PACA. A Simple Word with Many Meanings.
We hear the word “PACA" nearly every day, whether in negotiating a deal, seeking payment, or reviewing paperwork related to a purchase or sale. While threats such as “We’ll file PACA on you" are made daily, many of our readers are still a little hazy on what exactly that means. When someone talks about PACA, there are two typical meanings for that term. The first is as an acronym for the Perishable Agricultural Commodities Act of 1930, a federal law that establishes fair trading practices that regulate buyers and sellers of fruits and vegetables and imposes the statutory trust on buyers (the “PACA Law"). The second meaning is the PACA Division of the Agricultural Marketing Service of the United States Department of Agriculture, which administers the PACA Law and regulates the produce industry (the “PACA Division"). Although the PACA Division and PACA Law are both commonly referred to as “PACA," they are not interchangeable terms. The PACA Law regulates the produce industry. The PACA Division enforces the PACA Law by requiring all produce companies to obtain a PACA license. When produce companies want to obtain a PACA license, they make the application with the PACA Division. If a produce company violates the PACA Law, the PACA Division can discipline that company by suspending or revoking its PACA license or imposing a monetary fine. If the PACA Division obtains information that a produce company has violated the PACA Law, it can file as Disciplinary Action with the USDA seeking an order suspending or revoking the company’s PACA license. The PACA Law requires all produce companies to comply with their contracts and follow fair trading practices. The PACA Division enforces the PACA Law by assisting produce companies in resolving disputes. If a produce company alleges another violated the good delivery or prompt payment guidelines under the PACA Law, the PACA Division will assist in resolving the dispute through the complaint process. The informal and formal complaints are filed with the PACA Division. Once an informal complaint is filed, the PACA Division will then investigate the facts and assist the parties in attempting to resolve the dispute. The parties are also given the option of using the PACA Division’s mediation services. The PACA Division has trained mediators on staff who will meet with the parties to assist them in examining their disagreement, identify and consider options and carefully consider possible resolutions. The PACA mediators have no decision-making authority or force a decision on either party. They simply attempt to assist the parties in resolving the dispute. If the dispute does not settle in the informal stage, the PACA Division will invite a formal complaint. After hearing all facts and arguments, the USDA will issue a reparation order. If the reparation order is not paid, the PACA Division will enforce the PACA Law by suspending the license of that company. The part of the PACA Law which establishes the PACA trust is enforced against buyers who do not pay by the Federal Court system. This includes the United States District Courts and, when the buyer has filed for Bankruptcy, the United States Bankruptcy Courts. A District Court may enter a Temporary Restraining Order, which is an order preventing the buyer from transferring any assets of the buyer. That Order may become permanent and is called a Preliminary Injunction. Either the District Court or the Bankruptcy Court may issue an order establishing a PACA Claims Procedure, which is an order directing the liquidation of the assets of the buyer and the distribution of those assets to creditors who have valid PACA trust claims. When filing a complaint through the court system, an unpaid supplier is seeking to recover a money judgment, which entitles it to payment. The judgment can act as a lien on the real and personal property of the buyer, and those persons who were in a position to control the assets of the buyer. While this article is intended to provide a broad overview of what the term PACA means in various contexts, there are always exceptions to the rule. If you have any specific questions about any of these issues, we encourage you to call and ask us.