handling misbranded

perishable agricultural commodities shall not be held liable for a

violation of the Act by reason of the conduct of another if the person

did not have knowledge of the violation or lacked the ability to

correct the violation.

* * * * *

10. In Sec. 46.46, paragraph (a) is removed, paragraphs (b) through

(g) are redesignated as paragraphs (a) through (f), and newly

redesignated paragraphs (c), (e)(2), and (f) are revised to read as

follows:

Sec. 46.46 Statutory trust.

* * * * *

(c) Trust benefits. (1) When a seller, supplier or agent who has

met the eligibility requirements of paragraphs (e) (1) and (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.

(2) Any licensee, or person subject to license, who has a fiduciary

duty to collect funds resulting from the sale or consignment of

produce, and remit such funds to its principal, also has the duty to

preserve its principal's rights to trust benefits in accordance with

paragraph (f) of this section. The responsibility for filing the notice

to preserve the principal's rights is obligatory and cannot be avoided

by the agent by means of a contract provision. Persons acting as agents

also have the responsibility to negotiate contracts which entitle their

principals to the protection of the trust provisions: Provided, That a

principal may elect to waive its right to trust protection. To be

effective, the waiver must be in writing and separate and distinct from

any agency contract, must be signed by the principal prior to the time

affected transactions occur, must clearly state the principal's intent

to waive its right to become a trust beneficiary on a given

transaction, or a series of transactions, and must include the date the

agent's authority to act on the principal's behalf expires. In the

event an agent having a fiduciary duty to collect funds resulting from

the sale or consignment of produce and remit such funds to its

principal, fails to perform the duty of preserving its principal's

rights to trust benefits, it may be held liable to the principal for

damages. A principal employing a collect and remit agent must preserve

its rights to trust benefits against such agent by filing appropriate

notices with the agent.

(e) Prompt payment and eligibility for trust benefits.

* * * * *

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

* * * * *

(f) Filing notice of intent to preserve trust benefits. (1) Notice

of intent to preserve benefits under the trust must be in writing, must

include the statement that it is a notice of intent to preserve trust

benefits and must include information which establishes for each

shipment:

(i) The names and addresses of the trust beneficiary, seller-

supplier, commission merchant, or agent and the debtor, as applicable,

(ii) The date of the transaction, commodity, invoice price, and

terms of payment (if appropriate),

(iii) The date of receipt of notice that a payment instrument has

been dishonored (if appropriate), and

(iv) The amount past due and unpaid.

(2) Timely filing of a notice of intent to preserve benefits under

the trust will be considered to have been made if written notice is

given to the debtor within 30 calendar days:

(i) After expiration of the time prescribed by which payment must

be made pursuant to regulation,

(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, but not longer than the time prescribed in

paragraph (e)(2) of this section, or

(iii) After the time the supplier, seller or agent has received

notice that a payment instrument promptly presented for payment has

been dishonored. Failures to pay within the time periods set forth in

paragraphs (f)(2)(i) and (ii) of this section constitute defaults.

(3) Licensees may chose an alternate method of preserving trust

benefits from the requirements described in paragraphs (f)(1) and (2)

of this section. Licensees may use their invoice or other billing

statement to preserve trust benefits. The alternative method requires

that the licensee's invoice or other billing statement, given to the

debtor, contain:

(i) The statement: ``The perishable agricultural commodities listed

on this invoice are sold subject to the statutory trust authorized by

section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7

U.S.C. 499e(c)). The seller of these commodities retains a trust claim

over these commodities, all inventories of food or other products

derived from these commodities, and any receivables or proceeds from

the sale of these commodities until full payment is received.''; and

(ii) The terms of payment if they differ from prompt 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.

* * * * *

11. A new Sec. 46.49 is added to read as follows:

Sec. 46.49 Written notifications and complaints

(a) The term written notification, as used in section 6(b) of the

Act, means:

[[Page 47680]]

(1) any written statement reporting or complaining of a PACA

violation(s) filed by any officer or agency of any State or Territory

having jurisdiction over licensees or persons subject to license, or

any other interested person who has knowledge of or information

regarding a possible violation, other than an employee of an agency of

USDA administering this Act or a person filing a complaint under

Section 6(c);

(2) any written notice of intent to preserve the benefits of the

trust established under section 5 of this Act; or

(3) any official certificate(s) of the United States Government or

States or Territories of the United States.

(b) Any written notification may be filed by delivering it to any

office of USDA or any official thereof responsible for administering

the Act. A written notification which is so filed, or any expansion of

an investigation resulting from any indication of additional further

violations of the Act found as a consequence of an investigation based

on written notification or complaint, shall also be deemed to

constitute a complaint under section 13(a) of this Act.

(c) Upon becoming aware of a complaint under Section 6(a) or 6(b)

of this Act, the Secretary will determine if reasonable grounds exist

for an investigation of such complaint for disciplinary action. If the

investigation substantiates the existence of violations, a formal

disciplinary complaint may be filed by the Secretary as described under

Section 6(c)(2) of the Act.

(d) Whenever an investigation, initiated as a result of a written

notification or complaint under Section 6(b) of the Act, is commenced,

or expanded to include new violations, notice shall be given by the

Secretary to the subject of the investigation within thirty (30) days

of the commencement or expansion of the investigation. Within one

hundred and eighty (180) days after giving initial notice, the

Secretary shall provide the subject of the investigation with notice of

the status of the investigation, including whether the Secretary

intends to issue a complaint under Section 6(c)(2) of this Act,

terminate the investigation, or continue or expand the investigation.

Thereafter, the subject of the investigation may request in writing, no

more frequently than every ninety (90) days, a status report from the

Chief of the PACA Branch who shall respond thereto within fourteen (14)

days of receiving the request. When an investigation is terminated, the

Secretary shall, within fourteen (14) days, notify the subject of the

investigation of the termination. In every case in which notice or

response is required under this subsection such notice or response

shall be accomplished by personal service or by posting the notice or

response by certified mail to the last known address of the subject of

the investigation.

Dated: September 4, 1996.

Eric M. Forman,

Acting Director, Fruit and Vegetable Division.

[FR Doc. 96-23020 Filed 9-9-96; 8:45 am]

BILLING CODE 3410-02-P