Play It Safe with PACA...Whether You Resell Your Veggies Raw or Roasted

The Perishable Agriculture Commodities Act (PACA), enacted by Congress in 1930 and revised in 1984, protects sellers of perishable agricultural commodities by subjecting a "merchant, dealer or broker" of perishable produce to a trust on the proceeds on the sale of perishable produce, and food derived from that produce, for the benefit of all unpaid suppliers. Therefore, when a seller of perishable agricultural commodities is not paid what it is owed by a "merchant, dealer, or broker" as defined by PACA, that seller may bring a civil action.

When you think of a "merchant, dealer or broker" of perishable produce, you might envision the owner of a grocery store or fresh-food market, because that is where most people go to purchase perishable produce. But what about a restaurant? Does PACA apply where perishable produce is sold, but only before being chopped, seasoned, grilled and presented on fine china for your dining enjoyment?

Some courts have held that under PACA, a restaurant that purchases perishable agricultural goods to prepare meals is considered a dealer and therefore can be held liable for a PACA violation. The act defines a dealer as any person engaged in the business of buying or selling in wholesale quantities any perishable agricultural commodity in interstate or foreign commerce. The circuits that have concluded that PACA applies to restaurants have done so on two bases. The first is that Congress did not explicitly exclude restaurants from the definition of "dealer." Therefore, according to these courts, Congress intended to include restaurants under PACA's definition of dealers. Second, these courts have found that if a restaurant purchases perishable products as part of its ordinary course of business in preparing meals, then the restaurant is "engaging in the business of" buying perishable agricultural commodities.

Any dealer who violates PACA is liable to the person(s) injured for the full amount of damages sustained as a result of the violation. Generally, courts have held that those with control over the PACA trust assets can be personally liable if those individuals fail to preserve the PACA trust, or, in other words, if they allow the money from the proceeds of the sale of the perishable produce to be used for any other purpose than to pay the sellers of the produce.

For instance, in Coosemans Specialties, Inc. v. Gargiulo, a president, sole shareholder and sole director for a food wholesaler qualified as a person with control over PACA trust assets. As the sole shareholder and sole director, he had control over the company's finances, including the PACA trust assets. The court found that he was potentially personally liable to the extent that the food wholesaler dissipated the PACA trust assets. Similarly, in Weis-Buy Services, Inc. v. Paglia, the court determined that a 25% owner and officer of a company that was a merchant of perishable agricultural commodities was a controlling person, and therefore could be personally liable for a PACA violation by virtue of being an authorized person on the company's bank accounts. Furthermore, that individual had a signature stamp created to use on the company's checks, and then used the stamp to issue checks to distribute funds that were actually PACA trust assets to non-produce creditors. In Golman-Hayden Co., Inc. v. Fresh Source Produce Inc., the court found that the owner of a store selling perishable commodities could not escape personal liability by claiming that he chose not to exercise his right or obligation to control the PACA trust assets. As the outcomes of these cases underscore, if an individual is in a position to have control over PACA trust assets, then a failure to control those assets may be considered a breach of that individual's duty, and he or she may be held personally liable.

In the end, it doesn't matter if you own a grocery store, a fresh-food market or a restaurant. Playing it safe with PACA means paying (in a timely manner) any creditors who sell you perishable agricultural commodities. Whether you resell those commodities raw in a brown paper bag or cooked and served as a gourmet appetizer, if you have not paid your perishable produce creditors in full, dissipation of the proceeds from the resale of those goods could leave your company (or perhaps you personally) in a pot of hot water.